Zhejiang Expressway Capital Increase

 
TIDMZHEH 
 
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong 
Limited take no responsibility for the contents of this announcement, make no 
representation as to its accuracy or completeness and expressly disclaim any 
liability whatsoever for any loss howsoever arising from or in reliance upon 
the whole or any part of the contents of this announcement. 
 
                         ZHEJIANG EXPRESSWAY CO., LTD 
 (A joint stock limited company incorporated in the People's Republic of China 
                            with limited liability) 
                              (Stock code: 0576) 
 
                             CONNECTED TRANSACTION 
                                IN RELATION TO 
                  CAPITAL INCREASE IN ZHEJIANG COMMUNICATIONS 
                      INVESTMENT GROUP FINANCE CO., LTD. 
 
THE CAPITAL CONTRIBUTION AGREEMENT 
On 14 October 2016, the Company entered into the Capital Contribution Agreement 
with Zhejiang Communications Finance and the Existing Shareholders, pursuant to 
which the Company agreed to contribute an amount of RMB350,000,000, by way of 
cash, into the equity capital of Zhejiang Communications Finance, an associate 
of the Company. 
 
LISTING RULES IMPLICATIONS 
As at the date of this announcement, Communications Group holds approximately 
67% of the issued share capital of the Company. By virtue of this shareholding 
interest, Communications Group is a controlling shareholder of the Company. As 
at the date of this announcement, Communications Group also directly and 
indirectly, through Ningbo Expressway Co and Taizhou Expressway Co, holds 65% 
of  the issued share capital of Zhejiang Communications Finance. Therefore, 
Zhejiang Communications Finance, being a subsidiary of Communications Group, is 
a connected person of the Company and as a result, the transaction under the 
Capital Contribution Agreement constitutes a connected transaction for the 
Company under Chapter 14A of the Listing Rules. 
 
As the applicable percentage ratios in respect of the transactions contemplated 
under the Capital Contribution Agreement are more than 0.1% but less than 5%, 
the Capital Contribution Agreement is subject to the reporting, announcement 
and annual review requirements but exempt from the independent Shareholders' 
approval requirement under Chapter 14A of the Listing Rules. 
 
THE CAPITAL CONTRIBUTION AGREEMENT 
On 14 October 2016, the Company entered into the Capital Contribution Agreement 
with Zhejiang Communications Finance and the Existing Shareholders, pursuant to 
which the Company agreed to contribute an amount of RMB350,000,000, by way of 
cash, into the equity capital of Zhejiang Communications Finance, an associate 
of the Company. 
 
The principal terms of the Capital Contribution Agreement are set out below: 
 
Date 
14 October 2016 
 
Parties 
(i)   Communications Group 
 
(ii)  Ningbo Expressway Co 
 
(iii) Taizhou Expressway Co 
 
(iv)  the Company 
 
(v)   Zhejiang Communications Finance 
 
Capital Contribution 
Pursuant to the Capital Contribution Agreement, the Existing Shareholders and 
the Company agreed to contribute capital in cash to Zhejiang Communications 
Finance on a pro rata basis in proportion to their existing shareholding in 
Zhejiang Communications Finance in the aggregate amount of RMB1 billion, of 
which the Company agreed to contribute an amount of RMB350,000,000 based on its 
current shareholding in Zhejiang Communications Finance. The Company intends to 
satisfy the Capital Contribution by way of its internal resources. 
 
Basis of determination of the Capital Contribution 
The amount of capital contributions to be made by the Company and the Existing 
Shareholders in the aggregate sum of RMB1 billion was determined after arm's 
length negotiations amongst the parties with reference to the future capital 
need of Zhejiang Communications Finance. 
 
Timing of the Capital Contribution 
Subject to the Capital Contribution Agreement becoming effective, the capital 
contribution by the Company is expected to be made on or before 20 October 
2016. 
 
Conditions precedent and effective date 
Completion of the Capital Contribution Agreement is conditional upon the 
approval of CBRC having been obtained in connection with the Capital 
Contribution Agreement, and the Capital Contribution Agreement will become 
effective on the date on which it is approved by CBRC. 
 
REASONS FOR AND BENEFITS OF THE CAPITAL CONTRIBUTION 
The Directors expect that Zhejiang Communications Finance will play a larger 
role as a fund management platform for the Communications Group following the 
merger of the Communications Group and Zhejiang Railway Investment Group in 
August 2016. The operation scale of Zhejiang Communications Finance is, 
however, constrained by the size of its capital and the existing capital level 
of Zhejiang Communications Finance is no longer sufficient to support its 
expansion and satisfy the business needs of the Communications Group (including 
the Company). 
 
As a non-bank financial institution, the operations of Zhejiang Communications 
Finance are subject to various capital requirements imposed by the People's 
Bank of China and CBRC. For instance, the amount of financial debts that 
Zhejiang Communications Finance may issue must not exceed its total capital, 
the amount of short term securities investments it may hold (including short 
term currency funds and fixed income products) must not exceed 40% of its total 
capital, the amount of long term investments it may hold must not exceed 30% of 
its total capital, and the amount of guarantee it may provide to Communications 
Group and its subsidiaries must not exceed its total capital. The Capital 
Contribution is therefore necessary for the progressive development of Zhejiang 
Communications Finance. The Capital Contribution would also enable Zhejiang 
Communications Finance to cope with the enhanced regulatory requirements on 
capital sufficiency and capital management by non-bank financial institutions 
imposed by regulators such as the People's Bank of China and the CBRC. 
 
It is important for Zhejiang Communications Finance to continue expanding its 
business scope in order to serve the subsidiaries of the Communications Group 
(including the Company), and the level of capital is an important criteria to 
be considered by the regulators when applying for the operation of new 
businesses. The Capital Contribution will enable Zhejiang Communications 
Finance to expand its  business scope, operate new business and maintain its 
status in the industry. 
 
Zhejiang Communications Finance has shown a strong growth in income and 
profitability since its establishment in December 2012, with an average return 
on net assets at approximately 14% in the past three years. The Directors 
consider that the Capital Contribution will provide a satisfactory return to 
the Company. 
 
Given the above, the Directors (including the independent non-executive 
Directors) are of the view that the terms of the Capital Contribution Agreement 
are on normal commercial terms, in the ordinary and usual course of business of 
the Company and are fair and reasonable and in the interests of the Company and 
the Shareholders as a whole. 
 
INFORMATION ON ZHEJIANG COMMUNICATIONS FINANCE 
Zhejiang Communications Finance is a limited liability company incorporated in 
the PRC on 9 November 2012 and approved by CBRC as a non-banking financial 
institution on 17 October 2012 with a registered capital of RMB1 billion as at 
the date of this announcement. As at the date of this announcement, Zhejiang 
Communications Finance is owned as to 40%, 35%, 15.625% and 9.375% by 
Communications Group, the Company, Ningbo Expressway Co and Taizhou Expressway 
Co, respectively, and Zhejiang Communications Finance is an associate of the 
Company. 
 
Zhejiang Communications Finance is principally engaged in the business of 
providing financial services to the subsidiaries of Communications Group, 
including but not limited to advising the subsidiaries of Communications Group 
in relation to financing, letters of credit and other agency services; 
authorised insurance agency businesses; providing guarantees, accepting and 
discounting commercial notes, arranging for loans and financial leases, and 
receiving deposits of the subsidiaries of Communications Group. 
 
According to the audited financial statements of Zhejiang Communications 
Finance, the total assets of Zhejiang Communications Finance as at 31 December 
2015 were approximately RMB6,270,342,000. Zhejiang Communications Finance 
recorded an operating revenue of approximately RMB270,333,000 and a profit 
before tax of approximately RMB186,144,000 for the year ended 31 December 2015. 
 
Upon completion of the Capital Contribution, the registered capital of Zhejiang 
Communications Finance will be increased from RMB1 billion to RMB2 billion, and 
the shareholding percentage of the Company and the Existing Shareholders in 
Zhejiang Communications Finance will remain unchanged. 
 
LISTING RULES IMPLICATIONS 
As at the date of this announcement, Communications Group holds approximately 
67% of the issued share capital of the Company. By virtue of this shareholding 
interest, Communications Group is a controlling shareholder of the Company. As 
at the date of this announcement, Communications Group also directly and 
indirectly, through Ningbo Expressway Co and Taizhou Expressway Co, holds 65% 
of the issued share capital of Zhejiang Communications Finance. Therefore, 
Zhejiang Communications Finance, being a subsidiary of Communications Group, is 
a connected person of the Company and as a result, the transaction under the 
Capital Contribution Agreement constitutes a connected transaction for the 
Company under Chapter 14A of the Listing Rules. 
 
As the applicable percentage ratios in respect of the transactions contemplated 
under the Capital Contribution Agreement are more than 0.1% but less than 5%, 
the Capital Contribution Agreement is subject to the reporting, announcement 

and annual review requirements but exempt from the independent Shareholders' 
approval requirement under Chapter 14A of the Listing Rules. 
 
Each of Mr. Zhan Xiaozhang, Mr. Wang Dongjie, Mr. Dai Benmeng and Mr. Zhou 
Jianping holds certain senior position in Communications Group, so they have 
abstained from voting on the board resolution with respect to the approval of 
the Capital Contribution Agreement. Save for Mr. Zhan Xiaozhang, Mr. Wang 
Dongjie, Mr. Dai Benmeng and Mr. Zhou Jianping, none of the Directors has any 
material interest in the Capital Contribution Agreement or is required to 
abstain from voting on the relevant Board resolutions to approve the same. 
 
INFORMATION ON THE PARTIES 
The Company is a joint stock company established under the laws of the PRC with 
limited liability on 1 March 1997, the H Shares of which are listed on the Main 
Board of the Stock Exchange. It is principally engaged in investing in, 
developing and operating high-grade roads in the PRC. The Group also carries on 
certain other businesses such as operation of gas stations, restaurants and 
shops in service areas, advertising at expressway interchanges and external 
road maintenance, as well as securities related business. 
 
Communications Group is a wholly state-owned enterprise established in the PRC 
on 29 December 2001 and is principally engaged in a diverse range of 
businesses, including investment, operations, maintenance, toll collection and 
ancillary services of expressways, construction and building of transportation 
project, ocean and coastal transport, as well as real estate. 
 
Ningbo Expressway Co. is a limited liability company incorporated in the PRC 
and a 75% owned subsidiary of Communications Group and is principally engaged 
in the operation and management of the Ningbo section of the 
Ningbo-Taizhou-Wenzhou expressway. 
 
Taizhou Expressway Co. is a limited liability company incorporated in the PRC 
and a 75% owned subsidiary of Communications Group and is principally engaged 
in the operation and management of the Taizhou section of the 
Ningbo-Taizhou-Wenzhou expressway. 
 
DEFINITIONS 
In this announcement, unless the context specifies otherwise, the 
following defined expressions have the following meanings: 
 
"associate"                     has the meaning ascribed to it under the 
                                Listing Rules 
 
"Board"                         the board of Directors 
 
"Capital                        the proposed capital contribution by the 
Contribution"                   Company in 
                                the amount of RMB350,000,000, by way of cash, 
                                into 
                                the equity capital of Zhejiang Communications 
                                Finance pursuant to the Capital Contribution 
                                Agreement 
 
"Capital Contribution           the agreement dated 14 October 2016 entered 
Agreement"                      into 
                                between the Company, Zhejiang Communications 
                                Finance 
                                and the Existing Shareholders in relation to 
                                the Capital Contribution 
 
"CBRC"                          China Banking Regulatory Commission of the PRC 
 
"Communications Group"          Zhejiang Communications Investment Group Co., 
                                Ltd.*, a 
                                wholly State-owned enterprise established in 
                                the PRC, 
                                and the controlling shareholder of the Company 
 
"Company"                       Zhejiang Expressway Co., Ltd., a joint stock 
                                limited company 
                                incorporated in the PRC with limited liability 
 
"connected person"              has the meaning ascribed to it under the 
                                Listing Rules 
 
"controlling shareholder"       has the meaning ascribed to it under the 
                                Listing Rules 
 
"Director(s)"                   the directors of the Company 
 
"Existing Shareholders"         Communications Group, Ningbo Expressway Co. and 
                                Taizhou Expressway Co., being the existing 
                                shareholders 
                                of Zhejiang Communications Finance other than 
                                the Company 
                                as at the date of this announcement 
 
"Group"                         the Company and its subsidiaries 
 
"H Shares"                      overseas listed foreign 
                                shares in the share capital of 
                                the Company with a nominal value of RMB1 per 
                                share, which are listed on the Main Board of 
                                the Stock 
                                Exchange 
 
"Hong Kong"                     the Hong Kong Special Administrative Region of 
                                the PRC 
 
"Listing Rules"                 Rules Governing the Listing of Securities 
                                on The Stock 
                                Exchange of Hong Kong Limited 
 
"Ningbo Expressway Co"          Zhejiang Ningbo Yongtaiwen Expressway Co., Ltd. 
                                *, a limited 
                                liability company incorporated in the PRC and a 
                                75% owned 
                                subsidiary of Communications Group 
 
"percentage ratio"              has the meaning ascribed to it under Rule 14.04 
                                (9) of 
                                the Listing Rules 
 
"PRC"                           the People's Republic of China (for the purpose 
                                of this 
                                announcement, excludes Hong Kong, Macau and 
                                Taiwan) 
 
"RMB"                           Renminbi, the lawful currency of the PRC 
 
"Shareholder(s)"                holder(s) of the share(s) of the Company 
 
"Stock Exchange"                The Stock Exchange of Hong Kong Limited 
 
"subsidiary(ies)"               has the meaning ascribed to it under the 
                                Listing 
                                Rules 
 
"Taizhou Expressway Co"         Zhejiang Taizhou Yongtaiwen Expressway Co., 
                                Ltd.*, a limited 
                                liability company incorporated in the PRC and a 
                                75% owned 
                                subsidiary of Communications Group 
 
"Zhejiang Communications        Zhejiang Communications Investment Group 
Finance"                        Finance Co., 
                                Ltd.*, a limited liability company incorporated 
                                in the 
                                PRC and owned as to 40%, 35%, 15.625% and 
                                9.375% 
                                by Communications Group, the Company, Ningbo 
                                Expressway Co and Taizhou Expressway Co, 
                                respectively, as at the date of this 
                                announcement 
 
* English names for reference only 
 
                                           On behalf of the Board 
                                                  ZHEJIANG EXPRESSWAY CO., LTD. 
                                               ZHAN Xiaozhang 
                                                Chairman 
 
Hangzhou, PRC, 14 October 2016 
 
As of the date of this announcement, the executive directors of the Company 
are: Mr. ZHAN Xiaozhang, Mr. CHENG Tao and Ms. LUO Jianhu; the non-executive 
directors of the Company are: Mr. WANG Dongjie, Mr. DAI Benmeng and Mr. ZHOU 
Jianping; and the independent non-executive directors of the Company are: Mr. 
ZHOU Jun, Mr. PEI Ker-Wei and Ms. LEE Wai Tsang Rosa. 
 
 
 
 
 
 
 
 
 
END 
 

(END) Dow Jones Newswires

October 14, 2016 11:08 ET (15:08 GMT)