Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
CHALIECO
中鋁國際工程股份有限公司
China Aluminum International Engineering Corporation Limited
(A joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock Code: 2068)
CONTINUING CONNECTED TRANSACTIONS
ENTERING INTO COMMODITIES SALES AND PURCHASES
MASTER AGREEMENT,
GENERAL SERVICES MASTER AGREEMENT AND ENGINEERING SERVICES MASTER AGREEMENT
References are made to the announcements of China Aluminum International Engineering Corporation Limited (the "Company") dated 20 March 2017 and 7 April 2017, the circular dated 7 April 2017 and the announcement dated 23 May 2017 in relation to the entering into of the Commodities Sales and Purchases Master Agreement, the General Services Master Agreement and the Engineering Services Master Agreement between the Company and Aluminum Corporation of China Limited ("China Aluminum Group"), in order to meet the business needs of the Company and to arrange the management.
As the Commodities Sales and Purchases Master Agreement, the General Services Master Agreement and the Engineering Services Master Agreement entered into between the Company and China Aluminum Group will expire on 31 December 2019, the Company entered into the new Commodities Sales and Purchases Master Agreement, General Services Master Agreement, and Engineering Services Master Agreement with China Aluminum Group on 30 October 2019 in order to meet the business needs and to arrange the management. The aforesaid agreements shall be effective upon the approval at the fourth extraordinary general meeting in 2019, which shall be valid until 31 December 2022. The above agreements are renewable subject to agreement between both parties and in accordance with the Listing Rules.
- 1 -
1. COMMODITIES SALES AND PURCHASES MASTER AGREEMENT - PROVISION OF COMMODITIES BY THE COMPANY TO CHINA ALUMINUM GROUP
Parties: | China Aluminum Group (as the purchaser); and the Company (as |
the supplier) | |
Date: | 30 October 2019 |
Major terms: | Pursuant to the Commodities Sales and Purchases Master |
Agreement entered into by the Company and China Aluminum | |
Group on 30 October 2019, the Group may provide its products to | |
China Aluminum Group and/or its associates from time to time, | |
as part of the equipment manufacturing business of the Group. | |
These products primarily include equipment, raw materials and | |
commodities for China Aluminum Group's production operation. | |
The initial term of the Commodities Sales and Purchases Master | |
Agreement shall commence from 1 January 2020 and shall expire | |
on 31 December 2022, unless at any time either party gives at | |
least three months' written notice in advance to the other party to | |
terminate the agreement. | |
Pricing policy: | (1) In determining the prices of raw materials, equipment and |
commodities, the Company would firstly make reference to | |
the average market price. In the limited circumstances where | |
a market price is unavailable, the Company will negotiate | |
with China Aluminum Group about the price on arm's length | |
basis with reference to costs plus a reasonable profit margin. | |
The relevant cost includes raw materials, auxiliary materials, | |
depreciation, labour, kinetics, tools, consumption of skills, | |
repairment of equipment, management fees and finance | |
fees. For the determination of a reasonable profit margin, | |
the Company mainly refers to the profit margin of the same | |
type of products provided by the independent third parties | |
in the market in the corresponding period to ensure the price | |
offered by the Company to China Aluminum Group is not | |
lower than the price offered by the Company to other third | |
parties. The Company will consider the price (costs plus a | |
profit margin) only if it is commercially acceptable to the | |
Company, meaning the overall price shall fall within the | |
Company's budget and allow it to meet its profit targets. |
- 2 -
(2) The market prices in the industry would be collected by the business department through the industry associations and independent suppliers. The Company would collect market information from at least three independent third parties to consider if the prices of the raw materials, equipment and commodities are fair and reasonable and in line with the market. The Company's business department staff would update the market information on a daily basis with reference to public industry websites, such as Changjiang Non-ferrous Metals Website (http://www.ccmn.cn), Shanghai Metals Market (http://www.smm.cn) and China Aluminum Website (http://www.cnal.com), all of which are independent and timely reflect the market price in the view of the Board. Should the business department staff find the reference prices currently used internally to be outdated upon their assessment of the prices at the dates of the transactions, the staff of business department would submit an adjusted price to the senior management, including the vice president, for
final review and approval. | |
(3) For the products which have no alternatives available in the | |
market, the prices would be determined after arm's length | |
negotiation by both parties of the contract. The Company | |
would make reference to the relevant historical prices of | |
the products, and ensure that the terms of the products | |
provided to China Aluminum Group are fair and reasonable | |
based on the principle of cost plus a fair and reasonable | |
profit margin. With reference to the method in aforesaid | |
(1), the expected profit margin of equipment to be provided | |
to China Aluminum Group and the expected profit margin | |
of raw materials to be provided to China Aluminum Group | |
by the Company are both in line with the industry standard | |
and no less favorable than the profit margin charged from | |
independent third parties. | |
Reasons for and | (1) China Aluminum Group may reduce the purchasing cost |
benefits of the | and the logistics cost through the on-site provision by the |
transactions: | Company and its subsidiaries; |
(2) the Company has built up a long - term cooperation | |
relationship with China Aluminum Group with mutual | |
understanding of the operation plans, quality control and | |
certain special requirements of both parties; and |
- 3 -
- as the prices and terms of the raw materials, equipment and products provided to China Aluminum Group by the Company are no less favourable than those provided by the Company to independent third parties, the provision of commodities to China Aluminum Group by the Company generates profits for us.
Historical figures and the proposed annual caps:
Historical amounts | ||||||||
Unit: RMB million | ||||||||
For the years ended 31 | As of | |||||||
December | 30 September | |||||||
2017 | 2018 | 2019 | ||||||
Total transaction amounts of the raw materials, | ||||||||
equipment and commodities provided to China | ||||||||
Aluminum Group and/or its associates by the | ||||||||
Company under the Commodities Sales and | ||||||||
Purchases Master Agreement | 441 | 653 | 256 | |||||
Historical annual caps | ||||||||
Unit: RMB million | ||||||||
For the years ended 31 December | ||||||||
2017 | 2018 | 2019 | ||||||
Total transaction amounts of the raw materials, | ||||||||
equipment and commodities provided to | ||||||||
China Aluminum Group and/or its associates | ||||||||
by the Company under the Commodities Sales | ||||||||
and Purchases Master Agreement | 600 | 700 | 800 | |||||
Proposed annual caps | ||||||||
Unit: RMB million | ||||||||
For the years ended 31 December | ||||||||
2020 | 2021 | 2022 | ||||||
Total transaction amounts of the raw materials, | ||||||||
equipment and commodities provided to | ||||||||
China Aluminum Group and/or its associates | ||||||||
by the Company under the Commodities Sales | ||||||||
and Purchases Master Agreement | 800 | 900 | 1,000 | |||||
- 4 -
Basis for the caps: In determining the caps, the Company has primarily considered the following factors:
- the historical prices of the raw materials, equipment and commodities provided to China Aluminum Group by the Company in the past.
- the estimated increasing sales volume of products by taking into account macroeconomic conditions as well as the development strategies and business expansion plan of the Group.
- the Company has increased, and will continue to increase, the production capacities of the equipment, and the Group has begun to enhance its business development efforts, resulting in a rapid growth of revenue, and the business with China Aluminum Group and its associates also grew steadily by the same ratio.
- The main businesses of the Company include equipment manufacturing business and trading business. As the main non-ferrous metal engineering service provider of China Aluminum Group, upon completion of the constructions, the Company will supply the components and parts required in operating the production lines on an ongoing basis. With the increase in engineering service, the transaction amounts of this business are expected to increase in 2020, 2021 and 2022.
2. COMMODITIES SALES AND PURCHASES MASTER AGREEMENT - PROVISION OF COMMODITIES TO THE COMPANY BY CHINA ALUMINUM GROUP
Parties:China Aluminum Group (as supplier); and the Company (as
purchaser)
Date: | 30 October 2019 |
Major terms: In accordance with the Commodities Sales and Purchases Master Agreement entered into by the Company and China Aluminum Group on 30 October 2019, China Aluminum Group and/or its associates may provide products to the Group from time to time, including non-ferrous products, manufacturing equipment relating to the non-ferrous industry, cement, engineering equipment and components.
- 5 -
The initial term of the Commodities Sales and Purchases Master | |
Agreement shall commence from 1 January 2020 and shall expire | |
on 31 December 2022, unless at any time either party gives at least | |
three months' written notice in advance to the other party and as | |
agreed by both parties to terminate the agreement. | |
Pricing policy: | (1) When deciding the prices of commodities to be purchased |
from China Aluminum Group, the Company would primarily | |
make reference to the market prices. The Company would | |
collect market information by inviting certain suppliers who | |
appeared on the Group's recognized suppliers list to submit | |
quotations or proposals before placing purchase orders to | |
at least three independent third parties to consider if the | |
prices of the commodities are fair and reasonable and in line | |
with the market. The Company's business department staff | |
would update the market information on a daily basis with | |
reference to public industry websites, such as Changjiang | |
Non-ferrous Metals Website (http://www.ccmn.cn), Shanghai | |
Metals Market (http://www.smm.cn) and China Aluminum | |
Website (http://www.cnal.com), all of which are independent | |
and timely reflect the market price in the view of the Board. | |
Should the business department staff find the reference | |
prices currently used internally to be outdated upon their | |
assessment of the prices at the dates of the transactions, the | |
staff of business department would submit an adjusted price | |
to the senior management, including the vice president, for | |
final review and approval. | |
(2) Determination shall be made upon negotiation by both | |
parties based on the assessed value issued by a third | |
appraisal institution. | |
(3) In the limited circumstances where a comparable market | |
fair value range is unavailable, the Company would | |
negotiate with China Aluminum Group to calculate the | |
price on arm's length basis with reference to costs plus a | |
reasonable profit margin. The relevant costs include costs | |
of raw materials and equipment purchased or produced, | |
labour cost and staff welfare expenses, electricity and other | |
utilities costs, depreciation, cost of machinery maintenance, | |
and sales and administration expenses and so on. Unit cost | |
would be determined based on the above factors. China | |
Aluminum Group shall then charge the Company a profit | |
rate based on arm's length negotiation on top of the unit | |
cost. The Company would consider the profit rate (costs | |
plus profit margin) only if it is commercially acceptable to | |
the Company, meaning the overall price shall fall within the | |
Company's budget and allow it to meet its profit targets. |
- 6 -
Reasons for and | (1) These commodities provided by China Aluminum Group |
benefits of the | can be purchased from independent third parties on similar |
transactions: | terms. However, the Company has been maintaining, and |
expect to maintain, sound business relationships with China | |
Aluminum Group which is also familiar with the Company's | |
specific and special requirements for certain commodities. | |
(2) In addition, as the Company provides engineering construction | |
for China Aluminum Group and purchase related goods from | |
China Aluminum Group and its subsidiaries on a proximity | |
basis, the Company will purchase the products such as | |
aluminum busbars and carbon blocks from China Aluminum | |
Group and its subsidiaries where the project is located at | |
or nearby, and will apply such products to the projects | |
undertaken by the Company to provide engineering services | |
to China Aluminum Group. In this way, the Company can | |
effectively reduce its costs of purchasing and logistics | |
with prices not higher than an independent third party. | |
Transportation and administration costs can be saved so that | |
the purchase price of the Company is not higher than the | |
market price. | |
(3) The Group is following the national "One Belt, One Road" | |
strategy to strengthen international capacity cooperation, | |
and intends to export domestic equipment relating to | |
the non-ferrous industry overseas. In this respect, China | |
Aluminum Group, as the leading enterprise in the non- | |
ferrous industry, owns certain assets reserves. | |
(4) The Group grasps opportunities from the national supply- | |
side structural reform with very effort to promote and | |
expand the application of aluminum materials actively, | |
and by now we have developed various products such as | |
aluminum alloy bridge, aluminum alloy shell for cell-phone, | |
aluminum siding and aluminum template for construction | |
use and aluminum integrated house. The main raw materials | |
of the aforesaid products are aluminum alloy and aluminum | |
profiles. China Aluminum Group, as one of the major | |
domestic manufacturers of aluminum alloy and aluminum | |
profile, is the main supplier of these commodities required | |
by the Company. |
- 7 -
Historical figures and the proposed annual caps:
Historical amounts | ||||||||
Unit: RMB million | ||||||||
For the years ended 31 | As of | |||||||
December | 30 September | |||||||
2017 | 2018 | 2019 | ||||||
Total transaction amounts of the commodities | ||||||||
provided to the Company by China Aluminum | ||||||||
Group and/or its associates under the Commodities | ||||||||
Sales and Purchases Master Agreement | 1,031 | 493 | 193 | |||||
Historical annual caps | ||||||||
Unit: RMB million | ||||||||
For the years ended 31 December | ||||||||
2017 | 2018 | 2019 | ||||||
Total transaction amounts of the commodities | ||||||||
provided to the Company by China | ||||||||
Aluminum Group and/or its associates under | ||||||||
the Commodities Sales and Purchases Master | ||||||||
Agreement | 1,800 | 1,400 | 1,400 | |||||
Proposed annual caps | ||||||||
Unit: RMB million | ||||||||
For the years ended 31 December | ||||||||
2020 | 2021 | 2022 | ||||||
Total transaction amounts of the commodities | ||||||||
provided to the Company by China | ||||||||
Aluminum Group and/or its associates under | ||||||||
the Commodities Sales and Purchases Master | ||||||||
Agreement | 1,000 | 1,000 | 1,000 | |||||
- 8 -
Basis for the caps: The above proposed annul caps estimation is based on:
- the historical prices of the commodities provided to the Company by China Aluminum Group in the past.
- Capitalizing on the national supply-side structural reform, the Group has actively expanded the application of aluminum materials. At present, we have developed various products such as aluminum alloy overpass, aluminum alloy shell for cell-phone, aluminum siding and aluminum template for construction use and aluminum integrated house. The main raw materials for the aforesaid products are aluminum alloy and aluminum profiles. As one of the major domestic manufacturers of aluminum alloy and aluminum profiles, China Aluminum Group serves as a main supplier for the Group. It is anticipated that the Company will need to purchase a certain amount of aluminum material from China Aluminum Group to cater to the aluminum application business over the next three years.
- The Group is following the national "One Belt, One Road" strategy to strengthen international capacity cooperation, and intends to export domestic equipment relating to the non- ferrous industry overseas. In this respect, China Aluminum Group, as the leading enterprise in the non-ferrous industry of China, owns certain assets reserves. China Aluminum Group acts as an important supplier of non-ferrous metal facilities and equipment under the Group's "Go Global" strategy. Based on the above factors, commodities supplied by China Aluminum Group to the Group in the coming few years will significantly increase. Accordingly, the Company will continue to purchase non-ferrous metal equipments from China Aluminum Group to cater to the overseas non-ferrous business for the next three years.
- 9 -
3. GENERAL SERVICES MASTER AGREEMENT - PROVISION OF GENERAL SERVICES TO CHINA ALUMINUM GROUP BY THE COMPANY
Parties: | China Aluminum Group (as service recipient); and the Company |
(as service provider) | |
Date: | 30 October 2019 |
Major terms: | In accordance with the General Services Master Agreement |
entered into by the Company and China Aluminum Group on 30 | |
October 2019, the Group and/or its associates may provide certain | |
kinds of services to China Aluminum Group from time to time, | |
primarily including (1) provision of property leasing, warehousing | |
and transportation services; and (2) provision of operation and | |
management, labour and training services. | |
The initial term of the General Services Master Agreement shall | |
commence from 1 January 2020 and shall expire on 31 December | |
2022, unless at any time either party gives at least three months' | |
prior written notice of termination to the other party and as agreed | |
by both parties. | |
Pricing policy: | The Company would first refer to average market rates when |
determining the price of its various general services. Under the | |
limitation of no available market rates, the Company would | |
negotiate with China Aluminum Group, and calculate the price | |
on arm's length basis with reference to costs plus a reasonable | |
profit margin. The reasonable margin is determined mainly with | |
reference to the profit rate level of similar service provided by | |
independent third parties in the market during the same period, to | |
keep the price offered by the Company to China Aluminum Group | |
not lower than that offered to third parties. | |
Reasons for and | (1) The Group has been able to provide general services such |
benefits of the | as lease, warehousing and transportation needed by China |
transactions: | Aluminum Group. |
(2) Based on the "4+4+4" development strategy put forward by | |
China Aluminum Group, the Group will serve as a player of | |
the engineering technology collaboration industry, to provide | |
more general services for China Aluminum Group, facilitate | |
the optimisation of the state-owned capital allocation | |
of China Aluminum Group, and boost capital operation | |
efficiency and level of returns. |
- 10 -
Proposed annual caps | |||||
Unit: RMB million | |||||
For the years ended 31 December | |||||
2020 | 2021 | 2022 | |||
Total transaction amounts of the services | |||||
provided to China Aluminum Group by the | |||||
Company and/or its associates under the | |||||
General Services Master Agreement | 100 | 100 | 100 | ||
Basis for the caps: When setting the caps, the Company mainly takes the following factors into account:
- the historical prices of such services provided by the Group to other third parties.
- the estimated increase in labour costs based on the economic conditions both at the moment and in the short term.
4. GENERAL SERVICES MASTER AGREEMENT - PROVISION OF GENERAL SERVICES TO THE COMPANY BY CHINA ALUMINUM GROUP
Parties:China Aluminum Group (as service provider); and the Company (as
service recipient)
Date: | 30 October 2019 |
Major terms: In accordance with the General Services Master Agreement entered into by the Company and China Aluminum Group on 30 October 2019, China Aluminum Group and/or its associates may provide certain kinds of services to the Group from time to time, primarily including:
- provision of warehousing, transport and property leasing services; and
- provision of labour services related to technology, logistics, labour and training.
The initial term of the General Services Master Agreement shall commence from 1 January 2020 and shall expire on 31 December 2022, unless at any time either party gives at least three months' prior written notice of termination to the other party and as agreed by both parties.
- 11 -
Pricing policy: | The prices will be determined after arm's length negotiation with |
reference to the current market price of local service providers | |
with similar scale and quality by inviting certain suppliers who | |
appeared on the Group's recognized suppliers list to submit | |
quotations or proposals before the Company places purchase | |
orders to at least three independent third parties. The Group would | |
make reference to the historical fees of such general services, | |
together with the comparable prices available in the market, to | |
ensure that the terms of the services provided by China Aluminum | |
Group are fair and reasonable to the Group. For the general | |
services which have no alternatives available in the market, the | |
services fees received by China Aluminum Group from the Group | |
would be determined after arm's length negotiation based on the | |
Company's internal control measures. Please refer to "Measures of | |
Internal Control" below in this announcement for the details of the | |
internal control measures. | |
Reasons for and | (1) Over the years, the Company has been using the general |
benefits of the | services provided by China Aluminum Group and/or its |
transactions: | associates; and China Aluminum Group has long been |
providing timely and stable general services for the | |
Group. Accordingly, China Aluminum Group is able to | |
fully understand the Company's business and operating | |
requirements. | |
(2) The Group's management believes that maintaining the | |
provision of stable and high quality general services is of | |
utmost importance to the Company's current and future | |
production and operations. With reference to its previous | |
purchasing experience with China Aluminum Group, the | |
Company believes that China Aluminum Group is capable of | |
effectively satisfying the requirement of providing stable and | |
high quality general services for the Company. | |
(3) The fees of providing general services by China Aluminum | |
Group are no higher than those provided to the Company by | |
independent third parties, which could reduce the operations | |
risks and costs to the Group and is beneficial to the daily | |
operations and management of the Group. |
- 12 -
- Prior to the listing of the H Shares of the Company, some of its subsidiaries, which are geographically proximal, were from reform and separation of the enterprises within China Aluminum Group. In the case of shortage of land for offices and production, the Company will accept the logistics service such as property management provided by the connected persons. Moreover, upon the completion of new construction projects, the Company is required to provide training for the production technicians according to the requirements under the contracts. As China Aluminum Group and its subsidiaries are experienced in the operation of production lines, the Company will delegate the related training to the experienced connected persons, depending on its needs. Accordingly, the general services provided by China Aluminum Group to the Company mainly comprise warehousing, property leasing, property management and logistics service, technology service and training, etc.
Historical figures and the proposed annual caps:
Historical amounts | ||||||||
Unit: RMB million | ||||||||
For the years ended 31 | As of | |||||||
December | 30 September | |||||||
2017 | 2018 | 2019 | ||||||
Total transaction amounts of the services provided | ||||||||
to the Group by China Aluminum Group and/or | ||||||||
its associates under the General Services Master | ||||||||
Agreement | 156 | 104 | 136 | |||||
Historical annual caps | ||||||||
Unit: RMB million | ||||||||
For the years ended 31 December | ||||||||
2017 | 2018 | 2019 | ||||||
Total transaction amounts of the services | ||||||||
provided to the Group by China Aluminum | ||||||||
Group and/or its associates under the | ||||||||
General Services Master Agreement | 160 | 160 | 160 | |||||
- 13 -
Proposed annual caps | |||||
Unit: RMB million | |||||
For the years ended 31 December | |||||
2020 | 2021 | 2022 | |||
Total transaction amounts of the services | |||||
provided to the Group by China Aluminum | |||||
Group and/or its associates under the | |||||
General Services Master Agreement | 160 | 160 | 160 | ||
Basis for the caps: In determining the caps, the Company has primarily considered the following factors.
- the historical prices of the general services provided by China Aluminum Group to the Group in the past.
- the estimated increase of the cost of labour after considering the economic trend both at the moment and in the near future.
5. ENGINEERING SERVICES MASTER AGREEMENT
Parties:China Aluminum Group (as service recipient); and the Company
(as service provider) | |
Date: | 30 October 2019 |
Principal terms: | In accordance with the Engineering Services Master Agreement |
entered into by the Company and China Aluminum Group on | |
30 October 2019, the Group may from time to time provide | |
engineering services to China Aluminum Group and/or its | |
associates, including but not limited to construction engineering, | |
technology (right of use) transfer, project supervision, survey, | |
engineering design, engineering consultancy, equipment agency | |
and equipment sales, engineering management and other | |
engineering-related services. | |
The initial term of the Engineering Services Master Agreement | |
shall commence from 1 January 2020 and shall expire on 31 | |
December 2022, unless at any time either party gives at least three | |
months' prior written notice of termination to the other party and as | |
agreed by both parties. |
- 14 -
Pricing policy: | The prices for the engineering services provided by the Company |
shall be determined (1) through the tender by China Aluminum | |
Group; or (2) by arm's length negotiation between the parties. For | |
determining the prices of survey and design projects, the Company | |
would refer to the Engineering Survey and Design Charging | |
Administration Regulations (Ji Jia Ge [2002] No. 10) 《( 工程勘 | |
察設計收費管理規定》( 計價格[2002] 第10 號)) promulgated by | |
the then National Development Plan Commission and Ministry of | |
Construction and refer to the pricing factors such as the scale and | |
complexity of the projects and determine after negotiation with the | |
parties. The price is usually not lower than the price provided by | |
the independent third parties. | |
For determining the prices of engineering and construction | |
contracting projects, the Company would estimate prices on the | |
basis of the project size and the exact work to be done, which | |
is also the basis that the Company makes reference to when | |
participating in the bidding or negotiation process. In addition, the | |
Company would also calculate the base prices of engineering and | |
construction contracting projects in accordance with the provincial | |
and industrial standard of construction quota where the project | |
is located and then decide the final consideration of contract on | |
arm's length basis with the contract party. All such transactions in | |
relation to engineering services are on normal commercial terms. | |
Reasons for and | (1) As the Company has long been providing stable engineering |
benefits of the | services to China Aluminum Group, we are able to fully |
transactions: | understand the business and operating requirements of China |
Aluminum Group. | |
(2) As the prices and terms of engineering services provided | |
by the Company to China Aluminum Group are no less | |
favourable than those provided to independent third parties | |
by the Company, the transactions shall generate profits for | |
the Company. |
- 15 -
Historical figures and the proposed annual caps:
Historical amounts | ||||||||
Unit: RMB million | ||||||||
For the years ended 31 | As of | |||||||
December | 30 September | |||||||
2017 | 2018 | 2019 | ||||||
Total fees for the engineering services provided to | ||||||||
China Aluminum Group by the Company under | ||||||||
the Engineering Services Master Agreement | 8,336 | 5,762 | 2,499 | |||||
Historical annual caps | ||||||||
Unit: RMB million | ||||||||
For the years ended 31 December | ||||||||
2017 | 2018 | 2019 | ||||||
Total fees for the engineering services provided | ||||||||
by the Company to China Aluminum Group | ||||||||
under the Engineering Services Master | ||||||||
Agreement | 11,000 | 6,600 | 6,000 | |||||
Proposed annual caps | ||||||||
Unit: RMB million | ||||||||
For the years ended 31 December | ||||||||
2020 | 2021 | 2022 | ||||||
Total fees for the engineering services provided | ||||||||
by the Company to China Aluminum Group | ||||||||
under the Engineering Services Master | ||||||||
Agreement | 7,000 | 6,500 | 6,000 | |||||
- 16 -
Basis for the caps: In determining the caps, the Company has primarily considered the following factors:
- the historical prices of the engineering services provided by the Group to China Aluminum Group.
- Based on the current project implementation of the Group and the development planning of China Aluminum Group. Actively responding to the national supply-side structural reform, and following the policies including the "Three Cuts, One Drop, One Improve" (i.e. cut production capacity, cut inventories, de-leveraging, reduce costs, improve shortcomings), China Aluminum Group has proactively implemented strategic transformation and structural adjustment, phased out and shut down the production lines with insufficient capacity and no competitiveness, and reduced the production costs as a whole and improved the shortcomings of the enterprise development to raise the competitiveness by means of capacity replacement and technological improvement and upgrades in the regions with rich energy resources. As an important segment in the engineering technology collaboration industry under the "4+4+4" strategic blueprint of China Aluminum Group, the Group will continue to serve for the core industrialisation development of non-ferrous metals, grow new capabilities for general contracting of project construction, and fully engage itself in the construction of non-ferrous metals development projects of China Aluminum Group.
- The estimated increase of the cost of labour after considering the economic trend both at the moment and within the short term.
- 17 -
6. INTERNAL CONTROL MEASURES ADOPTED FOR THE IMPLEMENTATION OF CONTINUING CONNECTED TRANSACTIONS
The Company has adopted the following internal management procedures to ensure that the above continuing connected transactions are fair and reasonable and on normal commercial terms:
- The Company has adopted and implemented a set of management system on connected transactions. Under the system, the Company's financial department is responsible for conducting reviews on compliance with relevant laws, regulations, the Company's policies and the Listing Rules in respect of continuing connected transactions. In addition, the financial department and other relevant operation departments of the Company are jointly responsible for evaluating the transaction terms under the agreements of continuing connected transactions, in particular, the fairness and reasonableness of the pricing terms under each agreement; and
- Independent non-executive Directors have also reviewed the agreements of continuing connected transactions, to ensure that such agreements are entered into on normal commercial terms, are fair and reasonable, and are carried out pursuant to the terms of such agreements. The auditors of the Company will also conduct an annual review on the pricing and annual caps of such agreements.
When determining the actual prices of products supplied and services provided by China Aluminum Group to the Company, China Aluminum Group will provide the Company with a proposed price before determination. As mentioned above, in order to ensure that the pricing terms under the agreements of continuing connected transactions are fair and reasonable, the tendering companies, the Company's financial department and other relevant operation departments will conduct the following review procedures on the proposed price offered by China Aluminum Group.
- If a comparable market price is available, the proposed price will be compared with the market price to ensure that such proposed price is not higher than the selling price of the materials, components and parts or products with similar specifications, technology and quality requirements provided by other manufacturers in the market;
- The Company has established a stringent management method on market price inquiries:
- For selection of potential suppliers, the Group has developed standards for the selection of suppliers based on different purchase needs. Such standards include, but are not limited to, the scale of business, industry recognition, experiences in supplying the same types of products and services, technological level, financial conditions, etc. The same standards are applicable to both connected persons and independent third-party suppliers. The Company does not give any preferential treatment to connected persons in respect of the selection of potential suppliers. The selection of suppliers
- 18 -
shall be determined by the collective decision of a comprehensive tender assessment board with members including representatives from the tendering companies, the financial department and other relevant operation departments jointly participating in such assessment. The Company will make market price inquiries with various suppliers and conducted rounds of internal assessment with reference to the factors including price, quality, technology, product risks and after-sales services;
- For price inquiry procedures, the Company requires at least three potential suppliers participating in the same purchase, of which at least two of them shall be independent third-party suppliers. Price inquiry procedures that fail to meet the above requirements will be void. Price inquiry procedures are conducted in strict accordance with the above model and the entire process is under the supervision of the tendering companies, the discipline inspection department and the financial department. Any violation of those measures will be recorded. The result of price inquiry will undergo a final review by the management of the Company. The winner of the price inquiry procedure will enter into a written agreement with the Company. If there is any evidence of frauds or breaches of the supplier during the procedure, the Company will terminate cooperation and pursue legal responsibility, regardless of whether such supplier is the Company's connected person. All of the written documents involved in the price inquiry procedure shall be kept for at least ten years. In case the parties involved in the price inquiry procedure have any reasonable doubt about the result of price inquiry, they may check relevant documents upon the Company's approval;
- If no comparable market price is available, the fairness and reasonableness of the proposed price will be determined with reference to (1) the market price of the raw materials or products and services forming relevant equipment or products; and (2) the cost estimated to be required for manufacturing such equipment, products and services with reference to requirements in relation to their nature, functionality, technology and quality standards, etc., which can be used to work out the total cost of such equipment, products and services plus a profit margin of not more than the maximum level as stipulated in the relevant agreements, depending on the complexity of technologies and quality control procedures involved; and
- The Company has established a bidding leading team, which comprises the vice president, heads of the purchase, engineering management and the financial department and legal personnel. The members of the team have more than 10 years of experience in the industry as well as rich work experience, and each of them possesses professional specialties. The bidding leading team will review the proposed price to ensure that it is in line with the pricing terms of the relevant agreements and the terms provided to the Company are no less favorable than those offered by the supplier to independent third parties.
- 19 -
GENERAL INFORMATION
Information on the Company
The Company is a leading technology, engineering service and equipment provider in the non-ferrous metals industry in China, capable of providing full business-chain integrated engineering solutions throughout various stages of the non-ferrous metals industry chain. The Group is primarily engaged in engineering design and consultancy, engineering and construction contracting, equipment manufacturing, and trading.
Information on China Aluminum Group
China Aluminum Group is a state-owned enterprise incorporated under the PRC law in 2001. China Aluminum Group is the controlling Shareholder of the Company and directly and indirectly holds approximately 76.50% of its share capital in issue. China Aluminum Group is principally engaged in mineral resources development, smelting and processing of non-ferrous metals, relevant trading and related engineering and technical services.
LISTING RULES IMPLICATIONS
As at the date of this announcement, China Aluminum Group directly and indirectly holds 76.50% of the existing issued share capital of the Company, and is a controlling Shareholder of the Company and thus a connected person thereof. As the highest applicable percentage ratios of the annual caps for the general services provided to the Company by China Aluminum Group and the general services provided to China Aluminum Group by the Company exceed 0.1% but are less than 5%, it is subject to the reporting, announcement and annual review requirements but are exempt from the circular and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules. As the highest applicable percentage ratios of the annual caps for the commodities provided to and purchased from China Aluminum Group and the engineering services provided to China Aluminum Group by the Company exceed 5%, it is subject to the reporting, annual review, announcement, circular and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules. As the highest applicable percentage ratios of the annual caps for the commodities provided to and purchased from China Aluminum Group by the Company exceed 5% but are less than 25%, the Commodities Sales and Purchases Master Agreement and the transactions thereunder constitute the discloseable transactions of the Company and are subject to reporting and announcement requirements but are exempted from Shareholders' approval requirements under Chapter 14 of the Listing Rules. As the highest applicable percentage ratios of the annual caps for the engineering services provided to China Aluminum Group by the Company exceed 25% but are less than 75%, the Engineering Services Master Agreement and the transactions thereunder constitute the major transactions of the Company and are subject to reporting, announcement and Shareholders' approval requirements under Chapter 14 of the Listing Rules.
- 20 -
Under Rule 14A.36 of the Listing Rules, any connected persons and shareholders and their associates who have a material interest in the Commodities Sales and Purchases Master Agreement, the Engineering Services Master Agreement and the transactions contemplated thereunder are required to abstain from voting in respect of the related resolutions at the extraordinary general meeting. As China Aluminum Group directly and indirectly holds 76.50% of the existing issued share capital of the Company, and is a controlling shareholder of the Company and a connected person thereof, Luoyang Institute, a wholly-owned subsidiary of China Aluminum Group, is also a connected person of the Company. Accordingly, due to the interests of China Aluminum Group and Luoyang Institute in these transactions, China Aluminum Group and its associate Luoyang Institute would be required to abstain from voting on the resolutions for the approval of the Commodities Sales and Purchases Master Agreement, the Engineering Services Master Agreement and their proposed annual caps.
CONFIRMATION OF THE BOARD
As Mr. Wang Jun and Mr. Li Yihua, the Directors of the Company, hold management positions in China Aluminum Group and its subsidiaries, they are deemed to have material interests in the above continuing connected transactions. They have abstained from voting in respect of the Board resolution for the approval of the Commodities Sales and Purchases Master Agreement, the General Services Master Agreement, the Engineering Services Master Agreement and their proposed annual caps.
The Directors (including the independent non-executive Directors) consider that: (1) it is beneficial to the Company to continue the above continuing connected transactions as these transactions have facilitated and will continue to facilitate the operation and growth of the Company's business; (2) the above continuing connected transactions and the annual caps for 2020, 2021 and 2022 have been entered into on normal commercial terms and on terms no less favourable than those available to the Company by independent third parties under prevailing local market conditions, and were conducted in the ordinary and usual course of business of the Company; and (3) they are fair and reasonable and in the interests of the Company and its Shareholders as a whole.
An independent financial advisor will be engaged to advise the Independent Board Committee and the Independent Shareholders as to whether the Commodities Sales and Purchases Master Agreement, the Engineering Services Master Agreement and their proposed annual caps are conducted on normal commercial terms, fair and reasonable to the Independent Shareholders, and in the interest of the Company and its Shareholders as a whole, and advise the Independent Shareholders as to how to vote on the above resolutions at the fourth extraordinary general meeting in 2019. An Independent Board Committee has been established that comprises all the independent non-executive Directors, to advise the Independent Shareholders as to whether the Commodities Sales and Purchases Master Agreement, the Engineering Services Master Agreement and their proposed annual caps are conducted on normal commercial terms, fair and reasonable to the Independent Shareholders, and in the interest of the Company and its Shareholders as a whole, and having considered the recommendations from the independent financial advisor engaged by the Company, to advise the Independent Shareholders as to how to vote on the above resolutions.
- 21 -
DESPATCH OF CIRCULAR
The Company will convene the fourth extraordinary general meeting in 2019, to review and approve the entering into of the Commodities Sales and Purchases Master Agreement, the Engineering Services Master Agreement and their proposed annual caps. A circular containing, among others, (1) details of the Commodities Sales and Purchases Master Agreement and its proposed annual cap; (2) details of the Engineering Services Master Agreement and its proposed annual cap; (3) a letter of advice from the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Commodities Sales and Purchases Master Agreement, the Engineering Services Master Agreement and their proposed annual caps; (4) the recommendation from the Independent Board Committee in respect of the Commodities Sales and Purchases Master Agreement and the Engineering Services Master Agreement and their proposed annual caps; and (5) the notice of the fourth extraordinary general meeting in 2019 is expected to be despatched to the Shareholders within 15 working days from the publication of this announcement in accordance with the Listing Rules.
DEFINITIONS
In this announcement, unless the context otherwise requires, the following expressions have the following meanings:
"Board" | means the board of Directors |
"China Aluminum Group" | means Aluminum Corporation of China Limited (中國鋁業集團 |
有限公司) | |
"Commodities Sales | means the commodities sales and purchases master agreement |
and Purchases Master | entered into between China Aluminum Group and the Company |
Agreement" | on 30 October 2019 |
"Company" | means China Aluminum International Engineering Corporation |
Limited ( 中鋁國際工程股份有限公司), a joint stock limited | |
company incorporated in the PRC with limited liability, the | |
H Shares of which are listed on the Stock Exchange and the | |
A Shares of which are listed on the Shanghai Stock Exchange | |
"connected person(s)" | has the meaning ascribed to it under the Listing Rules |
"continuing connected | has the meaning ascribed to it under the Listing Rules |
transaction" | |
"Director(s)" | the director(s) of the Company |
"Engineering Services | means the engineering services master agreement entered into |
Master Agreement" | between China Aluminum Group and the Company on 30 |
October 2019 |
- 22 -
"General Services Master | means the general services master agreement entered into |
Agreement" | between China Aluminum Group and the Company on 30 |
October 2019 | |
"Group" | means the Company and its subsidiaries |
"Hong Kong" | means the Hong Kong Special Administrative Region of the |
People's Republic of China | |
"H Shares" | means the overseas listed foreign invested shares with a |
nominal value of RMB1.00 each in the ordinary share capital | |
of the Company, which are subscribed for and traded in HK | |
dollars and listed on the Stock Exchange | |
"Independent Board | means an independent committee of the Board established |
Committee" | for the purpose of considering the Commodities Sales and |
Purchases Master Agreement and the Engineering Services | |
Master Agreement and the transactions thereunder, including | |
the annual caps, comprising all independent non-executive | |
Directors who are independent of the transactions | |
"Independent Shareholders" | means the shareholders of the Company other than China |
Aluminum Group and its associates | |
"independent third | has the meaning ascribed to it under the Listing Rules |
party(ies)" | |
"Listing Rules" | means the Rules Governing the Listing of Securities on |
The Stock Exchange of Hong Kong Limited, as amended, | |
supplemented or otherwise modified from time to time | |
"Luoyang Institute" | means Luoyang Engineering & Research Institute for |
Nonferrous Metals Processing Co., Ltd. (洛陽有色金屬加工設 | |
計研究院有限公司), a company incorporated under the laws of | |
the PRC with limited liability (sole proprietorship invested or | |
held by non-natural person), a subsidiary of China Aluminum | |
Group in which China Aluminum Group holds 100% equity | |
interests | |
"PRC" | means the People's Republic of China |
"RMB" | means Renminbi, the lawful currency of the PRC |
"Shareholders" | means the holders of Shares |
- 23 -
"Shares" | means the shares in the share capital of the Company at par |
value of RMB1.00 per share, including A Shares and H Shares | |
"Stock Exchange" | means The Stock Exchange of Hong Kong Limited |
By Order of the Board | |
China Aluminum International Engineering Corporation Limited | |
ZHANG Jian | |
Joint Company Secretary | |
Beijing, PRC | |
30 October 2019 |
As at the date of this announcement, the non-executive directors are Mr. WANG Jun and Mr. LI Yihua; the executive directors are Mr. WU Jianqiang, Mr. ZONG Xiaoping, Mr. WU Zhigang and Mr. ZHANG Jian; and the independent non-executive directors are Mr. GUI Weihua, Mr. CHEUNG Hung Kwong and Mr. FU Jun.
- 24 -
Attachments
- Original document
- Permalink
Disclaimer
China Aluminum International Engineering Corp. Ltd. published this content on 30 October 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 October 2019 15:01:04 UTC