Tianjin Port Development : Announcements and Notices - Discloseable and Connected Transaction in Relation to the Merger by Absorption of the Three Companies

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code : 03382)

DISCLOSEABLE AND CONNECTED TRANSACTION

IN RELATION TO

THE MERGER BY ABSORPTION OF THE THREE COMPANIES

The Board is pleased to announce that on 30 June 2019, the Three Companies and the Relevant Shareholders entered into the Agreement in relation to the Merger. Pursuant to the Agreement, Tianjin Port Container will, as the surviving party, absorb and merge with Tianjin Orient and Tianjin Five Continents. Subsequently, Tianjin Orient and Tianjin Five Continents will be dissolved. The Relevant Shareholders will hold equity interest in New Tianjin Port Container, and the shareholding proportion is determined based on their respective shareholding proportion calculation amount in the Three Companies.

COSCO Ports is a substantial shareholder (as defined in the Listing Rules) of Tianjin Orient and Tianjin Five Continents, while China Shipping Terminal and China Merchants are each a substantial shareholder (as defined in the Listing Rules) of Tianjin Five Continents. Therefore, each of COSCO Ports, China Shipping Terminal and China Merchants is a connected person of the Company at the subsidiary level, as defined in the Listing Rules. Accordingly, the Merger constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules.

Upon completion of the Merger, the Group will hold 76.68% equity interest in New Tianjin Port Container, which is equivalent to that the Group's (1) equity interest in Tianjin Port Container is diluted from 100% to 76.68%; (2) equity interest in Tianjin Orient is increased from 75.5% to 76.68%; and (3) equity interest in Tianjin Five Continents is increased from 51.854% to 76.68%. The Merger constitutes a deemed disposal of 23.32% equity interest of the Group in Tianjin Port Container, and a deemed acquisition of 1.18% equity interest in Tianjin Orient and 24.826% equity interest in Tianjin Five Continents by the Group.

Pursuant to Rule 14.22 and 14A.81 of the Listing Rules, the Merger and the Previous Acquisitions should be aggregated. As the applicable percentage ratios (as defined in the Listing Rules), calculated on an aggregate basis, in relation to the Merger and the Previous Acquisitions are more than 5% but less than 25%, the Merger also constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules and is subject to the reporting and announcement requirements, but is exempt from the circular (including accountants' report) and shareholders' approval requirements under Chapter 14 of the Listing Rules.

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The Board has approved the Merger and the independent non-executive Directors have confirmed that the Merger is on normal commercial terms, and the terms are fair and reasonable, and the Merger is in the interests of the Company and the shareholders of the Company as a whole. Pursuant to Rule 14A.101 of the Listing Rules, the Merger is therefore exempt from the circular, independent financial advice and shareholders' approval requirements, and is only subject to the reporting and announcement requirements under Chapter 14A of the Listing Rules.

THE AGREEMENT

Date

30 June 2019

Parties

Relevant Shareholders

1. Tianjin Port Co, a subsidiary of the Group
2. COSCO Ports
3. China Shipping Terminal
4. China Merchants

Three Companies

Surviving Party

1. Tianjin Port Container, a subsidiary of the Group Merged Parties
2. Tianjin Orient, a subsidiary of the Group
3. Tianjin Five Continents, a subsidiary of the Group

Form of Merger

The Merger will be conducted by way of merger by absorption. Tianjin Port Container will, as the surviving party, absorb and merge with Tianjin Orient and Tianjin Five Continents, and will succeed all assets, businesses, credits, liabilities and employees of Tianjin Orient and Tianjin Five Continents. Subsequently, Tianjin Orient and Tianjin Five Continents will be dissolved, and their respective capacity as legal entity will be cancelled.

Determination Basis of Shareholding Proportion of the Relevant Shareholders in New Tianjin Port Container

The shareholding proportion in New Tianjin Port Container was arrived at after arm's length negotiations among the Relevant Shareholders based on the appraised value issued by an independent valuer. Tianjin Zhonglian Assets Appraisal Co., Ltd. adopted the asset-based approach and conducted valuation of the entire shareholders' equity in each of the Three Companies as at the Valuation Reference Date, and the appraised value of Tianjin Port Container, Tianjin Orient and Tianjin Five Continents were approximately RMB1,572.17 million, RMB420.06 million and RMB1,466.83 million respectively.

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Upon the completion of the Merger, the Relevant Shareholders will hold equity interest in New Tianjin Port Container, and the shareholding proportion is determined based on their respective shareholding proportion calculation amount in the Three Companies. The shareholding proportion of each of the Relevant Shareholders in New Tianjin Port Container is the proportion of the sum of the respective shareholding proportion calculation amount of that Relevant Shareholder in the Three Companies, divided by the sum of the shareholding proportion calculation amount of the Three Companies. The respective shareholding proportion calculation amount in the Three Companies is equal to the respective appraised value of equity interest of the Three Companies as at the Valuation Reference Date, and deducting therefrom the respective profits distributed by the Three Companies during the period from 1 January 2018 up to the Valuation Reference Date.

Shareholding Structure of the Three Companies and New Tianjin Port Container

The shareholding structure of the Three Companies as at the date of this announcement and New Tianjin Port Container immediately following completion of the Merger is as follows:

								Immediately
									following
								completion of
		As at the date of this announcement		the Merger
	Tianjin Port		Tianjin	Tianjin Five		New Tianjin
	Container		Orient	Continents		Port Container
Tianjin Port Co	100%	75.5%	51.854%	76.68%
COSCO Ports	0%	24.5%	17.073%	10.01%
China Shipping Terminal	0%	0%	14%	6%
China Merchants		0%		0%		17.073%		7.31%
Total		100%		100%		100%		100%

With effect from the Merger Date, the registered capital of New Tianjin Port Container will be RMB2,408,312,700. Tianjin Port Co will hold 76.68% equity interest in New Tianjin Port Container which will become a non-wholly owned subsidiary of the Group.

Arrangements During the Transitional Period

During the Transitional Period, the Three Companies should be operated as usual by the parties to the Agreement based on the current status in accordance with the provisions under the respective articles of association and the agreement under the relevant joint venture contracts of the Three Companies.

Conditions Precedent

The implementation of the Merger is conditional upon the fulfilment of the following conditions precedent (save for the conditions precedent explicitly waived by the parties to the Agreement in writing to the extent permitted by applicable laws):

1. Consents and approvals of the Three Companies and the Relevant Shareholders required for the Merger having been obtained:

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1. 1. the decisions or resolutions approving the Merger and authorising the execution of the relevant legal documents having been adopted by the competent authorities of the Three Companies; and
   2. the resolutions or decisions approving the Merger and authorising the execution of the relevant legal documents having been adopted by the internal competent authorities of the Relevant Shareholders through due process.
2. The approvals, consents, registrations, records-filings and notifications required by the applicable laws to be obtained prior to the implementation of the Merger having been obtained, including but not limited to the consent of the employees' (or employees representatives') congress of the Three Companies, and the publication of the notice to creditors;
3. The representations and warranties made by the parties to the Agreement in the Agreement being true, accurate and complete in all aspects; and
4. The parties to the Agreement having performed and complied with the provisions and obligations required to be performed or complied with prior to the implementation of the Merger under the Agreement and other legal documents related to the Merger in all aspects.

INFORMATION OF THE THREE COMPANIES

Tianjin Port Container is a limited company incorporated in the PRC with a registered capital of RMB1,021.23 million and is principally engaged in container handling and other port ancillary services.

Tianjin Orient is a limited company incorporated in the PRC with a registered capital of USD29,200,000 and is principally engaged in container handling and other port ancillary services.

Tianjin Five Continents is a limited company incorporated in the PRC with a registered capital of RMB1,145 million and is principally engaged in container handling and other port ancillary services.

According to the audited financial statements prepared under the Chinese Accounting Standards, the audited financial information of the Three Companies is summarised as follows:

		For the year end 31 December		As at 31
	2018	2017	December 2018
	Net profit	Net profit	Net profit	Net profit	Net asset
	before tax	after tax	before tax	after tax	value
	(RMB million)	(RMB million)	(RMB million)	(RMB million)	(RMB million)
Tianjin Port
Container	105.29	78.63	88.70	66.70	1,381.77
Tianjin Orient	92.04	68.99	81.55	61.15	391.86
Tianjin Five
Continents	96.73	73.93	141.40	104.72	1,301.94

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INFORMATION OF THE GROUP

The Group is principally engaged in containerised and non-containerised cargo handling services, sales and other port ancillary services at the port of Tianjin in the PRC, primarily through its subsidiaries and associated companies.

Tianjin Port Co is principally engaged in containerised and non-containerised cargo handling services, sales and other port ancillary services at the port of Tianjin in the PRC, primarily through its subsidiaries and associated companies.

REASONS FOR AND BENEFITS OF THE MERGER

Upon completion of the Merger, the Group can reduce the operating costs, coordinate the operational resources, unify the service standard and enhance the usage efficiency of terminals and depots. It is beneficial to the Group for further increasing the overall operating efficiency of the container terminals, providing faster and higher-quality services to customers and laying a solid foundation for the Group's container handling business to achieve sustainable and stable development.

The Directors (including the independent non-executive Directors) are of the view that the terms of the Agreement and the transactions contemplated thereunder have been entered into on normal commercial terms, the terms are fair and reasonable, and the Merger is in the interests of the Company and the shareholders of the Company as a whole.

FINANCIAL EFFECT OF THE MERGER

Pursuant to the Hong Kong Financial Reporting Standards, results of subsidiaries are consolidated into the consolidated financial statements of the Group, and transaction resulting in change in ownership interest without change of control is recognised as transaction with non-controlling interest which is accounted for as equity transaction and the gain or loss resulting from the transaction is recorded in equity.

Each of the Three Companies is a subsidiary of the Group and upon completion of the Merger, New Tianjin Port Container will continue to be a subsidiary of the Group, therefore, it is expected that no gain or loss from the Merger will be recorded in the consolidated income statement or consolidated statement of comprehensive income of the Group.

LISTING RULES IMPLICATIONS

COSCO Ports is a substantial shareholder (as defined in the Listing Rules) of Tianjin Orient and Tianjin Five Continents, while China Shipping Terminal and China Merchants are each a substantial shareholder (as defined in the Listing Rules) of Tianjin Five Continents. Therefore, each of COSCO Ports, China Shipping Terminal and China Merchants is a connected person of the Company at the subsidiary level, as defined in the Listing Rules. Accordingly, the Merger constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules.

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