Zhejiang Expressway Co Ld - The Proposed Spin-off and Separate Listing of Spinco

Hong Kong Stock 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)

PROPOSED DISCLOSEABLE TRANSACTION IN RELATION TO
THE PROPOSED SPIN-OFF AND SEPARATE LISTING OF SPINCO
ON THE SHANGHAI STOCK EXCHANGE

THE PROPOSED SPIN-OFF
Reference is made to the announcements of the Company dated 16 November 2012, 7 May 2013, 2 May 2017 and 23 May 2017 in relation to the Proposed Spin-off (the " Announcements "). Terms defined in the Announcements shall have the same meanings therein, unless the context otherwise requires.

The Hong Kong Stock Exchange has confirmed that the Company may proceed with the Proposed Spin-off. By the Approval for the Initial Public Offering of Shares of Zheshang Securities Co., Ltd. issued by the CSRC on 12 May 2017, the CSRC has formally approved SpinCo's application for the A Share Listing. According to the latest listing timetable, SpinCo has launched its initial public offering in the PRC on 13 June 2017 and the dealings in the A shares of the SpinCo on the Shanghai Stock Exchange are expected to commence on 26 June 2017.

The Proposed Spin-off is conditional upon, among other things, the approval of the Shanghai Stock Exchange and completion of the Offering. Further announcement(s) will be made by the Company in relation to any material development with respect to the Proposed Spin-off and the A Share Listing as and when appropriate.

PROPOSED DISCLOSEABLE TRANSACTION
As at the date of this announcement, the Company has an indirect interest of approximately 52.15% in SpinCo. It is expected that if the Offering proceeds, the total number of shares to be offered under the Offering will be 333,333,400 shares and the offer price is RMB8.45 per share.

It is contemplated that immediately following the completion of the Proposed Spin-off, the indirect interest of the Company in SpinCo will be reduced to approximately 46.93% and SpinCo will continue to be an indirect subsidiary of the Company.

The Proposed Spin-off will result in a reduction of the indirect shareholding of the Company in SpinCo, so it will constitute a deemed disposal on the part of the Company under Rule 14.29 of the Listing Rules. Since it is contemplated that one or more of the relevant percentage ratios of the Proposed Spin-off exceeds 5% but is less than 25%, the Proposed Spin-off will constitute a discloseable transaction of the Company subject only to reporting and announcement requirements but exempt from shareholders' approval requirement.

NO ASSURED ENTITLEMENT TO SHAREHOLDERS
Due to the legal and regulatory impediments to the Company's provision of the Assured Entitlement to the Shareholders in respect of the Proposed Spin-off, the Company applied to the Hong Kong Stock Exchange for the Waiver and the Waiver was granted to the Company on 22 March 2013. Accordingly, the Shareholders will not be entitled to any distribution in specie of, or preferred application, for the A shares of SpinCo in connection with the Proposed Spin-off even if it materializes.

Having considered the benefits that the Proposed Spin-off may bring to the Group as set out in the section headed "Reasons for and benefits of the Proposed Spin-off" below, the Board considers that the Proposed Spin-off in the absence of the Assured Entitlement is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

GENERAL
Shareholders and potential investors should note that the Proposed Spin-off is subject to, among other things, the approval of the Shanghai Stock Exchange and the completion of the offering. There is no assurance that the Proposed Spin-off will take place. Accordingly, Shareholders and potential investors are reminded to exercise caution when dealing in the securities of the Company.

THE PROPOSED SPIN-OFF
Reference is made to the announcements of the Company dated 16 November 2012, 7 May 2013, 2 May 2017 and 23 May 2017 in relation to the Proposed Spin-off.

The Hong Kong Stock Exchange has confirmed that the Company may proceed with the Proposed Spin-off. By the Approval for the Initial Public Offering of Shares of Zheshang Securities Co., Ltd. issued by the CSRC on 12 May 2017, the CSRC has formally approved SpinCo's application for the A Share Listing. According to the latest listing timetable, SpinCo has launched its initial public offering in the PRC on 13 June 2017 and the dealings in the A shares of the SpinCo on the Shanghai Stock Exchange are expected to commence on 26 June 2017.

Change of the shareholding structure of SpinCo
As at the date of this announcement, the Company has an indirect interest of approximately 52.15% in SpinCo. It is expected that if the Offering proceeds, the total number of shares to be offered under the Offering will be 333,333,400 shares and the offer price is RMB8.45 per share.

It is contemplated that immediately following the completion of the Proposed Spin-off, the indirect interest of the Company in SpinCo will be reduced to approximately 46.93% and SpinCo will continue to be an indirect subsidiary of the Company.

The shareholding structure of SpinCo as at the date of this announcement is set out below:

https://photos.prnasia.com/prnk/20170613/1874744-1

The shareholding structure of SpinCo immediately following completion of the Proposed Spin-off is set out below:

https://photos.prnasia.com/prnh/20170613/1874744-1-b

Conditions
The Proposed Spin-off is conditional upon, among other things, the approval of the Shanghai Stock Exchange to the A Share Listing and completion of the Offering. Further announcement(s) will be made by the Company in relation to any material developments with respect to the Proposed Spin-off and the A Share Listing as and when appropriate.

Intended use of proceeds
SpinCo is estimated to receive net proceeds of approximately RMB2.76 billion from the Offering (after the deduction of the underwriting fees and other expenses in relation to the A Share Listing). SpinCo intends to use the proceeds from the Offering to increase the net capital and expand the business of SpinCo (including but not limited to expanding its investment banking business and enhancing its research team).

INFORMATION ON THE COMPANY, THE GROUP AND SPINCO
The Company is an infrastructure company principally engaged in investing in, developing and operating high-grade roads. The Group also engages in securities related business carried on by SpinCo.

SpinCo is a joint stock limited company restructured in the PRC on 12 September 2012 and is an indirectly-owned subsidiary of the Company. As at the date of this announcement, it is engaged in securities related business (including but not limited to securities brokerage, investment banking, proprietary trading and asset management).

Set out below is certain financial information in relation to SpinCo Group for the two years ended 31 December 2016, respectively, as extracted from the PRC audited consolidated financial statements of SpinCo for the relevant years:

		For the year ended 31 December 2015	For the year ended 31 December 2016
		(Audited)	(Audited)
		RMB	RMB
Net Profit before tax		2,525,081,495.76	1,643,219,655.04
Net Profit after tax		1,834,338,303.77	1,240,999,462.08
Net assets		8,449,116,259.83	9,565,498,901.73

REASONS FOR AND BENEFITS OF THE PROPOSED SPIN-OFF
The Board believes that the Proposed Spin-off would be in the interests of the Group as it would enable the market to appraise and assess the value of the Group more effectively and provide a separate fund raising platform for SpinCo, which will allow SpinCo to develop new businesses and become more competitive and will in turn benefit the Group.

The Proposed Spin-off is designed to facilitate the future growth of both the SpinCo Group and the Remaining Group. As the SpinCo will remain as a subsidiary of the Company, the Company's shareholders will continue to enjoy the benefits from the development of the securities related businesses.

As the Proposed Spin-off will not result in the Company's loss of control over SpinCo, the Proposed Spin-off will be accounted for as an equity transaction and will not result in the recognition of any gain or loss in the Company's consolidated statement of profit or loss and other comprehensive income.

Having considered the benefits that the Proposed Spin-off may bring to the Group as set out above, the Board considers that the Proposed Spin-off is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

NO ASSURED ENTITLEMENT
Under the Listing Rules, a listed issuer is required to have due regard to the interests of its existing shareholders by providing them with an assured entitlement to the shares in the entity which is proposed to be spun-off for separate listing. After due and careful consideration of the Proposed Spin-off and having taken into account the advice from the Company's PRC legal counsel, the Board has resolved not to provide the Shareholders with the Assured Entitlement under the Proposed Spin-off for the following reasons:

• The  shares  proposed to be offered by SpinCo and listed on the Shanghai Stock Exchange are A shares which, under the relevant PRC laws, are only available for subscription by investors within the PRC (excluding Hong Kong, Macau and Taiwan regions).
• Individual investors who are foreign natural persons cannot invest in the A share market of the PRC, except for those from Hong Kong, Macau Special Administrative Region and Taiwan who work and live in the PRC or those foreign natural persons who have obtained the permanent resident permit in the PRC. As to institutional investors, those who are foreign legal persons are not permitted to invest in the A share market of the PRC other than as explicitly provided under the relevant PRC laws and regulations (that is, in the capacity of qualified foreign institutional investor in accordance with Measures for the Administration of Securities Investment within the Borders of China by Qualified Foreign Institutional Investors, Measures for the Pilot Programme of Domestic Securities Investment by RMB Qualified Foreign Institutional Investors or in accordance with the provisions of the Administrative Measures for Foreign Investors' Strategic Investment in Listed Companies). Accordingly, there are legal impediments and it is not feasible to make available an assured entitlement to the shares in SpinCo to all the existing shareholders of the Company under the relevant PRC laws and regulations.

Due to the legal and regulatory impediments to the Company's provision of the Assured Entitlement to the Shareholders in respect of the Proposed Spin-off as mentioned above, the Company applied to the Hong Kong Stock Exchange for the Waiver and the Waiver was granted to the Company on 22 March 2013. Accordingly, the Shareholders will not be entitled to any distribution in specie of or preferred application for the A shares of SpinCo in connection with the Proposed Spin-off even if it materializes.

Having considered the benefits that the Proposed Spin-off may bring to the Group as set out in the section headed "Reasons for and benefits of the Proposed Spin-off" above, the Board considers that the Proposed Spin-off in the absence of the Assured Entitlement is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

OVERLAPPING OF DIRECTORSHIPS
As the Company is an indirect controlling shareholder of SpinCo, there is an overlapping of directorships between the Company and SpinCo. There are nine directors on the board of SpinCo, comprising six directors and three independent directors. Mr. Zhan Xiaozhang and Ms. Luo Jianhu, two executive Directors, are also members of the board of directors of SpinCo.

Mr. Zhan Xiaozhang and Ms. Luo Jianhu were appointed to the board of SpinCo to represent the interests of the Company. Neither of them takes part in the daily operation of SpinCo.

Mr. Wu Chenggen is a director and the chief executive officer of SpinCo. The daily operations of SpinCo are principally managed by Mr. Wu Chenggen and other non-director senior management of SpinCo. Mr. Wu Chenggen is responsible for overseeing SpinCo's day-to-day operations and management, and implementing decisions and plans approved by the board of directors of SpinCo. Except for Mr. Wu Chenggen, all other directors of SpinCo (including Mr. Zhan Xiaozhang and Ms. Luo Jianhu) do not take part in the daily operations of SpinCo.

If any situation of conflict of interest arises, Mr. Zhan Xiaozhang and Ms. Luo Jianhu will, if required, abstain from voting on the relevant resolutions in the meetings of the boards of the respective companies in accordance with the respective articles of association and PRC laws. Under the Company's articles of association, each Director has one vote at the meetings of the Board regardless of whether he/she is an executive or non-executive Director. If in any circumstances where Mr. Zhan Xiaozhang and Ms. Luo Jianhu were required to abstain from voting on relevant resolutions in any board meeting of the Company due to their directorship in SpinCo, there will remain four out of six Directors (excluding the INEDs), or seven out of nine Directors (including the INEDs) who would be entitled to vote. Similarly, at SpinCo's level, there will be four out of six directors (excluding the INEDs), or seven out of nine directors (including the INEDs) who will be entitled to vote if Mr. Zhan Xiaozhang and Ms. Luo Jianhu were required to abstain from voting. Therefore, there will be sufficient non-common members of the Board to function independently and properly.

LISTING RULES IMPLICATIONS
The Proposed Spin-off will result in a reduction of the indirect shareholding of the Company in SpinCo, so it will constitute a deemed disposal on the part of the Company under Rule 14.29 of the Listing Rules. Since it is contemplated that one or more of the relevant percentage ratios of the Proposed Spin-off exceeds 5% but is less than 25%, the Proposed Spin-off will constitute a discloseable transaction of the Company subject only to reporting and announcement requirements but exempt from shareholders' approval requirement.

Since no Shareholders' approval is required for the Proposed Spin-off, the Company will not form an independent board committee to advise the Shareholders on the implications of not providing the Assured Entitlement. Please refer to the section headed "No Assured Entitlement" for (i) the reasons why the Board has decided not to provide the Shareholders with the Assured Entitlement under the Proposed Spin-off and (ii) the view of the Board on the implications of not providing the Assured Entitlement.

GENERAL
Shareholders and potential investors should note that the Proposed Spin-off is subject to, among other things, the approval of the Shanghai Stock Exchange and completion of the Offering. There is no assurance that the Proposed Spin-off will take place. Accordingly, Shareholders and potential investors are reminded to exercise caution when dealing in the securities of the Company.

DEFINITIONS
In this announcement, unless the context specifies otherwise, the following defined expressions have the following meanings:

"A shares"	the shares of an issuer which are listed on the A-share market of a stock exchange on the PRC
"A Shareholders"	the holders of A shares of SpinCo
"A Share Listing"	the proposed listing of the A shares of SpinCo on the Main Board of the Shanghai Stock Exchange
"Assured Entitlement"	in relation to the Proposed Spin-off, means the assured entitlement to the A shares of SpinCo either by way of a distribution in specie of the A shares of SpinCo held by the Group or by way of preferred application in any offering of existing or new shares in SpinCo under the Offering
"Board"	the board of Directors
"Company"	Zhejiang Expressway Co., Ltd., a joint stock limited company incorporated in the PRC with limited liability
"CSRC"	the China Securities Regulatory Commission
"Director(s)"	director(s) of the Company
"Group"	the Company and its subsidiaries
"H shares"	overseas listed foreign shares in the ordinary share capital of the Company, with a par value of RMB1.00 each, which are listed on the Hong Kong Stock Exchange
"H Shareholders"	the holders of H shares
"Hong Kong"	the Hong Kong Special Administrative Region of the PRC
"Hong Kong Stock Exchange"	The Stock Exchange of Hong Kong Limited
"INED"	the independent non-executive director
"Listing Rules"	the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange
"Offering"	the proposed initial public offering of the A shares of SpinCo in connection with the A Share Listing
"PRC"	the People's Republic of China, for the purpose of this announcement, excludes Hong Kong, Macau Special Administrative Region and Taiwan
"Proposed Spin-off"	the proposed spin-off and separate listing of SpinCo on the Shanghai Stock Exchange
"Remaining Group"	the Group excluding the SpinCo Group
"SpinCo"	Zheshang Securities Co., Ltd, a joint stock limited company restructured in the PRC on 12 September 2012 and is an indirectly-owned subsidiary of the Company
"SpinCo Group"	SpinCo and its subsidiaries
"Shanghai Stock Exchange"	the Shanghai Stock Exchange
"Shareholders"	shareholders of the Company
"Waiver"	a waiver from strict compliance with the requirements of offering the Assured Entitlement to the Shareholders under paragraph 3(f) of Practice Note 15 of the Listing Rules

On behalf of the Board             
ZHEJIANG EXPRESSWAY CO., LTD.
ZHAN Xiaozhang                
Chairman                        

Hangzhou, PRC, 13 June 2017

As at 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.

 

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