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.

*

SHANGHAI ELECTRIC GROUP COMPANY LIMITED

上海電氣集團股份有限公司

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

(Stock Code: 02727)

CONNECTED TRANSACTION

ANNOUNCEMENT ON DISPOSAL OF 86.727% EQUITY INTERESTS IN SMC

INTRODUCTION

The Board is pleased to announce that, on 9 December 2019, the Board considered and approved the Relevant Resolution, pursuant to which the Company was approved to transfer the 86.727% equity interests it held in SMC to the Development Company at a consideration of RMB170,226,610.34. SMC will cease to be a subsidiary of the Company after the completion of this Transaction.

LISTING RULES IMPLICATION

As at the date of this announcement, Development Company is a wholly-owned subsidiary of the SEC, and SEC is the controlling shareholder of the Company, holding approximately 59.18%equity interests in the total issued share capital of the Company. Therefore, Development Company is a connected person of the Company as defined under Chapter 14A of the Listing Rules and this Transaction constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules.

Given that the highest applicable percentage ratio (as defined in the Listing Rules) for this Transaction, aggregated with the applicable ratios for the Previous Transaction according to Rule 14A.81 of the Listing Rules, is more than 0.1%, but all the percentage ratios are less than 5%, this Transaction is subject to the reporting and announcement requirements but exempt from the circular (including independent financial advice) and the independent shareholders' approval requirements under Chapter 14A of the Listing Rules.

INTRODUCTION

The Board is pleased to announce that, on 9 December 2019, the Board considered and approved the Relevant Resolution, pursuant to which the Company was approved to transfer the 86.727% equity interests it held in SMC to the Development Company at a consideration of RMB170,226,610.34. SMC will cease to be a subsidiary of the Company after the completion of this Transaction.

AGREEMENT TO BE ENTERED INTO BETWEEN BOTH PARTIES

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The principal terms of the Agreement to be entered into between both parties are summarised as follows:

Parties

The Company (Vendor); and

Development Company (Purchaser).

Subject matter

The Company agrees to transfer its 86.727% equity interests in SMC to the Development Company. As at the date of this announcement, SMC has been an indirect subsidiary of the Company for more than 12 months.

Pursuant to the regulations of relevant PRC laws over state-owned assets, the Equity Transfer shall be conducted and completed through Shanghai United Assets and Equity Exchange Co., Ltd in accordance with the terms as agreed under the Agreement.

The profit and loss of the SMC during the period from the valuation benchmark date (as defined below) to the date of completion of the Equity Transfer will be enjoyed and assumed by the Development Company.

Consideration

The total consideration for the proposed Equity Transfer is RMB170,226,610.34.

The consideration was determined after arm's length negotiations between the parties based on the appraised value of these assets as at 31 May 2019, the valuation benchmark date, as confirmed in the assets valuation report issued by the independent qualified valuer. The valuation result based on the asset-based approach was adopted by the Independent Valuer for the assets to be disposed. The appraised value of SMC is RMB196,278,679.46.

Payment terms

Development Company shall pay the full amount of transfer price in one lump sum into the bank account designated by the Company within 10 days after the Agreement comes into effect.

Conditions precedent

The Agreement will become effective only when all the following conditions have been fulfilled:

  1. SMC having fully repaid its shareholders' loan of RMB68,000,000.00 due to the Company before the completion of the transfer of equity interests;
  2. the Agreement having been signed by the parties hereto and their legal representatives, or their authorized representatives; and
    • 2 -

3. The parties to the Agreement and SMC having completed all internal decision-making procedures for approval of this transaction in accordance with the applicable laws, their respective articles of association and other internal documents, and other existing shareholders of SMC having renounced their preemptive rights of purchase in respect of the equity proposed to be transferred.

Completion of the Equity Transfer

The Equity Transfer is completed when all of the following conditions have been fulfilled:

  1. the Agreement having officially become effective;
  2. the parties to the Agreement having obtained the Asset Ownership Transaction Certificates issued by the Shanghai United Assets and Equity Exchange;
  3. SMC having completed the formalities for the change of business registration in relation to this transaction with the competent industry and commerce registration authorities, and obtained new business license issued by the industry and commerce registration authorities.

BASIC SITUATION OF SMC

SMC was established in 2002, with the registered capital of RMB550 million, and the shareholders and the proportion of capital contribution immediately prior to the Transaction are as follows:

Capital

Proportion of

contribution

No.

Contributories

capital

(RMB)

contribution

1

Shanghai Electric Group Company

477 million

86.727%

Limited

Hudong-Zhonghua Shipbuilding

2

(Group) Co., Ltd. (滬東中華造船

30 million

5.455%

(集團)有限公司)

China Shipbuilding Industry

3

Corporation (中國船舶重工集團

23 million

4.182%

公司)

4

Shanghai Optical Communications

20 million

3.636%

Co., Ltd. (上海光通信有限公司)

Total

550 million

100%

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As at the date of this announcement, SMC's legal representative is ZHANG Anpin. SMC's registered address and business address is 177 Yitian Road, Nanhui New Town, Pudong New District, Shanghai. SMC's scope of business is manufacturing and sales of crankshafts for ships, design, manufacturing, installation and maintenance of metallurgical equipment, complete set of construction machinery equipment, electromechanical equipment, etc., machining, processing and assembly of equipment, castings and forgings for ships, provision of after-sales services of products, and import and export of goods and technologies (the operation of the items subject to approval under laws shall be conducted after obtaining the approval from relevant authorities) .

Hudong-Zhonghua Shipbuilding (Group) Co., Ltd. (滬東中華造船(集團)有限公司), China Shipbuilding Industry Corporation (中國船舶重工集團公司) and Shanghai Optical Communications Co., Ltd. (上海光通信有限公司), all being shareholders of SMC, have agreed to waive the right of first refusal for the equity interests in SMC to be transferred.

FINANCIAL INFORMATION AND VALUATION OF SMC

Set out below is the financial information of SMC prepared in accordance with the PRC Generally Accepted Accounting Principles:

As audited by BDO China-SHU LUN PAN Certified Public Accountants LLP (立信會計師事 務所(特殊普通合夥)) which is a certified public accounting firm in the PRC, the main financial indicators of SMC for the most recent year and the most recent period are as follows:

Unit: RMB0'000

For the year ended

For the five

Particulars

months ended

31 December 2018

31 May 2019

Operating revenue

12,306.46

4,121.79

Profit before tax

-3,804.31

-4,813.69

Net profit

-4,503.67

-4,813.31

Particulars

As of 31 December

As of 31 May 2019

2018

Total assets

41,709.16

36,248.66

Net assets

7,146.57

2,357.55

Net profit before and after tax of SMC prepared in accordance with the PRC Generally Accepted Accounting Principles for the two years ended 31 December 2018 are as follows:

Unit: RMB0'000

For the year ended

For the year

Particulars

ended

31 December 2017

31 December 2018

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Net profit before tax

-4,321.00

-3,804.31

Net profit after tax

-4,321.00

-3,804.31

Shanghai Shenwei Assets Valuation Co., Ltd. (上海申威資產評估有限公司) was engaged to conduct assets valuation for the disposal of the 86.727% equity interests in SMC using the asset-based approach with 31 May 2019 as the valuation benchmark date. The appraised value of the 100% equity interests in SMC is RMB196,278,679.46. The valuation results are summarized as follows:

Valuation Results

Valuation Benchmark Date: 31 May 2019

Unit: RMB0'000

Type of assets

Book value

Appraised

Increase in

Appreciation

value

value

rate (%)

Current assets

10,197.41

9,416.84

-780.57

-7.65

Non-current assets

26,051.25

42,600.48

16,549.23

63.53

Including: fixed assets

23,687.43

28,884.83

5,197.40

21.94

Intangible assets

2,363.82

13,715.65

11,351.83

480.23

Total assets

36,248.67

52,017.32

15,768.65

43.50

Current liabilities

32,501.92

32,389.45

-112.47

-0.35

Non-current liabilities

1,389.20

-

-1,389.20

-100.00

Total Liabilities

33,891.12

32,389.45

-1,501.67

-4.43

Total equity

attributable to

2,357.55

19,627.87

17,270.32

732.55

shareholders of the

Company

FINANCIAL IMPACT OF THE EQUITY TRANSFER

Immediately upon completion of the Equity Transfer, the Company will no longer hold any equity interests in SMC. The Development Company will obtain 86.727% equity interests in SMC, and enjoy or assume the corresponding rights and obligations as the shareholder. SMC will cease to be a subsidiary of the Company.

The Equity Transfer is expected to result in a gain of approximately RMB128.05 million for the Company, which is estimated based on the difference between the consideration received under the Equity Transfer and the net book value of the equity interests disposed. The Equity Transfer will have no material impact on the Company.

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The proceeds received under the Equity Transfer will be used to replenish the Company's working capital.

REASONS FOR AND BENEFITS FROM THE EQUITY TRANSFER

Through the Equity Transfer, the Company can replenish its working capital, and thus provides support to the Company's healthy development.

OPINION FROM THE BOARD

Mr. Zheng Jianhua and Mr. Zhu Bin, both being Directors, hold directorship(s) or act as senior management in the SEC Group and its associates and thus have material interests in this Transaction. They have therefore abstained from voting on the Relevant Resolution. Save as disclosed above, none of the other Directors has material interests in this Transaction.

The Directors (including the independent non-executive Directors) consider that the consideration of the Equity Transfer was determined after arm's length negotiations based on the audited and appraised asset value of SMC and the transactions thereunder are on normal commercial terms, fair and reasonable and in the interests of the Company and its shareholders as a whole.

LISTING RULES IMPLICATION

As at the date of this announcement, the Development Company is a wholly-owned subsidiary of the SEC, and SEC is the controlling shareholder of the Company, holding approximately 59.18%equity interests in the total issued share capital of the Company. Therefore, the Development Company is a connected person of the Company as defined under Chapter 14A of the Listing Rules and this Transaction constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules.

Given that the highest applicable percentage ratio (as defined in the Listing Rules) for this Transaction, aggregated with the applicable ratios for the Previous Transaction according to Rule 14A.81 of the Listing Rules, is more than 0.1%, but all the percentage ratios are less than 5%, this Transaction is subject to the reporting and announcement requirements but exempt from the circular (including independent financial advice) and the independent shareholders' approval requirements under Chapter 14A of the Listing Rules.

INFORMATION ON BOTH PARTIES

The Group is one of the largest industrial equipment manufacturing conglomerates in China engaged in the following principal activities: (i) design, manufacture and sale of nuclear power nuclear island equipment products, wind power equipment products and heavy machinery including large forging components, and provision of solution package for comprehensive utilisation of solid waste, sewage treatment, power station environmental protection and distributed energy systems; (ii) design, manufacture and sale of thermal power equipment products and auxiliary equipment, nuclear power conventional island equipment products and power transmission and distribution equipment products; (iii) design, manufacture and sale of elevators, electric motors, machine tools, marine crankshafts and other electromechanical equipment products; and (iv) provision of integrated engineering services for power station projects and other industries, financial products and services, and functional services including international trading services, financial lease and related consulting services and insurance

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brokerage services. The ultimate beneficial owner of the Group is Shanghai State-owned Assets Supervision and Administration Commission.

The Development Company is a wholly-owned subsidiary of the SEC engaged in asset management, restructure, disposal, management, entrusted corporate management, industrial investments, corporate management consultation, corporate image planning, technology development, technology transfer, technology consulting, technical services" and property management. The ultimate beneficial owner of Development Company is Shanghai State- owned Assets Supervision and Administration Commission.

DEFINITIONS

Unless the context otherwise requires, the following expressions in this announcement shall have the following meanings:

"Agreement"

the equity transfer agreement entered into between

the Company and the Development Company in

relation to the transfer of the 86.727% equity

interests in SMC;

"associate(s)"

has the meaning ascribed thereto under the Listing

Rules;

"Board"

the board of Directors of the Company;

"Company"

Shanghai Electric Group Company Limited, a joint

stock limited company duly 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 02727 and the A Shares of which

are listed on the Shanghai Stock Exchange under

stock code 601727;

"connected person(s)"

has the meaning ascribed thereto under the Listing

Rules;

"controlling shareholder(s)

has the meaning ascribed thereto under the Listing

Rules;

"Development Company"

Shanghai Electric Development Co., Ltd. (上海電氣

企業發展有限公司), a company incorporated in

Shanghai, the PRC with limited liability and a

wholly-owned subsidiary of the SEC as of the date

of this announcement;

"Directors"

the directors of the Company;

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"Equity Transfer"

the transfer of the 86.727% equity interests in SMC

by the Company to the Development Company for

the consideration of RMB170,226,610.34;

"Group"

the Company and its subsidiaries from time to time;

"Hong Kong"

the Hong Kong Special Administrative Region of the

People's Republic of China;

"Independent Valuer"

Shanghai Shenwei Assets Valuation Co., Ltd. (上海

申威資產評估有限公司)

"Listing Rules"

The Rules Governing the Listing of Securities on

The Stock Exchange of Hong Kong Limited;

"Previous Transaction"

the connected transaction entered into between SEC

and Shanghai Electric International Economic and

Trade Ltd. (上海電氣國際經濟貿易有限公司) on

10 December 2018 in relation to the disposal of

100% equity interests in SNJ Valve Co., Ltd. (上海

電氣閥門有限公司) (details of which are set out in

the announcement of the Company published on 10

December 2018);

"PRC" or "China"

the People's Republic of China, but for the purposes

of this announcement only, excludes Hong Kong

Special Administrative Region, Macau Special

Administrative Region and Taiwan;

"Relevant Resolution"

the Proposal Regarding Transfer of the 86.727%

Equity Interests in SMC held by the Company to the

Development Company, which was submitted to the

Board for consideration on 9 December 2019;

"RMB"

"SEC"

Renminbi, the lawful currency of the PRC

Shanghai Electric (Group) Corporation (上海電氣 (集 團)總 公 司), the controlling shareholder (as defined in the Listing Rules) of the Company holding 59.18% equity interests in the total issued share capital of the Company as at the date of this announcement;

"SEC Group"

SEC, its subsidiaries and its associates, but

excluding the Group;

"SMC"

Shanghai Marine Crankshaft Co., Ltd. (上海船用曲

軸有限公司), a company incorporated in Shanghai,

the PRC with limited liability and a subsidiary of the

Company before the Transaction is completed;

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"subsidiary(ies)"

has the meaning ascribed thereto under the Listing

Rules;

"Transaction"

the proposed transaction under the equity transfer

agreement to be entered into between the Company

and the Development Company in relation to the

transfer of the 86.727% equity interests in SMC; and

"%"

Percentage.

By order of the Board

Shanghai Electric Group Company Limited

ZHENG Jianhua

Chairman of the Board

Shanghai, the PRC, 9 December 2019

As at the date of this announcement, the executive directors of the Company are Mr. ZHENG Jianhua, Mr. HUANG Ou, Mr. ZHU Zhaokai and Mr. ZHU Bin; the non-executive directors of the Company are Ms. YAO Minfang and Ms. LI An; and the independent non-executive directors of the Company are Dr. CHU Junhao, Dr. XI Juntong and Dr. XU Jianxin.

* For identification purpose only

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Shanghai Electric Group Co. Ltd. published this content on 09 December 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 December 2019 09:20:11 UTC