First Tractor : CONTINUING CONNECTED TRANSACTIONS FOR 2022 (in PDF)

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CONTINUING CONNECTED TRANSACTIONS FOR 2022

2022 CONTINUING CONNECTED TRANSACTION AGREEMENTS

On 24 December 2021,

1. the Company, on behalf of the Group, as the lessor, and YTO, on behalf of the Enlarged YTO Group, as the lessee, entered into the Land Lease Agreement, pursuant to which the Group agreed to lease the Land to the Enlarged YTO Group;
2. the Company, on behalf of the Group, as the lessor, and YTO, on behalf of the Enlarged YTO Group, as the lessee, entered into the Properties Lease Agreement, pursuant to which the Group agreed to lease the Properties to the Enlarged YTO Group;
3. YTO, on behalf of YTO Group, as the purchaser, and the Company, on behalf of the Group, as the supplier, entered into the Research and Development Services Agreement, pursuant to which the Group agreed to provide the product research and development, technological and calibration services to YTO Group;
4. YTO, on behalf of YTO Group, as the supplier and/or the supplying agent, and the Company, on behalf of the Group, as the purchaser and/or the purchasing agent, entered into the Common Resource Services Agreement, pursuant to which YTO Group agreed to provide the Common Resource Services to the Group;

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1. Xiyuan Company, as the supplier, and the Company, on behalf of the Group, as the purchaser, entered into the Product Inspection and Testing as well as Technological Services Agreement, pursuant to which, Xiyuan Company agreed to provide the Product Inspection and Testing as well as Technological Services to the Group; and
2. Tractor Research Company, as the supplier, and the Company, on behalf of the Group, as the purchaser, entered into the Tractor Research Company Technological Services Agreement, pursuant to which, Tractor Research Company agreed to provide the production technology research and development, consultation and other technological services in respect of tractor and other agricultural machinery and diesel engine and other power machinery products to the Group.

RELATIONSHIP BETWEEN THE PARTIES

As at the date of this announcement, YTO beneficially owns approximately 48.81% equity interest in the Company and is the immediate controlling shareholder of the Company. Xiyuan Company is a direct wholly-owned subsidiary of YTO. Tractor Research Company is an associate of YTO and a connected subsidiary of the Company under the Listing Rules. Accordingly, each of the members of YTO Group, Xiyuan Company and Tractor Research Company is a connected person of the Company and the transactions contemplated under the 2022 Continuing Connected Transaction Agreements constitute continuing connected transactions of the Company under the Listing Rules.

LISTING RULES IMPLICATIONS

As all of the applicable percentage ratios for the Land Lease Agreement and the Properties Lease Agreement (after aggregation) are less than 0.1%, the transactions contemplated under the Land Lease Agreement and the Properties Lease Agreement fall to be de minimis transactions and are exempt from the reporting, announcement and independent shareholders' approval requirements under the Listing Rules. The disclosure made in this announcement is made on a voluntary basis in accordance with the announcement published by the Company on the even day on the Shanghai Stock Exchange.

As the applicable percentage ratios for each of the Research and Development Services Agreement, the Common Resource Services Agreement, the Product Inspection and Testing as well as Technological Services Agreement and the Tractor Research Company Technological Services Agreement are more than 0.1% but less than 5%, the provision of services under each of the Research and Development Services Agreement, the Common Resource Services Agreement, the Product Inspection and Testing as well as Technological Services Agreement and the Tractor Research Company Technological Services Agreement is subject to the reporting and announcement requirements but is exempt from the independent shareholders' approval requirement under Chapter 14A of the Listing Rules.

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(1) LAND LEASE AGREEMENT

INTRODUCTION

On 24 December 2021, the Company, on behalf of the Group, as the lessor, and YTO, on behalf of the Enlarged YTO Group, as the lessee, entered into the Land Lease Agreement, pursuant to which the Group agreed to lease the Land to the Enlarged YTO Group.

LAND LEASE AGREEMENT

Details of the principal terms of the Land Lease Agreement and its proposed Annual Cap are set out below:

Date

24 December 2021

Parties

1. the Company, on behalf of the Group, as the lessor; and
2. YTO, on behalf of the Enlarged YTO Group, as the lessee.

Term of the Agreement

The term of the Land Lease Agreement is from 1 January 2022 to 31 December 2022.

Land and Land Use Rights to be Leased

Pursuant to the Land Lease Agreement, the Group agreed to lease to the Enlarged YTO Group the Land of a total gross area of approximately 11,639 square metres owned by the Group, including but not limited to the land and land use rights located at No. 154 Jianshe Road, Luoyang, Henan Province, the PRC.

Payment Terms

Pursuant to the Land Lease Agreement, the rent for a quarter shall be payable by the Enlarged YTO Group in cash before the end of such quarter.

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Pricing Standard for the Transactions under the Land Lease Agreement

Pursuant to the Land Lease Agreement, the rent of the Land payable by the Enlarged YTO Group shall be determined according to the following order:

1. the prices of lease transactions in respect of similar land and land use rights in similar locations between the lessor and independent third parties; or
2. in the event that the above prices are not available or not applicable, the price shall be determined through negotiations by the parties on an arm's length basis.

The lessor will select and engage a qualified intermediary to appraise the rental value of the premises to be leased at a price no less than the appraised value or obtain not less than two quotes of market rental for similar land/ land use rights through enquiry for comparison.

The Company uses method (1) to determine the price. The Company will make reference to the unit rent prices (the "Comparable Unit Rent Prices") in lease agreements entered into recently by the Group with independent third parties for similar land/land use rights in similar locations, to ensure that the unit rent price payable to the Group by YTO Group under the Land Lease Agreement will not be lower than that of the Comparable Unit Rent Prices.

The Company will use method (2), where there are no available or comparable prices under method (1). Under method (2), the Company will select and appoint an intermediary with appraisal qualification to conduct appraisal on the land/ land use rights to be leased, and the transaction price shall be no less than the appraised value; or through enquiries, obtain not less than two quotes of market rental for similar land/land use rights for comparison.

In any event, the rent payable by YTO Group to the Group under the Land Lease Agreement will be no less favourable than the rent payable by independent third parties to the Group for similar land and land use rights in similar locations.

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HISTORICAL FIGURES AND THE PROPOSED ANNUAL CAP FOR THE TRANSACTIONS UNDER THE LAND LEASE AGREEMENT

The following table sets out the historical annual rent for the lease of the Land and land use rights for the two years ended 31 December 2020 and the eleven months ended 30 November 2021, and the proposed Annual Cap for the year ending 31 December 2022 for the lease of the Land under the Land Lease Agreement:

		Historical annual
Historical annual	Historical annual	rent for the
rent for the year	rent for the year	eleven months	Proposed Annual
ended 31 December	ended 31 December	ended 30 November	Cap amount for
2019	2020	2021	the year ending
(audited)	(audited)	(unaudited)	31 December 2022
RMB'000	RMB'000	RMB'000	RMB'000
1,640	1,790	70	350

The under-utilization of the annual cap for the year ending 31 December 2021 is primarily due to the fact that certain members of the Enlarged YTO Group have implemented business re-organisation during the year and as a result there has been a decrease in the areas of Land required by the Enlarged YTO Group from the Group.

BASIS FOR THE PROPOSED ANNUAL CAP UNDER THE LAND LEASE AGREEMENT

The proposed Annual Cap amount for the year ending 31 December 2022 under the Land Lease Agreement was determined with reference to the actual transaction amount of the lease of the land for the two years ended 31 December 2020 and the eleven months ended 30 November 2021 and the decreased demand for Land by the Enlarged YTO Group due to business re-organisation of certain members within the group. Having considered the area of land expected to be leased to the Enlarged YTO Group in 2022 and the historical charging standard of the Group, the proposed Annual Cap amount for the year ending 31 December 2022 is correspondingly adjusted to RMB350,000.

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