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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Air China Ld | LSE:AIRC | London | Ordinary Share | CNE1000001S0 | H SHS CNY1 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 78.8045 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Air Transport, Scheduled | 140.73B | -1.05B | -0.2112 | -3.73 | 3.91B |
From Apr 2019 to Apr 2024
TIDMAIRC
RNS Number : 0510Q
Air China Ld
07 September 2017
Click on, or paste the following link into your web browser, to view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/0510Q_-2017-9-7.pdf
THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt as to any aspect of this circular, you should consult a stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.
If you have sold or transferred all your shares of Air China Limited, you should at once hand this circular and the accompanying form of proxy and notice of attendance to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the transferee.
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, 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 circular.
AIR CHINA LIMITED
(a joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock Code: 00753)
(1) PROPOSED ELECTION OF DIRECTORS AND SUPERVISORS (2) PROPOSED AMMENTS TO THE ARTICLES OF ASSOCIATION
(3) PROPOSED AMMENTS TO THE RULES AND PROCEDURES OF SHAREHOLDERS' MEETINGS AND THE RULES AND PROCEDURES OF
MEETINGS OF THE BOARD
(4) CONTINUING CONNECTED TRANSACTIONS: TRADEMARK LICENCE FRAMEWORK AGREEMENT
FINANCIAL SERVICES AGREEMENTS AND
NOTICE OF EXTRAORDINARY GENERAL MEETING
Independent Financial Adviser
to the Independent Board Committee and the Independent Shareholders
OCTAL Capital Limited
A letter from the Board is set out on pages 5 to 26 of this circular.
A letter from the Independent Board Committee, containing its advice to the Independent Shareholders of the Company, is set out on pages 27 to 28 of this circular.
A letter from the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders of the Company is set out on pages 29 to 44 of this circular.
A notice convening the EGM to be held at 2:00 p.m. on Friday, 27 October 2017 at The Conference Room C313, No. 30, Tianzhu Road, Airport Industrial Zone, Shunyi District, Beijing, PRC, is set out on pages VII-1 to VII-4 of this circular. Whether or not you are able to attend the EGM, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon as soon as possible but in any event not less than 24 hours before the time appointed for convening the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment should you so wish.
7 September 2017
CONTENTS
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Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . 5
I. Introduction . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. 5
II. Proposed Election of Directors and Supervisors . . .
. . . . . . . . . . . . . . . . . . . . . . 6
III. Proposed Amendments to the Articles of Association
. . . . . . . . . . . . . . . . . . . . . 7
IV. Proposed Amendments to the Rules and Procedures of Shareholders'
Meetings
and the Rules and Procedures of Meetings of the Board .
. . . . . . . . . . . . . . . . . 8
V. Trademark Licence Framework Agreement . . . . . . . .
. . . . . . . . . . . . . . . . . . . . 8
VI. Financial Services Agreements . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . 10
VII. EGM . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. 24
VIII. General Information . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
IX. Recommendation . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . 25
X. Additional Information . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . 25
LETTER FROM THE INDEPENT BOARD COMMITTEE . . . . . .
. . . . . . . . . . . . . . 27
LETTER FROM OCTAL CAPITAL . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . 29
APPIX I - BIOGRAPHICAL DETAILS OF THE DIRECTOR CANDIDATES
FOR THE FIFTH SESSION OF THE BOARD . . . . . . . . . . .
. . . . I-1
APPIX II - BIOGRAPHICAL DETAILS OF THE SUPERVISOR CANDIDATES
FOR THE FIFTH SESSION OF THE SUPERVISORY COMMITTEE . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . II-1
APPIX III - PROPOSED AMMENTS TO THE ARTICLES OF
ASSOCIATION . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . III-1
APPIX IV - PROPOSED AMMENTS TO THE RULES AND PROCEDURES
OF SHAREHOLDERS' MEETINGS . . . . . . . . . . . . . . .
. . . . . . . . IV-1
APPIX V - PROPOSED AMMENTS TO THE RULES AND PROCEDURES
OF MEETINGS OF THE BOARD . . . . . . . . . . . . . . . .
. . . . . . . . V-1
APPIX VI - GENERAL INFORMATION . . . . . . . . . . . VI-1
. . . . . . . . . . . . . . . . . . .
APPIX VII - NOTICE OF EXTRAORDINARY GENERAL MEETING . VII-1
. . . . . . . . .
DEFINITIONS
In this circular, the following expressions have the following meanings, unless the context requires otherwise:
"2004 Trademark Licence the trademark licensing agreement
Agreement" entered into between the Company
and CNAHC on 1 November 2004
"2015 Air China Financial the financial services framework
Services Agreement" agreement entered into between the
Company and CNAF on 29 April 2015
"2015 CNAHC Financial Services the financial services framework
Agreement" agreement entered into between CNAF
and CNAHC on 29 April 2015
"Air China Financial Services the financial services framework
Agreement" agreement entered into between the
Company and CNAF on 30 August 2017
"Air China New Annual Caps" RMB12 billion, RMB14 billion and
RMB15 billion, being the proposed
maximum daily balance of deposits
(including accrued interests) to
be placed by the Group with CNAF
under the Air China Financial Services
Agreement for each of the three years
ending 31 December 2020, respectively
"Articles of Association" the articles of association of the
Company
"Board" the board of Directors of the Company
"Cathay Dragon" Hong Kong Dragon Airlines Limited
"Cathay Pacific" Cathay Pacific Airways Limited
"CBRC" China Banking Regulatory Commission
"CNACG" China National Aviation Corporation
(Group) Limited ( ), a company incorporated
under the laws of Hong Kong, which
is a wholly- owned subsidiary of
CNAHC and a substantial shareholder
of the Company as at the Latest Practicable
Date
"CNAF" China National Aviation Finance Co.,
Ltd. ( ), a limited liability company
incorporated under the laws of the
PRC
"CNAHC" China National Aviation Holding Company
( )
"CNAHC Financial Services the financial services framework
Agreement" agreement entered into between CNAHC
and CNAF on 30 August 2017
"CNAHC Group" CNAHC, its subsidiaries and their
associates, companies falling within
the definition of commonly held entity
under the Hong Kong Listing Rules,
as well as any other CNAHC Member
Company which, in accordance with
the listing rules of the places where
the shares of the Company are listed
as in force and as amended from time
to time, is a connected person or
related party of the Company, but
excluding the Group
"CNAHC Member Companies" the member companies of the enterprise
group of which CNAHC is the parent
company, specific scope of the CNAHC
Member Companies shall be determined
in accordance with the Administrative
Measures for Finance Companies of
Enterprise Groups and other relevant
regulations
"CNAHC New Annual Caps" RMB8 billion, RMB9 billion and RMB10
billion, being the proposed maximum
daily balance of Credit Services
(including accrued interests) to
be provided by CNAF to the CNAHC
Group under the CNAHC Financial Services
Agreement for each of the three years
ending 31 December 2020, respectively
"Company" Air China Limited, a company incorporated
in the PRC, whose H shares are listed
on the Stock Exchange as its primary
listing venue and on the Official
List of
the UK Listing Authority as its secondary
listing venue, and whose A shares
are listed on the Shanghai Stock
Exchange
"Credit Services" loan, finance lease, and other credit
services
"CSRC" China Securities Regulatory Commission
"Director(s)" the director(s) of the Company
"EGM" the extraordinary general meeting
of the Company to be held at 2:00
p.m. on Friday, 27 October 2017 at
The Conference Room C313, No. 30,
Tianzhu Road, Airport Industrial
Zone, Shunyi District, Beijing, PRC
for the Shareholders to consider
and approve the resolutions set out
in the notice of the EGM dated 7
September 2017
"Financial Services Agreements" the Air China Financial Services
Agreement and the CNAHC Financial
Services Agreement
"Group" the Company and its subsidiaries
"HK$" Hong Kong dollars, the lawful currency
of Hong Kong
"Hong Kong" Hong Kong Special Administrative
Region of the PRC
"Hong Kong Listing Rules" The Rules Governing the Listing of
Securities on the Stock Exchange
"Independent Board Committee" a board committee comprising Mr.
Wang Xiaokang, Mr. Liu Deheng, Mr.
Stanley Hui Hon-chung and Mr. Li
Dajin, all being the independent
non-executive Directors
"Independent Financial Octal Capital Limited, a corporation
Adviser" or "Octal Capital" licensed to carry out Type 1 (dealing
in securities) and Type 6 (advising
on corporate finance) and Type 9
(asset management) regulated activities
under the SFO, being the independent
financial adviser to the Independent
Board Committee and the Independent
Shareholders in connection with the
Non-exempt Continuing Connected Transactions
and the Proposed Annual Caps
"Independent Shareholders" the independent shareholders of the
Company
"Latest Practicable Date" 1 September 2017, being the latest
practicable date prior to the printing
of this circular for ascertaining
certain information contained herein
"NAFMII" National Association of Financial
Market Institutional Investors
"Non-exempt Continuing the deposit services to be provided
Connected Transactions" by CNAF to the Group under the Air
China Financial Services Agreement
and the Credit Services to be provided
by CNAF to CNAHC Group under the
CNAHC Financial Services Agreement
"PBOC" the People's Bank of China
"Percentage Ratio" shall have the meaning ascribed to
it by the Hong Kong Listing Rules
"PRC" the People's Republic of China, excluding,
for the purpose of this circular
only, Hong Kong, Macau and Taiwan
"Proposed Annual Caps" the Air China New Annual Caps and
the CNAHC New Annual Caps
"RMB" Renminbi, the lawful currency of
the PRC
"SAFE" the State Administration of Foreign
Exchange of the PRC
"SASAC" The State-owned Assets Supervision
and Administration Commission of
the State Council
"SFO" the Securities and Futures Ordinance
(Chapter 571 of the laws of Hong
Kong)
"Shanghai Listing Rules" the Rules Governing the Trading of
Stocks on the Shanghai Stock Exchange
"Shareholder(s)" holder(s) of the shares of the Company
"Shenzhen Airlines" Shenzhen Airlines Company Limited
"Stock Exchange" The Stock Exchange of Hong Kong Limited
"Supervisor(s)" the supervisor(s) of the Company
"Supervisory Committee" the Supervisory Committee of the
Company
"Trademark Licence Framework the trademark licence framework agreement,
Agreement" dated 28 October 2014, entered into
between the Company and CNAHC in
respect of the Trademark Licence
Transaction
"Trademark Licence Transaction" the continuing connected transaction
contemplated under the Trademark
Licence Framework Agreement in relation
to the granting by the Company to
CNAHC
and its controlled companies (excluding
the Group) of a non-exclusive licence
for the use of 83 registered trademarks
of the Company
LETTER FROM THE BOARD
AIR CHINA LIMITED
(a joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock Code: 00753)
Directors: Registered Address: Blue
Non-Executive Directors: Cai Jianjiang Sky Mansion 28 Tianzhu
(Chairman) Cao Jianxiong Road
Feng Gang Airport Industrial Zone
John Robert Slosar Sai Cheung Shiu, Ian Shunyi District Beijing,
PRC
Executive Director:
Song Zhiyong (President) Principal Place of Business
in Hong Kong:
Independent Non-Executive Directors: 5th Floor, CNAC House
Wang Xiaokang Liu Deheng 12 Tung Fai Road
Stanley Hui Hon-chung Li Dajin Hong Kong International
Airport Hong Kong
7 September 2017
To the Shareholders
Dear Sirs or Madams,
(1) PROPOSED ELECTION OF DIRECTORS AND SUPERVISORS (2) PROPOSED AMMENTS TO THE ARTICLES OF ASSOCIATION
(3) PROPOSED AMMENTS TO THE RULES AND PROCEDURES OF SHAREHOLDERS' MEETINGS AND THE RULES AND PROCEDURES OF
MEETINGS OF THE BOARD
(4) CONTINUING CONNECTED TRANSACTIONS: TRADEMARK LICENCE FRAMEWORK AGREEMENT
FINANCIAL SERVICES AGREEMENTS
I. INTRODUCTION
Reference is made to (i) the announcement of the Company dated 29 April 2015 and the circular of the Company dated 8 May 2015 in relation to the 2015 Air China Financial Services Agreement and the 2015 CNAHC Financial Services Agreement; (ii) the announcement of the Company dated 28 October 2014
and the circular of the Company dated 31 October 2014 in relation to the Trademark Framework Licence Agreement; (iii) the announcement of the Company dated 30 August 2017 in relation to the proposed election of Directors and Supervisors; (iv) the announcement of the Company dated 30 August 2017 in relation to the proposed amendments to the Articles of Association, the Rules and Procedures of Shareholders' Meetings and the Rules and Procedures of Meetings of the Board; and (v) the announcement of the Company dated 30 August 2017 in relation to the Air China Financial Services Agreement, the CNAHC Financial Services Agreement and the Trademark Licence Framework Agreement.
The purpose of this circular is to provide you with all the information regarding, among others, (i) the proposed election of Directors and Supervisors; (ii) the proposed amendments to the Articles of Association;
(iii) the proposed amendments to the Rules and Procedures of Shareholders' Meetings and the Rules and Procedures of Meetings of the Board; (iv) the Financial Services Agreements, the Non-exempt Continuing Connected Transactions and the Proposed Annual Caps; and (v) the Trademark Licence Framework Agreement to enable you to make an informed decision on voting in respect of the relevant resolutions at the EGM.
The notice of the EGM is set out on pages VII-1 to VII-4 of this circular.
II. PROPOSED ELECTION OF DIRECTORS AND SUPERVISORS
Reference is made to the announcement of the Company dated 27 October 2016 in relation to the postponed election and appointment of members of the Board and the Supervisory Committee. As the Company has recently completed the nomination process of candidates for Directors and Supervisors of the new session of the Board and the Supervisory Committee, the Board and the Supervisory Committee resolved on 30 August 2017 to make recommendations of the Director candidates for the fifth session of the Board and the shareholder representative Supervisor candidates for the fifth session of the Supervisory Committee, respectively.
1. Proposed Election of Directors of the Fifth Session of the Board
The Board resolved to propose to elect Mr. Cai Jianjiang and Mr. John Robert Slosar as non- executive Directors of the fifth session of the Board, to elect Mr. Song Zhiyong as executive Director of the fifth session of the Board, and to elect Mr. Wang Xiaokang, Mr. Liu Deheng, Mr. Stanley Hui Hon-chung and Mr. Li Dajin as independent non-executive Directors of the fifth session of the Board.
Biographical details of the Director candidates for the fifth session of the Board are set out in Appendix I to this circular.
The Board also resolved to propose that the Shareholders approve that the emoluments of Mr. Stanley Hui Hon-chung and Mr. Li Dajin be RMB150,000 per person per year, the emoluments of Mr. Wang Xiaokang and Mr. Liu Deheng be determined pursuant to relevant policies as prescribed by the SASAC and the other proposed Directors will not receive any emoluments for serving as a Director. Each proposed Director shall enter into a service contract on this basis. The term of office of each proposed Director is three years, which shall commence upon the Shareholders' approval of the appointment and shall end upon the election of the sixth session of the Board in three years.
An ordinary resolution to consider and approve the election of the above proposed Directors and the proposal on their emoluments will be proposed at the EGM. "Cumulative voting" will be used in respect of all the sub-resolutions.
Mr. Cao Jianxiong, Mr. Feng Gang and Mr. Ian Sai Cheung Shiu will retire upon the office term expiration of the fourth session of the Board.
2. Proposed Election of Shareholder Representative Supervisors of the Fifth Session of the Supervisory Committee
The Supervisory Committee resolved to propose to elect Mr. Wang Zhengang and Mr. He Chaofan as shareholder representative Supervisors of the fifth session of the Supervisory Committee.
Biographical details of the shareholder representative Supervisors for the fifth session of the Supervisory Committee are set out in Appendix II to this circular.
The Supervisory Committee also resolved to propose that the Shareholders approve that the proposed Supervisors will not receive any emoluments for serving as a Supervisor. Each proposed Supervisor shall enter into a service contract on this basis. The term of office of each proposed Supervisor is three years, which shall commence upon the Shareholders' approval of the appointment and shall end upon the election of the sixth session of the Supervisory Committee in three years.
An ordinary resolution to consider and approve the election of the above proposed Supervisors and the proposal on their emoluments will be proposed at the EGM. "Cumulative voting" will be used in respect of the two sub-resolutions.
III. PROPOSED AMMENTS TO THE ARTICLES OF ASSOCIATION
According to the "Notice of Accelerating the Inclusion of General Provisions into the Articles of Association of Central Level State-Owned Enterprises for Party Building" ( ) (Guo Zi Dang Wei Dang Jian [2017] No. 1) and the Company's actual operational demands, the Board has resolved to propose to the Shareholders certain amendments to the Articles of Association.
The amendments to the Articles of Association include, among others, (i) the incorporation of provisions concerning Party building into the Articles of Association, which include the overall requirements for Party building works; (ii) a further refinement of the composition of the Board according to the Company's actual demands of operational decision-making; and (iii) the establishment of the position of one employee representative Director.
The full text of the proposed amendments to the Articles of Association is set out in Appendix III to this circular.
The proposed amendment to the Articles of Association is prepared in the Chinese language and the English version is therefore a translation only. In the event of any discrepancy between the English translation and the Chinese version of the Articles of Association, the Chinese version shall prevail.
The proposed amendments to the Articles of Association are subject to approval by the Shareholders by way of special resolution at the EGM.
IV. PROPOSED AMMENTS TO THE RULES AND PROCEDURES OF SHAREHOLDERS' MEETINGS AND THE RULES AND PROCEDURES OF MEETINGS OF THE BOARD
In light of the proposed amendments to the Articles of Association, the Board has resolved to propose to the Shareholders certain amendments to the Rules and Procedures of Shareholders' Meetings and the Rules and Procedures of Meetings of the Board of the Company, so as to align with the Articles of Association.
The full texts of the proposed amendments to the Rules and Procedures of Shareholders' Meetings and the Rules and Procedures of Meetings of the Board are set out in Appendices IV and V to this circular, respectively.
The proposed amendments to the Rules and Procedures of Shareholders' Meetings and the Rules and Procedures of Meetings of the Board are prepared in the Chinese language and the English versions are therefore a translation only. In the event of any discrepancy between the English translation and the Chinese version, the Chinese version shall prevail.
The proposed amendments to the Rules and Procedures of Shareholders' Meetings and the Rules and Procedures of Meetings of the Board are subject to approval by the Shareholders by way of special resolution at the EGM.
V. THE TRADEMARK LICENCE FRAMEWORK AGREEMENT 1. Renewal of the Trademark Licence Framework Agreement
Description of the Trademark Licence Framework Agreement
The Company and CNAHC (for itself and on behalf of its controlled companies, excluding the Group) entered into the Trademark Licence Framework Agreement on 28 October 2014. According to the Trademark License Framework Agreement, the Company granted CNAHC and its controlled companies (excluding the Group) a non-exclusive licence for the use of a total of 83 registered trademarks of the Company. The granting of the non- exclusive licence under the Trademark Licence Framework Agreement is made on a royalty- free basis at nil consideration. CNAHC and its controlled companies undertook to use such licensed trademarks subject to the terms of the non-competition agreement between CNAHC and the Company dated 20 November 2004, and to ensure the quality of the services using the licensed trademarks in order to maintain their reputation.
Pricing of and reasons for the Transaction
The licensed trademarks had been contributed by CNAHC to the Company as its intangible assets upon its incorporation at nil consideration. As the trademarks are related to the daily business of CNAHC and its controlled companies, the Company licensed certain trademarks to CNAHC and its controlled companies at nil consideration for its use in its ordinary course of business as a reciprocal arrangement pursuant to the 2004 Trademark
Licence Agreement. On 1 November 2004, the Company and CNAHC entered into the 2004 Trademark Licence Agreement, which expired on 31 December 2014; on 28 October 2014, the Company and CNAHC entered into the Trademark Licence Framework Agreement, which expires on 31 December 2017. Given the above circumstances, the current extension period of the Trademark Licence Framework Agreement still adopts the same method of trademark licencing at nil consideration.
The current term of the Trademark Licence Framework Agreement will expire on 31 December 2017. To maintain the consistency of the business operation, the Company and CNAHC have proposed to extend the valid period of the Trademark Licence Framework Agreement to 31 December 2020.
2. Parties and the Relationship between the Parties
The Company's principal business activity is air passenger, air cargo and airline-related services.
CNAHC is a state-owned company incorporated in the PRC with a registered capital of RMB10,027,830,000. Its registered address is Air China Plaza, 36 Xiaoyun Road, Chaoyang District, Beijing, the PRC and the legal representative is Mr. Cai Jianjiang. It is primarily engaged in managing its state-owned assets and its equity interest in investees, charter of aircrafts and maintenance of aviation equipment. CNAHC is a substantial shareholder of the Company and is therefore a connected person of the Company as defined under the Hong Kong Listing Rules.
3. Hong Kong Listing Rules Implications
The Trademark Licence Transaction under the Trademark Licence Framework Agreement constitutes a continuing connected transaction of the Company under the Hong Kong Listing Rules. As the transaction is on normal commercial terms or better and on a royalty-free basis, it falls below the de minimis threshold as stipulated under Rule 14A.76(1) of the Hong Kong Listing Rules and therefore is fully exempt from independent shareholders' approval, annual review and all disclosure requirements under Chapter 14A of the Hong Kong Listing Rules.
4. Shanghai Listing Rules Implications
Pursuant to the Shanghai Listing Rules, the Trademark Licence Transaction is subject to the Independent Shareholders' approval. The Company therefore seeks approval from Independent Shareholders at the EGM of the renewal of the Trademark Licence Framework Agreement for a term of three years from 1 January 2018 to 31 December 2020.
5. Approval by the Board
At the forty-eighth meeting of the fourth session of the Board of the Company held on 30 August 2017, the Board approved the renewal of the Trademark Licence Framework Agreement for a term of three years from 1 January 2018 to 31 December 2020. Mr. Cai Jianjiang, Mr. Song Zhiyong, Mr. Cao Jianxiong and Mr. Feng Gang are considered to have a material interest in the Trademark Licence Transaction and therefore have abstained from voting on the relevant Board resolution.
VI. FINANCIAL SERVICES AGREEMENTS 1. The Air China Financial Services Agreement
Reference is made to the announcement of the Company dated 30 August 2017. The current term of the 2015 Air China Financial Services Agreement will expire on 31 December 2017. As the Company expects that the transactions thereunder will continue to be conducted after 31 December 2017, on 30 August 2017 (after trading hours), the Company and CNAF entered into the Air China Financial Services Agreement to renew and amend the 2015 Air China Financial Services Agreement. Air China Financial Services Agreement contains no material changes to the 2015 Air China Financial Services Agreement.
Date
30 August 2017
Parties
The Company and CNAF
Financial services to be provided by CNAF to the Group
Pursuant to the Air China Financial Services Agreement, CNAF has agreed to provide the Group with a range of financial services including the following:
a. deposit services; b. Credit Services; c. other financial services, including but not limited to: (i) negotiable instrument and letter of credit services; (ii) trust loan and trust investment services; (iii) underwriting services for debt issuances; (iv) intermediary and consulting services; (v) guarantee services; (vi) settlement services; (vii) internet banking services; (viii) insurance agency services;
(i)
(ix) spot exchange settlement and sale services; (x) cross-border bilateral RMB capital pooling services; and (xi) other businesses of CNAF approved by CBRC, PBOC and SAFE.
Pricing basis
Deposit services
The interest rates applicable to the Group for deposits with CNAF shall (i) be in compliance with the requirements prescribed by PBOC on such type of deposit; (ii) be not lower than the interest rates charged by state-owned commercial banks to the Group for the same type of services under the same conditions; and (iii) be not lower than the interest rates charged by CNAF to other CNAHC Member Companies for the same type of services under the same conditions.
Credit Services
The interest rates applicable to the Credit Services provided by CNAF to the Group shall (i) be in compliance with the requirements prescribed by PBOC on such type of loan; (ii) be not higher than the interest rates charged by state-owned commercial banks to the Group for the same type of services under the same conditions; and (iii) be not higher than the interest rates charged by CNAF to other CNAHC Member Companies for the same type of services under the same conditions.
Other financial services
The fees charged by CNAF to the Group for providing paid services in the other financial services shall (i) be in line with the relevant standards (if any) prescribed by PBOC, CBRC, CSRC, NAFMII or other regulatory authorities; (ii) be not higher than the fees charged by state-owned commercial banks to the Group for the same type of services under the same conditions; and (iii) be not higher than the fees charged by CNAF to other CNAHC Member Companies for the same type of services under the same conditions.
Currently, other financial services which are free of charge and provided by CNAF to the Group include the settlement services and financial information services (namely, providing statistics and information in relation to different types of financing products in the market). If CNAF charges fees for the settlement services and financial information services during the term of the Air China Financial Services Agreement, the pricing basis set out in the above paragraph shall apply, and the relevant transaction amount will be monitored closely to ensure that the aggregate annual fees to be paid by the Group to CNAF for other financial services will not exceed the de minimis threshold as stipulated under Rule 14A.76(1) of the Hong Kong Listing Rules.
Other terms
Pursuant to the Air China Financial Services Agreement, CNAF shall not carry out any business that has not been approved by CBRC or any illegal activities. CNAF is not allowed, during the term of the Air China Financial Services Agreement, to make use of the deposits of the Group for investments involving high risks including, but not limited to, investments in equity securities and corporate bonds. CNAF is obliged to provide convenience for the auditors of the Company. If the auditors of the Company intend to inspect the accounts of CNAF, CNAF shall make arrangement for such inspection after receiving notice from the Company.
The Air China Financial Services Agreement is subject to the approval by the Independent Shareholders at the EGM. The initial term of the Air China Financial Services Agreement is three years commencing from 1 January 2018 and ending on 31 December 2020, which is automatically renewable for successive terms of three years after the expiry of its initial term subject to the requirements under Hong Kong Listing Rules and the required approval procedures thereof. Upon expiry of the Air China Financial Services Agreement, the Board will re-assess the terms and conditions of the Air China Financial Services Agreement, and the Company will re-comply with the relevant rules governing connected transactions under the Hong Kong Listing Rules. During the term of the Air China Financial Services Agreement, the agreement can be terminated on any 31 December by either party thereto by serving the other party a written notice of termination of not less than three months.
Reasons and benefits for the transaction
The Directors believe that it is in the best interest of the Group to enter into the above transactions with CNAF having taken into account the following factors:
a. in respect of transactions between the Group and CNAHC Group, CNAF is able to provide more efficient settlement services compared with independent third party banks;
b. CNAF is able to provide safe, convenient, fast, comprehensive and tailor-made financial services to the Group. From 2015 and up to the Latest Practicable Date, the connected transactions between CNAF and the Group have been carried out in compliance with the relevant laws and regulations and the relevant listing rules, and CNAF has a good track record on compliance. With its continuous improvement of professional level and financial services, CNAF is fully qualified for providing the relevant services to the Group;
c. as a professional financial institution in the Group, CNAF could act more proactively in protecting the interest of the Group than external institutions; and
d. a good cooperative relationship has been established between CNAF and the relevant departments of the Group over the years which makes their cooperation more efficient.
a.
The Directors (including the independent non-executive Directors) consider that the Air China Financial Services Agreement is on normal commercial terms or better and in the ordinary and usual course of business of the Group, and the terms and conditions contained therein are fair and reasonable and in the interests of the Company and the Shareholders as a whole.
Historical Figures and Air China New Annual Caps
Set forth below is a summary of the historical annual caps, the actual maximum amount and the Air China New Annual Caps for the daily balance of deposits (including accrued interests) placed or to be placed by the Group with CNAF:
Historical Annual Actual maximum Air China New
Caps amount Annual Caps
for
for for for for for the for for for
the the the the the period the the the
year year year year year from year year year
ended ended ending ended ended 1 January ending ending ending
31 31 31 December 31 31 to 30 31 31 31
Transaction December December 2017 December December June December December December
2015 2016 2015 2016 2017 2018 2019 2020
Financial RMB12 RMB14 RMB15 RMB3.996 RMB4.772 RMB6.403 RMB12 RMB14 RMB15
Services billion billion billion billion billion billion billion billion billion
(daily balance
of deposits)
Basis for the Air China New Annual Caps
The Air China New Annual Caps are determined based on the following factors:
a. The historical amount of the Group's daily balance of deposits placed with CNAF for the two years ended 31 December 2016 and the six months ended 30 June 2017 as shown in the table above. The historical utilization ratios are relatively low mainly because the planned cross-border bilateral RMB capital polling services were not carried out due to the market interest rates and foreign exchange control, etc. As market uncertainties still exist and specific business model is still under discussion, for the sake of prudence, the cross-border bilateral RMB capital polling services are not taken into account in determining the annual caps for the three years ending 31 December 2020.
b. The annual caps for the daily balance of deposits to be placed by the Group with CNAF in the next three years are mainly determined based on the highest cash and bank balance of the Group, and the possible proportion of the Group's monetary funds deposited with CNAF. For the past three years, the highest cash and bank balance of the Group increased at a growth rate of 12%, and the average amount of the highest cash and bank balance of the Group for the three years ended 31 December 2016 and the first three months of 2017 is approximately RMB11.6 billion. Based on such average highest cash and bank balance and the historical growth rate of 12%, it is estimated that the highest
a.
cash and bank balance of the Group for each of the three years ending 31 December 2020 will reach up to RMB13 billion, RMB14.6 billion and RMB16.3 billion, respectively. In addition, as at the end of 2017, the proportion of the Group's monetary funds deposited in CNAF is expected to reach 62%, representing an increase of 14 percentage points as compared to that as at the end of 2016. Considering the historical growth of the proportion of such deposits of monetary funds, the Group's demands for fund utilisation, and the requirements of centralisation of fund management and improvement of efficiency of fund utilisation by relevant regulatory authorities, for each of the three years ending 31 December 2020, the Group's proportion of deposits of monetary funds in CNAF is expected to be no less than 70%. Based on the above, it is estimated that the Group's deposits placed with CNAF for each of the three years ending 31 December 2020 will reach up to RMB9 billion, RMB11 billion and RMB12 billion respectively.
c. In addition to the factor mentioned in paragraph b above, the Company will continue to deposit unutilized proceeds from issue of debts financing instruments with CNAF in the next three years. In 2016, the Company has been approved to issue super short-term commercial papers with principal amount of RMB10 billion. During the year of 2016, the Company issued super short-term commercial papers of RMB7.2 billion, among which a total of RMB3 billion were issued within one month, and some of the unutilized proceeds had been deposited with CNAF. As the Company will continue to issue direct financing instruments to raise funds in the next three years and the unutilized proceeds will continue to be deposited with CNAF, with reference to the historical maximum net proceeds received within a month, it is estimated that an additional deposit of approximately RMB3 billion will be placed by the Company with CNAF for each of the three years ending 31 December 2020.
Taking into account the aforesaid various factors, it is proposed that the maximum daily balance of deposits (including accrued interests) placed by the Group with CNAF for each of the three years ending 31 December 2020 shall be RMB12 billion, RMB14 billion and RMB15 billion, respectively.
2. The CNAHC Financial Services Agreement
Reference is made to the announcement of the Company dated 30 August 2017. The current term of the 2015 CNAHC Financial Services Agreement will expire on 31 December 2017. As CNAF expects that the transactions thereunder will continue to be conducted after 31 December 2017, on 30 August 2017 (after trading hours), CNAF and CNAHC entered into the CNAHC Financial Services Agreement to renew and amend the 2015 CNAHC Financial Services Agreement. CNAHC Financial Services Agreement contains no material changes to the 2015 CNAHC Financial Services Agreement.
Date
30 August 2017
Parties
CNAF and CNAHC
Financial services to be provided by CNAF to CNAHC Group
Pursuant to the CNAHC Financial Services Agreement, CNAF has agreed to provide CNAHC Group with a range of financial services including the following:
a. deposit services; b. Credit Services; c. other financial services, including but not limited to: (i) negotiable instrument and letter of credit services; (ii) trust loan and trust investment services; (iii) underwriting services for debt issuances; (iv) intermediary and consulting services; (v) guarantee services; (vi) settlement services; (vii) internet banking services; (viii) insurance agency services; (ix) spot exchange settlement and sale services; (x) cross-border bilateral RMB capital pooling services; and (xi) other businesses of CNAF approved by CBRC, PBOC and SAFE.
Pricing basis
Deposit services
The interest rates applicable to CNAHC Group's deposits with CNAF shall (i) be in compliance with the requirements prescribed by PBOC on such type of deposit; (ii) be not higher than the interest rates charged by state-owned commercial banks to the CNAHC Group
for the same type of services under the same conditions; and (iii) be not higher than the interest rates charged by CNAF to other CNAHC Member Companies for the same type of services under the same conditions.
Credit Services
The interest rates applicable to the Credit Services provided by CNAF to CNAHC Group shall (i) be in compliance with the requirements prescribed by PBOC on such type of loan; (ii) be not lower than the interest rates charged by state-owned commercial banks to the CNAHC Group for the same type of services under the same conditions; and (iii) be not lower than the interest rates charged by CNAF to other CNAHC Member Companies for the same type of services under the same conditions.
Other financial services
The fees charged by CNAF to the CNAHC Group for providing paid services in the other financial services shall (i) be in line with the relevant rate standards (if any) prescribed by the PBOC, CBRC, CSRC, NAFMII or other regulatory authorities; (ii) be not lower than the fees charged by state-owned commercial banks to CNAHC Group for the same type of services under the same conditions; and (iii) be not lower than the fees charged by CNAF to other
CNAHC Member Companies for the same type of services under the same conditions.
Currently, other financial services which are free of charge and provided by CNAF to the CNAHC Group include the settlement services and financial information services (namely, providing statistics and information in relation to different types of financing products in the market). If CNAF charges fees for the settlement services and financial information services during the term of the CNAHC Financial Services Agreement, the pricing basis set out in the above paragraph shall apply, and the relevant transaction amount will be monitored closely to ensure that the aggregate annual fees to be paid by CNAHC Group to CNAF for other financial services will not exceed the de minimis threshold as stipulated under Rule 14A.76(1) of the Hong Kong Listing Rules.
Other terms
Pursuant to the CNAHC Financial Services Agreement, CNAF shall not carry out any business that has not been approved by CBRC or any illegal activities.
The CNAHC Financial Services Agreement is subject to the approval by the Independent Shareholders at the EGM. The initial term of the CNAHC Financial Services Agreement is three years commencing from 1 January 2018 and ending on 31 December 2020, which is automatically renewable for successive terms of three years after the expiry of its initial term subject to the requirements under Hong Kong Listing Rules/Shanghai Listing Rules and the required approval procedures thereof. Upon expiry of the CNAHC Financial Services Agreement, the Board will re-assess the terms and conditions of the CNAHC Financial Services Agreement, and the Company will re-comply with the relevant rules governing connected transactions under the Hong Kong Listing Rules/Shanghai Listing Rules. During the
term of the CNAHC Financial Services Agreement, the agreement can be terminated on any 31 December by either party thereto by serving the other party a written notice of termination of not less than three months.
Reasons and benefits for the transaction
CNAF has been providing financial services to CNAHC Group for years. The business with CNAHC Group contributed a steady and significant portion to CNAF's revenues in the past. The Directors believe that it would be in the best interest of CNAF and the Group to continue the provision of financial services by CNAF to CNAHC Group.
The Directors (including the independent non-executive Directors) consider that the CNAHC Financial Services Agreement is on normal commercial terms or better and in the ordinary and usual course of business of the Group, and the terms and conditions contained therein are fair and reasonable and in the interests of the Company and the Shareholders as a whole.
Historical Figures and CNAHC New Annual Caps
Set forth below is a summary of the historical annual caps, the actual maximum amount and the CNAHC New Annual Caps of the daily balance of Credit Services (including accrued interests) granted or to be granted by CNAF to CNAHC Group:
Historical Annual Actual maximum CNAHC New Annual
Caps amount Caps
for
for for for for for the for for for
the the the the the period the the the
year year year year year from year year year
ended ended ending ended ended 1 January ending ending ending
31 31 31 December 31 31 to 30 31 31 31
Transaction December December 2017 December December June December December December
2015 2016 2015 2016 2017 2018 2019 2020
Financial
Services RMB8 RMB9 RMB10 RMB2.2 RMB2.146 RMB3.125 RMB8 RMB9 RMB10
(daily balance billion billion billion billion billion billion billion billion billion
of Credit
Services)
Basis for the CNAHC New Annual Caps:
The CNAHC New Annual Caps are determined based on the following factors:
a. The historical maximum amount of daily balance of Credit Services provided by CNAF to CNAHC Group for the two years ended 31 December 2015 and 2016 and the period from 1 January 2017 to 30 June 2017.
b. On the foundation of consolidating its principal business activity, the CNAHC Group will promote the development of the industries which are highly related to aviation, expand the production scale of on-board catering and services products,
a.
increase infrastructure investments in the fields such as air logistics network construction, development and innovation of new media, as well as the logistics and warehousing which supports hub construction, and gradually expand the operation scale of related industries. With the continuous expansion of operation scale of CNAHC Group, the loans obtained from CNAF will steadily increase. The maximum amount of daily balance in relation to the Credit Services provided by CNAF to the CNAHC Group was approximately RMB1.9 billion, RMB2.2 billion, RMB2.146 billion and RMB3.125 billion during the three years ended 31 December 2014, 2015 and 2016 and the first six months of 2017 respectively, with a growth rate of approximately 19%. Taking the maximum amount of daily balance for the six months ended 30 June 2017 as the basis and assuming the historical growth rate of 19% will be maintained in the next three years, it is estimated that the maximum amount of daily balance of Credit Services provided by CNAF to CNAHC Group for each of the three years ending
31 December 2020 will reach RMB3.7 billion, RMB4.5 billion and RMB5.4 billion respectively.
c. CNAF can fully function as a financial company and become the lender of CNAHC Group in place of banks, so as to effectively improve the overall efficiency of the utilization of funds. Taking into account the amount of borrowings previously obtained from banks by the CNAHC Group and its future fund use plan, it is estimated that an additional borrowings of RMB4.0 billion, RMB4.2 billion and RMB4.5 billion will be obtained from CNAF in place of banks for each of the three years ending 31 December 2020 respectively.
d. According to the project planning of certain subsidiaries of CNHAC, they will conduct the construction of auxiliary facilities of a project, and the estimated total investment amount is approximately RMB1 billion. CNAHC Group will borrow up to approximately RMB0.7 billion in aggregate from CNAF for this purpose. It is estimated that CNAHC Group will therefore require additional loans from CNAF amounting to RMB0.3 billion, RMB0.3 billion and RMB0.1 billion for each of the three years ending 31 December 2020 respectively.
Taking into account the various factors as mentioned above, it is proposed that the maximum daily balance of Credit Services (including accrued interests) to be provided by CNAF to CNAHC Group for each of the three years ending 31 December 2020 shall be RMB8 billion, RMB9 billion and RMB10 billion, respectively.
3. Risk Profile and Management of CNAF
CNAF, as a non-banking financial institution providing financial services to the Group and the CNAHC Group, is subject to regulations promulgated by CBRC from time to time. These regulations may not be the same as those regulating commercial banks. As CNAF and commercial banks have different target customers for their respective financial services, they may be subject to different risk profiles. Set out below are the major risk exposures of CNAF:
Compliance risks
According to the Measures for the Administration of Finance Companies of Enterprise
Groups) ( ) issued by the CBRC on 27 July 2004 (as amended
on 28 December 2006), CNAF shall comply with various ratios in respect of its assets and liabilities, including the capital adequacy ratio, inter-bank borrowing balances to total capital ratio, outstanding guarantees to total capital ratio, short-term securities investment to total capital ratio, long-term investment to total capital ratio and self-owned fixed assets to total capital ratio. Since its establishment until the Latest Practicable Date, CNAF has complied with all the relevant requirements from the CBRC in respect of the above-mentioned ratios and the applicable rules and regulations stipulated by the CBRC.
Liquidity risks
CNAF utilises deposits placed with it by lending the funds out to members of the Group and the CNAHC Group. Since the terms of the deposits and loans are often different, CNAF faces liquidity risks if any deposit becomes due and it has no immediately available fund for repayment. The nature of such risk does not differ materially from the liquidity risks faced by PRC commercial banks.
To manage its liquidity risks, CNAF strictly adheres to a 25% current ratio requirement (i.e. its current liabilities shall not exceed 25% of its current assets). The liquidity risks of CNAF are also mitigated as it could obtain financing through inter-bank loans or pledged repurchase from the inter-bank market if and when necessary. In addition, since the customers of CNAF are limited to the members of the Group and the CNAHC Group, CNAF is shielded from the risk of bank runs by individual depositors faced by commercial banks. Since its establishment until the Latest Practicable Date, CNAF had always been able to meet the repayment schedules in respect of deposits placed by its customers.
Credit risks
Like PRC commercial banks, CNAF faces credit risks in providing its loans and other credit services to its customers. CNAF, being a member of the CNAHC Group, is in a better position to gain information on the member companies who are its customers in a more timely and comprehensive manner as opposed to other PRC commercial banks who conduct business with clients of various credit ratings and backgrounds. To manage the credit risks, CNAF carefully evaluates the operation situation and financial position of the member companies within the Group and the CNAHC Group when receiving loan applications from them and only provides loans to member companies who have sound financial position and cash flow. CNAF normally requires guarantees from the parent company of the applicant if the applicant's credit standing exposes CNAF to relatively high risks. If a loan is approved, CNAF conducts quarterly post-loan examination on the borrower to monitor and safeguard against the credit risks. If a borrower defaults on the loan or falls into financial difficulty in repayments, CNAF may enforce the guarantee provided by the parent company. Moreover, according to the relevant laws and regulations promulgated by the CBRC and as set out in the articles of association of CNAF, in the event that CNAF falls into financial difficulty in payments,
CNAHC has the obligation to take all necessary steps including injecting capital into CNAF based on its funding needs, to restore its financial position. Due to the careful management of the credit risks, CNAF has not had any non-performing loan since its establishment until the Latest Practicable Date.
Directors' view
Based on the foregoing, the Directors are of the view that the risk profile of CNAF, as a provider of financial services to the Group and the CNAHC Group, is remained not greater than that of PRC commercial banks.
4. Internal Control Measures for the Non-exempt Continuing Connected Transactions
To safeguard the interest of the Group, the Group will adopt the following internal control measures in respect of the deposit services to be provided by CNAF to the Group and the Credit Services to be provided by CNAF to the CNAHC Group, respectively.
Deposit services under the Air China Financial Services Agreement
The Company would take the following review procedure process against the following assessment criteria when obtaining the deposit services from CNAF under the Air China Financial Services Agreement:
i. the designated staff of the Company and CNAF would closely monitor the deposit balance of the Group with CNAF on a daily basis to ensure that it does not exceed the Air China New Annual Caps;
ii. the finance department of the Company would update the list of the Company's subsidiaries on a quarterly basis to ensure the aggregate deposit balance of the Group (including the subsidiaries in the updated list) with CNAF does not exceed the Air China New Annual Caps; and
iii. the designated staff of the Company would compare the rates and terms offered by CNAF and several state-owned commercial banks when the need for deposit arises to ensure those rates and terms of the Group's deposits with CNAF are in line with the relevant pricing basis.
Credit Services under the CNAHC Financial Services Agreement
CNAF would take the following review procedure process against the following assessment criteria when providing the Credit Services to the CNAHC Group under the CNAHC Financial Services Agreement:
a. after receiving the Credit Services application from members of the CNAHC Group, the designated staff of CNAF would verify the information provided by the applicant, assess if the application is in compliance with the terms set out in
a.
the CNAHC Financial Services Agreement, and issue a report to the loan review committee of CNAF for approval if he considers the Credit Services should be provided, otherwise the Credit Services application will be rejected;
b. the loan review committee of CNAF will make the final decision on the approval of the Credit Services and the determination of relevant terms of the Credit Services, including the interest rate of the loan based on the relevant pricing policy;
c. the accounting department of CNAF will grant the loan to the applicant after obtaining approval from the department manager and leaders of CNAF;
d. after the granting of the loan, the financing credit department of CNAF will conduct post-loan examination on the applicant every quarter and issue examination reports; and
e. the accounting department of CNAF will deduct the principal and accumulated interests of the loan from the applicants' deposit accounts in CNAF on the loan repayment date. If the applicant falls short of cash to repay the loan, the applicant should request for extension in writing to CNAF prior to the maturity of the loan, and may carry out relevant formalities upon obtaining approval.
Since the Group has established adequate and appropriate internal control procedures to review the Non-exempt Continuing Connected Transactions, the Directors (including the independent non-executive Directors) consider that such methods and procedures can ensure and safeguard the Non-exempt Continuing Connected Transactions will be conducted on normal commercial terms, fair and reasonable, and in the interest of the Company and the Shareholders as a whole.
5. Parties and Connected Relationship of the Parties
The Company
The Company's principal business activity is air passenger, air cargo and airline-related services.
CNAF
CNAF is a company with limited liability incorporated in the PRC, and is a non-wholly owned subsidiary of the Group. CNAF is primarily engaged in providing financial services to CNAHC Member Companies. Since CNAHC can exercise more than 10% of the voting power at CNAF's general meeting, CNAF is a connected subsidiary of the Company as defined under Rule 14A.16 of the Hong Kong Listing Rules.
CNAHC
CNAHC is a state-owned company incorporated in the PRC with a registered capital of RMB10,027,830,000. Its registered address is Air China Plaza, 36 Xiaoyun Road, Chaoyang District, Beijing, the PRC and its legal representative is Mr. Cai Jianjiang. It is primarily engaged in managing its state-owned assets and its equity interest in investees, charter of aircrafts and maintenance of aviation equipment. CNAHC is the controlling shareholder of the Company and is therefore a connected person of the Company as defined under the Hong Kong Listing Rules.
6. Hong Kong Listing Rules Implications
The Air China Financial Services Agreement
Deposit services
As one or more of the applicable Percentage Ratios (other than the profits ratio) in respect of the Air China New Annual Caps exceed 5% and the maximum annual consideration is more than HK$10,000,000, the deposit services to be provided to the Group by CNAF under the Air China Financial Services Agreement are subject to the reporting, announcement and independent shareholders' approval requirements under Chapter 14A of the Hong Kong Listing Rules.
Credit Services
Credit services to be provided to the Group by CNAF are expected to be conducted on normal commercial terms or better, and not to be secured by the assets of the Group. Therefore, such transactions will be fully exempt from the reporting, annual review, announcement and independent shareholders' approval requirements for continuing connected transactions in accordance with Rule 14A.90 of the Hong Kong Listing Rules.
Other financial services
The other financial services to be provided by CNAF to the Group will be carried out on normal commercial terms or better and the aggregate annual fees to be paid by the Group to CNAF for such services for each of the three years ending 31 December 2018, 2019 and 2020 are expected to fall below the de minimis threshold as stipulated under Rule 14A.76(1) of the Hong Kong Listing Rules. Therefore, such transactions will be fully exempt from the reporting, annual review, announcement and independent shareholders' approval requirements under the Hong Kong Listing Rules.
The CNAHC Financial Services Agreement
Deposit services
The deposits placed by CNAHC Group with CNAF are expected to be conducted on normal commercial terms or better, and not to be secured by the assets of the Group. Therefore, such transactions will be fully exempt from the reporting, annual review, announcement and independent shareholders' approval requirements for continuing connected transactions as provided under Rule 14A.90 of the Hong Kong Listing Rules.
Credit Services
As one or more of the applicable Percentage Ratios (other than the profits ratio) in respect of the CNAHC New Annual Caps exceed 5% and the maximum annual consideration is more than HK$10,000,000, the Credit Services to be provided to CNAHC Group by CNAF under the CNAHC Financial Services Agreement are subject to the reporting, announcement and independent shareholders' approval requirements under Chapter 14A of the Hong Kong Listing Rules.
Other financial services
The other financial services to be provided by CNAF to the CNAHC Group will be carried out on normal commercial terms or better and the aggregate annual fees to be paid by the CNAHC Group to CNAF for such services for each of the three years ending 31 December 2018, 2019 and 2020 are expected to fall below the de minimis threshold as stipulated under Rule 14A.76(1) of the Hong Kong Listing Rules. Therefore, such transactions will be fully exempt from the reporting, annual review, announcement and independent shareholders' approval requirements for continuing connected transactions.
Approval by the Board
At the forty-eighth meeting of the fourth session of the Board of the Company held on 30 August 2017, the Board approved the Financial Services Agreements and the transactions contemplated thereunder and the Proposed Annual Caps. Mr. Cai Jianjiang, Mr. Song Zhiyong and Mr. Feng Gang, holding positions in CNAHC, as well as Mr. Cao Jianxiong who is the chairman of the board of directors of CNAF and also holds a position in CNAHC, are considered to have a material interest in the Financial Services Agreements and therefore have abstained from voting in the relevant board resolutions in respect of the Financial Services Agreements and the transactions contemplated thereunder and the Proposed Annual Caps. Save as disclosed above, none of the Directors has a material interest in the Financial Services Agreements and hence no other Director is required to abstain from voting on the relevant board resolutions.
7. Shanghai Listing Rules Implications
Pursuant to the Shanghai Listing Rules, the CNAHC Financial Services Agreement shall be approved or ratified by Independent Shareholders at the EGM.
VII. EGM
The Company will convene the EGM at The Conference Room C313, No. 30, Tianzhu Road, Airport Industrial Zone, Shunyi District, Beijing, PRC at 2:00 p.m. on Friday, 27 October 2017 for the purpose of considering, and if thought fit, approving the resolutions in respect of (i) the proposed election of Directors and Supervisors; (ii) the proposed amendments to the Articles of Association; (iii) the proposed amendments to the Rules and Procedures of Shareholders' Meetings and the Rules and Procedures of Meetings of the Board; (iv) the Financial Services Agreements (including the Non-exempt Continuing Connected Transactions contemplated thereunder and the Propose Annual Caps); and (v) the renewal of the Trademark Licence Framework Agreement. Votes on the resolutions to be considered at the EGM shall be taken by way of poll.
A form of proxy and a notice of attendance are also enclosed herein and published on the website of the Stock Exchange (www.hkexnews.hk). The notice of EGM is reproduced on pages VII-1 to VII-4 of this circular.
Pursuant to Rule 14A.36 of the Hong Kong Listing Rules, any Shareholder with a material interest in the Financial Services Agreements is required to abstain from voting on the relevant resolution at the EGM. As at the Latest Practicable Date, CNAHC is a substantial shareholder of the Company and CNAF. Accordingly, CNAHC and CNACG, which is CNAHC's wholly-owned subsidiary, are required to abstain from voting on the resolutions in respect of the Financial Services Agreements, the relevant transactions contemplated thereunder and the Proposed Annual Caps at the EGM. As at the Latest Practicable Date, CNAHC and CNACG held an aggregate of 7,508,571,617 shares of the Company (representing approximately 51.70% of the issued share capital of the Company), control or are entitled to control over the voting right in respect of their shares in the Company. To the best knowledge, information and belief of the Directors, having made all reasonable enquiries, save as CNAHC and CNACG, no Shareholder has a material interest in the resolutions in respect of the Financial Services Agreements, the relevant transactions contemplated thereunder and the Proposed Annual Caps or should be required to abstain from voting on the relevant resolutions at the EGM.
Pursuant to the Shanghai Listing Rules, CNAHC and CNACG have a material interest in the Trademark Licence Transaction, and are therefore required to abstain from voting on the resolution in respect of the renewal of the Trademark Licence Framework Agreement.
VIII. GENERAL INFORMATION
The Company will close its register of members of H shares and suspend the registration of transfer of shares from Wednesday, 27 September 2017 to Friday, 27 October 2017 (both days inclusive) in order to determine the list of holders of H shares of the Company who will be entitled to attend and vote at the
EGM. Shareholders of the Company whose names appear on the register of members of H shares of the Company on Wednesday, 27 September 2017 may attend the EGM after completing the registration procedures.
In order to qualify for attendance at the EGM, instruments of transfer accompanied by share certificates and other appropriate documents must be lodged with the Company's H Share registrar, Computershare Hong Kong Investor Services Limited, by 4:30 p.m. on Tuesday, 26 September 2017.
Whether or not you intend to attend the EGM, you are requested to complete and return the form of proxy in accordance with the instruction printed thereon. If you intend to attend the EGM, you are required to complete and return the notice of attendance to the Company's H Share registrar, Computershare Hong Kong Investor Services Limited on or before Monday, 9 October 2017.
Completion and return of the form(s) of proxy will not preclude you from attending and voting in person at the meetings or at any adjournment should you so wish and completion and return of the notice of attendance do not affect the right of a shareholder to attend the respective meeting.
IX. RECOMMATION
The Board (including the independent non-executive Directors) considers that each of the Air China Financial Services Agreement and the CNAHC Financial Services Agreement is on normal commercial terms or better and in the ordinary and usual course of business of the Group, and the terms and conditions contained therein and the Proposed Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Board recommends that the Independent Shareholders vote to approve the Financial Services Agreements, the Non-exempt Continuing Connected Transactions and the Proposed Annual Caps.
The Board (including the independent non-executive Directors) considers that the Trademark Licence Transaction under the Trademark Licence Framework Agreement is on normal commercial terms or better. The terms and conditions contained therein are fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Board recommends that the Independent Shareholders vote to approve the renewal of the Trademark Licence Framework Agreement.
Furthermore, the Directors are of the view that the resolutions in respect of (i) the proposed election of Directors and Supervisors; (ii) the proposed amendments to the Articles of Association; (iii) the proposed amendments to the Rules and Procedures of Shareholders' Meetings and the Rules and Procedures of Meetings of the Board are in the best interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend that all the Shareholders should vote in favour of these resolutions at the EGM.
X. ADDITIONAL INFORMATION
Your attention is drawn to the letter from the Independent Board Committee as set out on pages 27 to 28 of this circular which contains its recommendation to the Independent Shareholders as to the voting at the EGM regarding the Financial Services Agreements, the Non-exempt Continuing Connected Transactions and the Proposed Annual Caps.
Your attention is also drawn to the letter from the Independent Financial Adviser as set out on pages 29 to 44 of this circular, which contains, among others, its advice to the Independent Board Committee and the Independent Shareholders in relation to the Financial Services Agreements, the Non-exempt Continuing Connected Transactions, the Proposed Annual Caps as well as the principal factors and reasons considered by it in concluding its advice.
Your attention is also drawn to the additional information set out in Appendices I to VII to this circular.
By order of the Board Cai Jianjiang Chairman
Beijing, the PRC
LETTER FROM THE INDEPENT BOARD COMMITTEE
AIR CHINA LIMITED
(a joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock Code: 00753)
Independent Board Committee:
Mr. Wang Xiaokang Mr. Liu Deheng
Mr. Stanley Hui Hon-chung Mr. Li Dajin
7 September 2017
To the Independent Shareholders of the Company
Dear Sirs or Madams,
CONTINUING CONNECTED TRANSACTIONS
We refer to the circular dated 7 September 2017 (the "Circular") issued by the Company to its Shareholders of which this letter forms a part. Terms defined in the Circular shall have the same meanings when used in this letter, unless the context otherwise requires.
On 30 August 2017, the Board decided to enter into the Financial Services Agreements as set out in the Circular, and approved the Proposed Annual Caps for the three years ending 31 December 2018, 2019 and 2020. The Non-exempt Continuing Connected Transactions and the Proposed Annual Caps are subject to the reporting, annual review, announcement and independent shareholders' approval requirements under Chapter 14A of the Hong Kong Listing Rules.
The terms and the reasons for entering into the Financial Services Agreements are summarised in the Letter from the Board set out on pages 5 to 26 of the Circular.
The Independent Board Committee was formed to make a recommendation to the Independent Shareholders as to whether the Financial Services Agreements, the Non-exempt Continuing Connected Transactions and the Proposed Annual Caps are fair and reasonable and whether such transactions are in the interest of the Company and the Shareholders as a whole. Octal Capital has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.
As your Independent Board Committee, we have discussed with the management of the Company the reasons for entering into the Financial Services Agreements, the Non-exempt Continuing Connected Transactions and the Proposed Annual Caps, their terms and the basis upon which the terms have been determined. We have also considered the key factors taken into account by Octal Capital in arriving at its opinion regarding the Financial Services Agreements and the Proposed Annual Caps as set out in the letter from Octal Capital on pages 29 to 44 of the Circular, which we urge you to read carefully.
The Independent Board Committee, after taking into account, amongst other things, the advice of Octal Capital, considers the Financial Services Agreements to be in the best interest of the Company and the Shareholders as a whole and to be fair and reasonable. The Independent Board Committee also considers the Non-exempt Continuing Connected Transactions to be carried out in the usual and ordinary course of business, on normal commercial terms and the Proposed Annual Caps to be fair and reasonable. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the relevant ordinary resolutions as set out in the notice of the EGM.
Yours faithfully,
Independent Board Committee
Mr. Wang Xiaokang Mr. Liu Deheng Mr. Stanley Hui Hon-chung Mr. Li Dajin
Independent non- executive Director
Independent non- executive Director
Independent non- executive Director
Independent non- executive Director
LETTER FROM OCTAL CAPITAL
The following is the letter of advice from Octal Capital Limited to the Independent Board Committee and the Independent Shareholders prepared for the purpose of inclusion in this circular.
Octal Capital Limited
801-805, 8th Floor, Nan Fung Tower 88 Connaught Road Central
Hong Kong
7 September 2017
To the Independent Board Committee and the Independent Shareholders
Dear Sirs,
CONTINUING CONNECTED TRANSACTIONS
INTRODUCTION
We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the Non-exempt Continuing Connected Transactions and the Proposed Annual Caps, details of which are set out in the Letter from the Board contained in the circular of the Company dated 7 September 2017 (the "Circular"), of which this letter forms part. Unless the context otherwise requires, terms used in this letter shall have the same meanings as those defined in the Circular.
On 30 August 2017, the Company and CNAF entered into the Air China Financial Services Agreement while CNAHC and CNAF also entered into the CNAHC Financial Services Agreement to renew the 2015 Air China Financial Services Agreement and the 2015 CNAHC Financial Services Agreement, both of which will expire on 31 December 2017.
As one or more of the applicable Percentage Ratios (other than the profits ratio) exceeds 5% and the maximum annual consideration is more than HK$10,000,000, the deposit services under the Air China Financial Services Agreement and the Credit Services under the CNAHC Financial Services Agreement are subject to the reporting, annual review, announcement and Independent Shareholders' approval requirements pursuant to Chapter 14A of the Hong Kong Listing Rules.
The Independent Board Committee, comprising all the independent non-executive Directors, namely Mr. Wang Xiaokang, Mr. Liu Deheng, Mr. Stanley Hui Hong-chung and Mr. Li Dajin, has been established to consider and advise the Independent Shareholders in respect of whether the Non-exempt Continuing Connected Transactions and the Proposed Annual Caps are fair and reasonable and whether such transactions are in the interest of the Company and the Shareholders as a whole. We, Octal Capital Limited, have been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.
As at the Latest Practicable Date, we, are not connected with the directors, chief executives and substantial shareholders of the Company or any of their respective subsidiaries or associates or parties acting in concert with any of them and do not have any shareholding, directly or indirectly, in any members of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group. We are therefore considered suitable to give independent advice to the Independent Board Committee and the Independent Shareholder.
During the last two years, Octal Capital Limited has been appointed as the independent financial adviser in respect of the continuing connected transactions of the Company and details of such appointment are set out in the circular of the Company dated 14 September 2016. Apart from the normal professional fees paid to us in connection with the aforesaid appointment, no arrangement exists whereby we had received any fees or benefits from the Company or any other party to the transactions, therefore we consider such relation would not affect our independence. We are independent of the Company pursuant to Rule 13.84 of the Hong Kong Listing Rules.
In formulating our opinion, we have relied on the accuracy of the information and representations contained in the Circular and have assumed that all information and representations made or referred to in the Circular were true at the time they were made and continue to be true as at the Latest Practicable Date. We have also relied on our discussion with the Directors and the management of the Company regarding the Group and the Non-exempt Continuing Connected Transactions, including the information and representations contained in the Circular. We have also assumed that all statements of belief, opinion and intention made by the Directors and the management of the Company in the Circular were reasonably made after due enquiry. We consider that we have reviewed sufficient information to reach an informed view, to justify our reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our advice. We have no reason to suspect that any material facts have been omitted or withheld from the information contained or opinions expressed in the Circular nor to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and management of the Company. We have not, however, conducted an independent in-depth investigation into the business and affairs of the Group and its associates nor have we carried our any independent verification of the information supplied. The Company will notify the Shareholders of any material changes after the Latest Practicable Date and after the dispatch of the Circular. The Shareholders will also be notified of any material changes to such information provided and our opinion as soon as possible.
PRINCIPAL FACTORS AND REASONS CONSIDERED
In arriving at our opinion and recommendation on the terms of the Non-exempt Continuing Connected Transactions and the Proposed Annual Caps, we have taken the following principal factors and reasons into consideration:
1. Background information of the Group (1) The Group
The Group's principal business activity is air passenger, air cargo and airline-related services, including aircraft engineering services and airport ground handling services, mainly in Mainland China, Hong Kong and Macau. The Group has its headquarters in Beijing, PRC with two important hubs in Chengdu and Shanghai.
The Group is the only national flag carrier of China and a member of Star Alliance, the world's largest airline alliance. It is also the only Chinese civil aviation enterprise listed in "The World's 500 Most Influential Brands". With two increasingly important hubs in Chengdu and Shanghai, with Star Alliance, the Group's network covered 1,330 destinations in 192 countries as at 31 December 2016.
The table below presents the major audited information extracted from the consolidated statement of profit or loss of the Group for the three financial years ended 31 December 2014, 2015 and 2016.
Year ended 31 December
in RMB million 2014 2015 2016
Air traffic revenue 101,385 104,368 108,585
Profit from operations 7,257 15,552 17,533
Finance income 233 152 127
Profit attributable to owners
of the Company 3,852 7,063 6,809
Source: Annual Reports of 2014, 2015 and 2016
For the year ended 31 December 2015 (the "FY2015"), the Group recorded air traffic revenue of approximately RMB104.4 billion, representing a year-on-year increase by approximately 2.9%. The operating expenses of FY2015 was approximately RMB94.5 billion, representing a decrease from approximately RMB98.7 billion for the year ended 31 December 2014 (the "FY2014"). The decrease is mainly driven by the lower fuel cost during FY2015. The profit attributable to the equity shareholders of the Company increased by approximately 83.3% from approximately RMB3.9 billion for FY2014 to approximately RMB7.1 billion for FY2015.
For the year ended 31 December 2016 (the "FY2016"), the Group recorded air traffic revenue of approximately RMB108.6 billion, representing a year-on-year increase by approximately 4.0%. The operating expenses increased by approximately 3.3% from approximately RMB94.5 billion for FY2015 to approximately RMB97.6 billion for FY2016, which was in line with the growth of the air traffic revneue. Fuel cost, which was one of the major operating expenses, was approximately RMB22.0 billion for FY2016, representing a year-on-year decrease by approximately 8.6% due to the reduction in the international crude oil prices. During FY2016, the Group recorded finance income of approximately RMB127 million, representing a decrease of approximately RMB25 million or 16.5%
as compared to that of FY2015. The profit attributable to equity shareholders of the Company decreased by approximately 3.6% from approximately RMB7.1 billion for FY2015 to approximately RMB6.8 billion for FY2016.
(2) CNAHC
CNAHC is a state-owned company established in the PRC and is under the supervision of SASAC. It is primarily engaged in managing its state-owned assets and its equity interest in investees, charter of aircrafts and maintenance of aviation equipment. CNAHC is a controlling shareholder of the Company holding approximately 51.7% of the issued share capital of the Company as at the Latest Practicable Date.
(3) CNAF
CNAF is a company with limited liability established in the PRC and is mainly engaged in provision of financial services to the Group and the CNAHC Group. CNAF is a non-bank financial institution with the approval from the China Banking Regulatory Commission ("CBRC") and is regulated by the relevant PRC regulatory authorities including the People's Bank of China (the "PBOC") and CBRC. As at the Latest Practicable Date, the Company holds 51% of the issued share capital of CNAF and CNAHC holds 49% of issued share capital of CNAF.
The following is a simplified shareholding chart among the Company, CNAHC and CNAF as at the Latest Practicable Date:
CNAHC
51.7%
The Company 49%
51%
CNAF
The table below sets forth the major financial information of CNAF extracted from its audited financial statements for the three years ended 31 December 2014, 2015 and 2016.
For the year ended 31 December
in RMB million 2014 2015 2016
Net interest income 113 128 111
Net fees and commissions
income 8 9 8
Investment income 27 38 58
Profit after taxation 64 83 59
The net interest income of CNAF had decreased by approximately RMB17 million or 13% from FY2015 to FY2016. As advised by the management of the Company, it was primarily due to the reduction of benchmark interest rates of RMB denominated loans and deposits set by PBOC.
2. Deposit services contemplated under the Air China Financial Services Agreement (i) Reasons and benefits for the transaction
We note that the deposit services to be provided by CNAF under the Air China Financial Services have been started at least since 2004. As advised by the Company, due to the long term business relationship between the Group and CNAF, CNAF has a good understanding of the Group's settlement procedures and deposit requirements and has established convenient communication channels. Based on the previous cooperation with other banks, the management of the Company considers that CNAF is more efficient in provision of deposit services as compared to the banks because CNAF has been in-corporation with the Group for over 10 years, thereby having in-depth understanding in each other's business model and working practice. The deposit services offered by CNAF, in term of deposit amounts and period, can be tailor-made to fulfil the financial needs of the Group.
Furthermore, the Air China Financial Services Agreement will not restrict the Group to place their monetary funds in any banks. The Group is flexible in selecting the appropriate banks for deposit services to satisfy the Group's own financial needs. When other banks can offer more favourable deposit rates to the Group, the Group is allowed to engage other banks for deposit services.
We understand from the Company that the selection criteria of banks for placing deposits are mainly based on the interest rates offered. A designated staff from the finance department of the Company compares the interest rate quotation offered by at least three state-owned commercial banks with those offered by CNAF and also considers the other terms of deposits and the quality of services in making its choice of the banks.
Based on the above, we understand that the Air China Financial Services Agreement allows the Group to continue using the deposit services offered by CNAF without a fixed service commitment and the Group has the flexibility to select other banks for deposit services. We therefore are of the view that entering into the Air China Financial Services Agreement is under the Group's normal and usual course of business and is in the interests of the Company and the Shareholders as a whole.
(ii) Internal control measures on the deposits placed with CNAF
We are advised by the management of the Company that the finance department of the Company has been assigned to (i) obtain the financial reports/management accounts on a monthly basis to review the financial position and the profile of investments in order to assess the risks of placing deposits with CNAF; (ii) review CNAF's required financial ratios which are calculated in accordance with the Interim Measures for the Administration of Finance Companies of Enterprise Group in relation to the Risk Management (the "Administrative Measures") ( ) issued on 29 December 2006 and review whether these ratios are in compliance with the regulatory requirements and evaluate the operating capability of CNAF.
Pursuant to the Air China Financial Services Agreement, CNAF has agreed not to utilize the deposits placed by the Group for high-risk investment activities, including but not limited to equity securities and corporate bonds. The Company's auditor is allowed to inspect the management accounts of CNAF and CNAF is obligated to cooperate with the Company's auditor.
The customers of CNAF is principally limited to the entities within the Group and the CNAHC Group only, thereby reducing the risks that CNAF will be exposed to. Since CNAF is owned as to 51% by the Company, which can have full access to the financial information of the entities within the Group, CNAF has a better understanding to the financial position and performance of its customers and can obtain sufficient information in advance via the Group's internal financial reporting system to determine whether the loan should be granted to the loan applicants, which is very unlikely that other state-owned commercial banks have such easily-assessable channels to evaluate their customers' creditability. As a result, the customer credit controls of CNAF is comparatively more efficient than the state-owned commercial banks and help reducing the customers' default risk.
The Company has appointed some of its senior management to be the CNAF's directors who are responsible for supervising the operation and monitoring the investment risk of CNAF. Compared to other state-owned commercial banks, the Company has involvement in the risk management of CNAF.
As CNAF is a non-bank financial institution regulated by CBRC and PBOC, CNAF is subject to regular reporting of its audited financial statements and financial ratios to the regulatory departments. We have been advised by the Directors that to their best knowledge, from the completion of acquisition of CNAF (i.e. 1 September 2015) up to the Latest Practicable Date, CNAF has no record of non-compliance with relevant laws, rules and regulations of the PRC.
Apart from the internal controls conducted by the Group to monitor the financial position of CNAF, we have performed an assessment on the risk profile of CNAF (the details can be referred to the section headed "Risk profile of CNAF as a non-bank financial institution") and no violation of the required financial ratios are noted.
In view of the above, we consider that there are measures in place to monitor CNAF's financial position, the Group's deposits maintained with CNAF and the customer creditability of CNAF. We are of the view that the risks borne by CNAF are less than those borne by other state- owned commercial banks, which have a broad and unrestricted customer base, and CNAF is able to safeguard its customers' fund more effectively. Therefore, we consider that the increasing use of the deposit services provided by CNAF is in the interest of the Company and its Shareholders as whole.
(iii) Pricing terms of the deposit services
Pursuant to the Air China Financial Services Agreement entered on 30 August 2017, the interest rates of deposits to be placed by the Group with CNAF will be determined based on the following three conditions:
(i) the interest rates should be in compliance with the requirements prescribed by PBOC;
(ii) the interest rates will be not lower than the interest rates charged by state-owned commercial banks to the Group for the same type of services under the same conditions; and
(iii) the interest rates will be not lower than the interest rates charged by CNAF to other CNAHC Member Companies for the same type of services under the same conditions.
Therefore, the pricing basis has made reference to the prevailing interest rates and also sets a floor interest rate for the deposit services.
Since CNAF only provides deposit services to the entities within the Group and the CNAHC Group, we selected five deposit transactions between CNAF and the entities within the CNAHC Group and other five deposit transactions between CNAF and the entities within the Group. The selected transactions were conducted during the two years ended 31 December 2016 and the first six months of 2017 and they have similar amounts of deposits and tenor within one year. We compared the interest rates offered to the Group and noted that the interest rates provided to the Group are not lower than those offered to other entities within the CNAHC Group with similar principal amount and tenor of deposits. Moreover, we also reviewed the comparison between the interest rates offered by CNAF and those interest rates offered by three state-owned commercial banks to the Group and noted that the interest rates offered by CNAF are same as those offered by two state-owned commercial banks. Based on our review, we are of the view that the deposits service offered by CNAF to the Group is in compliance with the pricing basis stipulated in the Air China Financial Services Agreement.
We have reviewed the daily deposit reports between CNAF and the Group to ensure that the daily deposit balance does not exceed the approved annual caps under 2015 Air China Financial Services Agreement. The finance department of the Company maintains a list of associates, joint ventures and subsidiaries of the Company and CNAHC and the list is updated on a quarterly basis. The list has identified and classified the connected parties of the Company under the Hong Kong Listing Rules. Based on the list of connected parties, a designated staff from the finance department of the Company is assigned to review the daily balance of deposits of the connected parties of the Group placed with CNAF to ensure that it does not exceed the approved annual caps.
We also checked to the latest interest rates of RMB denominated deposits announced by PBOC on 24 May 2015 and noted that, among the selected sample transactions, the interest rates offered by CNAF to the Group is either higher or same as the interest rates prescribed by PBOC.
As stated in the term sheets of the deposits, the interests derived from the deposits with CNAF are calculated on daily basis and are payable on a quarterly basis and the payment terms are in line with the market practice. We note that, according to Notice in relation to Determination of Interests on Loans and Deposits Denominated in RMB by PBOC ( ) published on 27 May 2005, the accrued interests on RMB-denominated deposits are to be settled on a quarterly basis.
We understand from the Company that a designated staff from the finance department of the Company would compare the interest rates offered by CNAF and those offered by at least three state- owned commercial banks in order to ensure that the interest rates offered by CNAF is no less favourable than those offered by other state-owned commercial banks and in line with the pricing basis as stipulated in the Air China Financial Services Agreement.
Based on the above, we are of the view that the pricing and payment terms of the deposit services under the Air China Financial Services Agreement are on normal commercial terms and are fair and reasonable.
(iv) Proposed annual caps
As set out in the Letter from the Board, the historical maximum daily balance of deposits (including accrued interests) placed by the Group to CNAF in respect of the Air China Financial Services Agreement for the two years ended 31 December 2016 are approximately RMB4.0 billion and RMB4.8 billion, respectively and reached approximately RMB6.4 billion during the first six months of 2017. In term of the approved annual caps, the historical maximum balance of deposits represented 33.3%, 34.1% and 42.7% of the respective approved annual caps under 2015 Air China Financial Services Agreement. We understand from the management of the Company that the approved annual caps have not been exceeded as at the Latest Practicable Date and is not expected to be exceeded before 31 December 2017.
The proposed maximum daily balance of deposits (including accrued interests) to be placed by the Group with CNAF will be approximately RMB12 billion, RMB14 billion and RMB 15 billion, respectively, during the three years ending 31 December 2018, 2019 and 2020.
During the three years ended 31 December 2014, 2015 and 2016 and the first three months of 2017, the Group recorded the highest cash and bank balance of approximately RMB11.1 billion, RMB10.3 billion, RMB9.4 billion and RMB15.7 billion respectively, representing a growth rate of 12% and an average highest cash and bank balance of approximately RMB11.6 billion. Based on the average highest cash and bank balance of approximately RMB11.6 billion and the historical growth rate of 12%, the Company estimates that the highest monetary funds of the Group will reach approximately RMB13.0 billion, RMB14.6 billion and RMB16.3 billion in the three years ending 31 December 2020.
As advised by the Company, the continuous growth in economy and the development of air transportation in the PRC may result in an increase in the volume of the Group's cash inflow and the demand on the deposit services may increase. According to the National Bureau of Statistics of the PRC, the annual growth rate of the gross domestic product ("GDP") of the PRC was at the rate of 6.9% and 6.7% for the years 2015 and 2016, respectively. The target growth rate of GDP of the PRC for the year ending 31 December 2017 is 6.5% based on the China's 13th Five Year Plan. Moreover, according to the 13th Five Year Plan for the Development of Civil Aviation in China ( ) published by Civil Aviation Department of China ( ), the capacity measured in the available tonne kilometres ("ATK") reached approximately 85.2 billion in 2015, representing an average annual growth rate of approximately 9.6% during 2010 to 2015. The
average annual growth rate of passenger carried was at 10.4% and that of the cargo and mail carried was at 2.2% during 2010 to 2015. In the coming five years from 2016 to 2020, the average annual growth rate of passengers carried and the cargo and mail carried are estimated to be approximately 10.4% and 6.2% per year and the capacity in ATK is estimated to record an average annual growth rate of approximately 10.8%.
As disclosed in the 2016 Annual Report of the Company, the amount of passengers carried was approximately 97 million, representing a year-on-year increase at approximately 7.56% and the volume of cargo and mail carried was approximately 1.8 million tonnes, representing a year-on-year increase at approximately 6.29%. The overall load factor of the Group is approximately 70%. In the coming three years ending 31 December 2019, the Group will introduce 56, 46 and 55 new passenger aircraft. In 2017, the Group plans to launch new European and American routes (including but not limited to Beijing-Astana, Beijing-Zurich, Shanghai-Barcelona and Shenzhen-Los Angeles), some Southeast Asian routes departing from Hangzhou, Chongqing and Shanghai and China domestic routes.
Moreover, the air traffic revenue of the Group was continuously growing from RMB101.4 billion in FY2014 to RMB108.6 billion in FY2016. The EBITDA(Note) of the Group increased from RMB18.7 billion in FY2014 to RMB31.0 billion in FY2016.
We understand from the management of the Company that the Group's monetary funds will be placed at CNAF or the banks during the year. As at 31 December 2015 and 31 December 2016 approximately 30% and 48% of the monetary funds of the Group had been deposited with CNAF, respectively. The management of the Company has forecasted that around 62% of the monetary funds of the Group will be deposited with CNAF near the end of 2017. The management of the Company
Note EBITDA represents earnings before finance income, finance costs, income taxes, share of profits of joint ventures and associates, depreciation and amortisation as computed under the International Financial Reporting Standards.
explained that the higher utilization of CNAF's services are due to the favoubale interest rates and tailor-made financial solutions offered by CNAF to satisfy the Group's cash flow needs. After the completion of acquisition of CNAF on 1 September 2015, CNAF became a non-wholly owned subsidiary of the Company and the Company intends to develop CNAF as a corporate treasury centre of the Group in the coming years. This allows the Group with higher flexibility to manage its own cash flow and capital structure as well as reducing the finance cost and bank administrative expenses charged by the banks. In term of risk management, the Company can closely monitor the financial position and conditions of CNAF to minimize the default risk and liquidity risk of CNAF. We have reviewed an internal guidance letter issued by the relevant regulatory authorities that the state-owned group is encouraged to place not less than 70% of its monetary funds with the internal finance entity. In light of the development of a corporate treasury centre and the recommended best practices from the regulatory authorities, the Company will gradually increase the proportion of deposits to be placed with CNAF up to 70% of the Group's monetary funds during the year ending 31 December 2018 and then up to 75% of the Group's monetary funds during the two years ending 31 December 2020. As a result,
approximately RMB9 billion, RMB11 billion and RMB12 billion will be deposited with CNAF for the three years ending 31 December 2020, respectively.
Having considered the internal monitoring procedures of the Company imposed on CNAF, the customer base of CNAF limited to the entities within the Group and the CNAHC Group and the historical high liquidity ratio of CNAF, we are of the view that the Group is considered to be in a low risk position to increase its reliance on CNAF's deposit services.
During the year ended 31 December 2016, the Company has been approved to issue super- short term commercial papers with principal amount of RMB 10 billion and such approval is effective until 23 February 2018. Among the approved quota, the Company issued super-short term commercial papers at the Inter-bank Bond Market of RMB7.2 billion and among which a total of approximately RMB3 billion of super-short term commercial papers was issued during March 2016. Among the net proceeds received during the year, some of unutilized proceeds were deposited with CNAF. The Company will continue using these super-short term commercial papers as the Company's major fund-raising channels in the coming years in order to supplement the working capital for expansion of fleet and network coverage. With reference to the historical maximum net proceeds received within a month, the management of the Company estimates that approximately RMB3 billion of unutilized proceeds will be placed with CNAF before the net proceeds are utilized if the Company issues super- short term commercial papers in the coming three years.
Having considered (i) the anticipated growth of the economy and the air transportation market as described above; (ii) the expansion plan in relation to the Group's fleet and network coverage; and
(iii) the growing profitability of the Group, it is reasonable to anticipate that the Group has a higher cash inflow from operating activities, leading to a higher demand for deposit services. Therefore, we consider that the growth rates adopted for estimating the highest monetary funds of the Group are reasonable.
Taking into account (i) the estimated highest monetary funds of the Group of approximately RMB13.0 billion, RMB14.6 billion and RMB16.3 billion during the three years ending 31 December 2020, respectively; (ii) 70%, 75% and 75% of the Group's monetary funds to be deposited with CNAF during the three years ending 31 December 2020, respectively; and (iii) the unutilized
proceeds of approximately RMB3 billion from the issuance of super-short term commercial papers may be placed with CNAF in the coming three years, we are of the view that the Air China New Annual Caps for the three years ending 31 December 2020 are fair and reasonable.
3. Credit Services contemplated under the CNAHC Financial Services Agreement (i) Reasons and benefits for the transaction
With reference to the announcement dated 24 December 2014, the Company acquired the equity interests from the then shareholders of CNAF and carried out capital injection to CNAF. After the said acquisition and capital injection and as at the Latest Practicable Date, CNAF is held as to 51% by the Company and as to 49% by CNAHC. Before the acquisition, CNAF was owned as to 75.54% by CNAHC, being a subsidiary of CNAHC. CNAF is primarily engaged in providing financial services to CNAHC, its subsidiaries and its associates. We understand from the management of the Company that CNAF has been providing credit services, deposit services and financial services to the CNAHC Group since 1996. We have checked to the audited reports of CNAF and noted that a significant portion of interest income from the provision of loan services were derived from the CNAHC Group. During the three years ended 31 December 2014, 2015 and 2016, approximately 39.6%, 30.7% and 32.9% of the total loan interest income of CNAF were derived from the CNAHC Group.
With a registered capital of approximately RMB10 billion CNAHC is primarily engaged in managing its state-owned assets and have direct and indirect investments in various aviation businesses, including airlines, cargo terminals, airline catering services, ground support services, finance leasing services, logistic services etc. CNAHC is directly managed and owned by SASAC. We have also reviewed the credit rating reports issued by a credit rating agency in 2016 and 2017 and noted that CNAHC was granted an AAA rating, representing the highest creditability grade and an extremely strong capacity to meet its financial commitments. As at the Latest Practicable Date, CNAHC has 51.7% equity interests in the Company and is the controlling shareholder of the Company. Considering the creditability rating and the shareholding background of CNAHC, CNAF is expected to be in a relatively low risk position to provide loans to the CNAHC Group.
(ii) Internal control measures for the Credit Services
As advised by the management of the Company, CNAF has implemented various internal control procedures to review the loan application and assess the borrowers' creditability. We have reviewed the loan application forms, the comments of various reviewers of the loan application and the final decision endorsed by the loan review committee. The loans are only granted to the borrowers after the loan review committee approves all the terms of the loans. After the approval from the loan review committee is obtained, the borrower and CNAF enter into a legally-binding loan agreement and then the loan principal is transferred to the borrower. We also examined the annual review report prepared by CNAF to assess the recent financial conditions and creditability of the borrowers after the loans are granted to these borrowers. In view of the above, we are of the view that CNAF has internal control measures in place to monitor the loan approval process and the creditability of borrowers.
Taking into account (i) the long-term business and shareholding relationship between CNAHC and CNAF; (ii) a significant portion of revenue derived from the CNAHC Group; (iii) the business scale and financial background of CNAHC; and (iv) the internal control procedures to monitor the Credit Services under the CNAHC Financial Service Agreement, we are of the view that the Credit Services contemplated under the CNAHC Financial Services Agreement are in the interests of the Company and the Shareholders as a whole.
(iii) Pricing terms of the Credit Services
Pursuant to the CNAHC Financial Services Agreement entered on 30 August 2017, CNAF will continue to provide the Credit Services to the CNAHC Group for another three years commencing from 1 January 2018 to 31 December 2020. The interest rates to be charged to the CNAHC Group by CNAF (i) should be in compliance with the requirements prescribed by PBOC on such type of loans;
(ii) should not be lower than the interest rates charged by the state-owned commercial banks to the CNAHC Group for the same type of services under the same conditions; and (iii) should not be lower than the interest rates charged by CNAF to other CNHAC Member Companies for the same type of services under the same conditions.
We have examined the loan agreements and loan application documents in relation to the loans provided by CNAF to the CNAHC Group and the Group during the two years ended 31 December 2016 and the latest six months of 2017. We noted that the interest rates charged to the CNAHC Group is not lower than those charged to the Group. We also compared the loan interest rates charged to the CNAHC Group by state-owned commercial banks and noted that the interest rates of comparable loans charged to the CNAHC Group by CNAF is not lower than those charged by state- owned commercial banks.
We also checked to the latest benchmark interest rates of RMB denominated loans announced by PBOC on 24 May 2015 and noted that the interest rates charged to the CNAHC Group by CNAF did not exceed the benchmark loan interest rates prescribed by PBOC.
Based on the above, we are of the view that the pricing terms of the Credit Services contemplated under the CNAHC Financial Service Agreement are on normal commercial terms and are fair and reasonable.
(iv) Proposed annual caps
As set out in the Letter from the Board, the maximum daily balance of Credit Services (including accrued interests) for the three years ending 31 December 2018, 2019 and 2020 are RMB8 billion, RMB9 billion and RMB10 billion, respectively.
Based on the information provided by CNAF, the historical maximum balance in relation to the Credit Services provided by CNAF to the CNAHC Group were approximately RMB1.9 billion, RMB2.2 billion, RMB2.1 billion and RMB3.1 billion during the three years ended 31 December 2014, 2015 and 2016 and the first six months of 2017, respectively, representing a growth rate of approximately 19%. Taking into account of the recent highest daily balance in relation to the Credit Services provided by CNAF to the CNAHC Group and the historical growth rate of approximately
19%, CNAF estimates that the maximum daily balance in relation to the Credit Services may reach RMB3.7 billion, RMB4.5 billion and RMB5.4 billion during the three years ending 31 December 2018, 2019 and 2020, respectively.
As discussed in the previous section, the Company intends to develop CNAF as a corporate treasury center for the Group and the CNAHC Group to provide tailor-made financial services to meet the cash flow needs of the CNAHC Group. It is more cost-effective to centralize the cash management function of the CNAHC Group and the Group in CNAF and improve the overall efficiency for the use of funds. Being a corporate treasury center of the CNAHC Group, CNAF could earn more interest income from the provision of Credit Services to the CNAHC Group with a relatively lower default risk. The management of the Company stated that CNAHC intends to gradually reduce its borrowings from the banks and obtain loans directly from CNAF which will soon be developed as a corporate treasury center of the CNAHC Group and the Group. The Company made reference to the current amounts of borrowings of the CNAHC Group obtained from other banks and the CNAHC Group's future fund use plan to determine the CNAHC New Annual Caps. The CNAHC Group has a diversified investment profile in the aviation sector and the aviation-related sectors. As discussed in the previous section, the average annual growth rate of passengers carried and the cargo and mail carried will be approximately 10.4% and 6.2% during 2016 to 2020 in the PRC. We understand from the management of the Company that the strong demand on the airline services will induce higher demand on airline ancillary services, including but not limited to, flight catering services, in-flight entertainment services, ground supporting services, etc. Therefore, the business and investment scale of the CNAHC Group will be further expanded in order to capture the business opportunities in the aviation market. The CNAHC Group has estimated to maintain the current borrowing level to finance its future capital requirements. CNAF will be acting as the treasury center of the CNAHC Group and thus other CNAHC Member Companies will first consider the Credit Services from CNAF rather than other commercial banks. Therefore, additional borrowings of approximately RMB4.0 billion, RMB4.2 billion and RMB4.5 billion are estimated to be obtained by the CNAHC Group from CNAF instead of the banks in the coming three years ended 31 December 2020, respectively.
Moreover, certain subsidiaries of CNAHC will have an investment project relating to the construction of airport-related auxilliary facilities. The first phase of this project is expected to be completed in 2020 and the second phase of this project is expected to be completed in 2025. The estimated investment cost of this project is approximately RMB1 billion, among of which RMB0.7 billion will be financed by CNAF. In the coming three years ending 31 December 2020, additional borrowings of RMB0.3 billion, RMB0.3 billion and RMB0.1 billion will be obtained from CNAF to finance the construction of this project. In line with the development of CNAF as the CNAHC Group's treasury centre, the subsidiary of CNAHC is planning to obtain borrowings from CNAF.
Taking into account (i) the latest maximum balance of RMB3.1 billion in relating to the Credit Services and the related growth rate of 19%; (ii) the higher reliance on CNAF's Credit Services by the CNAHC Group in the coming three years; and (iii) the financing need for certain subsidiaries of CNAHC in relation to the construction of airport-related auxiliary facilities during 2018 to 2020, we are of the view that the CNAHC New Annual Caps for the three years ending 31 December 2018, 2019 and 2020 are fair and reasonable and in the interest of the Company and the Shareholders as a whole.
4. Risk profile of CNAF as a non-bank financial institution
In order to formulate our view on the risk profile of CNAF compared with that of the PRC commercial banks, we have reviewed several key financial ratios of CNAF and PRC commercial banks according to three major risk factors of banks, which are compliance risk, liquidity risk and credit risk as set out below:
(a) Compliance risk
As a licensed non-bank financial institution in the PRC, CNAF is supervised by CBRC under the Administrative Measures, pursuant to which CNAF is required to submit audited financial statements and report its operation status to CBRC annually. In addition, CNAF must comply with certain financial ratio requirements set by CBRC from time to time.
The table below is the applicable financial ratios of CNAF as at 31 December 2015 and 2016 in relation to the requirements of the Administrative Measures:
Requirements Financial ratios
Financial ratio of the CBRC of CNAF As at 31
December
2015 2016
Capital adequacy ratio (Note) >= 10% 26.0% 28.8%
Inter-bank borrowing balances
to total capital ratio <= 100% 0.0% 0.0%
Total amount of investment
to total capital ratio <= 70% 62.7% 62.1%
Liquidity ratio >= 25% 65.4% 82.7%
Non-performing loan ratio <= 5% 0.0% 0.0%
Total fixed assets to total
capital ratio <= 20% 1.0% 0.3%
Note: Capital adequacy ratio: total capital/risk adjusted assets.
We have reviewed the calculation of financial ratios of CNAF as at 31 December 2015 and 2016 in relation to the requirements of the Administrative Measures, and noted that CNAF has complied with all the financial ratio requirements during the relevant periods. We have also been advised by the Directors that to their best knowledge, information and belief, from the completion of acquisition of CNAF on 1 September 2015 up to the Latest Practicable Date, there is no record of material non-compliance with relevant laws, rules and regulations of the PRC by CNAF.
(b) Liquidity risk
The below table shows the liquidity ratio of CNAF as at 31 December 2015 and 2016.
Requirements Liquidity ratio
of the CBRC of CNAF As at 31
December
2015 2016
Liquidity ratio (Note) >= 25% 65.4% 82.7%
Note: Liquidity ratio is defined as current assets/current liabilities.
The below table summarizes the liquidity ratios of the four state-owned commercial banks in the PRC as at 31 December 2015 and 2016.
Requirements Liquidity ratio
of the CBRC As at 31 December
2015 2016
Industrial and Commercial
Bank of China Ltd (Stock code:
1398) 35.5% 35.7%
China Construction Bank Corporation
(Stock code: 939) 44.2% 44.2%
Agricultural Bank of China
Ltd (Stock code: 1288) 44.5% 46.7%
Bank of China (Stock code:
3988) 48.6% 45.6%
Average: >= 25% 43.2% 43.1%
Source: Annual reports of the above companies.
We noted that each of the liquidity ratio of CNAF as at 31 December 2015 and 2016 were higher than the average liquidity ratio of the above four state-owned commercial banks in the PRC. In view of the above, we are of the view that the liquidity risk of the CNAF is relatively smaller than the above four comparables.
(c) Credit risk
The key indicators of credit risk are the non-performing loans ratio and the allowance of non- performing loans to total loans ratio. We noted that the non-performing loans ratios of CNAF as at 31 December 2015 and 2016 are 0%, which is in compliance with the regulatory requirement of not more than 5%. We have checked to the audited financial statements of 2015 and 2016 and noted that CNAF did not have non-performing loans. Since CNAF has no non-performing loans, the allowance of non-performing loans to total loans ratios is not applicable.
In view of the above, we consider that the financial capability of CNAF is sufficient to provide deposit services to the Company, and the liquidity risk of the CNAF is relatively lower than the above four comparables.
RECOMMATION
Having considered the above principal factors and reasons, we concur with the Directors' view that
(i) the Non-Exempt Continuing Connected Transactions are carried out in the ordinary and usual course of business of the Group; (ii) the terms of the Non-Exempt Continuing Connected Transactions are on normal commercial terms, and are fair and reasonable so far as the Independent Shareholders are concerned; (iii) the Non-Exempt Continuing Connected Transactions are in the interests of the Company and the Shareholders as a whole; and (iv) the basis of determining the Proposed Annual Caps of the Non-Exempt Continuing Connected Transactions are fair and reasonable. Accordingly, we would recommend the Independent Shareholders, and advise the Independent Board Committee to recommend to the Independent Shareholders, to vote in favour of the Non-Exempt Continuing Connected Transactions and the Proposed Annual Caps thereof at the EGM.
Yours faithfully,
For and on behalf of
Octal Capital Limited
Alan Fung
Managing Director
Wong Wai Leung
Executive Director
Note: Mr. Alan Fung has been a responsible officer of Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities since 2003. Mr. Fung has more than 20 years of experience in corporate finance and investment banking and has participated in and completed various advisory transactions in respect of mergers and acquisitions, connected transactions and transactions subject to the compliance to the Takeovers Code of listed companies in Hong Kong. Mr. Wong Wai Leung has been a responsible officer of Type 1 (dealing in securities), Type 6 (advising on corporate finance) regulated activities since 2008 and Type 9 (asset management) regulated activities. Mr. Wong has more than 15 years of experience in corporate finance and investment banking and has participated in and completed various advisory transactions of listed companies in Hong Kong in respect of the Takeovers Code.
APPIX I
BIOGRAPHICAL DETAILS OF THE DIRECTOR CANDIDATES FOR THE FIFTH SESSION OF THE BOARD
The biographical details of the Director candidates for the fifth session of the Board are as follows:
NON-EXECUTIVE DIRECTORS:
Mr. Cai Jianjiang, aged 54, graduated from China Civil Aviation Institute majoring in aviation control and English. Mr. Cai was appointed as General Manager of Shenzhen Airlines in 1999. He joined Air China International Corporation in 2001 as Manager of its Shanghai Branch, and subsequently as Assistant to the President and Manager of the marketing department. In October 2002, he was appointed as Vice President of Air China International Corporation, and subsequently as Secretary of the Communist Party Committee and Vice President of the Company in September 2004. He served as President and Deputy Secretary of the Communist Party Committee of the Company and a member of the Communist Party Group of CNAHC from January 2007 to January 2014. He has been serving as the non-executive Director of Cathay Pacific since November 2009, the Chairman of Shenzhen Airlines since May 2010, and the General Manager and Deputy Secretary of the Communist Party Group of CNAHC from January 2014 to December 2016. Mr. Cai has been serving as a Director of the Company since September 2004 and Chairman of the Company since February 2014. He has been serving as Chairman and Secretary of the Communist Party Group of CNAHC since December 2016. He has been serving as Secretary of the Communist Party Committee of the Company since May 2017.
Mr. John Robert Slosar, aged 61, holds degrees in Economics from Columbia University and Cambridge University. He joined the Swire group in 1980 and worked with the group in Hong Kong, the United States and Thailand. Mr. Slosar has been a Director of Cathay Pacific since July 2007 and served as Chief Operating Officer from July 2007 to March 2011 and as Chief Executive from March 2011 to March 2014, and has become Chairman of Cathay Pacific, John Swire & Sons (H.K.) Limited, Swire Pacific Limited, Swire Properties Limited and Hong Kong Aircraft Engineering Company Limited since March 2014. Mr. Slosar has been serving as a non-executive Director of the Company since May 2014.
EXECUTIVE DIRECTORS:
Mr. Song Zhiyong, aged 52, Mr. Song is a commanding pilot, graduating from the Second Flying Academy of China Air Force with a bachelor's degree in aviation. Mr. Song started his career in China's civil aviation industry in 1987 and was previously a pilot, Deputy Team Captain, Flight Director, and Deputy Group Captain of the Third Group of the Chief Flight Team, Deputy Captain of the Chief Flight Team and Director of the Training Department of Air China International Corporation. He served as Captain of the Chief Flight Team and Deputy Secretary of the Communist Party Committee of the Company from November 2002 to June 2008. Mr. Song held the post of Assistant to President from September 2004 to October 2006. He was the Vice President, a Member of the Communist Party Committee, and a Member of the Standing Committee of the Communist Party Committee of the Company from October 2006 to December 2010. Mr. Song served as the Deputy General Manager of CNAHC from December 2010 to April 2014. He has been a Member of the Communist Party Group of CNAHC since December 2010. Mr. Song has been serving as President and Deputy Secretary of the Communist Party Committee of the Company to handle the comprehensive work of the Company since January 2014 as well as an executive Director of the Company since May 2014 and Secretary of the Communist Party Group of CNAHC from February 2016 to December 2016. He has been serving as Vice Chairman of the Company since June 2016 and Director, General Manager and Deputy Secretary of the Communist Party Group of CNAHC since December 2016.
INDEPENT NON-EXECUTIVE DIRECTORS:
Mr. Wang Xiaokang, aged 62, graduated from Peking University majoring in law. He served as Chairman and Deputy Secretary of the Communist Party Committee of China Energy Conservation and Environmental Protection Group from May 2010 to December 2016. Since December 2011, he has been serving as the President of China Industrial Energy Conservation and Clean Production Association. He is also currently a Member of the Twelfth National Committee of the Chinese People's Political Consultative Conference and a Member of the Committee of Population, Resources and Environment of the Chinese People's Political Consultative Conference. He has been serving as an independent non-executive Director of the Company since May 2017.
Mr. Liu Deheng, aged 60, graduated from the School of Management of Xi'an Jiaotong University with a master's degree in industrial management engineering. He served as Deputy Director General of Statistics and Assessment Bureau (Asset and Capital Verification Office), Deputy Director General and Director General of Revenue Management Bureau of the SASAC from May 2003 to October 2016, and served as Professional External Director for Central State-owned Enterprises from October 2016 to April 2017. He has been serving as an independent non-executive Director of the Company since May 2017.
Mr. Stanley Hui Hon-chung, aged 67, holds the bachelor degree of Science from the Chinese University of Hong Kong. He joined Cathay Pacific in 1975 as a management trainee and had held a range of management positions in Hong Kong and overseas. From 1990 to 1992, Mr. Hui served in Cathy Dragon as General Manager-Planning and International Affairs and was appointed the Chief Representative of John Swire & Sons (China) Limited in Beijing in 1992. He later returned to Hong Kong in 1994 to assume the position of Chief Operating Officer of AHK Air Hong Kong Limited until 1997. Mr. Hui joined Cathy Dragon as its Chief Executive Officer from 1997 to 2006. During the period from February 2007 to July 2014, he served as the Chief Executive Officer of Hong Kong Airport Authority. Mr. Hui was appointed as member of the Greater Pearl River Delta Business Council twice by the Chief Executive of the HKSAR, and held civic duties including member of the Commission on Strategic Development of the HKSAR Government, member of the Hong Kong Government's Aviation Development Advisory Committee and member of the Hong Kong Tourism Board. Mr. Hui is currently the member of the 12th session of National Committee of Chinese People's Political Consultative Conference ("CPPCC") and the General Committee of the Hong Kong General Chamber of Commerce. In July 2006, Mr. Hui was appointed as a Justice of the Peace by the Chief Executive of the HKSAR. Mr. Hui has been serving as an independent non-executive Director of the Company since May 2015. Mr. Hui was appointed as executive Director and Vice CEO of NWS Holdings Limited in September 2015 and independent non-executive Director of Guangzhou Baiyun International Airport Co., Ltd. since December 2016.
Mr. Li Dajin, aged 59, graduated from Peking University majoring in law. He is currently the managing partner and attorney at East & Concord Partners. He has been a practicing lawyer since 1982, and was among the first batch of the lawyers who were qualified to engage in securities law business in 1994. He previously served as Vice President of the 6th session of All China Lawyers Association, President of the 7th session of Beijing Lawyers Association, and a member of Standing Committee and a member of Committee for Internal and Judicial Affairs of the 13th session of Beijing Municipal People's Congress. Currently, Mr. Li also holds, among others, the following positions: Deputy to the 12th session of National People's Congress, legislative consultant to the Standing Committee of Beijing Municipal People's
Congress, invited Supervisor to the PRC Supreme People's Court, invited Supervisor to the Ministry of Public Security of the PRC, visiting professor to Lawyer College of Renmin University of China, lecturer for master candidate of Tsinghua University Law School, and visiting professor of Southwest University of Political Science & Law. Mr. Li has been serving as an independent non-executive Director of the Company since December 2015.
Save as disclosed above, none of the Director candidates for the fifth session of the Board has any relationship with any Director, senior management or substantial or controlling Shareholder of the Company, or has any interest in the shares of the Company within the meaning of Part XV of the SFO. Save as disclosed above, none of the Director candidates for the fifth session of the Board held any other positions in the Company or any of its subsidiaries, or any directorships in other listed companies in the last three years.
Save as disclosed above, the Company is not aware of any other matters that need to be brought to the attention of the Shareholders or any information in relation to the election of the Directors for the fifth session of the Board that need to be disclosed pursuant to the requirements of Rule 13.51(2)(h) to (v) of the Hong Kong Listing Rules.
APPIX II BIOGRAPHICAL DETAILS OF THE SUPERVISOR
CANDIDATES FOR THE FIFTH SESSION OF
THE SUPERVISORY COMMITTEE
The biographical details of the shareholder representative Supervisor candidates for the fifth session of the Supervisory Committee are as follows:
Mr. Wang Zhengang, aged 59, is a senior accountant who graduated from the Anti Chemical Command and Engineering Institute of the Chinese People's Liberation Army with a bachelor's degree in economics and management. He has been serving as a Director, the President and a member of the Communist Party Committee of CNACG since July 2011 and Chairman of the Board of Directors of Chinawings Aviation Technology Co., Ltd since September 2011. Mr. Wang has been an assistant General Manager of CNAHC since September 2014. Mr. Wang is currently a member of the Committee of the 12th session of the CPPCC of Beijing Municipality and a member of the Standing Committee of the 5th session the CPPCC of Shunyi District, Beijing Municipality. He has been serving as Chairman of the Supervisory Committee of the Company since August 2016.
Mr. He Chaofan, aged 55, graduated from Civil Aviation University of China majoring in operation management. Mr. He started his career in China's civil aviation industry in 1983. He served as an accountant at the Finance Department of Beijing Administration of Civil Aviation Administration of China (CAAC), and served various positions in Air China International Corporation, including the Section Chief, Deputy Director and Director of the finance department and General Manager of the revenue accounting centre of Air China International Corporation. From March 2003 to October 2008, he served as General Manager of CNAF. He served as General Manager of the finance department of CNAHC and a Supervisor of the Company concurrently from October 2008 to April 2011. He was appointed as Vice President of CNACG in May 2011, and has been concurrently served as a Director, General Manager, Party Committee member and Deputy Secretary to the Party Committee of Zhongyi Aviation Investment Co., Ltd. since July 2013. Mr. He has been serving as a Supervisor of the Company since October 2013.
Save as disclosed above, none of the shareholder representative Supervisor candidates for the fifth session of the Supervisory Committee has any relationship with any Director, senior management or substantial or controlling Shareholder of the Company, or has any interest in the shares of the Company within the meaning of Part XV of the SFO. Save as disclosed above, none of the shareholder representative Supervisor candidates for the fifth session of the Supervisory Committee held any other positions in the Company or any of its subsidiaries, or any directorships in other listed companies in the last three years.
Save as disclosed above, the Company is not aware of any other matters that need to be brought to the attention of the Shareholders or any information in relation to the election of shareholder representative Supervisors for the fifth session of the Supervisory Committee that need to be disclosed pursuant to the requirements to Rule 13.51(2)(h) to (v) of the Hong Kong Listing Rules.
APPIX III PROPOSED AMMENTS TO THE ARTICLES OF
ASSOCIATION
Set out below are the details of the proposed amendments to the Articles of Association. The revisions have been underlined (if applicable) for the convenience of perusal.
Existing Articles Revised Articles
-------------------------------------- ----------------------------------------
CHAPTER 1 GENERAL PROVISIONS CHAPTER 1 GENERAL PROVISIONS
-------------------------------------- ----------------------------------------
Article 8 Article 8
The "other management personnel" The "other management personnel"
referred to in these Articles referred to in these Articles
of Association mean the board of Association mean the board
secretary, chief accountant, chief secretary, chief accountant, chief
pilot and other management personnel pilot, general legal counsel and
appointed by the board of directors other management personnel appointed
of the Company. by the board of directors of the
Company.
-------------------------------------- ----------------------------------------
Article 11
According to the Constitution
of the Communist Party of China,
the Company shall establish an
organization of the Communist
Party of China. The Party committee
shall perform the core leading
and political functions, control
the directions, manage the situation
and ensure the implementation.
The Company shall set up the working
organs of the Party, which shall
be equipped with sufficient personnel
to handle Party affairs and provided
with sufficient funds to operate
the Party organization.
-------------------------------------- ----------------------------------------
CHAPTER 8: SHAREHOLDERS' GENERAL CHAPTER 8: SHAREHOLDERS' GENERAL
MEETINGS MEETINGS
-------------------------------------- ----------------------------------------
Article 61 Article 612
The shareholders' general meeting The shareholders' general meeting
shall have the following functions shall have the following functions
and powers: and powers:
(1) to decide on the Company's (1) to decide on the Company's
operational policies and investment operational policies and investment
plans; plans;
(2) to elect and replace directors (2) to elect and replace directors
and to decide on matters relating (excluding the employee representative
to the remuneration of directors; director) and to decide on matters
relating to the remuneration of
directors;
(3) to elect and replace supervisors
appointed from personnel who are (3) to elect and replace supervisors
not representatives of the employees appointed from personnel who are
and to decide on matters relating not representatives of the employees
to the remuneration of supervisors; and to decide on matters relating
...... to the remuneration of supervisors;
......
-------------------------------------- ----------------------------------------
Existing Articles Revised Articles
------------------------ ------------------------------------------
CHAPTER 10 THE PARTY COMMITTEE
------------------------ ------------------------------------------
Article 106
The Company shall establish the
Party committee. The Party committee
is comprised of one secretary
and several other members. The
positions of Chairman and the
secretary of the Party committee
shall be assumed by the same person
in principle, and a full-time
deputy secretary of the Party
committee shall be appointed to
take charge of the Party building
work. Eligible members of the
Party committee are entitled to
be admitted to the board of directors,
the supervisory committee, and
the management through legal procedures,
and eligible Party members from
the board of directors, the supervisory
committee, and the management
are entitled to be admitted to
the Party committee in accordance
with relevant rules and procedures.
Meanwhile, a discipline inspection
committee shall be established
in accordance with appropriate
requirements.
------------------------ ------------------------------------------
Article 107
The Party committee of the Company
shall perform its duties by the
internal laws and regulations
of the Party such as the Constitution
of the Communist Party of China.
(1) To guarantee and supervise
the Company's implementation of
policies and guidelines of the
Party and the State, implement
major strategic decisions of the
Central Committee of the Party
and the State Council, as well
as make deployment for the relevant
material works of the Party committee
of the State-owned Assets Supervision
and Administration Commission
of the State Council and the superior
Party organisation.
------------------------ ------------------------------------------
Existing Articles Revised Articles
------------------------ ----------------------------------------
(2) To adhere to the principle
of the Party exercising leadership
over cadres, the selection of
management by the board of directors,
and the exercise of power as regards
the right of cadres' appointment
by the management in accordance
with laws. The Party committee
shall deliberate and give opinions
on the candidates nominated by
the board of directors or the
general manager, or recommend
nominees to the board of directors
or the general manager. The Party
committee of the Company, together
with the board of directors, shall
observe the proposed candidates
and give opinions collectively.
(3) To study and discuss the Company's
material matters on its reform,
development and stability, as
well as major issues relating
to the Company's operation and
management and to the interests
of the staff, and propose opinions
and suggestions thereon.
(4) To assume full responsibility
for enforcing the strict discipline
of the Party. Leading the Company's
ideological and political work,
the front unification work, building
of spiritual civilization as well
as building of corporate culture,
and lead mass organizations such
as the labour union and the Communist
Youth League. Playing a leading
role in the construction of the
Party's working style and a clean
and honest government, and support
the discipline inspection committee
in fulfilling its responsibility
of supervision in practice.
------------------------ ----------------------------------------
Existing Articles Revised Articles
-------------------------------------------- --------------------------------------------
CHAPTER 10 BOARD OF DIRECTORS CHAPTER 101 BOARD OF DIRECTORS
-------------------------------------------- --------------------------------------------
Article 105 Article 1058
The Company shall have a board The Company shall have a board
of directors. The board of directors of directors. The board of directors
shall consist of 12 directors, shall consist of 12 7 to 13 directors,
at least half of which shall be at least half of which shall be
outside directors (those who do outside directors (those who do
not assume any position within not assume any position within
the Company), and of which more the Company), and of which at
than four shall be independent least 1/3 of the overall directors
directors (meaning directors who more than four shall be independent
are independent of the Company's directors (meaning directors who
shareholders and do not hold offices are independent of the Company's
within the Company). At least shareholders and do not hold offices
one independent director shall within the Company). At least
have appropriate professional one independent director shall
qualification, or expertise in have an appropriate professional
accounting or related financial qualification or expertise in
management. accounting or related financial
management; the board of directors
shall have one (1) employee representative
director.
The board of directors shall have
The board of directors shall have one (1) Chairman and one (1) Deputy
one (1) Chairman and one (1) Deputy Chairman.
Chairman.
-------------------------------------------- --------------------------------------------
Article 106 Article 1069
Directors shall be elected at Directors (excluding the employee
the shareholders' general meeting representative director) shall
each for a term of three (3) years be elected at the shareholders'
(starting from the election date general meeting and the employee
to the date on which a new board representative director shall
of directors is elected at a shareholders' be elected or dismissed by the
general meeting). At the expiry employee representative meeting
of a director's term, the term each for a term of three (3) years
is renewable upon re- election, (starting from the election date
provided that the term of reappointment to the date on which a new board
of an independent director shall of directors is elected at a shareholders'
not be more than six general meeting). At the expiry
(6) years. of a director's term, the term
is renewable upon re-election,
provided that the term of reappointment
of an independent director shall
not be more than six (6) years.
If the term of office of a director If the term of office of a director
expires but re- election is not expires but re- election is not
made promptly, the said director made promptly, the said director
shall continue fulfilling the shall continue fulfilling the
duties as a director under relevant duties as a director under relevant
laws, administrative regulations, laws, administrative regulations,
departmental rules and the Articles departmental rules and the Articles
of Association until a new director of Association until a new director
is elected. is elected.
-------------------------------------------- --------------------------------------------
Existing Articles Revised Articles
----------------------------------------- -----------------------------------------
The list of candidates for directors The list of candidates for directors
shall be submitted in the form (excluding the employee representative
of a motion to a shareholders' director) shall be submitted in
general meeting for consideration. the form of a motion to a shareholders'
Candidates other than those for general meeting for consideration.
independent directors shall be Candidates other than those for
nominated by the board of directors, independent directors and the
supervisory committee or shareholder(s) employee representative director
holding, alone or together, more shall be nominated by the board
than three percent (3%) of the of directors, supervisory committee
total amount of voting shares or shareholder(s) holding, alone
in the Company and elected at or together, more than three percent
the shareholders' general meeting. (3%) of the total amount of voting
shares in the Company and elected
at the shareholders' general meeting.
A written notice of the intention A written notice of the intention
to propose a person for election to propose a person for election
as a director and a notice in as a director (excluding the employee
writing by that person indicating representative director) and a
his acceptance of such election notice in writing by that person
shall have been given to the Company indicating his acceptance of such
seven (7) days before the date election shall have been given
of such shareholders' general to the Company seven (7) days
meeting. The shortest notice period before the date of such shareholders'
for such written notice shall general meeting. The shortest
be 7 days. notice period for such written
notice shall be 7 days.
....... .......
----------------------------------------- -----------------------------------------
Article 107 Article 10710
The following procedures shall The following procedures shall
be carried out prior to the election be carried out prior to the election
of the non-independent directors: of the non-independent directors:
(1) The nominator of a candidate (1) The nominator of a candidate
for the non- independent directors for the non- independent directors
shall seek the consent of such shall seek the consent of such
candidate prior to nomination candidate prior to nomination
and shall have a full understanding and shall have a full understanding
towards the profession, education, towards the profession, education,
job position, detailed working job position, detailed working
experience and all other positions experience and all other positions
held concurrently as well as preparing held concurrently as well as preparing
written materials containing the written materials containing the
said information to the Company. said information to the Company.
Candidates shall undertake to Candidates shall undertake to
the Company in writing that they the Company in writing that they
have agreed to accept the nomination have agreed to accept the nomination
and that all disclosed information and that all disclosed information
relating to them are true and relating to them are true and
complete and shall guarantee that complete and shall guarantee that
they will conscientiously perform they will conscientiously perform
the director's responsibilities the director's responsibilities
after being elected. after being elected.
----------------------------------------- -----------------------------------------
Existing Articles Revised Articles
------------------------------------------- -------------------------------------------
(2) If the nomination of a candidate (2) If the nomination of a candidate
for the non- independent directors for the non- independent directors
is taken place before the board is taken place before the board
meeting of the Company was convened meeting of the Company was convened
and if the applicable law, regulations and if the applicable law, regulations
and/or the relevant listing rules and/or the relevant listing rules
contain relevant provisions, the contain relevant provisions, the
written materials concerning the written materials concerning the
nominee set out in subparagraph nominee set out in subparagraph
(1) of this Article shall be publicly (1) of this Article shall be publicly
announced together with the resolutions announced together with the resolutions
of the board of directors in accordance of the board of directors in accordance
with such provisions. with such provisions.
(3) If a shareholder holding, (3) If a shareholder holding,
alone or together, more than three alone or together, more than three
percent (3%) of the total voting percent (3%) of the total voting
shares of the Company proposes shares of the Company proposes
an ex tempore motion on the election an ex tempore motion on the election
of non-independent directors at of non-independent directors (excluding
the shareholders' general meeting the employee representative director)
of the Company, the written notice at the shareholders' general meeting
specifying the intention to propose of the Company, the written notice
a person for election as a director specifying the intention to propose
and the willingness of the nominee a person for election as a director
to accept nomination together and the willingness of the nominee
with the written materials and to accept nomination together
undertakings containing such particulars with the written materials and
of the nominee as set out in subparagraph undertakings containing such particulars
(1) of this Article shall be despatched of the nominee as set out in subparagraph
to the Company within ten (10) (1) of this Article shall be despatched
days prior to the shareholders' to the Company within ten (10)
general meeting. Such notice shall days prior to the shareholders'
commence no earlier than the day general meeting. Such notice shall
after the despatch of the notice commence no earlier than the day
of the meeting for the election after the despatch of the notice
of directors and end no later of the meeting for the election
than seven (7) days before the of directors and end no later
date of such meeting. than seven (7) days prior to the
date of such meeting.
------------------------------------------- -------------------------------------------
Article 108 Article 10811
At a shareholders' general meeting, At a shareholders' general meeting,
the cumulative voting system shall the cumulative voting system shall
be adopted for voting on the motions be adopted for voting on the motions
for the election of directors. for the election of directors
In other words, when electing (excluding the employee representative
two or more directors at a shareholders' director). In other words, when
general meeting, the number of electing two or more directors
voting rights carried by each at a shareholders' general meeting,
of the shares held by a voting the number of voting rights carried
shareholder is the same as the by each of the shares held by
number of directors to be elected a voting shareholder is the same
such that a shareholder may exercise as the number of directors to
the voting rights in a way to be elected such that a shareholder
concentrate all his votes on a may exercise the voting rights
particular candidate or to spread in a way to concentrate all his
his votes on several candidates. votes on a particular candidate
or to spread his votes on several
candidates.
------------------------------------------- -------------------------------------------
Existing Articles Revised Articles
----------------------------------------- -----------------------------------------
Article 113
The board of directors shall make
inquiries with the Party committee
before making decisions on major
issues of the Company.
----------------------------------------- -----------------------------------------
Article 115 Article 1159
The Chairman of the board of directors The Chairman of the board of directors
shall exercise the following powers: shall exercise the following powers:
(1) to preside over shareholders' (1) to preside over shareholders'
general meetings and to convene general meetings and to convene
and preside over meetings of the and preside over meetings of the
board of directors; board of directors;
(2) to check on the implementation (2) to check on the implementation
of resolutions passed by the board of resolutions passed by the board
of directors at directors' meetings; of directors at directors' meetings;
(3) to sign the securities certificates (3) to sign the securities certificates
issued by the Company; issued by the Company;
(4) to exercise other powers conferred (4) to convene Chairman's office
by the board of directors. meeting;
(5) to exercise other powers conferred
by the board of directors.
The vice chairman of the board
of directors shall assist the The vice chairman of the board
chairman of the board of directors of directors shall assist the
with his/her duties. Should the chairman of the board of directors
chairman of the board of directors with his/her duties. Should the
be unable to perform or fail to chairman of the board of directors
perform his/her duties, the vice be unable to perform or fail to
chairman of the board of directors perform his/her duties, the vice
shall perform the said duties. chairman of the board of directors
Should the vice chairman of the shall perform the said duties.
board of directors be unable to Should the vice chairman of the
perform or fail to perform his/her board of directors be unable to
duties, a director jointly elected perform or fail to perform his/her
by more than half of the number duties, a director jointly elected
of Directors shall perform the by more than half of the number
said duties. of Directors shall perform the
said duties.
----------------------------------------- -----------------------------------------
Existing Articles Revised Articles
------------------------------------------ ------------------------------------------
Article 118 Article 11822
All the executive and outside All the executive and outside
directors must be notified about directors must be notified about
the important matters that shall the important matters that shall
be decided by the board of directors be decided by the board of directors
within the time limit stipulated within the time limit stipulated
in Article 117 of these Articles in Article 11720 of these Articles
of Association and sufficient of Association and sufficient
materials shall be provided at materials shall be provided at
the same time in strict compliance the same time in strict compliance
with the required procedures. with the required procedures.
Directors may request for supplementary Directors may request for supplementary
information. If more than one- information. If more than one-
fourth of the directors or more fourth of the directors or more
than two outside directors consider than two outside directors consider
that the materials provided are that the materials provided are
not sufficient or supporting arguments not sufficient or supporting arguments
are not clear, they may jointly are not clear, they may jointly
propose to postpone the meeting propose to postpone the meeting
or defer the discussion of certain or defer the discussion of certain
matters on the agenda of the meeting matters on the agenda of the meeting
and the board of directors shall and the board of directors shall
accept such proposal. accept such proposal.
Notice of a meeting shall be deemed Notice of a meeting shall be deemed
to have been given to any director to have been given to any director
who attends the meeting without who attends the meeting without
protesting against, before or protesting against, before or
at its commencement, any lack at its commencement, any lack
of notice. of notice.
Any regular or ad hoc meeting Any regular or ad hoc meeting
of the board of directors may of the board of directors may
be held by way of telephone conferencing be held by way of telephone conferencing
or similar communication equipment or similar communication equipment
so long as all directors participating so long as all directors participating
in the meeting can clearly hear in the meeting can clearly hear
and communicate with each other. and communicate with each other.
All such directors shall be deemed All such directors shall be deemed
to be present in person at the to be present in person at the
meeting. meeting.
------------------------------------------ ------------------------------------------
Article 124 Article 1248
Subject to all relevant laws and Subject to all relevant laws and
administrative regulations, the administrative regulations, the
shareholders' general meeting shareholders' general meeting
may remove any director by an may remove any director (excluding
ordinary resolution before the the employee representative director)
expiration of his term of office. by an ordinary resolution before
However, the director's right the expiration of his term of
to claim for damages arising from office. However, the director's
his removal shall not be affected right to claim for damages arising
thereby. from his removal shall not be
affected thereby.
------------------------------------------ ------------------------------------------
Existing Articles Revised Articles
------------------------------------------- -------------------------------------------
Article 125 Article 1259
A director may resign prior to A director may resign prior to
the expiration of his term of the expiration of his term of
office. If a director resigns office. If a director resigns
from his office, he shall submit from his office, he shall submit
a written report of his resignation a written report of his resignation
to the board of directors. Independent to the board of directors. Independent
directors shall explain the circumstances directors shall explain the circumstances
which are relevant to his resignation which are relevant to his resignation
and which in his opinion are necessary and which in his opinion are necessary
to bring to the attention of the to bring to the attention of the
shareholders and creditors of shareholders and creditors of
the Company. the Company.
If the resignation of a director If the resignation of a director
will result in the board of directors will result in the board of directors
of the Company having less than of the Company having less than
the statutory minimum number of the statutory minimum number of
directors, then such director's directors, then such director's
report of resignation shall only report of resignation shall only
take effect after a new director take effect after a new director
has been appointed to fill the has been appointed to fill the
vacancy so caused by his resignation. vacancy so caused by his resignation.
The board of directors shall convene The board of directors The Company
an ad hoc meeting as soon as possible shall convene an ad hoc meeting
during its remaining term to elect or employee representative meeting
a director to fill up the vacancy as soon as possible during its
arising from the resignation of remaining term to elect a director
the director. Before a decision to fill up the vacancy arising
is made at the shareholders' general from the resignation of the director.
meeting regarding the election Before a decision is made at the
of the director, the functions shareholders' general meeting
and powers of the resigning director or the employee representative
and the remaining board of director meeting regarding the election
shall be restricted to a reasonable of the director, the functions
extent. and powers of the resigning director
and the remaining board of director
shall be restricted to a reasonable
...... extent.
......
------------------------------------------- -------------------------------------------
Existing Articles Revised Articles
--------------------------------------- ---------------------------------------
Article 135 Article 1359
A director or senior management A director or other senior management
personnel other than the president personnel other than the president
or chief financial officer of or chief financial officer of
the Company may also act as the the Company may also act as the
secretary of the board of directors. secretary of the board of directors.
The certified public accounting The certified public accounting
firm which has been appointed firm which has been appointed
by the Company to act as its auditors by the Company to act as its auditors
shall not act as the secretary shall not act as the secretary
of the board of directors. of the board of directors.
Where the office of secretary Where the office of secretary
is held concurrently by a director, is held concurrently by a director,
and an act is required to be done and an act is required to be done
by a director and a secretary by a director and a secretary
separately, the person who holds separately, the person who holds
the office of director and secretary the office of director and secretary
may not perform the act in a dual may not perform the act in a dual
capacity. capacity.
--------------------------------------- ---------------------------------------
APPIX IV PROPOSED AMMENTS TO THE RULES AND PROCEDURES OF SHAREHOLDERS' MEETINGS
Set out below are the details of amendments to the Rules and Procedures of Shareholders' Meetings and revisions have been underlined (if applicable) for the convenience of perusal.
Existing Articles Revised Articles
----------------------------------------- ----------------------------------------
Article 16 Article 16
The powers exercisable by a general The powers exercisable by a general
meeting are as meeting are as
follows: follows:
(1) to take a decision on the (1) to take a decision on the
Company's business Company's business
policy and investment plans; policy and investment plans;
(2) to elect and replace directors (2) to elect and replace directors
and to decide on (excluding the
matters relating to the remuneration employee representative director)
of directors; and to decide
on matters relating to the remuneration
of directors;
...... ......
----------------------------------------- ----------------------------------------
Article 20 Article 20
In order to guarantee the stabilisation In order to guarantee the stabilisation
of the of the
investment policies of the Company investment operation policies
and to of the Company,
increase the daily operation efficiency, and to increase the daily operation
the efficiency, the
decision-making and approval authority relevant decision-making and approval
of the authority of
Company in relation to investment the Company in relation to investment
projects are as projects are
follows: ...... as follows: ......
----------------------------------------- ----------------------------------------
Existing Articles Revised Articles
---------------------------------------- ----------------------------------------
Article 21 Article 21
The board of directors shall be The board of directors shall be
authorized by the shareholders' authorized by the shareholders'
general meetings to dispose of general meetings to dispose of
any fixed assets of the Company any fixed assets of the Company
where the estimated value of the where the estimated value of the
consideration for the proposed consideration for the proposed
disposal and the value of the disposal and the value of the
consideration for any such disposal consideration for any such disposal
of any fixed assets of the Company of any fixed assets of the Company
that has been completed in the that has been completed in the
period of four (4) months immediately period of four (4) months immediately
preceding the proposed disposal, preceding the proposed disposal,
on an aggregate basis exceeds on an aggregate basis exceeds
33% of the value of the Company's 33% of the value of the Company's
fixed assets as shown in the latest fixed assets as shown in the latest
balance sheet which was considered balance sheet which was considered
at a shareholders' general meeting. at a shareholders' general meeting.
If the above- mentioned ratio If the above- mentioned ratio
is lower than 0.2%, shareholders' is lower than 0.2%, shareholders'
general meetings shall authorise general meetings shall authorise
the principal's office meetings the president's office meetings
to approve the disposal of such to approve the disposal of such
fixed assets excluding disposals fixed assets excluding disposals
pertaining aircrafts, engines pertaining aircrafts, engines
and basic infrastructures. When and basic infrastructures. When
what's provided above is inconsistent what's provided above is inconsistent
with that of the rules pertaining with that of the rules pertaining
listing of corporate securities listing of corporate securities
of the securities exchange, the of the securities exchange, the
latter shall prevail. latter shall prevail.
The disposals of fixed assets The disposals of fixed assets
provided in this article include provided in this article include
acts of transferring certain asset acts of transferring certain asset
equities while not include assurances equities while not include assurances
based on fixed assets. based on fixed assets.
---------------------------------------- ----------------------------------------
Article 34 Article 34
The list of candidates for supervisors The list of candidates for supervisors
and directors shall be submitted and directors shall be submitted
to the shareholders' general meeting to the shareholders' general meeting
in the form of a motion for approval. in the form of motion for approval.
Candidates for directors (excluding Candidates for directors (excluding
independent directors, the same independent directors and employee
hereafter) shall be nominated representative director, the same
by the board of directors, the hereafter) shall be nominated
supervisory committee or shareholders by the board of directors, the
who individually or jointly hold supervisory committee or shareholders
3% or more of the Company's voting who individually or jointly hold
shares. The proposal shall be 3% or more of the Company's voting
submitted to the board of directors shares. The proposal shall be
and will be announced after being submitted to the board of directors
reviewed by the board of directors. and will be announced after being
reviewed by the board of directors.
---------------------------------------- ----------------------------------------
Existing Articles Revised Articles
---------------------------------------- ------------------------------------------
Article 63 Article 63
At a shareholders' general meeting, At a shareholders' general meeting,
the cumulative voting system shall the cumulative voting system shall
be adopted for voting on the motions be adopted for voting on the motions
for election of directors and for election of directors (excluding
supervisors in compliance with the employee representative director)
the articles of association or and supervisors in accordance
resolutions of the shareholders' with the articles of association
general meeting. or resolutions of the shareholders'
general meeting.
The above section means that, The above section means that,
when electing directors or supervisors when electing two or more directors
at a shareholders' general meeting, or supervisors at a shareholders'
the number of voting rights carried general meeting, the number of
by each of the shares held by voting rights carried by each
a voting shareholder is the same of the shares held by a voting
as the number of directors or shareholder is the same as the
supervisors to be elected such number of directors or supervisors
that a shareholder may exercise to be elected such that a shareholder
the voting rights in a way to may exercise the voting rights
concentrate all his votes on a in a way to concentrate all his
particular candidate. votes on a particular candidate.
---------------------------------------- ------------------------------------------
Article 66 Article 66
At a shareholders' general meeting, At a shareholders' general meeting,
in accordance with the requirements in accordance with the requirements
under the Articles of Association under the Articles of Association
the cumulative voting system shall the cumulative voting system shall
be adopted for voting on the motions be adopted for voting on the motions
for the election of directors. for the election of directors
The content of the cumulative (excludin g th e employee representative
voting system is as follows: ... director). The main content of
the cumulative voting system is
as follows: ...
---------------------------------------- ------------------------------------------
APPIX V PROPOSED AMMENTS TO THE RULES AND PROCEDURES
OF MEETINGS OF THE BOARD
Set out below are the details of amendments to the Rules and Procedures of Meetings of the Board and revisions have been underlined (if applicable) for the convenience of perusal.
Existing Articles Revised Articles
------------------------------------------- --------------------------------------------
Article 3 Article 3
The composition of the board of The composition of the board of
directors should be in accordance directors should be in accordance
with the Articles of association, with the Articles of association,
including appropriate proportion including proper proportion of
of independent directors and outside independent directors and outside
directors. directors, and employee representative
director.
------------------------------------------- --------------------------------------------
Article 4 Article 4
Directors shall be elected or Directors (excluding the employee
changed at the shareholders' general representative director) shall
meeting, each for a term of three be elected or changed at the shareholders'
(3) years. At the expiry of a general meeting, and the employee
director's term, the term is renewable representative director shall
upon re-election, provided that be elected or changed by the employee
the term of reappointment of an representative meeting, each for
independent director shall not a term of three (3) years. At
be more than six (6) years. Shareholders' the expiry of a director's term,
general meeting shall not dismiss the term is renewable upon re-election,
a director's office without reason provided that the term of reappointment
before the expiry of a director's of an independent director shall
term. A director's term starts not be more than six (6) years.
from the election date to the Directors shall not be dismissed
date on which a new board of directors without reason by a shareholders'
is elected at a shareholders' general meeting before the expiry
general meeting. of a director's term. A director's
term starts from the election
date to the date on which a new
board of directors is elected
at a shareholders' general meeting.
------------------------------------------- --------------------------------------------
Existing Articles Revised Articles
------------------------------------------ ------------------------------------------
Article 6 Article 6
The board of directors shall include The board of directors shall include
one chairman and one vice chairmen, one chairman and two vice chairmen,
who are elected and removed by who are elected and removed by
a majority of directors. a majority of directors.
The Chairman of the board of directors The Chairman of the board of directors
shall exercise the following powers: shall exercise the following powers:
(1) to preside over shareholders' (1) to preside over shareholders'
general meetings and to convene general meetings and to convene
and preside over meetings of the and preside over meetings of the
board of directors; board of directors;
(2) to check on the implementation (2) to check on the implementation
of resolutions passed by the board of resolutions passed by the board
of directors; of directors;
(3) to sign the securities certificates (3) to sign the securities certificates
issued by the Company; issued by the Company;
(4) to sign material documents (4) to sign material documents
of the board of directors and of the board of directors and
other documents which shall be other documents which shall be
signed by the legal representative signed by the legal representative
of the Company; of the Company;
(5) to exercise power of the legal (5) to exercise power of the legal
representative; representative;
(6) to exercise special disposal (6) to exercise special disposal
power as to the matters of the power as to the matters of the
company on the basis of complying company on the basis of complying
with laws and regulations and with laws and regulations and
corporate interests in the situation corporate interests in the situation
of force majeure such as the occurrence of force majeure such as the occurrence
of extraordinary natural disaster of extraordinary natural disaster
and subsequently report to the and subsequently report to the
board of directors and the shareholder's board of directors and the shareholder's
general meetings; general meetings;
------------------------------------------ ------------------------------------------
Existing Articles Revised Articles
--------------------------------------- -------------------------------------------
(7) to exercise other powers conferred (7) to convene Chairman's office
by the board meeting and
of directors. listen to reports on operation
and management
of the Company regularly or irregularly
and
conduct research on related issues;
(8) to exercise other powers conferred
by the board
of directors.
The vice chairman shall assist The vice chairman shall assist
the chairman in the chairman in
performing his duties. If the performing his duties. If the
chairman is unable or chairman is unable or
fails to perform his duties, such fails to perform his duties, such
duties shall be duties shall be
performed by the vice chairman. performed by the vice chairman.
In the event that In the event that
the vice chairman is unable or the vice chairman is unable or
fails to perform his fails to perform his
duties, a director shall be elected duties, a director shall be elected
jointly by a jointly by a
majority of the directors to perform majority of the directors to perform
such duties. such duties.
--------------------------------------- -------------------------------------------
Article 11 Article 11
The approval authority of the The approval authority of the
board of directors in relation board of directors in relation
to the Company's investment projects to the decisions concerning transactions,
as follows: ...... investments and guarantees, etc.
as to the decision making of investment
programs of the Company is as
follows: ......
--------------------------------------- -------------------------------------------
Article 13
The board of directors decides
the establishment of the first-level
management of the Company.
--------------------------------------- -------------------------------------------
Article 30 Article 301
Principle of democracy shall be Principle of democracy shall be
implemented implemented
throughout the meetings of board throughout the meetings of the
of directors board of directors
when deciding the resolutions. when deciding the resolutions.
Opinions of each Opinions of each
director shall be respected. director shall be respected. The
secretary of the
discipline inspection committee
shall attend the
meetings of the board of directors
and the
meetings of board committees with
no right to
vote.
--------------------------------------- -------------------------------------------
APPIX VI GENERAL INFORMATION
1. RESPONSIBILITY STATEMENT
This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.
2. DISCLOSURE OF INTERESTS OF DIRECTORS AND SUPERVISORS
Save as disclosed below, as at the Latest Practicable Date, none of the Directors, Supervisors or chief executive of the Company had interests or short positions in the shares, underlying shares and/or debentures (as the case may be) of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were notifiable to the Company and the Stock Exchange pursuant to the SFO, or were recorded in the register maintained by the Company pursuant to section 352 of the SFO, or which were notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies.
Number of Shares
------------------------------------------------------------------------
Interest Shareholding
of children percentage
under the as at the
age of Latest
Name of company Personal 18 or Corporate Practicable
Relevant shareholder interest spouse interest Total Date
Cathay Pacific Airways
Limited Ian Sai
Cheung Shiu 1,000 - - 1,000 0.00%
(H shares) (H shares)
Air China Limited
Shen Zhen 33,200 - - 33,200 0.00%
(A shares) (A shares)
As at the Latest Practicable Date, none of the Directors or Supervisors of the Company has any direct or indirect interest in any assets which have been, since 31 December 2016 (the date to which the latest published audited financial statements of the Group were made up), acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group.
None of the Directors or Supervisors of the Company is materially interested in any contract or arrangement subsisting at the Latest Practicable Date and which is significant in relation to the business of the Group.
Mr. John Robert Slosar is a non-executive Director of the Company and is concurrently the chairman and an executive director of Cathay Pacific. Mr. Ian Sai Cheung Shiu is a non-executive Director of the Company and is concurrently a non-executive director of Cathay Pacific. Cathay Pacific is a substantial shareholder of the Company, holding 2,633,725,455 H shares in the Company as at the Latest Practicable
Date, and it wholly owns Cathay Dragon. Mr. Cai Jianjiang, who is the chairman and a non-executive Director of the Company, and Mr. Song Zhiyong, who is an executive Director of the Company, are concurrently non-executive directors of Cathay Pacific. Cathay Pacific and Cathay Dragon compete or are likely to compete either directly or indirectly with some aspects of the business of the Company as they operate airline services to certain destinations, which are also served by the Company.
Save as mentioned above, as at the Latest Practicable Date, none of the Directors or Supervisors of the Company and their respective close associates (as defined in the Hong Kong Listing Rules) has any competing interests which would be required to be disclosed under Rule 8.10 of the Hong Kong Listing Rules as if each of them was a controlling shareholder of the Company.
3. SERVICE CONTRACTS
As at the Latest Practicable Date, none of the Directors or Supervisors of the Company has any existing or proposed service contract with any member of the Group which is not expiring or terminable by the Group within one year without payment of compensation (other than statutory compensation).
4. NO MATERIAL ADVERSE CHANGE
The Directors confirm that as at the Latest Practicable Date, there has been no material adverse change in the Group's financial or trading position since 31 December 2016, being the date to which the latest published audited financial statements of the Group have been made up.
5. EXPERT
The following are the qualifications of the expert who has given its opinion or advice, which is contained in this circular:
Name Qualification
Octal Capital a corporation licensed to carry out
Type 1 (dealing in securities) and Type
6 (advising on corporate finance) and
Type 9 (asset management) regulated
activities under the SFO
a. As at the Latest Practicable Date, Octal Capital did not have any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2016 (the date to which the latest published audited financial statements of the Group were made up);
b. As at the Latest Practicable Date, Octal Capital was not beneficially interested in the share capital of any member of the Group and had no right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group; and
a.
c. Octal Capital has given and has not withdrawn its written consent to the issue of this circular with inclusion of its opinion and the reference to its name included herein in the form and context in which it appears.
6. MISCELLANEOUS
d. The joint company secretaries of the Company are Zhou Feng and Tam Shuit Mui. Ms. Tam is an associate member of the Hong Kong Institute of Certified Public Accountants (HKICPA).
e. The registered address of the Company is at Blue Sky Mansion, 28 Tianzhu Road, Airport Industrial Zone, Shunyi District, Beijing, China. The head office of the Company is at No. 30, Tianzhu Road, Airport Industrial Zone, Shunyi District, Beijing, China.
f. The H share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited, Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong.
7. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents are available for inspection at the principal place of business of the Company in Hong Kong at 5th Floor, CNAC House, 12 Tung Fai Road, Hong Kong International Airport, Hong Kong during normal business hours on any business day from the date of this circular until 21 September 2017:
g. Air China Financial Services Agreement; h. CNAHC Financial Services Agreement;
i. the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out on pages 27 to 28 of this circular;
j. the letter from Octal Capital to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 29 to 44 of this circular; and
k. the consent letter issued by the expert referred to in this circular.
a.
APPIX VII NOTICE OF EXTRAORDINARY GENERAL MEETING
AIR CHINA LIMITED
(a joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock Code: 00753)
NOTICE OF EXTRAORDINARY GENERAL MEETING
NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the "EGM") of Air China Limited (the "Company") will be held at 2:00 p.m. on 27 October 2017 at The Conference Room C313, No. 30, Tianzhu Road, Airport Industrial Zone, Shunyi District, Beijing, PRC to consider and, if thought fit, to pass the following resolutions.
Ordinary Resolutions
1. To consider and approve the emoluments of the directors of the fifth session of the board of directors of the Company (the "Board"):
The emoluments of Mr. Stanley Hui Hon-chung and Mr. Li Dajin be RMB150,000 per person per year, the emoluments of Mr. Wang Xiaokang and Mr. Liu Deheng be determined pursuant to relevant policies as prescribed by The State-owned Assets Supervision and Administration Commission of the State Council and the other proposed directors of the Company will not receive any emoluments for serving as a director of the Company.
2. To consider and approve that the supervisors of the fifth session of the supervisory committee of the Company (the "Supervisory Committee") will not receive any emoluments from the Company.
Special Resolutions
3. To consider and approve the proposed amendments to the articles of association of the Company as set out in Appendix III of the circular despatched by the Company on 7 September 2017.
4. To consider and approve the proposed amendments to the Rules and Procedure of Shareholders' Meetings of the Company as set out in Appendix IV of the circular despatched by the Company on 7 September 2017.
1.
5. To consider and approve the proposed amendments to the Rules and Procedure of Meetings of the Board of Directors of the Company as set out in Appendix V of the circular despatched by the Company on 7 September 2017.
Ordinary Resolutions
6. To consider and approve the renewal of the trademark licence framework agreement dated 28 October 2014 entered into between the Company and China National Aviation Holding Company ("CNAHC") for a term of three years from 1 January 2018 to 31 December 2020.
7. To consider and approve the entry into of the financial services framework agreement dated 30 August 2017 between the Company and China National Aviation Finance Co., Ltd. (the "CNAF") in relation to the provisions of a range of financial services by CNAF to the Company and its subsidiaries (the "Group"), including the provision of deposit services as stipulated thereunder and the proposed maximum daily balance of deposits (including accrued interests) placed by the Group with CNAF, being RMB12 billion, RMB14 billion and RMB15 billion for each of the three years ending 31 December 2018, 2019 and 2020, respectively.
8. To consider and approve the entry into of the financial services framework agreement dated 30 August 2017 between CNAF and CNAHC in relation to the provisions of a range of financial services by CNAF to CNAHC, its subsidiaries and their associates, companies falling within the definition of commonly held entity under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as well as any other CNAHC member company which, in accordance with the listing rules of the places where the shares of the Company are listed as in force and as amended from time to time, is a connected person or related party of the Company (excluding the Group) (the "CNAHC Group"), including the provision of loans, finance lease and other credit services (the "Credit Services") as stipulated thereunder and the proposed maximum daily balance of Credit Services (including accrued interests) provided by CNAF to the CNAHC Group, being RMB8 billion, RMB9 billion and RMB10 billion for each of the three years ending 31 December 2018, 2019 and 2020, respectively.
Ordinary Resolutions (by cumulative voting method)
9.00. To consider and approve the election of the non-independent directors of the fifth session of the Board:
9.01. to consider and approve the election of Mr. Cai Jianjiang as a non-executive director of the fifth session of the Board;
9.02. to consider and approve the election of Mr. Song Zhiyong as an executive director of the fifth session of the Board;
9.03. to consider and approve the election of Mr. John Robert Slosar as a non-executive director of the fifth session of the Board.
9.00.
10.00. To consider and approve the election of independent non-executive directors of the fifth session of the Board:
10.01. to consider and approve the election of Mr. Wang Xiaokang as an independent non- executive director of the fifth session of the Board;
10.02. to consider and approve the election of Mr. Liu Deheng as an independent non- executive director of the fifth session of the Board;
10.03. to consider and approve the election of Mr. Stanley Hui Hon-chung as an independent non-executive director of the fifth session of the Board;
10.04. to consider and approve the election of Mr. Li Dajin as an independent non-executive director of the fifth session of the Board.
11.00. To consider and approve the election of the supervisors of the fifth session of the Supervisory Committee:
11.01. to consider and approve the election of Mr. Wang Zhengang as a shareholder representative supervisor of the fifth session of the Supervisory Committee;
11.02. to consider and approve the election of Mr. He Chaofan as a shareholder representative supervisor of the fifth session of the Supervisory Committee.
"Cumulative voting" will be used in respect of all the sub-resolutions of Resolutions No. 9.00, No. 10.00 and No. 11.00. Please refer to note 4 for details.
By order of the Board Air China Limited Cai Jianjiang Chairman
Beijing, PRC, 7 September 2017
As at the date of this notice, the directors of the Company are Mr. Cai Jianjiang, Mr. Song Zhiyong, Mr. Cao Jianxiong, Mr. Feng Gang, Mr. John Robert Slosar, Mr. Ian Sai Cheung Shiu, Mr. Wang Xiaokang*, Mr. Liu Deheng*, Mr. Stanley Hui Hon-chung* and Mr. Li Dajin*.
* Independent non-executive director of the Company Notes:
1. Closure of register of members and eligibility for attending and voting at the EGM
Holders of H Shares of the Company are advised that the register of members of H shares of the Company will close from Wednesday, 27 September 2017 to Friday, 27 October 2017 (both days inclusive), during which time no transfer of H Shares of the Company will be effected and registered. In order to qualify for attendance and voting at the EGM,
instruments of transfer accompanied by share certificates and other appropriate documents must be lodged with the Company's H Share registrar, Computershare Hong Kong Investor Services Limited at Shops 1712-16, 17/F, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, by 4:30 p.m. on Tuesday, 26 September 2017.
H Share Shareholders of the Company whose names appear on the register of members of H shares of the Company at the close of business on Wednesday, 27 September 2017 are entitled to attend and vote at the EGM.
2. Notice of Attendance
H Share Shareholders who intend to attend the EGM should complete and lodge the accompanying notice of attendance and return it to the Company's H Share registrar on or before Monday, 9 October 2017. The notice of attendance may be delivered by hand, by post or by fax to the Company's H Share registrar. Completion and return of the notice of attendance do not affect the right of a shareholder to attend and vote at the EGM. However, the failure to return the notice of attendance may result in an adjournment of the EGM, if the number of shares carrying the right to vote represented by the shareholders proposing to attend the EGM by the notice of attendance does not reach more than half of the total number of shares of the Company carrying the right to vote at the EGM.
3. Proxy
Every shareholder who has the right to attend and vote at the EGM is entitled to appoint one or more proxies, whether or not they are members of the Company, to attend and vote on his/her behalf at the EGM.
A proxy shall be appointed by an instrument in writing. Such instrument shall be signed by the appointor or his attorney duly authorised in writing. If the appointer is a legal person, then the instrument shall be signed under a legal person's seal or signed by its director or an attorney duly authorised in writing. The instrument appointing the proxy shall be deposited at the Company's H Share registrar for holders of H Shares not less than 24 hours before the time specified for the holding of the EGM. If the instrument appointing the proxy is signed by a person authorised by the appointer, the power of attorney or other document of authority under which the instrument is signed shall be notarised. The notarised power of attorney or other document of authority shall be deposited together and at the same time with the instrument appointing the proxy at the Company's H Share registrar.
4. Cumulative Voting
According to Article 108 of the articles of association of the Company, when electing two or more directors at a shareholders' general meeting, such directors will be elected through cumulative voting. The number of total votes that a shareholder can exercise is decided by the following factors: (i) the number of shares held by such shareholders, and
(ii) the number of directors to be elected. For every share held by a shareholder who participates in the voting, the shareholder will have the same number of voting rights which equals the number of directors to be elected. A shareholder may give all his or her votes to one candidate or divide his or her votes among several candidates. Directors are elected at the EGM based on the total number of votes he or she receives. According to Article 146 of the articles of association of the Company, when electing two or more supervisors at a shareholders' general meeting, such supervisors will be elected through the same cumulative voting method.
5. Other business
(i) The EGM is expected to last for two hours. Shareholders and their proxies attending the meeting shall be responsible for their own traveling and accommodation expenses.
(ii) The address of Computershare Hong Kong Investor Services Limited is: 17M Floor
Hopewell Centre
183 Queen's Road East Wanchai
Hong Kong
Tel No.: (852) 2862 8628
Fax No.: (852) 2865 0990
AIR CHINA LIMITED
(a joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock Code: 00753)
FORM OF PROXY FOR EXTRAORDINARY GENERAL MEETING
Number of shares to which this form of proxy relates (Note 1)
I/We (Note 2)
of being the registered holder(s) of (Note 3)
H Shares in the share capital of Air China Limited (the "Company") HEREBY APPOINT (Note 4) the chairman of the meeting and/or (Note 4) of as my/our proxy/proxies: (a) to act for me/us at the extraordinary general meeting (or at any adjournment thereof) of the Company to be held at 2:00 p.m. on Friday, 27 October 2017 at The Conference Room C313, No. 30, Tianzhu Road, Airport Industrial Zone, Shunyi District, Beijing, PRC (the "Meeting") for the purpose of considering and, if thought fit, passing the resolutions (the "Resolutions") as set out in the notice convening the Meeting; and (b) at the Meeting (or at any adjournment thereof) to vote for me/us and in my/our name(s) in respect of the Resolutions as hereunder indicated or, if no such indication is given, as my/our voting proxy thinks fit.
ORDINARY RESOLUTIONS FOR(Note AGAINST(Note ABSTAIN(Note
5) 5) 5)
----------------------------------------------- --------- ------------- -------------
1. To consider and approve the emoluments
of the directors of the fifth
session of the board of directors
of the Company (the "Board"):
The emoluments of Mr. Stanley
Hui Hon-chung and Mr. Li Dajin
be RMB150,000 per person per year,
the emoluments of Mr. Wang Xiaokang
and Mr. Liu Deheng be determined
pursuant to relevant policies
as prescribed by the The State-owned
Assets Supervision and Administration
Commission of the State Council
and the other proposed directors
of the Company will not receive
any emoluments for serving as
a director of the Company.
------ --------------------------------------- --------- ------------- -------------
2. To consider and approve that the
supervisors of the fifth session
of the supervisory committee of
the Company (the "Supervisory
Committee") will not receive any
emoluments from the Company.
------ --------------------------------------- --------- ------------- -------------
SPECIAL RESOLUTIONS FOR(Note AGAINST(Note ABSTAIN(Note
5) 5) 5)
----------------------------------------------- --------- ------------- -------------
3. To consider and approve the proposed
amendments to the articles of
association of the Company as
set out in Appendix III of the
circular despatched by the Company
on 7 September 2017.
------ --------------------------------------- --------- ------------- -------------
4. To consider and approve the proposed
amendments to the Rules and Procedure
of Shareholders' Meetings of the
Company as set out in Appendix
IV of the circular despatched
by the Company on 7 September
2017.
------ --------------------------------------- --------- ------------- -------------
5. To consider and approve the proposed
amendments to the Rules and Procedure
of Meetings of the Board of Directors
of the Company as set out in Appendix
V of the circular despatched by
the Company on 7 September 2017.
------ --------------------------------------- --------- ------------- -------------
ORDINARY RESOLUTIONS FOR(Note AGAINST(Note ABSTAIN(Note
5) 5) 5)
---------------------------------------------------- --------- ------------- -------------
6. To consider and approve the renewal
of the trademark licence framework
agreement dated 28 October 2014
entered into between the Company
and China National Aviation Holding
Company (the "CNAHC") for a term
of three years from 1 January
2018 to 31 December 2020.
------- ------------------------------------------- --------- ------------- -------------
7. To consider and approve the entry
into of the financial services
framework agreement dated 30 August
2017 between the Company and China
National Aviation Finance Co.,
Ltd. (the "CNAF") in relation
to the provisions of a range of
financial services by CNAF to
the Company and its subsidiaries
(the "Group"), including the provision
of deposit services as stipulated
thereunder and the proposed maximum
daily balance of deposits (including
accrued interests) placed by the
Group with CNAF, being RMB12 billion,
RMB14 billion and RMB15 billion
for each of the three years ending
31 December 2018, 2019 and 2020,
respectively.
------- ------------------------------------------- --------- ------------- -------------
8. To consider and approve the entry
into of the financial services
framework agreement dated 30 August
2017 between CNAF and CNAHC in
relation to the provisions of
a range of financial services
by CNAF to CNAHC, its subsidiaries
and their associates, companies
falling within the definition
of commonly held entity under
the Rules Governing the Listing
of Securities on The Stock Exchange
of Hong Kong Limited, as well
as any other CNAHC member company
which, in accordance with the
listing rules of the places where
the shares of the Company are
listed as in force and as amended
from time to time, is a connected
person or related party of the
Company (excluding the Group)
(the "CNAHC Group"), including
the provision of loans, finance
lease and other credit services
(the "Credit Services") as stipulated
thereunder and the proposed maximum
daily balance of Credit Services
(including accrued interests)
provided by CNAF to the CNAHC
Group, being RMB8 billion, RMB9
billion and RMB10 billion for
each of the three years ending
31 December 2018, 2019 and 2020,
respectively.
------- ------------------------------------------- --------- ------------- -------------
ORDINARY RESOLUTIONS (By cumulative FOR(Note AGAINST(Note ABSTAIN(Note
voting method) 11) 11) 11)
---------------------------------------------------- --------- ------------- -------------
9.00. To consider and approve the election
of the non-independent directors
of the fifth session of the Board:
------- ------------------------------------------- --------- ------------- -------------
9.01 to consider and approve the
election of Mr. Cai Jianjiang
as a non-executive director of
the fifth session of the Board;
------- ------------------------------------------- --------- ------------- -------------
9.02 to consider and approve the
election of Mr. Song Zhiyong as
an executive director of the fifth
session of the Board;
------------------------------------------- --------- ------------- -------------
9.03 to consider and approve the
election of Mr. John Robert Slosar
as a non-executive director of
the fifth session of the Board.
------- ------------------------------------------- --------- ------------- -------------
10.00. To consider and approve the election
of independent non-executive directors
of the fifth session of the Board:
------- ------------------------------------------- --------- ------------- -------------
10.01 to consider and approve
the election of Mr. Wang Xiaokang
as an independent non-executive
director of the fifth session
of the Board;
------- ------------------------------------------- --------- ------------- -------------
10.02 to consider and approve
the election of Mr. Liu Deheng
as an independent non-executive
director of the fifth session
of the Board;
------------------------------------------- --------- ------------- -------------
10.03 to consider and approve
the election of Mr. Stanley Hui
Hon-chung as an independent non-executive
director of the fifth session
of the Board;
------------------------------------------- --------- ------------- -------------
10.04 to consider and approve
the election of Mr. Li Dajin as
an independent non-executive director
of the fifth session of the Board.
------- ------------------------------------------- --------- ------------- -------------
11.00. To consider and approve the election
of the supervisors of the fifth
session of the Supervisory Committee:
------- ------------------------------------------- --------- ------------- -------------
11.01 to consider and approve
the election of Mr. Wang Zhengang
as a shareholder representative
supervisor of the fifth session
of the Supervisory Committee;
------- ------------------------------------------- --------- ------------- -------------
11.02 to consider and approve
the election of Mr. He Chaofan
as a shareholder representative
supervisor of the fifth session
of the Supervisory Committee.
------- ------------------------------------------- --------- ------------- -------------
Dated this day of , 2017 Signature(Note 6)
Notes:
1. Please insert the number of shares registered in your name(s) to which this proxy form relates. If no number is inserted, this form of proxy will be deemed to relate to all shares registered in your name(s).
2. Full name(s) and address(es) to be inserted in BLOCK CAPITALS. 3. Please insert the total number of shares registered in your name(s).
4. A member entitled to attend and vote at the Meeting is entitled to appoint one or more proxies of his own choice to attend and vote instead of him. A proxy need not be a member of the Company. If any proxy other than the chairman of the Meeting is preferred, please strike out the words "the chairman of the meeting and/or" and insert the name(s) and address(es) of the proxy/ proxies desired in the space provided. In the event that two or more persons (other than the chairman of the Meeting) are named as proxies and the words "the chairman of the meeting and/or" are not deleted, those words and references shall be deemed to have been deleted.
5. IMPORTANT: IF YOU WISH TO VOTE FOR THE RESOLUTION, TICK IN THE BOX MARKED "FOR". IF YOU WISH TO VOTE AGAINST THE RESOLUTION, TICK IN THE BOX MARKED "AGAINST". IF YOU WISH TO ABSTAIN FROM VOTING, TICK THE APPROPRIATE BOX MARKED "ABSTAIN". Failure to complete the boxes will entitle your voting proxy to cast his vote at his discretion. A member is entitled to one vote for every fully-paid share held and a member entitled to more than one vote need not use all his votes in the same way. A tick in the relevant box indicates that the votes attached to all the shares stated above as held by you will be cast accordingly. The total number of shares referred to in the three boxes for the same resolution cannot exceed the number of Shares stated above as held by you. The shares abstained will be counted in the calculation of the required majority.
6. This form of proxy must be signed by you or your attorney duly authorised in writing, or in the case of a corporation, must be either under seal or under the hand of a director or attorney duly authorised. If this form of proxy is signed by your attorney, the power of attorney or other document of authorisation must be notarised.
7. In order to be valid, this form of proxy, together with the notarised copy of the power of attorney or other document of authorisation (if any) under which it is signed, for holders of H Shares, must be delivered to the Company's H Share registrar, Computershare Hong Kong Investor Services Limited, 17M Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong, not less than 24 hours prior to the time appointed for holding the Meeting (or any adjournment thereof).
8. Completion and delivery of a form of proxy will not preclude you from attending and/or voting at the Meeting (or any adjournment thereof) if you so wish.
9. ANY ALTERATION MADE TO THIS FORM OF PROXY MUST BE INITIALLED BY THE PERSON(S) WHO SIGN(S) IT.
10. To attend and represent the shareholder(s) at the Meeting, the proxy so appointed must produce beforehand his identification document and any power of attorney duly signed by his appointor(s) or the legal representative(s) of his appointor(s). The power of attorney must state the date of issuance.
11. "Cumulative voting" will be used in respect of Resolutions no. 9.00, no. 10.00 and no. 11.00 whereas other Resolutions will be voted by normal voting.
In "cumulative voting" for every share held by a shareholder who participates in the voting, the shareholder will have the same number of voting rights which equals the number of directors/supervisors to be elected. Such shareholder may cast all his votes on one single candidate or different candidates separately. Cumulative voting will be used in carrying out the voting and the counting of voting results in respect of Resolutions no. 9.00, no. 10.00 and no. 11.00.
Set out below is an example illustrating the voting method using cumulative voting in respect of Resolution no. 9.00. Please fill in your intention of voting in accordance with the following instructions:
(i) In relation to Resolution no. 9.00, for every share held by you, you will have the same number of voting rights which equals the number of directors to be elected. For example, if you are holding 1 million shares and three directors are to be elected at the Meeting, the aggregate number of votes which you will have will be 3 million (i.e. 1 million shares x 3 = 3 million voting shares) for Resolution no. 9.00.
(ii) You may cast on every candidate such votes which represent the same number of shares held by you; or cast all your votes which represent the total number of shares held by you multiplied by the total number of directors to be elected on one candidate. If you wish to cast equal number of votes to each candidate for director, please tick in the boxes marked "FOR", "AGAINST" or "ABSTAIN" as appropriate. Otherwise, please specify the number of votes cast for each of the three candidates for director in the boxes marked "FOR", "AGAINST" or "ABSTAIN". For example, if you are holding 1 million shares, the number of your votes regarding Resolution no. 9.00 is 3 million. You may choose to cast the 3 million votes equally among the three candidates (FOR, AGAINST or ABSTAIN); or to cast all your 3 million votes on one candidate (FOR, AGAINST or ABSTAIN); or cast 1.5 million votes to candidate A for director (FOR, AGAINST or ABSTAIN), 0.5 million votes to candidate B for director (FOR, AGAINST or ABSTAIN), and cast 1.0 million votes to candidate C for director (FOR, AGAINST or ABSTAIN), etc.
(iii) Where the total number of votes cast by a shareholder for one or several of the candidate(s) of directors is in excess of the number of votes carried by the total number of shares held by him, the votes cast by the shareholder shall be invalid, and the shareholder shall be deemed to have waived his voting rights. Where the total number of votes cast for one or several candidate(s) of directors by a shareholder is less than the number of votes carried by the total number of shares held by such shareholder, the votes cast by the shareholder shall be valid, and the voting rights attached to the shortfall between the votes actually cast and the votes which the shareholder is entitled to cast shall be deemed to have been waived by the shareholder.
(i)
AIR CHINA LIMITED
(a joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock Code: 00753)
EXTRAORDINARY GENERAL MEETING NOTICE OF ATTENDANCE
To: Air China Limited (the "Company")
I/We (Note 1)
of , being the registered holder of (Note 2) H Shares in the share capital of the Company hereby inform the Company that I/we intend to attend the extraordinary general meeting to be held at 2:00 p.m. on Friday, 27 October 2017 at The Conference Room C313, No. 30, Tianzhu Road, Airport Industrial Zone, Shunyi District, Beijing, PRC or to appoint proxies to attend on my/our behalf.
Signature:
Date: 2017
Notes:
1. Please insert the full name(s) and address(es) of the shareholder(s) as it is recorded in the register of members of the Company in BLOCK CAPITALS.
2. Please insert the number of shares registered in your name(s).
3. Please duly complete and sign this Notice of Attendance, and deliver it to, for holders of H Shares, the Company's H Shares registrar, Computershare Hong Kong Investor Services Limited on or before Monday, 9 October 2017.
Address of Computershare Hong Kong Investor Services Limited
17M Floor Hopewell Centre
183 Queen's Road East Wan Chai
Hong Kong
Tel No.: (852) 2862 8628
Fax No.: (852) 2865 0990
This information is provided by RNS
The company news service from the London Stock Exchange
END
MSCOKODQNBKKNCK
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