China Communications Construction : 20200708-Announcement -Continuing Connected Transactions ...

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中國交通建設股份有限公司

CHINA COMMUNICATIONS CONSTRUCTION COMPANY LIMITED

(A joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 1800)

ANNOUNCEMENT

CONTINUING CONNECTED TRANSACTIONS WITH CCCC TIANHE

1. ENTERING INTO THE PRODUCT PURCHASE FRAMEWORK AGREEMENT;
2. ENTERING INTO THE PRODUCT LEASING FRAMEWORK AGREEMENT; AND
3. ENTERING INTO THE FINANCIAL SERVICES FRAMEWORK AGREEMENT

On 8 July 2020, the Company and CCCC Tianhe entered into (1) the Product Purchase Framework Agreement, pursuant to which CCCC Tianhe Group agreed to sell and the Group agreed to purchase engineering products during the period from 8 July 2020 to 31 December 2020; and (2) the Product Leasing Framework Agreement, pursuant to which CCCC Tianhe Group agreed to lease engineering products to the Group during the period from 8 July 2020 to 31 December 2020. On the same day, CCCC Finance (being the subsidiary of the Company) and CCCC Tianhe entered into the Financial Services Framework Agreement, pursuant to which CCCC Finance agreed to provide deposit services and loan services to CCCC Tianhe Group during the period from 8 July 2020 to 31 December 2020.

1. Tianhe is a subsidiary of the Company. As at the date of this announcement, ZPMC, a connected person of the Company by virtue of being a subsidiary of CCCG (the controlling Shareholder of the Company), holds 16.52% interests in CCCC Tianhe. Therefore, CCCC Tianhe is a connected subsidiary of the Company pursuant to Rule 14A.16 of the Hong Kong Listing Rules. As such, the Product Purchase Framework Agreement, the Product Leasing Framework Agreement and the Financial Services Framework Agreement and the transactions contemplated thereunder constitute continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules.

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The provision of deposit services by CCCC Finance to CCCC Tianhe Group is to be made on normal commercial terms or more favourable terms which are in the Group's interests, and no assets of the Group are to be pledged as security for such deposit services in favour of CCCC Tianhe Group. Therefore, pursuant to Rule 14A.90 of the Hong Kong Listing Rules, the provision of deposit services by CCCC Finance to CCCC Tianhe Group under the Financial Services Framework Agreement is exempt from the announcement, annual review and independent Shareholders' approval requirements under Chapter 14A of the Hong Kong Listing Rules.

As the highest applicable percentage ratio of the proposed annual caps for the transactions contemplated under (1) the Product Purchase Framework Agreement; (2) the Product Leasing Framework Agreement; and (3) the Financial Services Framework Agreement (for the loan services only), exceeds 0.1% but is less than 5%, the transactions contemplated thereunder and the proposed annual caps are subject to the reporting, announcement and annual review requirements, but are exempt from the independent Shareholders' approval requirement under Chapter 14A of the Hong Kong Listing Rules.

Reference is made to the announcement of the Company dated 4 June 2020 in relation to the capital increase of RMB1,000 million agreed to be made by the Company in CCCC Tianhe in cash. Upon completion of the aforementioned capital increase on the same day, CCCC Tianhe became a connected subsidiary of the Company. To regulate the transactions between the Group and CCCC Tianhe Group, on 8 July 2020, the Company and CCCC Tianhe entered into the Product Purchase Framework Agreement and the Product Leasing Framework Agreement, and CCCC Finance (being the subsidiary of the Company) and CCCC Tianhe entered into the Financial Services Framework Agreement.

1. ENTERING INTO THE PRODUCT PURCHASE FRAMEWORK AGREEMENT
   1. Background
   On 8 July 2020, the Company and CCCC Tianhe entered into the Product Purchase Framework Agreement, pursuant to which CCCC Tianhe Group agreed to sell and the Group agreed to purchase engineering products during the period from 8 July 2020 to 31 December 2020.

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2. Product Purchase Framework Agreement

The principal terms of the Product Purchase Framework Agreement are set out as follows:

Date

8 July 2020

Parties

1. the Company; and
2. CCCC Tianhe

Term

From 8 July 2020 to 31 December 2020

Description of the transaction

1. Tianhe Group agreed to sell and the Group agreed to purchase engineering products, including shield machines, roadheaders, engineering ships, lifting machinery and other equipment, systems, components, etc.

Price determination

The fees payable by the Group for purchase of engineering products from CCCC Tianhe Group shall be agreed at arm's length negotiation between the parties in the following order:

1. If such products are subject to government-prescribed price, their prices are determined by the parties according to government-prescribed price, which represents the price determined in accordance with the laws, regulations, decisions, orders or pricing policies of the relevant government authorities; or
2. If such products are not subject to government-prescribed price, their prices are determined by the parties with reference to the market price, which represents
3. 1. the price for provision of the same or similar products by the independent third parties located in the same region or adjacent areas on normal commercial terms in the ordinary course of business; or (ii) the price for provision of the same or similar products by the independent third parties in the PRC on normal commercial terms in the ordinary course of business; or

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1. If such products are not subject to government-prescribed price and market price, their prices are determined by the parties with reference to the cost price, which represents (i) the fees incurred for provision of such products by one party; and (ii) the fees incurred for procurement of such products by one party from the third parties and additional fees incurred for transfer of such products to the other party.

Payment terms

The specific payment terms (including time and method of payment) for purchase of engineering products by the Group from CCCC Tianhe Group will be agreed by the parties in the individual agreements to be entered into by them, with reference to the payment terms of similar transactions in the market and the payment terms offered by independent third parties to the Group.

3. Historical Amounts

The historical amounts paid by the Group for purchase of engineering products from CCCC Tianhe Group for the two years ended 31 December 2019 are set out as follows:

	Actual	Actual
	amount for	amount for
	the year ended	the year ended
	31 December	31 December
Transaction	2018	2019
		RMB million
Purchase of engineering products by the Group
from CCCC Tianhe Group	97	54

4. Proposed Annual Cap and Basis of Determination

After taking account of the following factors, the Company estimates that the proposed annual cap on the fees payable by the Group for purchase of engineering products from CCCC Tianhe Group during the period ending 31 December 2020 will be RMB2,100 million: (i) the Group has further developed its business in railways, subways, rail transit and other businesses, and plans to accelerate the construction of related projects in the second half of 2020, so that its demand for engineering products has increased significantly as compared with the previous years; (ii) the current market price for engineering products; (iii) the current production capacity of CCCC Tianhe Group; and (iv) based on the estimates of the related transactions, the Company added a certain degree of buffer to the proposed annual cap to make room for unforeseen further growth of these transactions in the future, so that it can respond to unforeseen events in a flexible manner.

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The Company confirms that, during the period from 4 June 2020 to the date of this announcement, the actual fees paid by the Group to CCCC Tianhe Group for purchase of engineering products fall below the de minimis threshold under the Hong Kong Listing Rules.

1. 1. Reasons and Benefits
      CCCC Tianhe is mainly engaged in the design, research and development and manufacturing of shield machines, roadheaders and other engineering equipment, and has provided engineering products to the Group for a long time for serving the needs of the business development of the Group in railway, subway, rail transit, tunnel and other business. The Directors of the Company believe that, given the historical origins and long-standing cooperative relationship between the Group and CCCC Tianhe Group, CCCC Tianhe Group has a better understanding of the business of the Group. Besides, as the Group has the absolute control over CCCC Tianhe Group, the purchase of engineering products from CCCC Tianhe Group can better guarantee the technical standards, quality, delivery and technical support of the products to meet the requirements of the Group, which will also help reduce the administrative and transportation expenses of the Group and is in the best interests of the Group.
2. ENTERING INTO THE PRODUCT LEASING FRAMEWORK AGREEMENT
3. 1. Background
      On 8 July 2020, the Company and CCCC Tianhe entered into the Product Leasing Framework Agreement, pursuant to which CCCC Tianhe Group agreed to lease engineering products to the Group during the period from 8 July 2020 to 31 December 2020.
   2. Product Leasing Framework Agreement
      The principal terms of the Product Leasing Framework Agreement are set out as follows:
      Date

8 July 2020

Parties

1. the Company; and
2. CCCC Tianhe

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Term

From 8 July 2020 to 31 December 2020

Description of the transaction

1. Tianhe Group agreed to lease engineering products to the Group, including shield machines, roadheaders, engineering ships, lifting machinery and other equipment, systems, components, etc.

Price determination

The fees receivable by CCCC Tianhe Group for leasing engineering products to the Group shall be determined at arm's length negotiation between the parties considering the factors set out below:

1. the Group will consult with at least two independent third parties for quotations and market transaction prices of the same type of lease by email, fax or telephone; and
2. after taking comprehensive consideration of the relevant aspects of the engineering products, such as purchase prices, lease term, features of leasing subject, comparable market rental prices, etc.

Payment terms

The specific payment terms (including time and method of payment) for leasing of engineering products by CCCC Tianhe Group to the Group will be agreed by the parties in the individual agreements to be entered into by them, with reference to the payment terms of similar transactions in the market and the payment terms offered by independent third parties to the Group.

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3. Historical Amount

The total value of right-of-use assets involved in the leasing of engineering products by CCCC Tianhe Group to the Group for the year ended 31 December 2019 is set out as follows:

	Total value of
	right-of-use
	assets as at
	31 December
Transaction	2019
	RMB million
Leasing of engineering products by CCCC Tianhe Group
to the Group	37

4. Proposed Annual Cap and Basis of Determination

After taking account of the following factors, the Company estimates that the proposed annual cap on the total value of right-of-use assets involved in the leasing of engineering products by CCCC Tianhe Group to the Group during the period ending 31 December 2020 will be RMB2,900 million: (i) the Group has further developed its business in railways, subways, rail transit and other businesses, and plans to accelerate the construction of related projects in the second half of 2020, so that its demand for engineering products has increased significantly as compared with the previous years; (ii) the current market price for engineering products; (iii) the current production capacity of CCCC Tianhe Group; and (iv) based on the estimates of the related transactions, the Company added a certain degree of buffer to the proposed annual cap to make room for unforeseen further growth of these transactions in the future, so that it can respond to unforeseen events in a flexible manner.

The Company confirms that, during the period from 4 June 2020 to the date of this announcement, the total value of right-of-use assets involved in the leasing of engineering products by CCCC Tianhe Group to the Group falls below the de minimis threshold under the Hong Kong Listing Rules.

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1. 1. Reasons and Benefits
      CCCC Tianhe is mainly engaged in the design, research and development and manufacturing of shield machines, roadheaders and other engineering equipment, and has provided engineering products to the Group for a long time for serving the needs of the business development of the Group in railway, subway, rail transit, tunnel and other business. The Directors of the Company believe that, given the historical origins and long-standing cooperative relationship between the Group and CCCC Tianhe Group, CCCC Tianhe Group has a better understanding of the business of the Group. Besides, as the Group has the absolute control over CCCC Tianhe Group, the entering into of the Product Leasing Framework Agreement with CCCC Tianhe can better guarantee the technical standards, quality, delivery and technical support of the products to meet the requirements of the Group, which will also help reduce the administrative and transportation expenses of the Group and is in the best interests of the Group.
2. ENTERING INTO THE FINANCIAL SERVICES FRAMEWORK AGREEMENT
3. 1. Background
      On 8 July 2020, CCCC Finance and CCCC Tianhe entered into the Financial Services Framework Agreement, pursuant to which CCCC Finance agreed to provide deposit services and loan services to CCCC Tianhe Group during the period from 8 July 2020 to 31 December 2020.
   2. Financial Services Framework Agreement
      The principal terms of the Financial Services Framework Agreement are set out as follows:

Date

8 July 2020

Parties

1. CCCC Finance; and
2. CCCC Tianhe

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Term

From 8 July 2020 to 31 December 2020

Principal Services

Pursuant to the Financial Services Framework Agreement, CCCC Finance agreed to provide deposit services and loan services to CCCC Tianhe Group according to the principal terms as below.

1. Deposit Services
2. 1. Finance will provide deposit services to CCCC Tianhe Group. The deposit interest rates shall be determined through negotiation on an arm's length basis between the parties in accordance with market principles for their own interests and in compliance with interest rate requirements of the PBOC on such type of deposits. The cap and floor deposit rates shall be in accordance with requirements of the PBOC on deposits of the same term and same category and shall not be higher than the interest rates applicable to deposit services of the same term and same category provided by major domestic commercial banks.
3. Loan Services
4. 1. Finance will provide loan services to CCCC Tianhe Group. The lending interest rates shall be determined through negotiation on an arm's length basis between the parties in accordance with market principles for their own interests and with reference to the interest rates of loans quoted in the market. The lending rates shall not be lower than the interest rates applicable to loan services of the same term and same category provided by major domestic commercial banks.

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3. Historical Amounts

The actual daily maximum balance of loans provided by CCCC Finance to CCCC Tianhe Group (including the interests accrued thereon) for the two years ended 31 December 2019 are set out as follows:

	Actual	Actual
	amount for	amount for
	the year ended	the year ended
	31 December	31 December
Transaction	2018	2019
		RMB million
Daily maximum balance of loans provided by
CCCC Finance to CCCC Tianhe Group
(including the interests accrued thereon)	101	51

4. Proposed Annual Cap and Basis of Determination

After taking account of the following factors, the Company estimates that the annual cap on the daily maximum balance of loans provided by CCCC Finance to CCCC Tianhe Group (including the interests accrued thereon) during the period ending 31 December 2020 will be RMB510 million: (i) relevant guidelines and regulations of the PBOC; (ii) the business growth of CCCC Tianhe Group is expected to result in an increase in its financial needs for loan services as compared with the previous years;

1. the sufficient credit scale of CCCC Finance; and (iv) based on the estimates of the related transactions, the Company added a certain degree of buffer to the proposed annual cap to make room for unforeseen further growth of these transactions in the future, so that it can respond to unforeseen events in a flexible manner.

The Company confirms that, during the period from 4 June 2020 to the date of this announcement, the actual daily maximum balance of loans provided by CCCC Finance to CCCC Tianhe Group (including the interests accrued thereon) fall below the de minimis threshold under the Hong Kong Listing Rules.

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5. Internal Control and Corporate Governance Measures

To safeguard the rights and interests of the Shareholders, the Company and CCCC Finance have adopted the following internal control procedures and corporate governance measures in relation to the continuing connected transactions under the Financial Services Framework Agreement and their annual caps:

1. CCCC Finance has formulated certain internal rules and policies related to management and control of operational risks and credit risks in accordance with relevant PRC laws and regulations on financial services, with a relatively sound internal control system already in place;
2. CCCC Finance has established a systematic corporate governance structure to ensure effective internal control, including implementation of the general manager accountability system under the leadership of its board of directors, establishment of its institutional structure based on the decision-making, execution and monitoring systems, and formulation of different work procedures and risk control systems based on different job duties;
3. CCCC Finance has adopted centralized management and safe and sound business systems so as to monitor transactions in a timely manner;
4. CCCC Finance will submit to the Company reports on its provision of deposit services and loan services to CCCC Tianhe Group on a monthly basis, its financial statements on a quarterly basis, and copies of its regulatory reports submitted to the China Banking and Insurance Regulatory Commission; and
5. The independent non-executive Directors and auditors of the Company will conduct annual review of the continuing connected transactions under the Financial Services Framework Agreement.

The Board believes that the internal control procedures and corporate governance measures above are appropriate and can give the Shareholders an adequate assurance that the continuing connected transactions under the Financial Services Framework Agreement will be under the proper supervision of the Company.

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6. Reasons and Benefits

CCCC Finance is a non-banking financial institution, offering comprehensive financial services to enterprises. The Company expects to benefit from the gains generated by the loan services provided by CCCC Finance. Furthermore, the financial services provided by CCCC Finance to CCCC Tianhe Group can help the Group to improve its capital utilization efficiency and enhance the capability of CCCC Finance in providing professional and comprehensive financial services, which is in line with the Group's business development needs.

IV. HONG KONG LISTING RULES IMPLICATIONS

1. Tianhe is a subsidiary of the Company. As at the date of this announcement, ZPMC, a connected person of the Company by virtue of being a subsidiary of CCCG (the controlling Shareholder of the Company), holds 16.52% interests in CCCC Tianhe. Therefore, CCCC Tianhe is a connected subsidiary of the Company pursuant to Rule 14A.16 of the Hong Kong Listing Rules. As such, the Product Purchase Framework Agreement, the Product Leasing Framework Agreement and the Financial Services Framework Agreement and the transactions contemplated thereunder constitute continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules.

The provision of deposit services by CCCC Finance to CCCC Tianhe Group is to be made on normal commercial terms or more favourable terms which are in the Group's interests, and no assets of the Group are to be pledged as security for such deposit services in favour of CCCC Tianhe Group. Therefore, pursuant to Rule 14A.90 of the Hong Kong Listing Rules, the provision of deposit services by CCCC Finance to CCCC Tianhe Group under the Financial Services Framework Agreement is exempt from the announcement, annual review and independent Shareholders' approval requirements under Chapter 14A of the Hong Kong Listing Rules.

As the highest applicable percentage ratio of the proposed annual caps for the transactions contemplated under (1) the Product Purchase Framework Agreement; (2) the Product Leasing Framework Agreement; and (3) the Financial Services Framework Agreement (for the loan services only), exceeds 0.1% but is less than 5%, the transactions contemplated thereunder and the proposed annual caps are subject to the reporting, announcement and annual review requirements, but are exempt from the independent Shareholders' approval requirement under Chapter 14A of the Hong Kong Listing Rules.

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1. BOARD CONFIRMATION
   Mr. Liu Qitao, Mr. Song Hailiang and Mr. Liu Maoxun, the Directors of the Company, are also directors of CCCG, and therefore are deemed to have a material interest in the abovementioned continuing connected transactions and have abstained from voting on the relevant Board resolutions. Save for the abovementioned Directors, none of the other Directors of the Company has or is deemed to have a material interest in the abovementioned continuing connected transactions.
   The Directors (including the independent non-executive Directors), having made all reasonable and due inquiries, consider that the abovementioned continuing connected transactions have been entered into in the ordinary and usual course of business of the Company on normal commercial terms, are fair and reasonable and in the interest of the Company and the Shareholders as a whole. The Directors (including the independent non- executive Directors) are also of the view that the terms of transactions contemplated under the Product Purchase Framework Agreement, Product Leasing Framework Agreement and Financial Services Framework Agreement, and the proposed annual caps thereof are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

VI. BACKGROUND AND GENERAL INFORMATION OF THE PARTIES

The Company is a leading transportation infrastructure enterprise in the PRC. Its scope of business mainly consists of the investment, design, construction, operation and management of port, waterway, river basin, road and bridge, railway, tunnel, rail transit, municipal infrastructure, environmental protection and land reclamation at home and abroad. It is primarily engaged in providing customers with integrated solutions services for each stage of the infrastructure projects leveraging on its extensive operating experience, expertise and know-how accumulated from projects undertaken in a wide range of areas over the years.

1. Finance is a subsidiary of the Company incorporated in the PRC and a non-banking financial institution. It is primarily engaged in offering comprehensive financial services to enterprises.

1. Tianhe is a subsidiary of the Company incorporated in the PRC and is primarily engaged in system integration design, research and development and manufacturing of shield machines and tunnel boring machines (TBMs), as well as design, research and development and manufacturing of engineering vessels, cranes and components.

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VII. DEFINITIONS

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

"Board"	the board of directors of the Company
"CCCC Finance"	CCCC Finance Company Limited (中交財務有限公司),
	a limited liability company incorporated in the PRC,
	and a subsidiary of the Company as at the date of this
	announcement
"CCCC Tianhe"	CCCC Tianhe Machinery and Equipment Manufacturing
	Co., Ltd. (中交天和機械設備製造有限公司), a
	limited liability company incorporated in the PRC,
	and a subsidiary of the Company as at the date of this
	announcement
"CCCC Tianhe Group"	CCCC Tianhe and its subsidiaries
"CCCG"	China Communications Construction Group (Limited)
	(中國交通建設集團有限公司), a state-owned enterprise
	established under the laws of the PRC and the controlling
	shareholder of the Company
"Company"	China Communications Construction Company Limited,
	a joint stock company incorporated in the PRC with
	limited liability, the H shares of which are listed on
	The Stock Exchange of Hong Kong Limited under stock
	code 1800 and the A shares of which are listed on the
	Shanghai Stock Exchange under stock code 601800
"connected person(s)"	has the meaning ascribed to it under the Hong Kong
	Listing Rules
"Director(s)"	the director(s) of the Company
"Financial Services	the financial services framework agreement entered into
Framework Agreement"	between CCCC Finance and CCCC Tianhe on 8 July
	2020
"Group"	the Company and its subsidiaries

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"Hong Kong Listing Rules"	The Rules Governing the Listing of Securities on The
	Stock Exchange of Hong Kong Limited
"PBOC"	the People's Bank of China
"PRC"	the People's Republic of China, which for the purposes
	of this announcement, excludes Hong Kong Special
	Administrative Region, Macau Special Administrative
	Region and Taiwan
"Product Leasing	the product leasing framework agreement entered into
Framework Agreement"	between the Company and CCCC Tianhe on 8 July 2020
"Product Purchase	the product purchase framework agreement entered into
Framework Agreement"	between the Company and CCCC Tianhe on 8 July 2020
"RMB"	Renminbi, the lawful currency of the PRC
"Shareholder(s)"	the shareholder(s) of the Company
"ZPMC"	Shanghai Zhenhua Heavy Industries Co., Ltd. (上海振
	華重工(集團)股份有限公司), a company incorporated
	in the PRC on 14 February 1992, the shares of which are
	listed on the Shanghai Stock Exchange, and a subsidiary
	of CCCG as at the date of this announcement
"%"	percent

By Order of the Board

China Communications Construction Company Limited

ZHOU Changjiang

Company Secretary

Beijing, the PRC

8 July 2020

As at the date of this announcement, the Directors of the Company are LIU Qitao, SONG Hailiang LIU Maoxun, HUANG Long#, ZHENG Changhong# and NGAI Wai Fung#.

• Independent non-executive Director

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