China Sanjiang Fine Chemicals : CONTINUING CONNECTED TRANSACTION - FRAMEWORK AGREEMENT FOR REPAIR AND MAINTENANCE SERVICES

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CHINA SANJIANG FINE CHEMICALS COMPANY LIMITED

中 國 三 江 精 細 化 工 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 2198)

CONTINUING CONNECTED TRANSACTION -

FRAMEWORK AGREEMENT FOR REPAIR

AND MAINTENANCE SERVICES

CONTINUING CONNECTED TRANSACTION

The Directors announce that, on 3 August 2020, the Company entered into the Framework Agreement with Gangan Industrial to regulate the principal and contractor relationships of the transactions under the Framework Agreement.

IMPLICATIONS OF THE LISTING RULES

As the relevant applicable percentage ratios in respect of the Annual Caps are more than 0.1% but less than 5%, the Framework Agreement and the Annual Caps are subject to the reporting, announcement and annual review requirements but are exempt from the independent shareholders' approval requirements under Chapter 14A of the Listing Rules.

FRAMEWORK AGREEMENT

The Directors announce that, on 3 August 2020, the Company entered into the Framework Agreement with Gangan Industrial to regulate the principal and contractor relationships of the transactions under the Framework Agreement.

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Date:

3 August 2020

Parties:(1) Gangan Industrial, a Connected Person; and

(2) the Company.

Subject matter

Gangan Industrial has agreed to provide repair and maintenance services in respect of chemical plant and machineries for the Group.

Term

The Framework Agreement shall become effective on 3 August 2020 and has an term ending on 31 December 2022 which may be renewable upon further agreement by the parties (subject to compliance with the Listing Rules).

The Company will comply with the relevant Listing Rules requirements when the term of the Framework Agreement is renewed.

Pricing principles

The terms of all contracts under the Framework Agreement shall be negotiated on an arm's length basis and shall be fair and reasonable. The relevant market price is determined by reference to the fee quote information gathered by the Group from various contractors of similar qualification and size in similar locations based on such market terms to make sure that the terms offered by Gangan Industrial would not be less favorable than those offered by third parties on the market.

Where the market price is not available, the contracted price, which shall be determined after arm's length negotiation by both parties based on the principle of cost plus a fair and reasonable profit rate and by reference to the historical prices.

The Group would employ several measures to ensure the price of repair and maintenance services offered by Gangan Industrial to the Group is no less favourable than the price of repair and maintenance services of comparable quality offered by other independent third parties to the Group. The Group would employ the following measures:

• the production department would plan and list out a yearly repair and maintenance plan during the course of setting the yearly budget plan and would seek quotes from time to time from at least 2 qualified independent third party contractors and also from Gangan Industrial with reference to the yearly repair and maintenance plan;
• the production department would compare each quote and require clarification if necessary from independent third party contractors and Gangan Industrial about the terms and conditions of theirs offers;

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• the Group adopts lowest-pricing policy and among those offers, the production department is required to select the lowest-price offer among comparable offers and propose such to finance department for review and approval;
• the finance department would review the production department's proposal together with all the offers the production department receive for second checking and approval; and
• in the event that the production department does not propose the lowest-price offer, finance department would recommend the production department to revise its proposal to adhere to the lowest-pricing policy.

Historical transaction amounts and annual caps

The Group had the following amounts paid to Gangan Industrial in respect of repair and maintenance services provided by Gangan Industrial:

			For the period from
			1 August 2019 to
			30 June 2020 (i.e. the
			latest available of
	For the year ended 31 July	management
	2018	2019	accounts)
	RMB'000	RMB'000	RMB'000
Actual transaction amount paid by the
Group to Gangan Industrial	18,464	13,948	9,501
		For the year ended 31 July
	2018	2019	2020
	RMB'000	RMB'000	RMB'000
Historical annual caps in respect of
repair and maintenance services to
be provided by Gangan Industrial	30,000	30,000	30,000

Proposed Annual Caps

Based on:

1. the fact that the Group paid to independent third parties and Gangan Industrial of approximately RMB78.0 million in total for repair and maintenance services for the year ended 31 December 2019;
2. the expected amount of repair and maintenance services required by the Group from Gangan Industrial for each of the approximately three years ending 31 December 2022; and

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1. the estimated market price for repair and maintenance services for each of the approximately three years ending 31 December 2022,

it is expected that the estimated Annual Caps for each of the approximately three years ending 31 December 2022 will be as follows:

	For the period from
	3 August 2020 to	For the year ended	For the year ended
	31 December 2020	31 December 2021	31 December 2022
	RMB'000	RMB'000	RMB'000
Annual caps	13,000	30,000	30,000

REASONS FOR AND BENEFITS OF THE TRANSACTION

Gangan Industrial is one of the local repair and maintenance service providers specialized in checking and cleaning chemical pipelines and entering into the Framework Agreement allows the Group to have an option of procurement source in terms of seeking offers from Gangan Industrial.

Since each of Mr. Guan and Ms. Han has a material interest in the Framework Agreement, they therefore abstained from voting on board resolutions of the Company approving the Framework Agreement.

The Directors (including the independent non-executive Directors, but excluding Mr. Guan and Ms. Han who are required to abstain from voting) are of the view that the terms of the Framework Agreement, which were arrived at after arm's length negotiations between the Company and Gangan Industrial, are fair and reasonable and are on normal commercial terms, in the ordinary and usual course of business of the Group and are in the interests of the Company and its shareholders as a whole.

INFORMATION ON THE GROUP

The Group is principally engaged in the manufacturing and supplying of ethylene oxide, ethylene glycol, polypropylene and surfactants and the provision of surfactants processing service.

CONNECTED PERSON

As at the date of this announcement, Gangan Industrial is owned as to 50.00% by Mr. Guan and as to 50.00% by Jianghao Investment, which is owned by Mr. Guan and Ms. Han as to 80.00% and 20.00% respectively. Each of Mr. Guan and Ms. Han is an executive Director and accordingly, Gangan Industrial is a Connected Person by virtue of its being an associate of Connected Persons of the Company under the Listing Rules. Accordingly, the transactions contemplated under the Framework Agreement constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules.

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LISTING RULES IMPLICATIONS

As the relevant applicable percentage ratios in respect of the Annual Caps are more than 0.1% but less than 5%, the Framework Agreement and the Annual Caps are subject to the reporting, announcement and annual review requirements but are exempt from the independent shareholders' approval requirements under Chapter 14A of the Listing Rules.

DEFINITIONS

In this announcement, the following expressions shall, unless the context requires otherwise, have the following meanings:

''Annual Caps''	the maximum aggregate annual value of repair and maintenance
	services to be provided by Gangan Industrial under the
	Framework Agreement, details of which are set out in the
	section headed ''Proposed Annual Caps'' in this announcement
''associate(s)''	has the meaning ascribed to it under the Listing Rules
''Board''	the board of Directors
''Company''	China Sanjiang Fine Chemicals Company Limited, a company
	incorporated in the Cayman Islands with limited liability, the
	shares of which are listed on the Main Board of the Stock
	Exchange
''Connected	has the meaning ascribed to it under the Listing Rules
Person(s)''
''Director(s)''	the director(s) of the Company
''Framework	the framework agreement entered into between the Company
Agreement''	and Gangan Industrial dated 3 August 2020
''Hong Kong''	the Hong Kong Special Administrative Region of the PRC
''Jianghao	嘉興港區江浩投資發展有限公司 (Jiaxing Gangqu Jianghao
Investment''	Investment Development Company Limited*), a company
	established in PRC with limited liability, and a company which
	was owned by Mr. Guan and Ms. Han as to 80.00% and 20.00%
	respectively as at the date of this announcement, a Connected
	Person of the Company
''Listing Rules''	the Rules Governing the Listing of Securities on the Stock
	Exchange

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''Gangan Industrial''	嘉興港區港安工業設備安裝有限公司 (Jiaxing Gangqu Gangan
	Industrial Equipment Installation Co., Ltd*), a company
	established in the PRC with limited liability, and a company
	which was owned by Mr. Guan and Jianghao Investment as to
	50.00% and 50.00% respectively as at the date of this
	announcement, a Connected Person of the Company
''Mr. Guan''	Mr. Guan Jianzhong, an executive Director and Chairman of the
	Board
''Ms. Han''	Ms. Han Jianhong, an executive Director
''PRC''	the People's Republic of China, excluding Hong Kong, the
	Macau Special Administrative Region of the PRC and Taiwan
''RMB''	Renminbi yuan, the lawful currency of the PRC
''Shareholders''	shareholders of the Company
''Stock Exchange''	The Stock Exchange of Hong Kong Limited
''%''	per cent.
	By order of the Board
	China Sanjiang Fine Chemicals Company Limited
	GUAN Jianzhong
	Chairman and executive Director

The PRC, 3 August 2020

As at the date of this announcement, the Board comprises four executive Directors: Mr. GUAN Jianzhong, Ms. HAN Jianhong, Mr. HAN Jianping and Mr. RAO Huotao and three independent non-executive Directors: Mr. SHEN Kaijun, Ms. PEI Yu and Mr. KONG Liang.

In this announcement, if there is any inconsistency between the Chinese names of the entities or enterprises established in the PRC and their English translations, the Chinese names shall prevail. The English translation of names or any descriptions in Chinese which are marked with * is for identification purpose only.

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