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. This announcement is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities. This announcement does not constitute or form a part of any offer or solicitation to purchase or subscribe for securities in the United States or any other jurisdiction where it is unlawful to do so. The securities referred to herein (the “Securities”) have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”) or with any securities regulatory authority of any state of the United States or other jurisdiction. The Securities are being offered and sold outside the United States in reliance on Regulation S under the Securities Act and may not be offered or sold within the United States or (in the case of Category 2 offering) to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. No public offering of the Securities will be made in the United States or in any other jurisdiction where such an offering is restricted or prohibited. This announcement and the listing document referred to herein have been published for information purposes only as required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and do not constitute an offer to sell nor a solicitation of an offer to buy any securities. Neither this announcement nor anything referred to herein (including the listing document referred to herein) forms the basis for any contract or commitment whatsoever. For the avoidance of doubt, the publication of this announcement and the listing document referred to herein shall not be deemed to be an offer of securities made pursuant to a prospectus issued by or on behalf of the Issuer (as defined below) for the purposes of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) nor shall it constitute an advertisement, invitation or document containing an invitation to the public to enter into or offer to enter into an agreement to acquire, dispose of, subscribe for or underwrite securities for the purposes of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong). Notice to Hong Kong investors: The Issuer and the Company (as defined below) confirm that the Notes (as defined in the offering circular appended hereto) are intended for purchase by Professional Investors (as defined in Chapter 37 of the Listing Rules) only and will be listed on The Stock Exchange of Hong Kong Limited on that basis. Accordingly, the Issuer and the Company confirm that the Notes are not appropriate as an investment for retail investors in Hong Kong. Investors should carefully consider the risks involved. Zhejiang Energy International Limited 浙江能源國際有限公司 (incorporated with limited liability in Hong Kong) (the “Issuer”) US$2,000,000,000 Medium Term Note Programme (the “Programme”) with the benefit of a Keepwell, Liquidity Support and Equity Interest Purchase Undertaking Covenants Deed provided by
Transcript
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. This announcement is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities. This announcement does not constitute or form a part of any offer or solicitation to purchase or subscribe for securities in the United States or any other jurisdiction where it is unlawful to do so. The securities referred to herein (the “Securities”) have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”) or with any securities regulatory authority of any state of the United States or other jurisdiction. The Securities are being offered and sold outside the United States in reliance on Regulation S under the Securities Act and may not be offered or sold within the United States or (in the case of Category 2 offering) to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. No public offering of the Securities will be made in the United States or in any other jurisdiction where such an offering is restricted or prohibited. This announcement and the listing document referred to herein have been published for information purposes only as required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and do not constitute an offer to sell nor a solicitation of an offer to buy any securities. Neither this announcement nor anything referred to herein (including the listing document referred to herein) forms the basis for any contract or commitment whatsoever. For the avoidance of doubt, the publication of this announcement and the listing document referred to herein shall not be deemed to be an offer of securities made pursuant to a prospectus issued by or on behalf of the Issuer (as defined below) for the purposes of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) nor shall it constitute an advertisement, invitation or document containing an invitation to the public to enter into or offer to enter into an agreement to acquire, dispose of, subscribe for or underwrite securities for the purposes of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong). Notice to Hong Kong investors: The Issuer and the Company (as defined below) confirm that the Notes (as defined in the offering circular appended hereto) are intended for purchase by Professional Investors (as defined in Chapter 37 of the Listing Rules) only and will be listed on The Stock Exchange of Hong Kong Limited on that basis. Accordingly, the Issuer and the Company confirm that the Notes are not appropriate as an investment for retail investors in Hong Kong. Investors should carefully consider the risks involved.
Zhejiang Energy International Limited 浙江能源國際有限公司
(incorporated with limited liability in Hong Kong) (the “Issuer”)
US$2,000,000,000
Medium Term Note Programme (the “Programme”)
with the benefit of a Keepwell, Liquidity Support and Equity Interest Purchase
Undertaking Covenants Deed provided by
Zhejiang Provincial Energy Group Company Limited 浙江省能源集團有限公司
(incorporated with limited liability in the People’s Republic of China)
(the “Company”)
This announcement is issued pursuant to Rule 37.39A of the Listing Rules.
Please refer to the offering circular dated 6 July 2021 (the “Offering Circular”) appended hereto in
relation to the Programme. As disclosed in the Offering Circular, the Notes are intended for
purchase by Professional Investors (as defined in Chapter 37 of the Listing Rules) only and will be
listed on The Stock Exchange of Hong Kong Limited on that basis.
The Offering Circular does not constitute a prospectus, notice, circular, brochure or advertisement
offering to sell any securities to the public in any jurisdiction, nor is it an invitation to the public to
make offers to subscribe for or purchase any securities, nor is it circulated to invite offers by the
public to subscribe for or purchase any securities.
The Offering Circular must not be regarded as an inducement to subscribe for or purchase any
securities, and no such inducement is intended. No investment decision should be made based on
the information contained in the Offering Circular.
7 July 2021 As at the date of this announcement, the directors of the Issuer are Chen Yiqin, Gao Min and Zhou Yongsheng.
As at the date of this announcement, the directors of the Company are Hu Zhongming, Zhan Min,
Lu Xiang, Fan Xiaoning, Sun Weiheng, Hu Bin and Chen Luxia.
TABLE OF CONTENTS
APPENDIX - OFFERING CIRCULAR DATED 6 JULY 2021
APPENDIX - OFFERING CIRCULAR DATED 6 JULY 2021
IMPORTANT NOTICE
NOT FOR DISTRIBUTION TO ANY PERSON OR ADDRESS IN THE UNITED STATES AND, IN THE CASE OFCATEGORY 2 (AS DESCRIBED IN THE OFFERING CIRCULAR) OFFERING, TO ANY U.S. PERSON.
IMPORTANT: You must read the following before continuing. The following applies to the offering circular followingthis page (the “Offering Circular”), and you are therefore advised to read this carefully before reading, accessing or makingany other use of the Offering Circular. In accessing the Offering Circular, you agree to be bound by the following terms andconditions, including any modifications to them any time you receive any information from us as a result of such access.
Restrictions: The Offering Circular is being furnished in connection with an offering in offshore transactions to personsoutside the United States in compliance with Regulation S under the United States Securities Act of 1933, as amended (the“Securities Act”) solely for the purpose of enabling a prospective investor to consider the purchase of the securitiesdescribed herein.
NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN THEUNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIESDESCRIBED HEREIN HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE SECURITIES ACT, OR THESECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION AND THE SECURITIESMAY NOT BE OFFERED, SOLD, OR (IN THE CASE OF SECURITIES IN BEARER FORM) DELIVERED WITHIN THEUNITED STATES, OR (IN THE CASE OF CATEGORY 2 OFFERING), TO, OR FOR THE ACCOUNT OR BENEFIT OF,U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT), EXCEPT PURSUANT TO ANEXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THESECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS. SECURITIES IN BEARER FORM ARESUBJECT TO U.S. TAX LAW REQUIREMENTS.
THE OFFERING CIRCULAR MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAYNOT BE REPRODUCED IN ANY MANNER WHATSOEVER, AND IN PARTICULAR, MAY NOT BE FORWARDED TOANY ADDRESS IN THE UNITED STATES OR, IN THE CASE OF CATEGORY 2 OFFERING, TO ANY U.S. PERSON.ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART ISUNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THESECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS.
Confirmation of your Representation: The Offering Circular is being sent to you at your request and by accepting thee-mail and accessing the Offering Circular, you shall be deemed to have represented to each of the Arrangers and the Dealers(each as defined in the Offering Circular) that the electronic mail address that you gave and to which this e-mail has beendelivered is not located in the United States and in the case of Category 2 offering, are not U.S. persons and that you consentto delivery of such Offering Circular and any amendments or supplements thereto by electronic transmission.
You are reminded that the Offering Circular has been delivered to you on the basis that you are a person into whosepossession the Offering Circular may be lawfully delivered in accordance with the laws of the jurisdiction in which you arelocated and you may not, nor are you authorised to, deliver the Offering Circular to any other person.
The materials relating to the offering of securities to which the Offering Circular relates do not constitute, and may not beused in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law. If ajurisdiction requires that the offering be made by a licensed broker or dealer and any Dealer or any affiliate of the Dealersis a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by such Dealer or affiliate on behalfof the Issuer (as defined in the Offering Circular) in such jurisdiction.
The Offering Circular has been sent to you in an electronic form. You are reminded that documents transmitted via thismedium may be altered or changed during the process of electronic transmission and consequently none of the Issuer, theCompany, the Arrangers, the Dealers, the Trustee or the Agents (each as defined in the Offering Circular) or any person whocontrols any of them, or any director, officer, employee, agent, representative, affiliate or adviser of any such person acceptsany liability or responsibility whatsoever in respect of any difference between the Offering Circular distributed to you inelectronic format and the hard copy version available to you on request from any of the Arrangers and the Dealers.
Actions that You May Not Take: If you receive this document by e-mail, you should not reply by e-mail to this electronictransmission, and you may not purchase any securities by doing so. Any reply e-mail communications, including those yougenerate by using the “Reply” function on your e-mail software, will be ignored or rejected.
You are responsible for protecting against viruses and other destructive items. Your use of this e-mail is at your own risk andit is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature.
Zhejiang Energy International Limited(浙江能源國際有限公司 )
(incorporated with limited liability in Hong Kong)
US$2,000,000,000Medium Term Note Programme
with the benefit of a Keepwell, Liquidity Support and Equity Interest PurchaseUndertaking Covenants Deed provided by
Zhejiang Provincial Energy Group Company Limited(浙江省能源集團有限公司 )
(incorporated with limited liability in the PRC)
Under the US$2,000,000,000 Medium Term Note Programme described in this Offering Circular (the “Programme”), Zhejiang Energy International Limited (浙江能源國際有限公司) (the “Issuer”), subject to compliance with all relevant laws, regulations and directives, may from time to time issue notes (the “Notes”). The Issuer is a subsidiary of ZhejiangProvincial Energy Group Company Limited (浙江省能源集團有限公司) (the “Company”).
The Company has entered into an amended and restated keepwell, liquidity support and equity interest purchase covenants deed dated 6 July 2021 with the Issuer and The Hongkongand Shanghai Banking Corporation Limited (the “Trustee”) as trustee for the holders of the Notes (the “Keepwell Deed”). The Keepwell Deed is further described in “Descriptionof the Keepwell Deed”. The Keepwell Deed does not constitute a guarantee by the Company of any obligations of the Issuer under the Notes and may not give rise to adebt claim in the event of any insolvency proceedings in relation to the Company.
The aggregate principal amount of Notes outstanding under the Programme will not at any time exceed US$2,000,000,000 (or its equivalent in other currencies), subject to increasein accordance with the terms of the Dealer Agreement (as defined herein).
The Notes may be issued on a continuing basis to one or more of the Dealers specified under “Summary of the Programme” and/or any additional Dealer appointed under theProgramme from time to time by the Issuer (each a “Dealer” and together the “Dealers”), which appointment may be for a specific issue or on an ongoing basis. References inthis Offering Circular to the “Relevant Dealer” shall, in the case of an issue of Notes being (or intended to be) subscribed for by more than one Dealer, be to all Dealers agreeingto subscribe for such Notes.
Application has been made to The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”) for the listing of the Programme by way of debt securities toprofessional investors (as defined in Chapter 37 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited) (“Professional Investors”) onlyduring the 12-month period after the date of this Offering Circular on the Hong Kong Stock Exchange. This document is for distribution to Professional Investors only.
Notice to Hong Kong investors: The Issuer and the Company confirm that the Notes are intended for purchase by Professional Investors only and will be listed on theHong Kong Stock Exchange on that basis. Accordingly, the Issuer and the Company confirm that the Notes are not appropriate as an investment for retail investors inHong Kong. Investors should carefully consider the risks involved.
The Hong Kong Stock Exchange has not reviewed the contents of this Offering Circular, other than to ensure that the prescribed form disclaimer and responsibilitystatements, and a statement limiting distribution of this Offering Circular to Professional Investors only have been reproduced in this Offering Circular. Listing of theProgramme and the Notes on the Hong Kong Stock Exchange is not to be taken as an indication of the commercial merits or credit quality of the Programme, the Notes,the Issuer or the Company or quality of disclosure in this document. Hong Kong Exchanges and Clearing Limited and the Hong Kong Stock Exchange take no responsibilityfor the contents of this Offering Circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arisingfrom or in reliance upon the whole or any part of the contents of this Offering Circular.
However, unlisted Notes may be issued pursuant to the Programme. The relevant Pricing Supplement (as defined herein) in respect of the issue of any Notes will specify whetheror not such Notes will be listed on the Hong Kong Stock Exchange (or any other stock exchange).
Where the Circular on Promoting the Reform of the Filings and Registration System for Issuance of Foreign Debt by Enterprises (國家發展改革委關於推進企業發行外債備案登記制管理改革的通知(發改外資[2015]2044號)) (the “NDRC Circular”) issued by the National Development and Reform Commission of the People’s Republic of China (the“PRC”) (the “NDRC”) and which came into effect on 14 September 2015 and any implementation rules, regulations, certificates, circulars, notices or policies in connectiontherewith as issued by the NDRC from time to time applies, for the benefit of the relevant Series or Tranche (as defined herein) of Notes to be issued in accordance with theConditions (as defined herein) and the Trust Deed (as defined in the Conditions), the Issuer shall procure that the Company will within the prescribed timeframe after the IssueDate of the relevant Tranche of Notes file or cause to be filed with the NDRC the requisite information and documents in accordance with the NDRC Circular (the “NDRCPost-issue Filing”) and comply with all applicable PRC laws and regulations in connection therewith.
Notes may be issued in bearer or registered form. Each Series (as defined in “Summary of the Programme”) of Notes in bearer form (“Bearer Notes”) will be represented on issueby a temporary global note in bearer form (each a “temporary Global Note”) or a permanent global note in bearer form (each a “permanent Global Note” and, together withthe temporary Global Note, the “Global Notes”). Each Series of Notes in registered form (“Registered Notes”) will be represented by registered certificates (each a “Certificate”),one Certificate being issued in respect of each Noteholder’s entire holding of Registered Notes of one Series. Certificates representing Registered Notes that are registered in thename of, or in the name of a nominee of a common depositary for, one or more clearing systems are referred to as global certificates (“Global Certificates”). Global Notes andGlobal Certificates may be deposited on the relevant Issue Date with, or with a nominee of, a common depositary on behalf of Euroclear Bank SA/NV (“Euroclear”) and/orClearstream Banking S.A. (“Clearstream”), or with a sub-custodian for the Central Moneymarkets Unit Service (the “CMU”) operated by the Hong Kong Monetary Authority.The provisions governing the exchange of interests in Global Notes for other Global Notes and definitive Notes and the exchange of interests in Global Certificates for individualCertificates are described in “Summary of Provisions Relating to the Notes in Global Form”.
The Notes have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”), and the Notes may include Bearer Notesthat are subject to U.S. tax law requirements. Subject to certain exceptions, the Notes may not be offered, sold, or, in the case of Bearer Notes, delivered within the United Statesor, in the case of Category 2 (as defined in “Subscription and Sale”) offering, to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the SecuritiesAct (“Regulation S”)). For a description of certain restrictions on offers and sales of the Notes and on distribution of this Offering Circular, see “Subscription and Sale”.
The Programme has been rated “A+” by Fitch Ratings Ltd. and its successors (“Fitch”) and “(P)A2” by Moody’s Investors Services, Inc (“Moody’s”). These ratings are only correctas at the date of this Offering Circular. Tranches of Notes will be rated or unrated. Where a Tranche of Notes is to be rated, such rating will be specified in the relevant PricingSupplement. A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency.
Investing in the Notes issued under the Programme involves certain risks and may not be suitable for all investors. Investors should have sufficient knowledge andexperience in financial and business matters to evaluate the information contained in this Offering Circular and in the applicable Pricing Supplement and the merits andrisks of investing in a particular issue of the Notes in the context of their financial position and particular circumstances. Investors should also have the financial capacityto bear the risks associated with an investment in the Notes. Investors should not purchase the Notes unless they understand and are able to bear risks associated withthe Notes. The principal risk factors that may affect the ability of the Issuer and the Company to fulfil their respective obligations in respect of the Notes and the KeepwellDeed are discussed under “Risk Factors” below.
Arrangers
ICBC International Standard Chartered Bank
Dealers
ICBC International Standard Chartered Bank
Offering Circular dated 6 July 2021
IMPORTANT NOTICE
This Offering Circular includes particulars given in compliance with the Rules Governing the Listing ofSecurities on The Stock Exchange of Hong Kong Limited for the purpose of giving information withregard to the Issuer and the Company. Each of the Issuer and the Company accepts full responsibility forthe accuracy of the information contained in this Offering Circular and confirms, having made allreasonable enquiries, that to the best of its knowledge and belief there are no other facts the omission ofwhich would make any statement herein misleading.
Each of the Issuer and the Company, having made all reasonable enquiries, confirms that (i) this OfferingCircular contains all information with respect to the Issuer, the Company and their respective subsidiariestaken as a whole (the “Group”), and to the Notes and the Keepwell Deed which is material in the contextof the issue and offering of the Notes, (ii) the statements contained in this Offering Circular relating tothe Issuer, the Company and the Group, are in every material particular true and accurate and notmisleading, (iii) the opinions and intentions expressed in this Offering Circular with regard to the Issuer,the Company and the Group are honestly held, have been reached after considering all relevantcircumstances and are based on reasonable assumptions; (iv) there are no other facts in relation to theIssuer, the Company, the Group, the Keepwell Deed or the Notes the omission of which would, in thecontext of the issue and offering of the Notes make any statement in this Offering Circular misleading inany material respect; (v) all reasonable enquiries have been made by the Issuer and the Company toascertain such facts and to verify the accuracy of all such information and statements; and (vi) thisOffering Circular does not include an untrue statement of a material fact, or omit to state a material factnecessary in order to make the statements therein, in the light of the circumstances under which they weremade, not misleading.
Each Tranche of the Notes will be issued on the terms set out herein under “Terms and Conditions of theNotes” (the “Conditions”) as amended and/or supplemented by a document specific to such Tranchecalled a pricing supplement (each, a “Pricing Supplement”). This Offering Circular must be read andconstrued together with any amendments or supplements hereto and with any information incorporated byreference herein and, in relation to any Tranche of the Notes, must be read and construed together withthe relevant Pricing Supplement. See “Information Incorporated by Reference”. This Offering Circularshall be read and construed on the basis that such documents are incorporated in and form part of thisOffering Circular.
This Offering Circular has been prepared by the Issuer and the Company solely for use in connection withthe proposed offering of the Notes under the Programme described in this Offering Circular. Thedistribution of this Offering Circular and any Pricing Supplement and the offering, sale and delivery ofthe Notes in certain jurisdictions may be restricted by law. Persons into whose possession this OfferingCircular comes are required by each of the Issuer, the Company, the Arrangers, the Dealers, the Trusteeand the Agents (as defined in “Terms and Conditions of the Notes”) and any of their respective directors,officers, employees, agents, representatives, advisers and affiliates and any person who controls any ofthem to inform themselves about and to observe any such restrictions. None of the Issuer, the Company,the Arrangers, the Dealers, the Trustee or the Agents or any of their respective directors, officers,employees, agents, representatives, advisers or affiliates or any person who controls any of themrepresents that this Offering Circular or any Pricing Supplement may be lawfully distributed, or that anyNotes may be lawfully offered, in compliance with any applicable registration or other requirements in anysuch jurisdiction, or pursuant to an exemption available thereunder, or assumes any responsibility forfacilitating any such distribution or offering. In particular, no action is being taken to permit a publicoffering of the Notes or the distribution of this Offering Circular or any Pricing Supplement in anyjurisdiction where action would be required for such purposes. Accordingly, no Notes may be offered orsold, directly or indirectly, and none of this Offering Circular, any Pricing Supplement or anyadvertisement or other offering material may be distributed or published in any jurisdiction, except undercircumstances that will result in compliance with any applicable laws and regulations.
There are restrictions on the offer and sale of the Notes, and the circulation of documents relating thereto,in certain jurisdictions and to persons connected therewith. The Notes have not been and will not beregistered under the Securities Act and the Notes may include Bearer Notes that are subject to U.S. taxlaw requirements. Subject to certain exceptions, the Notes may not be offered, sold, or, in the case ofBearer Notes, delivered within the United States or, in the case of Category 2 offering, to, or for theaccount or benefit of, U.S. persons. For a description of certain further restrictions on offers, sales andresales of the Notes and distribution of this Offering Circular and any Pricing Supplement, see“Subscription and Sale”.
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MiFID II PRODUCT GOVERNANCE/PROFESSIONAL INVESTORS AND ECPs ONLY TARGETMARKET – The Pricing Supplement in respect of any Notes may include a legend entitled “MiFID IIProduct Governance” which will outline the target market assessment in respect of the Notes and whichchannels for distribution of the Notes are appropriate. Any person subsequently offering, selling orrecommending the Notes (a “distributor”) should take into consideration the target market assessment;however, a distributor subject to Directive 2014/65/EU (as amended, “MiFID II”) is responsible forundertaking its own target market assessment in respect of the Notes (by either adopting or refining thetarget market assessment) and determining appropriate distribution channels.
A determination will be made in relation to each issue about whether, for the purpose of the MiFID ProductGovernance rules under EU Delegated Directive 2017/593 (the “MiFID Product Governance Rules”),any Dealer subscribing for any Notes is a manufacturer in respect of such Notes, but otherwise neither theArrangers nor the Dealers nor any of their respective affiliates will be a manufacturer for the purpose ofthe MiFID Product Governance Rules.
UK MIFIR PRODUCT GOVERNANCE/PROFESSIONAL INVESTORS AND ECPs ONLYTARGET MARKET – The Pricing Supplement in respect of any Notes may include a legend entitled“UK MiFIR Product Governance” which will outline the target market assessment in respect of theNotes and which channels for distribution of the Notes are appropriate. Any distributor should take intoconsideration the target market assessment; however, a distributor subject to the FCA Handbook ProductIntervention and Product Governance Sourcebook (the “UK MiFIR Product Governance Rules”) isresponsible for undertaking its own target market assessment in respect of the Notes (by either adoptingor refining the target market assessment) and determining appropriate distribution channels.
A determination will be made in relation to each issue about whether, for the purpose of the UK MiFIRProduct Governance Rules, any Dealer subscribing for any Notes is a manufacturer in respect of suchNotes, but otherwise neither the Arrangers nor the Dealers nor any of their respective affiliates will be amanufacturer for the purpose of the UK MiFIR Product Governance Rules.
PRIIPs REGULATION – PROHIBITION OF SALES TO EEA RETAIL INVESTORS – If the PricingSupplement in respect of any Notes includes a legend entitled “Prohibition of Sales to EEA RetailInvestors”, the Notes are not intended to be offered, sold or otherwise made available to and should notbe offered, sold or otherwise made available to any retail investor in the European Economic Area(“EEA”). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail clientas defined in point (11) of Article 4(1) of MiFID II; (ii) a customer within the meaning of Directive (EU)2016/97 (the “Insurance Distribution Directive”), where that customer would not qualify as aprofessional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified investor asdefined in Regulation (EU) 2017/1129 (the “Prospectus Regulation”). Consequently no key informationdocument required by Regulation (EU) No 1286/2014 (as amended, the “PRIIPs Regulation”) foroffering or selling the Notes or otherwise making them available to retail investors in the EEA has beenprepared and therefore offering or selling the Notes or otherwise making them available to any retailinvestor in the EEA may be unlawful under the PRIIPs Regulation.
UK PRIIPs REGULATION – PROHIBITION OF SALES TO UK RETAIL INVESTORS – If thePricing Supplement in respect of any Notes includes a legend entitled “Prohibition of Sales to UK RetailInvestors”, the Notes are not intended to be offered, sold or otherwise made available to and should notbe offered, sold or otherwise made available to any retail investor in the United Kingdom (“UK”). Forthese purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined inpoint (8) of Article 2 of Regulation (EU) No 2017/565 as it forms part of domestic law by virtue of theEuropean Union (Withdrawal) Act 2018 (the “EUWA”); or (ii) a customer within the meaning of theprovisions of the Financial Services and Markets Act 2000 (the “FSMA”) and any rules or regulationsmade under the FSMA to implement Insurance Distribution Directive, where that customer would notqualify as a professional client, as defined in point (8) of Article 2(1) of Regulation (EU) No 600/2014as it forms part of domestic law by virtue of the EUWA; or (iii) not a qualified investor as defined inArticle 2 of the Prospectus Regulation as it forms part of domestic law by virtue of the EUWA (the “UKProspectus Regulation”). Consequently, no key information document required by the PRIIPs Regulationas it forms part of domestic law by virtue of the EUWA (the “UK PRIIPs Regulation”) for offering orselling the Notes or otherwise making them available to retail investors in the UK has been prepared andtherefore offering or selling the Notes or otherwise making them available to any retail investor in the UKmay be unlawful under the UK PRIIPs Regulation.
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SINGAPORE SFA PRODUCT CLASSIFICATION: In connection with Section 309B of the Securities andFutures Act (Chapter 289) of Singapore (the “SFA”) and the Securities and Futures (Capital MarketsProducts) Regulations 2018 of Singapore (the “CMP Regulations 2018”), unless otherwise specifiedbefore an offer of Notes, the Issuer has determined, and hereby notifies all relevant persons (as definedin Section 309A(1) of the SFA), that the Notes are ‘prescribed capital markets products’ (as defined in theCMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Noticeon the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on InvestmentProducts).
No prospectus is required in accordance with the Prospectus Regulation in relation to offers of Notes underthe Programme.
No person has been authorised by the Issuer and the Company to give any information or to make anyrepresentation other than those contained in this Offering Circular or any other document entered into inrelation to the Programme and the sale of Notes and, if given or made, such information or representationshould not be relied upon as having been authorised by the Issuer, the Company, any Arranger, any Dealer,the Trustee or any Agent or any of their respective directors, officers, employees, agents, representatives,advisers or affiliates or any person who controls any of them. Neither the delivery of this Offering Circularor any Pricing Supplement nor any offering, sale or delivery made in connection with the issue of theNotes shall, under any circumstances, constitute a representation that there has been no change ordevelopment reasonably likely to involve a change in the affairs of the Issuer, the Company, the Groupor any of them since the date hereof or the date upon which this Offering Circular has been most recentlyamended or supplemented or create any implication that the information contained herein is correct as atany date subsequent to the date hereof or the date upon which this Offering Circular has been most recentlyamended or supplemented or that any other information supplied in connection with the Programme iscorrect as of any time subsequent to the date on which it is supplied or, if different, the date indicated inthe document containing the same.
Neither this Offering Circular nor any Pricing Supplement constitutes an offer of, or an invitation by oron behalf of any of the Issuer, the Company, the Arrangers, the Dealers, the Trustee or the Agents or anydirector, officer, employee, agent, representative, adviser or affiliate of any such person or any person whocontrols any of them to subscribe for or purchase any Notes and may not be used for the purpose of anoffer to, or a solicitation by, anyone in any jurisdiction or in any circumstances in which such offer orsolicitation is not authorised or is unlawful.
None of the Arrangers, the Dealers, the Trustee or the Agents nor any director, officer, employee, agent,representative, adviser or affiliate of any such person nor any person who controls any of them haveindependently verified all the information contained in this Offering Circular and can give no assurancethat this information is accurate, truthful or complete. Accordingly no representation or warranty orundertaking, express or implied, is made or given and no responsibility or liability is accepted by any ofthe Arrangers, the Dealers, the Trustee or the Agents or any director, officer, employee, agent,representative, adviser or affiliate of any such person or any person who controls any of them as to theaccuracy, completeness or sufficiency of the information contained or incorporated in this OfferingCircular or any other information provided by the Issuer and the Company in connection with theProgramme, and nothing contained or incorporated in this Offering Circular is, or shall be relied upon as,a promise, representation or warranty by any of the Arrangers, the Dealers, the Trustee or the Agents orany director, officer, employee, agent, representative, adviser or affiliate of any such person or any personwho controls any of them.
Neither this Offering Circular nor any other information supplied or incorporated by reference inconnection with the Programme or any Notes (i) is intended to provide the basis of any credit or otherevaluation or (ii) should be considered as a recommendation by any of the Issuer, the Company, theArrangers, the Dealers, the Trustee or any of the Agents or any director, officer, employee, agent,representative, adviser or affiliate of any such person or any person who controls any of them that anyrecipient of this Offering Circular should purchase any Notes. Each potential purchaser of Notes shouldnot construe anything in this Offering Circular as legal, business or tax advice and should determine foritself the relevance of the information contained in this Offering Circular and the relevant PricingSupplement and whether it is legally able to purchase the Notes under applicable laws or regulations, andits purchase of Notes should be based upon such investigations with its own tax, legal and businessadvisers as it deems necessary.
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In making an investment decision, investors must rely on their own examination of the Issuer, theCompany, the Group and the terms of the offering of the Notes, including the merits and risks involved.See “Risk Factors” for a discussion of certain factors to be considered in connection with an investmentin the Notes. Each person receiving this Offering Circular acknowledges that such person has not reliedon any of the Arrangers, the Dealers, the Trustee or the Agents or any director, officer, employee, agent,representative, adviser or affiliate of any such person or any person who controls any of them, inconnection with its investigation of the accuracy of such information or its investment decision.
To the fullest extent permitted by law, none of the Arrangers, the Dealers, the Trustee or the Agents norany director, officer, employee, agent, representative, adviser or affiliate of any such person nor anyperson who controls any of them, accept any responsibility for the contents of this Offering Circular orfor any other statement made or purported to be made by any of the Arrangers, the Dealers, the Trusteeor the Agents or any director, officer, employee, agent, representative, adviser or affiliate of any suchperson or on its behalf or any person who controls any of them in connection with the Issuer, the Company,the Group, the Keepwell Deed, the Programme or the issue and offering of the Notes. Each of theArrangers, the Dealers, the Trustee and the Agents and each of their respective directors, officers,employees, representatives, advisers, agents and affiliates and each person who controls any of themaccordingly disclaims all and any liability whether arising in tort or contract or otherwise which it mightotherwise have in respect of this Offering Circular or any such statement.
None of the Arrangers, the Dealers, the Trustee or the Agents nor any director, officer, employee, agent,representative, adviser or affiliate of any such person nor any person who controls any of them undertaketo review the financial condition or affairs of the Issuer, the Company or the Group during the life of thearrangements contemplated by this Offering Circular nor to advise any investor or potential investor in theNotes of any information coming to the attention of any of the Arrangers, the Dealers, the Trustee or theAgents or any director, officer, employee, agent, representative, adviser or affiliate of any such person orany person who controls any of them.
IN CONNECTION WITH THE ISSUE OF ANY TRANCHE OF NOTES, THE DEALER ORDEALERS (IF ANY) NAMED AS THE STABILISATION MANAGER(S) (THE “STABILISATIONMANAGER(S)”) (OR ANY PERSON ACTING ON BEHALF OF ANY STABILISATIONMANAGER(S)) IN THE APPLICABLE PRICING SUPPLEMENT MAY OVER-ALLOT NOTES OREFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THENOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL.HOWEVER, THERE IS NO ASSURANCE THAT THE STABILISATION MANAGER(S) (OR ANYPERSON ACTING ON BEHALF OF ANY STABILISATION MANAGER(S)) WILL UNDERTAKEANY STABILISATION ACTION. ANY STABILISATION ACTION MAY BEGIN ON OR AFTERTHE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFEROF THE RELEVANT TRANCHE OF NOTES IS MADE AND, IF BEGUN, MAY BE ENDED ATANY TIME, BUT IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THEISSUE DATE OF THE RELEVANT TRANCHE AND 60 DAYS AFTER THE DATE OF THEALLOTMENT OF THE RELEVANT TRANCHE. ANY STABILISATION ACTION OR OVER-ALLOTMENT MUST BE CONDUCTED BY THE RELEVANT STABILISATION MANAGER(S)(OR ANY PERSON ACTING ON BEHALF OF ANY STABILISATION MANAGER(S)) INACCORDANCE WITH ALL APPLICABLE LAWS AND RULES.
WARNING
The contents of this Offering Circular have not been reviewed by any regulatory authority of anyjurisdiction. You are advised to exercise caution in relation to the offering of any Notes. If you are in anydoubt about any of the contents of this Offering Circular, you should obtain independent professionaladvice.
INDUSTRY AND MARKET DATA
Market data and certain industry forecasts used throughout this Offering Circular have been obtainedbased on internal surveys, market research, publicly available information and industry publications.Industry publications generally state that the information that they contain has been obtained from sourcesbelieved to be reliable but that the accuracy and completeness of that information is not guaranteed.Similarly, internal surveys, industry forecasts and market research, while believed to be reliable, have notbeen independently verified, and none of the Issuer, the Company, the Arrangers, the Dealers, the Trustee,the Agents and any of their respective directors, officers, employees, agents, representatives, advisers and
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affiliates and any person who controls any of them make any representation as to the accuracy orcompleteness of that information. In addition, third-party information providers may have obtainedinformation from market participants and such information may not have been independently verified.Accordingly, such information should not be unduly relied upon. Where information has been sourcedfrom a third party, the Issuer and the Company confirm that this information has been accuratelyreproduced and that, as far as the Issuer and the Company are aware and are able to ascertain frominformation published by third parties, no facts have been omitted which would render the reproducedinformation to be inaccurate or misleading.
PRESENTATION OF FINANCIAL INFORMATION
This Offering Circular contains (i) the audited consolidated financial information of the Company as atand for the three years ended 31 December 2018, 2019 and 2020, which was derived from the auditedconsolidated financial statements of the Company for the years ended 31 December 2019 and 2020included elsewhere in this Offering Circular, and audited by Pan-China Certified Public Accountants(“Pan-China”) and (ii) the audited consolidated financial information of the Issuer as at and for the threeyears ended 31 December 2018, 2019 and 2020, which was derived from the audited consolidated financialstatements of the Issuer for the years ended 31 December 2019 and 2020 included elsewhere in thisOffering Circular, and audited by Pan-China (H.K.) CPA Limited (“Pan-China HK”).
The Company’s consolidated financial statements were prepared and presented in accordance with theAccounting Standards for Business Enterprises in the PRC (the “PRC GAAP”), and the Issuer’sconsolidated financial statements were prepared and presented in accordance with the Hong KongFinancial Reporting Standards (“HKFRS”).
In addition, certain financial information as at and for the year ended 31 December 2018 was restated inthe Company’s audited consolidated financial statements as at and for the year ended 31 December 2019in order to rectify certain accounting errors in the financial statements of certain subsidiaries of theCompany for the previous periods. In addition, certain financial information as at and for the year ended31 December 2018 was restated or reclassified in the Company’s audited consolidated financial statementsas at and for the year ended 31 December 2019 as a result of certain new accounting standards and newrequirements in relation to the presentation of financial statements according to the Notice on Revisingand Issuing the Format of Financial Statements of General Enterprises for the Year of 2019 (Cai Kuai[2019] No. 6)《關於修訂印發2019年度一般企業財務報表格式的通知》(財會[2019]6號) and the Noticeof Revising and Issuing the Format of Consolidated Financial Statements (2019 Version) (Cai Kuai [2019]No. 16)《關於修訂印發合併財務報表格式(2019版)的通知》(財會[2019]16號) promulgated by theMinistry of Finance of the PRC. As a result, such financial information as at and for the year ended 31December 2018 included in the Company’s audited consolidated financial statements as at and for the yearended 31 December 2019 may not be directly comparable to the financial information now contained inthe Company’s audited consolidated financial statements as at and for the year ended 31 December 2018.For details of such restatement including the rationale and impact of such restatement and/or rectification,please see “Notes to Financial Statements as at and for the Year ended 31 December 2019 – V.Significant changes in accounting policies and estimates and corrections of prior period errors” in theCompany’s audited consolidated financial statements as at and for the years ended 31 December 2019.Restated and reclassified information may not be comparable to the financial information previouslyreported in the consolidated financial statements of the Company. Consequently, potential investors mustexercise caution when using such financial information to evaluate our financial condition and results ofoperations.
Please also see “Risk Factors – Risks Relating to our Business – Certain financial information in theCompany’s financial statements had been restated or reclassified and may not be consistent with ordirectly comparable to the financial information in the Company’s consolidated financial statements forthe previous periods” for further information.
PRC GAAP differs in certain material respects from the International Financial Reporting Standards(“IFRS”). For a discussion of certain differences between PRC GAAP and IFRS, see “Description ofDifferences between PRC Accounting Standards and International Financial Reporting Standards”.
Save for the Issuer’s audited consolidated financial statements as at and for the years ended 31 December2019 and 2020, the Issuer’s financial information contained in this Offering Circular does not constitutethe Issuer’s specified financial statements (as defined in the Companies Ordinance (Cap. 622) of HongKong (the “Companies Ordinance”)). The Issuer has delivered its specified financial statements for theyears ended 31 December 2018 and 2019 to the Registrar of Companies of Hong Kong, and will deliver
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its specified financial statements for the year ended 31 December 2020 in due course. The Issuer’s auditorhas reported on the specified financial statements in relation to the Issuer for the years ended 31 December2018, 2019 and 2020. The auditor’s reports in respect of the Issuer’s audited consolidated financialstatements as at and for the years ended 31 December 2018 and 2019 (i) were not qualified or otherwisemodified, (ii) did not refer to any matters to which the auditor drew attention by way of emphasis withoutqualifying the reports and (iii) did not contain any statement under section 406(2) or 407(2) or (3) of theCompanies Ordinance. The auditor’s report in respect of the Issuer’s audited consolidated financialstatements as at and for the year ended 31 December 2020 (i) was not qualified or otherwise modified, (ii)referred to matters to which the auditor drew attention by way of emphasis without qualifying the reportand (iii) did not contain any statement under section 406(2) or 407(2) or (3) of the Companies Ordinance.Please see “Note 1. GENERAL” in the Issuer’s audited consolidated financial statements as at and for theyear ended 31 December 2020 and “Risk Factors – Risks Relating to our Business – The Issuer’sconsolidated current liabilities exceeded its consolidated current assets” for further information.
EXCHANGE RATE INFORMATION
This Offering Circular contains a translation of certain Renminbi amounts and Hong Kong dollar amountsinto US dollars at specified rates solely for the convenience of the reader. Unless otherwise specified,where financial information in relation to the Issuer or the Company has been translated into US dollars,it has been so translated, for convenience only, at the rate of RMB6.5250 per US$1.00, the noon buyingrate as set forth in the H.10 statistical release of the US Federal Reserve Board (the “Noon Buying Rate”)on 31 December 2020 (being the last business day in December 2020), and the translation of Hong Kongdollar amounts into US dollars has been made at the rate of HK$7.7534 per US$1.00, the Noon BuyingRate on 31 December 2020 (being the last business day in December 2020). No representation is made thatthe Renminbi amounts or the Hong Kong dollar amounts referred to in this Offering Circular could havebeen or could be converted into US dollars at any particular rate or at all, or vice versa. See “ExchangeRates”.
ROUNDING
In this Offering Circular, where information has been presented in thousands, millions or billions of units,amounts may have been rounded up or down. Accordingly, figures shown as totals in certain tables maynot be an arithmetic aggregation of the figures which precede them. References to information in billionsof units are to the equivalent of a thousand million units.
CONVENTION USED IN THIS OFFERING CIRCULAR
In this Offering Circular, unless otherwise indicated or the context otherwise requires, reference to:
• “we”, “us”, the “Company”, “our company”, the “Group”, “our” and words of similar importrefers to Zhejiang Provincial Energy Group Company Limited (浙江省能源集團有限公司) itself, orto Zhejiang Provincial Energy Group Company Limited and its subsidiaries (including the Issuer andits subsidiaries), as the context requires;
• the “Issuer” refers to Zhejiang Energy International Limited (浙江能源國際有限公司), one of oursubsidiaries, or Zhejiang Energy International Limited and its subsidiaries, as the context requires;
• “CAGR” refers to compound annual growth rate;
• “China”, “Mainland China”, “Mainland” or the “PRC” refers to the People’s Republic of China,excluding, for purposes of this Offering Circular only, Taiwan, Hong Kong and Macau;
• “Hong Kong” refers to the Hong Kong Special Administrative Region of the PRC;
• “HK$” or “Hong Kong dollars” refers to the legal currency of Hong Kong;
• “km” refers to kilometre;
• “kW” refers to kilowatt;
• “kWh” refers to kilowatt-hour;
• “m” refers to metre;
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• “m3” refers to cubic metre;
• “Macau” refers to the Macau Special Administrative Region of the PRC;
• “MOFCOM” refers to the Ministry of Commerce of the People’s Republic of China or its localcounterpart;
• “Mt” refers to million ton;
• “MW” refers to megawatt;
• “MWh” refers to megawatt-hour;
• “NDRC” refers to the National Development and Reform Commission of the People’s Republic ofChina or its local counterpart;
• “PBOC” refers to the People’s Bank of China, the central bank of the People’s Republic of China;
• the “PRC government” refers to the central government of China and its political subdivisions,including provincial, municipal and other regional or local government entities, and instrumentalitiesthereof, or where the context requires, any of them;
• “RMB” or “Renminbi” refers to the legal currency of China;
• “SAFE” refers to the State Administration of Foreign Exchange of the People’s Republic of Chinaor its competent local counterpart;
• “SAT” refers to the State Administration of Taxation of the People’s Republic of China;
• “State Council” refers to the State Council of the People’s Republic of China;
• “SERC” refers to State Electricity Regulatory Commission of the People’s Republic of China;
• “UK” refers to the United Kingdom;
• “U.S.” or the “United States” refers to the United States of America;
• “US$” or “US dollars” refers to the legal currency of the United States;
• the “Zhejiang Government” refers to the People’s Government of Zhejiang Province; and
• the “Zhejiang SASAC” refers to the Zhejiang State-owned Assets Supervision and AdministrationCommission of the People’s Republic of China.
The English names of the PRC nationals, entities, departments, facilities, laws, regulations, certificates,titles and the like are translations of their Chinese names and are included for identification purposes only.
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FORWARD-LOOKING STATEMENTS
We have made certain forward-looking statements in this Offering Circular. Some of these statements canbe identified by forward-looking terms, such as “anticipate”, “target”, “believe”, “can”, “would”,“could”, “estimate”, “expect”, “aim”, “intend”, “may”, “plan”, “will”, “would” or similar words.However, these words are not the exclusive means of identifying forward-looking statements. Allstatements regarding expected financial condition and results of operations, business plans and prospectsare forward-looking statements. These forward-looking statements include but are not limited tostatements as to the business strategy, revenue and profitability, planned projects and other matters as theyrelate to our company discussed in this Offering Circular regarding matters that are not historical fact.These forward-looking statements and any other projections contained in this Offering Circular (whethermade by us or by any third party) involve known and unknown risks, including those disclosed under thecaption “Risk Factors”, assumptions, uncertainties and other factors that may cause the actual results,performance or achievements of our company to be materially different from any future results,performance or achievements expressed or implied by such forward-looking statements or otherprojections.
These forward-looking statements speak only as at the date of this Offering Circular. We expresslydisclaim any obligation or undertaking to release publicly any updates or revisions to any forward-lookingstatement contained herein to reflect any change in our expectations with regard thereto or any change ofevents, conditions or circumstances, on which any such statement was based.
The factors that could cause our actual results, performance and achievements to be materially differentinclude, among others:
• risks associated with our business activities;
• general economic and political conditions, including those related to the PRC;
• our business strategy and plan of operation;
• our financial condition and results of operations;
• fluctuations in foreign currency exchange rates; and
• those other risks identified in the “Risk Factors” section of this Offering Circular.
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INFORMATION INCORPORATED BY REFERENCE
This Offering Circular should be read and construed in conjunction with (a) each relevant PricingSupplement and (b) all amendments and supplements from time to time to this Offering Circular, whichshall be deemed to be incorporated in, and to form part of, this Offering Circular and which shall bedeemed to modify or supersede the contents of this Offering Circular to the extent that a statementcontained in any such document is inconsistent with such contents.
Copies of all such documents which are so deemed to be incorporated in, and to form part of, this OfferingCircular will be available free of charge at all reasonable times during usual business hours on anyweekday (Saturdays, Sundays and public holidays excepted) from the principal office of the Trustee andthe specified office of the Issuing and Paying Agent (as defined under “Summary of the Programme”) setout at the end of this Offering Circular.
The summary below is only intended to provide a limited overview of information described in more detailelsewhere in this Offering Circular. As it is a summary, it does not contain all of the information that maybe important to investors and terms defined elsewhere in this Offering Circular shall have the samemeanings when used in this summary. Prospective investors should therefore read this Offering Circularin its entirety.
DESCRIPTION OF THE ISSUER
Overview
The Issuer, Zhejiang Energy International Limited, was incorporated on 11 August 2004 and is registeredas a company with limited liability under the laws of Hong Kong, with company number 916646. Theregistered office of the Issuer is located at Room 1405, 14/F, Harbour Centre, 25 Harbour Road, Wanchai,Hong Kong. The Issuer is a subsidiary of the Company. On 5 February 2014, the Issuer changed its namefrom “Hong Kong Xingyuan Investment & Trading Company Limited” to “Zhejiang Energy Group(Hong Kong) Limited”. On 2 May 2017, the Issuer changed its name from “Zhejiang Energy Group(Hong Kong) Limited” to “Zhejiang Energy International Limited”. Throughout the years, the Issuerhas built a solid reputation and strong brand influence in overseas markets.
Share Capital
The share capital of the Issuer is HK$4,131,640,995 divided into 4,024,587,050 ordinary shares, all ofwhich are issued and fully paid. As at the date of this Offering Circular, the Company directly holds 60per cent. of the Issuer’s share capital, while Zheneng Capital Holdings Co., Ltd., a wholly-ownedsubsidiary of the Company, holds 40 per cent. of the Issuer’s share capital.
Business
Rooted in Hong Kong, the Issuer is our primary overseas investment and financing platform. The Issueralso acts as an investment holding company and the main body for our overseas merger and acquisitionoperation, and plays a strategically important role as our international investment platform. It is alsoresponsible for securing overseas financings for the Company. As at 31 December 2020, the Issuer hadtotal assets of HK$29,426.2 million.
DESCRIPTION OF THE GROUP
Overview
We are a leading state-owned energy and electric power enterprise in the PRC, primarily engaged in thepower generation, coal trading and mining, natural gas and petroleum businesses. We play an importantrole in the provision of energy and electric power in Zhejiang Province. We are a state-owned companywith limited liability as approved by the Zhejiang Government. As the only energy and electric powerenterprise under the Zhejiang SASAC, we supplied approximately 50.0 per cent., 48.0 per cent. and 46.0per cent. of the power generation and approximately 81.4 per cent., 79.5 per cent. and 73.4 per cent. ofthe pipeline natural gas in Zhejiang Province in 2018, 2019 and 2020, respectively.
Power generation is our core business. For the years ended 31 December 2018, 2019 and 2020, operatingrevenue generated from our power generation business was approximately RMB44.8 billion, RMB45.6billion and RMB44.4 billion, respectively, representing approximately 48.1 per cent., 40.8 per cent. and41.3 per cent., respectively, of our total operating revenue. As a power generation company which has thelargest installed power capacity among provincial state-owned enterprises in the PRC, we develop, invest,construct, manage and operate power plants, and sell the power generated by such power plants to relevantpower grid companies. We also engage in the coal trading and mining business, in which we source coalfrom third parties and the coal mines in which we have ownership interest and then distribute and sell thecoal we procure to power generation companies in the PRC. In addition, we engage in the natural gasbusiness, in which we focus on building, owning and operating natural gas pipelines, through which wedistribute and sell natural gas to our customers. Further, we have commenced our petroleum business in
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2017. We primarily engage in crude oil trading, oil storage and transportation, fuel oil refilling, refinedoil sale and the construction and investment of auxiliary infrastructure projects such as oil depots,terminals, oil pipelines and integrated energy supply service stations. Our other businesses mainly includetechnology and environmental protection, energy financing and coal gas businesses.
We have attained prominent status and recognition in the energy and power generation industry both inZhejiang Province and nationwide. As at the date of this Offering Circular, we ranked among the “Top TenExcellent Enterprises” in Zhejiang Province and our generator set won the honorary title of “NationalGrade A Reliability Unit”. We ranked first among the regional energy and power generation companiesand were one of the top State-owned Enterprises in Zhejiang Province according to total assets and totalrevenue as at the date of this Offering Circular. For five consecutive years, we were elected the “MostSocially Responsible Enterprise in Zhejiang Province”. In 2018, we were among the top 10 nationalpower generation enterprises by installed capacity. We have a good reputation in the PRC capital markets.For instance, the Company was recognised as Quality Debt Issuer (優質債券發行人) by the ShanghaiStock Exchange in 2019. In the “Top 500 Enterprises of China in 2019” list published jointly by ChinaEnterprise Confederation and China Enterprise Directors Association, we ranked 204th and ranked firstamong provincial power generation enterprises. In the “Top 100 Enterprises of Zhejiang in 2020” and“Top 100 Service Enterprises of Zhejiang in 2020” lists published jointly by Zhejiang EnterpriseConfederation, Zhejiang Enterprise Directors Association and Zhejiang Industrial and EconomyAssociation, we ranked 17th and 7th, respectively.
As at 31 December 2018, 2019 and 2020, we had total assets of approximately RMB210,561.0 million,RMB241,507.8 million and RMB276,425.9 million, respectively. For the years ended 31 December 2018,2019 and 2020, we recorded total operating revenue of approximately RMB93,219.5 million,RMB111,805.5 million and RMB107,385.4 million, respectively, and net profit of approximatelyRMB4,458.2 million, RMB7,332.6 million and RMB8,984.0 million, respectively.
Competitive Strengths
We have the following competitive strengths:
• We enjoy our strong relationship with and support from the Zhejiang Government;
• We have access to the massive energy market in Zhejiang Province;
• We have a clear development strategy;
• We are highly efficient in the energy industry;
• We operate in a safe and reliable production environment and possess advanced environmentalprotection technology;
• We have prudent financial management policies and access to diversified financing channels; and
• We have an experienced management team with sound corporate governance.
Business Strategies
Based in Zhejiang Province, our goal is to further expand nationally and globally by deepening ourinstitutional reform and innovating our means of energy supplies and becomes a cleaner, safer and moreefficient national leading energy service provider that is highly competitive globally. We strive to be theworld’s first class integrated energy service provider and a leading enterprise in eight different respects:“green energy”, “research and technology”, “capital and finance”, “modernisation and reform”,“digitalisation and intelligence”, “training and management of talents”, “international cooperation”and “state leadership”. We intend to accomplish these goals by executing the following strategies:
• Further optimise our Energy Production and Supply System;
• Continue to expand our Energy Storage and Transportation System;
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• Continue to strengthen our Eco-friendly Energy and Cycling Economy System;
• Continue to improve our Characteristic Energy Financing Service System;
• Continue to build our Digital Energy System;
• Continue to expand our funding channels to ensure well-capitalised growth; and
• Continue to enhance our geographical coverage and further our overseas operations.
Recent Developments
Unaudited and Unreviewed Consolidated Financial Information of the Group as at and for theThree Months Ended 31 March 2021
As at the date of this Offering Circular, the Company has prepared the Group’s unaudited and unreviewedconsolidated financial information as at and for the three months ended 31 March 2021 (the “March 2021Financial Information”).
As at 31 March 2021, the Group recorded an increase in non-current liabilities when compared to thebalance as at 31 December 2020, primarily due to (i) an increase in the Group’s long-term borrowingsprimarily as a result of entering into new loans to fund its projects, and (ii) an increase in bonds payableas a result of issuance of debt securities by the Group in the PRC. In addition, the Group recorded anincrease in short-term borrowings when compared to the balance as at 31 December 2020 primarily dueto its working capital needs.
Save for the financial information disclosed in the preceding paragraphs, the March 2021 FinancialInformation is not included in and does not form a part of this Offering Circular. The March 2021 FinancialInformation has not been audited or reviewed by a certified public accountant, and should not be reliedupon by investors to provide the same quality of information associated with information that has beensubject to an audit or review. None of the Arrangers, the Dealers, the Trustee or the Agents or any of theirrespective directors, officers, employees, agents, representatives, advisers or affiliates or any person whocontrols any of them make any representation or warranty, express or implied, regarding the accuracy orsufficiency of the March 2021 Financial Information for an assessment of, and potential investors mustexercise caution when using such data to evaluate, the Group’s financial condition and results ofoperations. In addition, the March 2021 Financial Information should not be taken as an indication of theexpected financial condition or results of operations of the Company or the Group for the full financialyear ending 31 December 2021.
Transfer of equity interest in the Company to Zhejiang Finance Development Company
In January 2021, the Zhejiang SASAC transferred 10 per cent. of its equity interest in the Company toZhejiang Finance Development Company (the “Transfer”). Zhejiang Finance Development Company iswholly-owned by the Ministry of Finance of Zhejiang Province and is responsible for the investment andoperation of state-owned capital in Zhejiang Province. The Transfer was initiated in accordance with therequirements of the State Council for the purpose of enriching the social security fund. Upon thecompletion of the Transfer, Zhejiang Finance Development Company has entrusted the Zhejiang SASACto exercise on its behalf the voting rights it held in respect of the Company. As at the date of this OfferingCircular, the Zhejiang SASAC holds 90 per cent. of the Company’s share capital, while Zhejiang FinanceDevelopment Company holds 10 per cent. of the Company’s share capital.
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The Outbreak of COVID-19
The outbreak of COVID-19 has caused substantial disruptions in the PRC and international economies andmarkets as well as additional uncertainties in our operating environment. We have been closely monitoringthe impact of the outbreak and continued escalation of COVID-19 on our businesses and will keep ourcontingency measures and risk management under review as the situation evolves. For more details, see“Risk Factors – Risks Relating to our Business – The occurrence of epidemics, natural disasters andacts of God could materially and adversely affect our business, results of operations, financial conditionand prospects” and “Risk Factors – Risks Relating to our Business – The extent to which the COVID-19pandemic will impact our business, financial condition, results of operations and prospects is uncertainand cannot be predicted”.
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SUMMARY CONSOLIDATED FINANCIAL AND OTHER INFORMATION
Selected Consolidated Financial Information of the Company
The following tables set forth the Company’s selected consolidated financial information as at and for theyears ended 31 December 2018, 2019 and 2020, which has been derived from the Company’s auditedconsolidated financial statements as at and for the years ended 31 December 2019 and 2020. Suchfinancial information should be read in conjunction with the Company’s audited consolidated financialstatements and the notes thereto, together with the auditor’s reports in respect of such financial years. TheCompany’s audited consolidated financial statements as at and for the years ended 31 December 2019 and2020 were prepared in accordance with PRC GAAP and were audited by Pan-China.
Certain financial information as at and for the year ended 31 December 2018 was restated in theCompany’s audited consolidated financial statements as at and for the year ended 31 December 2019 inorder to rectify certain accounting errors in the financial statements of certain subsidiaries of theCompany for the previous periods. In addition, certain financial information as at and for the year ended31 December 2018 was restated or reclassified in the Company’s audited consolidated financial statementsas at and for the year ended 31 December 2019 as a result of certain new accounting standards and newrequirements in relation to the presentation of financial statements according to the Notice on Revisingand Issuing the Format of Financial Statements of General Enterprises for the Year of 2019 (Cai Kuai[2019] No. 6) and the Notice of Revising and Issuing the Format of Consolidated Financial Statements(2019 Version) (Cai Kuai [2019] No. 16) promulgated by the Ministry of Finance of the PRC. As a result,such financial information as at and for the year ended 31 December 2018 included in the Company’saudited consolidated financial statements as at and for the year ended 31 December 2019 may not bedirectly comparable to the financial information now contained in the Company’s audited consolidatedfinancial statements as at and for the year ended 31 December 2018. For details of such restatementincluding the rationale and impact of such restatement and/or rectification, please see “Notes toFinancial Statements as at and for the Year ended 31 December 2019 – V. Significant changes inaccounting policies and estimates and corrections of prior period errors” in the Company’s auditedconsolidated financial statements as at and for the year ended 31 December 2019. Restated andreclassified information may not be comparable to the financial information previously reported in theconsolidated financial statements of the Company. Consequently, potential investors must exercise cautionwhen using such financial information to evaluate our financial condition and results of operations.
Please also see “Risk Factors – Risks Relating to our Business – Certain financial information in theCompany’s financial statements had been restated or reclassified and may not be consistent with ordirectly comparable to the financial information in the Company’s consolidated financial statements forthe previous periods” for further information.
PRC GAAP differs in certain material respects from IFRS. For a discussion of certain differences betweenPRC GAAP and IFRS, see “Description of Differences between PRC Accounting Standards andInternational Financial Reporting Standards”.
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Summary Consolidated Income Statement of the Company
Selected Consolidated Financial Information of the Issuer
The following tables set forth the Issuer’s selected consolidated financial information as at and for theyears ended 31 December 2018, 2019 and 2020, which has been derived from the Issuer’s auditedconsolidated financial statements as at and for the years ended 31 December 2019 and 2020. Suchfinancial information should be read in conjunction with the Issuer’s audited consolidated financialstatements and the notes thereto, together with the auditor’s reports in respect of such financial years. TheIssuer’s audited consolidated financial statements as at and for the years ended 31 December 2019 and2020 were prepared in accordance with HKFRS, and were audited by Pan-China HK.
Selected Consolidated Statement of Profit or Loss and Other Comprehensive Income of the Issuer
Other comprehensive expense, net of income taxItems that may be reclassified subsequently to profit or loss:Exchange differences arising on translation of foreign operations . . (511,559) (62,175) (55,859)Share of other comprehensive income (expense) of an associate . . . 8,053 (30,934) 25,042Items that will not be reclassified subsequently to profit or loss:Fair value loss on financial asset at fair value through other
The following summary is qualified in its entirety by the remainder of this Offering Circular. This summarymust be read as an introduction to this Offering Circular and any decision to invest in the Notes shouldbe based on a consideration of this Offering Circular as a whole, including any information incorporatedby reference. Phrases used in this summary and not otherwise defined shall have the meanings given tothem in “Terms and Conditions of the Notes”. For a complete description of the terms of the Notes, see“Terms and Conditions of the Notes” in this Offering Circular and the relevant Pricing Supplement.
Size . . . . . . . . . . . . . . . . . . . . . . . Up to US$2,000,000,000 (or the equivalent in other currencies)aggregate principal amount of Notes outstanding at any one time.The Issuer may increase the aggregate principal amount of theProgramme in accordance with the terms of the Dealer Agreement.
The Issuer may from time to time terminate the appointment of anyDealer under the Programme or appoint additional Dealers either inrespect of one or more Tranches or in respect of the wholeProgramme. References in this Offering Circular to “Dealers” areto all persons appointed as a Dealer in respect of one or moreTranches or the Programme.
The Hongkong and Shanghai Banking Corporation Limited
Certain Restrictions . . . . . . . . . . . Each issue of the Notes denominated in a currency in respect ofwhich particular laws, guidelines, regulations, restrictions orreporting requirements apply will only be issued in circumstanceswhich comply with such laws, guidelines, regulations, restrictionsor reporting requirements from time to time (see “Subscriptionand Sale”) including the following restriction applicable at thedate of this Offering Circular.
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Notes having a maturity of less than one year
Notes having a maturity of less than one year will, if the proceedsof the issue are to be accepted in the United Kingdom, constitutedeposits for the purposes of the prohibition on accepting depositscontained in section 19 of the FSMA unless they are issued to alimited class of professional investors and have a denomination ofat least £100,000 or its equivalent in other currencies, see“Subscription and Sale”.
Method of Issue . . . . . . . . . . . . . . The Notes will be issued on a syndicated or non-syndicated basis.The Notes will be issued in series (each a “Series”) having one ormore issue dates and on terms otherwise identical (or identicalother than in respect of the issue date, the first payment of interest,the principal amount and/or the issue price and if applicable, thedeadline for submission of the NDRC Post-issue Filing), the Notesof each Series being intended to be interchangeable with all otherNotes of that Series. Each Series may be issued in tranches (eacha “Tranche”) on the same or different issue dates. The specificterms of each Tranche (which will be completed, where necessary,with the relevant terms and conditions and, save in respect of theissue date, the issue price, the first payment of interest and theprincipal amount of the Tranche and if applicable, the deadline forsubmission of the NDRC Post-issue Filing, will be identical to theterms of other Tranches of the same Series) will be completed inthe relevant Pricing Supplement.
Issue Price . . . . . . . . . . . . . . . . . . The Notes may be issued at their principal amount or at a discountor premium to their principal amount. Partly Paid Notes (as definedin the relevant Pricing Supplement) may be issued, the issue priceof which will be payable in two or more instalments.
Form of the Notes . . . . . . . . . . . . The Notes may be issued in bearer form (“Bearer Notes”) or inregistered form (“Registered Notes”) only.
Each Tranche of Bearer Notes will be represented on issue by atemporary Global Note if (i) definitive Notes are to be madeavailable to Noteholders following the expiry of 40 days after theirissue date or (ii) such Notes have an initial maturity of more thanone year and are being issued in compliance with the TEFRA DRules (as defined in “– United States Selling Restrictions” below),otherwise such Tranche will be represented by a permanent GlobalNote.
Registered Notes will be represented by Certificates, oneCertificate being issued in respect of each Noteholder’s entireholding of Registered Notes of one Series. Certificatesrepresenting Registered Notes that are registered in the name of anominee for one or more clearing systems are referred to as“Global Certificates”.
Clearing Systems . . . . . . . . . . . . . Clearstream, Euroclear, the CMU and, in relation to any Tranche,such other clearing system as may be agreed between the Issuer,the Trustee, the Issuing and Paying Agent or, as the case may be,the CMU Lodging and Paying Agent and, where relevant, theRegistrar.
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Initial Delivery of Notes . . . . . . . On or before the issue date for each Tranche, the Global Noterepresenting Bearer Notes or the Global Certificate representingRegistered Notes may be deposited with a common depositary forEuroclear and Clearstream or deposited with a sub-custodian forthe CMU. The Global Note or the Global Certificate may also bedeposited with any other clearing system or may be deliveredoutside any clearing system provided that the method of suchdelivery has been agreed in advance by the Issuer, the Trustee, theIssuing and Paying Agent, or, as the case may be, the CMULodging and Paying Agent and, where relevant, the Registrar, andthe Relevant Dealer. Registered Notes that are to be credited to oneor more clearing systems on issue will be registered in the name of,or in the name of nominees or a common nominee or a sub-custodian for, such clearing systems.
Currencies . . . . . . . . . . . . . . . . . . Subject to compliance with all relevant laws, regulations anddirectives, the Notes may be issued in any currency agreed betweenthe Issuer and the Relevant Dealers. Payments in respect of theNotes may, subject to such compliance, be made in and/or linkedto, any currency or currencies other than the currency in whichsuch Notes are denominated.
Maturities . . . . . . . . . . . . . . . . . . Subject to compliance with all relevant laws, regulations anddirectives, any maturity as may be agreed between the Issuer andthe Relevant Dealer(s).
Denominations . . . . . . . . . . . . . . . The Notes will be issued in such denominations as may be agreedbetween the Issuer and the Relevant Dealer(s) save that theminimum denomination of each Note will be such as may beallowed or required from time to time by the relevant central bank(or equivalent body) or any laws or regulations applicable to therelevant currency (see “– Certain Restrictions” above).
Fixed Rate Notes . . . . . . . . . . . . . Fixed interest will be payable in arrear on such date or dates asmay be agreed between the Issuer and the Relevant Dealer(s) andon redemption and will be calculated on the basis of such DayCount Fraction as may be agreed between the Issuer and theRelevant Dealer(s).
Floating Rate Notes . . . . . . . . . . . Floating Rate Notes will bear interest determined separately foreach Series as follows:
(i) on the same basis as the floating rate under a notional interestrate swap transaction in the relevant Specified Currencygoverned by an agreement incorporating the 2006 ISDADefinitions (as published by the International Swaps andDerivatives Association, Inc. and as amended and updated asat the Issue Date of the first Tranche of the Notes of therelevant Series); or
(ii) by reference to LIBOR, EURIBOR, HIBOR or CNH HIBOR(or such other benchmark as may be specified in the relevantPricing Supplement) as adjusted for any applicable margin;or
(iii) on such other basis as may be agreed between the Issuer andthe Relevant Dealer(s).
Interest periods will be specified in the relevant PricingSupplement.
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Zero Coupon Notes . . . . . . . . . . . Zero Coupon Notes (as defined in the relevant Pricing Supplement)may be issued at their principal amount or at a discount to it andwill not bear interest.
Dual Currency Notes . . . . . . . . . . Payments (whether in respect of principal or interest and whetherat maturity or otherwise) in respect of Dual Currency Notes (asdefined in the relevant Pricing Supplement) will be made in suchcurrencies, and based on such rates of exchange as the Issuer andthe Relevant Dealer(s) may agree and as may be specified in therelevant Pricing Supplement.
Index Linked Notes . . . . . . . . . . . Payments of principal in respect of Index Linked RedemptionNotes (as defined in the relevant Pricing Supplement) or of interestin respect of Index Linked Interest Notes (as defined in the relevantPricing Supplement) will be calculated by reference to such indexand/or formula or to changes in prices of securities or commoditiesor to such other factors as the Issuer and the Relevant Dealer(s)may agree and as may be specified in the relevant PricingSupplement.
The length of the interest periods for the Notes and the applicableinterest rate or its method of calculation may differ from time totime or be constant for any Series. Floating Rate Notes and IndexLinked Interest Notes may also have a maximum interest rate, aminimum interest rate, or both. The use of interest accrual periodspermits the Notes to bear interest at different rates in the sameinterest period. All such information will be set out in the relevantPricing Supplement.
Redemption . . . . . . . . . . . . . . . . . The relevant Pricing Supplement will indicate either that therelevant Notes cannot be redeemed prior to their stated maturity(other than in specified instalments, if applicable, or for taxationreasons or following a Put Event (or as the case may be, a Changeof Control Event) or an Event of Default) or that such Notes willbe redeemable at the option of the Issuer and/or the Noteholdersupon giving notice to the Noteholders or the Issuer, as the case maybe, on a date or dates specified prior to such stated maturity and ata price or prices and on such other terms as may be agreed betweenthe Issuer and the Relevant Dealer(s).
The relevant Pricing Supplement may provide that Notes may beredeemable in two or more instalments of such amounts and onsuch dates as are indicated in the relevant Pricing Supplement.
Notes having a maturity of less than one year are subject torestrictions on their denomination and distribution, see “– CertainRestrictions – Notes having a maturity of less than one year”above.
Optional Redemption . . . . . . . . . . Notes may be redeemed before their stated maturity at the optionof the Issuer (either in whole or in part) and/or the Noteholders tothe extent (if at all) specified in the relevant Pricing Supplement.
Notes will be redeemable at the Issuer’s option prior to maturityfor tax reasons as described in Condition 6(c).
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Redemption for Put Event orChange of Control Event . . . . .
Notes will be redeemable at the option of the Noteholders prior tomaturity following the occurrence of a Put Event (in the case of theNotes which are rated by any Rating Agency) or a Change ofControl Event (in the case of the Notes which are not rated) asdescribed in Condition 6(d).
Status of the Notes . . . . . . . . . . . The Notes and the Receipts and the Coupons relating to them willconstitute direct, unsubordinated, unconditional and (subject toCondition 4(a)) unsecured obligations of the Issuer and shall at alltimes rank pari passu and without any preference amongthemselves. The payment obligations of the Issuer under the Notesshall, save for such exceptions as may be provided by applicablelegislation and subject to Condition 4(a), at all times rank at leastequally with all other present and future unsecured andunsubordinated obligations of the Issuer.
The Notes will contain a negative pledge and other covenantsprovision as described in Condition 4.
Events of Default . . . . . . . . . . . . . The Notes will contain the events of default provisions inCondition 10, including a cross-default provision as described inCondition 10(c).
Taxation . . . . . . . . . . . . . . . . . . . All payments of principal and interest by or on behalf of the Issuerin respect of the Notes shall be made free and clear of, and withoutwithholding or deduction for or account of, any taxes, duties,assessments or governmental charges of whatever nature imposed,levied, collected, withheld or assessed by or within, Hong Kong,the PRC or in each case, any political subdivision or any authoritytherein or thereof having power to tax, unless such withholding ordeduction is required by law.
Where such withholding or deduction is made by the Issuer by orwithin the PRC at the rate up to and including the aggregate rateapplicable on the date on which agreement is reached to issue thefirst Tranche of the Notes (the “Applicable Rate”), the Issuer willincrease the amounts paid by it to the extent required so that the netamount received by Noteholders equals the amounts which wouldotherwise have been receivable by them had no such withholdingor deduction been required.
If the Issuer is required to make a deduction or withholding (i) byor within the PRC in excess of the Applicable Rate or (ii) by orwithin or Hong Kong, the Issuer shall (subject to certain customaryexceptions as provided in Condition 8) pay such additionalamounts as will result in receipt by the Noteholders of suchamounts as would have been received by them had no suchwithholding or deduction been required. See Condition 8.
Application has been made to the Hong Kong Stock Exchange forthe listing of the Programme during the 12-month period after thedate of this Offering Circular on the Hong Kong Stock Exchangeby way of debt issues to Professional Investors only.
The Notes listed on the Hong Kong Stock Exchange will be tradedon the Hong Kong Stock Exchange in a board lot size of at leastHK$500,000 (or its equivalent in other currencies).
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However, unlisted Notes and Notes to be listed, traded or quotedon or by any other competent authority, stock exchange orquotation system may be issued pursuant to the Programme. Therelevant Pricing Supplement in respect of the issue of any Noteswill specify whether or not such Notes will be listed on the HongKong Stock Exchange or listed, traded or quoted on or by any othercompetent authority, exchange or quotation system.
Selling Restrictions . . . . . . . . . . . There are restrictions on the offer, sale and transfer of the Notes inthe United States, the EEA, the UK, Japan, Hong Kong, the PRCand Singapore and such other restrictions as may be required inconnection with the offering and sale of a particular Tranche ofNotes, see “Subscription and Sale”.
United States SellingRestrictions . . . . . . . . . . . . . . .
Regulation S, Category 1 or 2 as specified in the relevant PricingSupplement.
Bearer Notes will be issued in compliance with U.S. Treas. Reg.§1.163-5(c)(2)(i)(D) (“TEFRA D Rules”) unless (i) the relevantPricing Supplement states that Bearer Notes are issued incompliance with U.S. Treas. Reg. §1.163-5(c)(2)(i)(C) (“TEFRAC Rules”) or (ii) Bearer Notes are issued other than in compliancewith the TEFRA D Rules or the TEFRA C Rules but incircumstances in which Bearer Notes will not constitute“registration required obligations” under the United States TaxEquity and Fiscal Responsibility Act of 1982 (“TEFRA”), whichcircumstances will be referred to in the relevant PricingSupplement as a transaction to which TEFRA is not applicable.
Keepwell Deed . . . . . . . . . . . . . . . The Company entered into the Keepwell Deed with the Issuer andthe Trustee, as more fully described in “Description of theKeepwell Deed”. The Keepwell Deed does not constitute aguarantee by the Company of the obligation of the Issuer under theNotes. See “Risk Factors – Risks relating to the Notes issuedunder the Programme and the Keepwell Deed – The KeepwellDeed is not a guarantee of the payment obligations under theNotes and may not give rise to a debt claim in the event of anyinsolvency proceedings in relation to the Company”.
Governing Law . . . . . . . . . . . . . . English law.
Jurisdiction . . . . . . . . . . . . . . . . . Exclusive jurisdiction of the courts of Hong Kong.
Rating . . . . . . . . . . . . . . . . . . . . . The Programme has been rated “A+” by Fitch and “(P)A2” byMoody’s. These ratings are only correct as at the date of thisOffering Circular.
Tranches of Notes will be rated or unrated. Where a Tranche ofNotes is to be rated, such rating will be specified in the relevantPricing Supplement.
A rating is not a recommendation to buy, sell or hold securities andmay be subject to suspension, reduction or withdrawal at any timeby the assigning rating agency.
Use of Proceeds . . . . . . . . . . . . . . See “Use of Proceeds”.
Legal Entity Identifier . . . . . . . . . The legal entity identifier of the Issuer is3003001GY0MK7Y7R9393.
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RISK FACTORS
Prior to making an investment decision, prospective investors should carefully consider the following riskfactors, along with the other matters set out in this Offering Circular. PRC laws and regulations may differfrom the laws and regulations in other countries. Additional risks not described below or not currentlyknown to us or that we currently deem immaterial may also adversely affect the value of the Notes. Webelieve that the risk factors described below represent the principal risks inherent in investing in theNotes, but we may not be able to pay interest, principal or other amounts on or in connection with anyNotes or to satisfy our obligations under the Keepwell Deed for reasons which we may not consider assignificant risks based on information currently available to us, which we may not currently be able toanticipate or which we may currently deem immaterial. All of these factors are contingencies which mayor may not occur and we are not in a position to express a view on the likelihood of any such contingencyoccurring.
We do not represent that the statements below regarding the risk factors of holding any Notes areexhaustive. Prospective investors should also read the detailed information set out elsewhere in thisOffering Circular and reach their own views prior to making any investment decision.
Risks Relating to our Business
An increase in coal prices or a disruption in coal supply or its transportation could materially andadversely affect our power generation business.
We principally operate thermal power plants, particularly coal-fired power plants. Coal costs represent themajority of the operating costs of our power generation business. As such, our results of operations aresensitive to fluctuations in coal prices. We negotiate coal prices applicable to our thermal power plantswith our coal suppliers, and the coal prices are subject to other factors, such as market conditions,limitation of production capacity, change of government policy and shortfall of transportation capacity.The price of coal we purchase for power generation is subject to market fluctuations and may be volatile.Since 2013, key contracts and the dual mechanism of electric power coal price have been cancelled. Coalenterprises and power enterprises can enter into contracts and determine prices through negotiation at theirsole discretion. Therefore, the market price of coal may fluctuate significantly in the future. Increases incoal costs will increase our cost of sales and may adversely affect our profitability. In addition, our abilityto pass on coal price increases through on-grid tariff increases is limited. Changes to on-grid tariff pricesare subject to the approval of the NDRC and relevant provincial government authorities. Coal priceincreases may not result in corresponding adjustments of on-grid tariffs on a timely basis, or at all.Furthermore, any such on-grid tariff adjustments made by the NDRC or local and provincial price bureausmay not be sufficient to mitigate the increases in coal prices.
Our power plants purchase a majority portion of our coal from third party coal suppliers. For the yearsended 31 December 2018, 2019 and 2020, we procured approximately 64.2 Mt, 56.8 Mt and 51.7 Mt ofcoal, respectively, of which approximately 10.1 Mt, 6.8 Mt and 8.5 Mt of coal, respectively, wereimported. In the event of national coal supply shortfalls, any change in our principal coal distributors orsuppliers, delays in delivery by our principal coal suppliers, or their inability to meet our quantity orquality requirements, our business operations may be adversely and materially affected. Currently, thePRC’s freight transportation infrastructure may not be adequate to support coal transportation demand inthe PRC. Disruptions in the delivery of coal could occur for a variety of reasons beyond our control,including transportation bottlenecks, accidents and natural disasters. Disruptions in coal supply wouldhave a material adverse effect on our business, financial condition and results of operations.
We derive most of our revenue from the sale of electricity and may be materially and adversely affectedby reductions in planned output and on-grid tariffs.
We derive most of our revenue from the sale of electricity, which is primarily determined by our plannedoutput and the on-grid tariffs. Our planned output, which refers to the amount of electricity to bedispatched by our power plants to the relevant power grid companies, is subject to the local demand forpower and the amount of generation capacity available in the grids. Any decrease in the demand forelectricity or increase in the generation capacity available in the grids in the areas where we operate couldnegatively affect the planned output of our power plants approved by the relevant government authority.Reductions in the amount of planned output to levels below our projections would adversely affect ourrevenue.
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Power producers in the PRC are required to sell their electricity directly to the relevant grid companiesat the on-grid tariffs, which are subject to review and approval by the relevant provincial governmentauthorities and the NDRC and are not determined by us. In November 2009, the NDRC announced plansto adjust on-grid tariffs for thermal power in order to reflect the changes in construction cost, fuel cost,coal consumption and other operating conditions of coal power companies in different regions of the PRC.In September 2013 and April 2015, the NDRC further announced plans to adjust on-grid tariffs for thermalpower, natural gas power and renewable energy. In the event of any increase of coal prices, however, therecan be no assurance that thermal power generation companies will be able to pass on such increasesthrough on-grid tariff increases, or that the NDRC’s other related measures will effectively relieve thepressure on power generation companies resulting from coal price increases. In addition, if there is anysignificant reduction in the on-grid tariffs in the future without a corresponding decline in coal prices, ourmargins could be adversely affected. Any of the foregoing could have a material adverse effect on ourbusiness, financial condition and results of operations.
We rely on local grid companies for grid connection and transmission and dispatch of electricity.
We rely on local grid companies for grid connection, including the construction and maintenance of theinfrastructure and grids. We need to obtain consent from the relevant local grid companies to connect ourpower plants to their grids. We may not be able to obtain all the consents from local grid companies ina timely manner, or at all. Failure or delays in obtaining such consents may prevent us from developingour power projects as planned, which may have a material adverse effect on our business, financialcondition and results of operations.
We also rely on local grid companies for electricity transmission and dispatch services. Our revenuedepends largely upon the sale of electricity which is subject to dispatch to power grids. The dispatch ofelectricity generated by us is controlled by the dispatch centres of the relevant local grid companiespursuant to dispatch agreements we enter into with these local grid companies as well as applicable lawsand regulations. Dispatch centres may also consider various factors when dispatching electricity, includingthe local demand for electricity, interconnection agreements between power grids and the actual conditionsof the grids, such as equipment capacity and safety reserve margin. As we compete with other powerplants, dispatch centres may not give dispatch priority to our power plants. In addition, dispatch centresmay give dispatch priority to renewable energy companies. According to the Administrative Measures forthe Guaranteed Purchase of Renewable Energy-generated Power in Full Amount, local grid companies inthe PRC are obliged to purchase all the on-grid electricity generated by renewable energy projects thatmeet the grid connection technical standards and other requirements in the areas covered by their powergrids. Renewable energy power producers are also entitled to the highest dispatch priority pursuant to theProvisional Measures on the Dispatch of Energy Saving Power Generation promulgated by the StateCouncil.
Power plant development, acquisition and construction is a complex and time-consuming process andwe may encounter difficulties or delays during the construction of new projects.
We principally develop, construct, manage and operate power plants. Our success depends upon our abilityto secure all required PRC government approvals, power sales and dispatch agreements, constructioncontracts, fuel supply and transportation and electricity transmission arrangements. Delay or failure tosecure any of these could increase cost or delay or prevent commercial operation of the affected powerplant. Although each of our power plants in operation has received all required PRC government approvalsin a timely fashion, our future projects may not receive approvals in a timely fashion, or at all.
The construction of a power plant and its ancillary facilities may be adversely affected by many factorscommonly associated with the construction of infrastructure projects which are beyond our control,including shortages of equipment, material and labour, labour disturbances, accidents, inclement weather,engineering problems, environmental problems, geological problems, delays, other problems andunanticipated cost increases, any of which could give rise to delays or cost overruns. Failure to completeconstruction according to specifications may result in liabilities, decrease power plant efficiency, increaseoperating costs and reduce earnings. Construction of on-going and future projects may not be completedon schedule or within budget.
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Furthermore, the construction of most of our power plants, transport and other ancillary facilities has beenor will be undertaken by third-party contractors. Such contractors may not be able to completeconstruction in a timely or cost-effective manner, and we may not be able to adequately control or monitorthe contractors to ensure the quality of such construction. Construction delays of any such power plantscan result in the loss or delayed receipt of revenues, disputes with contractors and payment of damagesand penalties by us under the relevant construction contracts, an increase in financing costs, or the failureto meet profit and earnings projections. In addition, the failure to complete the construction of the powerplants and ancillary facilities according to specifications can result in reduced efficiency, higher operatingcosts and, in the case of power plants, reduced or delayed earnings. If we are unable to complete theconstruction of our power plants and/or ancillary facilities under development on schedule and accordingto specifications, our business, financial condition and results of operations may be materially andadversely affected.
The operation of power plants involves many risks, and if there are interruptions in the normaloperation of our power plants, we may not have adequate insurance to cover the economic losses.
The operation of our power plants involves many risks and hazards, including the breakdown, failure orsubstandard performance of equipment, improper installation or operation of equipment, labourdisturbances, natural disasters, environmental hazards and industrial accidents. The occurrence of materialoperational problems may adversely affect the profitability of a power plant.
Our power plants in the PRC currently maintain insurance coverage that is typical in the electric powerindustry in the PRC, including general property insurance, employer liability insurance, businessinterruption insurance and public liability insurance, and in amounts that we believe to be adequate. Suchinsurance, however, may not provide adequate coverage in certain circumstances. There is no assurancethat accidents not covered by our insurance plans will not occur at our power plants in the future.
We require substantial capital for investing in or acquiring new power plants, and failure to obtaincapital on commercially reasonable terms will increase our financing costs and cause delay in ourexpansion plans.
One of our major growth strategies is the construction of new power plants, which requires substantialcapital. Our ability to arrange financing and the cost of such financing depends on numerous factors,including:
• general economic and capital market conditions;
• credit availability from banks or other lenders;
• investor’s confidence in us; and
• the continued performance of our power plants.
Although we have historically been able to obtain financing on acceptable terms, financing for ourconstruction of new power plants and future power plant acquisitions may not be available on acceptableterms, or at all, which could increase our financing costs and cause delay in our expansion plans and mayadversely affect our business, results of operations and financial conditions.
Any acquisitions or strategic investments that we undertake could be difficult to integrate, which mayadversely affect our operations.
In addition to the development and expansion of our existing power plant projects, we may in the futureacquire or strategically invest in new power plants. Although we will selectively acquire high qualitypower plant projects based on careful market analysis and feasibility study, there can be no assurance thatany anticipated benefits of an acquisition or a strategic investment will be realised. Acquisitions of orstrategic investments in other power plant projects may result in the incurrence of debt and theimpairment/amortisation of expenses related to goodwill and other intangible assets. For example, ourinvestment in Yili Xintian Coal Chemical Co., Ltd. incurred losses in 2018, resulting in the decrease ofour operating profit in 2018. In addition, acquisitions and strategic investments involve numerous risks,including difficulties in the assimilation of operations, corporate culture and personnel of the acquiredbusiness, diversion of management’s attention from other business concerns, risks of entering into newmarkets and the potential loss of key employees of the acquired business. The occurrence of any of theseevents may materially and adversely affect our business, results of operations and financial condition.
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We strive to implement our corporate governance, operational and safety standards across each of oursubsidiaries in the PRC in a uniform manner. Due to our recent expansion in the number of new projects,implementing and monitoring these standards may prove difficult, and failure to do so and may result inviolations of local regulations or our own internal policies. We may not effectively monitor eachsubsidiary and prevent non-compliance. This may result in violations that could harm our reputation andbusiness prospects, which may materially and adversely affect our business, results of operations andfinancial condition.
The PRC government (including the Zhejiang Government, the Zhejiang SASAC and othergovernmental authorities and state-owned entities) has no obligation to repay any amount under theNotes, the Trust Deed or the Agency Agreement.
The PRC government (including the Zhejiang Government, the Zhejiang SASAC and other governmentalauthorities and state-owned entities) is not an obligor and shall under no circumstances have anyobligation arising out of or in connection with the Notes, the Trust Deed or the Agency Agreement (asdefined in the Conditions). This position has been reinforced by the Circular of the Ministry of Financeon Issues relevant to the Regulation on the Financing Activities Conducted by Financial Institutions forLocal Governments and State-owned Enterprises (《財政部關於規範金融企業對地方政府和國有企業投融資行為有關問題的通知》(財金[2018]23號)) (the “MOF Circular”) promulgated on 28 March 2018 andtook effect on the same day, the Circular of the National Development and Reform Commission and theMinistry of Finance on Improvement of Market Regulatory Regime and Strict Prevention of Foreign DebtRisks and Local Government Indebtedness Risks (《國家發展改革委、財政部關於完善市場約束機制嚴格防範外債風險和地方債務風險的通知》) (the “Joint Circular”) promulgated on 11 May 2018 and tookeffect on the same day and the Circular of the General Office of the National Development and ReformCommission on Relevant Requirements for Record-filing and Registration of Issuance of Foreign Debtsby Local State-owned Enterprises (《國家發展改革委辦公廳關於對地方國有企業發行外債申請備案登記有關要求的通知》) (“Circular 666”) promulgated on 6 June 2019 and took effect on the same day.
According to the MOF Circular, (i) state-owned financial enterprises are prohibited from providingfinancing in any form for local governments and their departments directly or through local state-ownedenterprises (“SOEs”) and public institutions and other indirect channels or increasing loans provided tolocal government financing platform companies (“LGFV”) in violation of regulations that include the newBudget Law of the PRC, which took effect on 29 December 2018, and Enhancing the Administration ofFiscal Debts of Local Governments (《關於加強地方政府性債務管理的意見》) (“Circular 43”), exceptin the case of purchasing local government debt; (ii) state-owned financial enterprises shall ensure that thecapital raised for financing SOEs, LGFV or public-private partnership construction projects is lawfullysourced and that the financing satisfies all required capital ratios; (iii) state-owned financial enterpriseswhen providing agency services to local SOEs are obliged to evaluate the financial capabilities of theentity seeking to raise capital and the source of the funds such as when a local SOE issues domestic oroverseas notes. As for the sources of income from debt-issuing enterprises involved in the arrangement offinancial funds, state-owned financial enterprises shall carry out due diligence investigations and carefullyverify that the arrangement complies with all applicable laws and regulations; and (iv) documentsincluding offering circulars shall not disclose information that can implicitly or explicitly indicate thegovernment’s endorsement of the local SOE’s capital-raising, such as local financial revenues andexpenditures and government debt information, or conduct misleading publicity that implies an associationwith the government’s credit. According to the Joint Circular, any enterprise that intends to issue mediumand long-term debt outside of the PRC is prohibited from doing so for the purpose of funding publicschools, public hospitals, public cultural facilities, parks, public squares, office buildings of governmentdepartments and public institutions, municipal roads, non-toll bridges, non-operating water conservancyfacilities, not-charged pipe network facilities and other public interest assets. The Joint Circular alsoreaffirms the restrictions in the MOF Circular that offering circulars shall not disclose information that canimplicitly or explicitly indicate the government’s endorsement of the new debt or conduct misleadingpublicity that implies an association with the government’s credit. According to Circular 666, localstate-owned entities, as independent legal persons, shall bear the responsibility for repaying foreign debts.Local governments shall not directly repay or promise to repay the foreign debts of local state-ownedentities with financial funds. Local governments shall not provide guaranty for the foreign debts of localstate-owned entities. Circular 666 also sets forth that the proceeds of the issue of foreign debts from thefinancing vehicles of local governments shall be used for repayment of existing middle-term or long-termdebt. These circulars do not, however, prohibit the PRC government from providing support (in variousforms such as capital injection and subsidies, but excluding the injection of any kind of public assets andland reserves) to us during our ordinary course of business in compliance with PRC laws and regulations.
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The repayment obligations under the Notes remain the sole obligation of the Issuer and all obligationsunder the Notes, the Trust Deed and the Agency Agreement shall solely be fulfilled by the Issuer as anindependent legal person. The PRC government (including the Zhejiang Government, the ZhejiangSASAC and other governmental authorities and state-owned entities) is not an obligor and shall under nocircumstances have any obligation arising out of or in connection with the Notes, the Trust Deed or theAgency Agreement if the Issuer fails to meet its obligations under the Notes, the Trust Deed or the AgencyAgreement (as the case may be). Investors of the Notes are relying solely on the credit risk of the Issuer.In the event the Issuer does not fulfil its obligations under the Notes, the Trust Deed or the AgencyAgreement (as the case may be), investors will only be able to claim as an unsecured creditor against theIssuer and its assets, and not any other person including the PRC government, the Zhejiang Government,the Zhejiang SASAC and other local or municipal government or any other state-owned entities. As theMOF Circular, the Joint Circular and Circular 666 are relatively new and given the limited volume ofpublished decisions related to these circulars, the interpretation and enforcement of these laws andregulations involve uncertainties.
In addition, any ownership or control by the PRC government (including the Zhejiang Government and theZhejiang SASAC) does not necessarily correlate to, or provide any assurance as to, the Issuer’s financialcondition. If the Issuer does not fulfil its obligations under the Notes and the Trust Deed, the Noteholderswill only have recourse against the Issuer, and not any other person including the PRC government or othergovernment entities. Therefore, investors should base their investment decisions on the financial conditionof the Issuer and the Group and any perceived credit risk associated with an investment in the Notes basedon our financial information as reflected in the Issuer’s and the Company’s financial statements.
We rely on government support to a certain extent and a reduction or discontinuance of governmentsupport could materially and adversely affect our financial condition and results of operations.
Given our exclusive position as the only energy and electric power enterprise under the supervision of theZhejiang SASAC, we have received support, but not including credit support, from the PRC government,including the Zhejiang Government and the Zhejiang SASAC, for the development and operations of ourbusinesses. For example, for the years ended 31 December 2018, 2019 and 2020, we receivedgovernmental subsidies of approximately RMB0.5 billion, RMB0.8 billion and RMB0.5 billion,respectively.
There can be no assurance that the PRC government, the Zhejiang Government or the Zhejiang SASACwill continue to provide support to us or that the governmental subsidies or other types of governmentsupport will not be reduced, adjusted or terminated due to changes in government policy or otherwise. Ifthe favourable governmental subsidies or other incentives which are currently available to us are reducedor eliminated in the future, the viability of our businesses may be affected and our financial condition andresults of operations will be materially and adversely affected.
Some members of the Group failed to comply with the provisions under certain financing agreements.
As at 31 December 2020, our subsidiary Zheneng Jinjiang Environment Holding Company Limited(“Jinjiang Environment”) failed to comply with certain financial covenants in respect of two guaranteedborrowings. This resulted in a default under the borrowings and the lenders were contractually entitled toaccelerate repayment of the outstanding borrowing amount from the Issuer. Please see Notes 1 and 33 tothe audited consolidated financial statements of the Issuer as at and for the year ended 31 December 2020for further information. The borrowings were repaid in full on 10 June 2021.
Please also see “– The Issuer’s consolidated current liabilities exceeded its consolidated current assets”and “– If the Issuer or any other member of the Group is unable to comply with the restrictions andcovenants in its debt agreements (if any), or the Notes, there could be a default under the terms of theseagreements, or the Notes, which could cause repayments or acceleration under such agreements” forfurther information.
The Issuer’s consolidated current liabilities exceeded its consolidated current assets.
As at 31 December 2020, the Issuer’s consolidated current liabilities exceeded its consolidated currentassets by approximately HK$5,727,723,000. Such net current liabilities may reduce the Issuer’s financialflexibility and its ability to obtain additional borrowings from banks. There can be no assurance that theIssuer will be able to record positive net consolidated current assets in the future. The Issuer’s liquidityand financial condition may be materially and adversely affected should the Issuer’s net consolidatedcurrent liabilities subsist, and there can be no assurance that it will have sufficient funds to meets itsfinancial obligations.
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The Issuer has taken steps to ensure that it has sufficient funds to meet its financial obligations as andwhen they fall due. For example, it obtained new short-term bank loans, refinanced certain short-term byrenewing the maturity date and secured additional credit facilities. However, there can be no assurance thatthe Issuer will be able to continue to obtain or timely execute the additional credit facilities before thestipulated repayment dates or that the Issuer will continue to generate positive cash flows from itsoperations. Any failure by the Issuer to meet its financial obligations will materially and adversely affectour business, financial condition, results of operations and prospect.
Please see Notes 1 and 33 to the audited consolidated financial information of the Issuer as at and for theyear ended 31 December 2020 and “– Some members of the Group failed to comply with the provisionsunder certain financing agreements” for further information.
Certain financial information in the Company’s financial statements had been restated or reclassifiedand may not be consistent with or directly comparable to the financial information in the Company’sconsolidated financial statements for the previous periods.
Certain financial information as at and for the year ended 31 December 2018 was restated in theCompany’s audited consolidated financial statements as at and for the year ended 31 December 2019 inorder to rectify certain accounting errors in the financial statements of certain subsidiaries of the Companyfor the previous periods. In addition, certain financial information as at and for the year ended 31December 2018 was restated or reclassified in the Company’s audited consolidated financial statements asat and for the year ended 31 December 2019 as a result of certain new accounting standards and newrequirements in relation to the presentation of financial statements according to the Notice on Revisingand Issuing the Format of Financial Statements of General Enterprises for the Year of 2019 (Cai Kuai[2019] No. 6) and the Notice of Revising and Issuing the Format of Consolidated Financial Statements(2019 Version) (Cai Kuai [2019] No. 16) promulgated by the Ministry of Finance of the PRC. As a result,such financial information as at and for the year ended 31 December 2018 included in the Company’saudited consolidated financial statements as at and for the year ended 31 December 2019 may not bedirectly comparable to the financial information now contained in the Company’s audited consolidatedfinancial statements as at and for the year ended 31 December 2018. For details of such restatementincluding the rationale and impact of such restatement and/or rectification, please see “Notes to FinancialStatements as at and for the Year ended 31 December 2019 – V. Significant changes in accountingpolicies and estimates and corrections of prior period errors” in the Company’s audited consolidatedfinancial statements as at and for the year ended 31 December 2019.
Restated and reclassified figures may not be comparable to the financial information previously reportedin the consolidated financial statements of the Company. Consequently, potential investors must exercisecaution when using such financial information to evaluate our financial condition and results ofoperations.
We engage in related party transactions with our associates and joint ventures from time to time whichmay create potential conflicts of interest.
We have engaged in and will continue to engage in a variety of transactions with our associates and jointventures, which primarily include procurement and sale of goods and products. There can be no assurancethat those transactions would be deemed as arm’s-length or our related parties will not take actions thatfavour their interests over ours. The internal control regarding the management of various related partytransactions can be also challenging and demanding for us. Failure to adequately control and manage ourrelated party transactions could have an adverse effect on our business, financial condition or results ofoperations.
We have pledged and mortgaged certain assets to secure our borrowings.
We have pledged certain of our assets including our rights to sell electricity and our rights to sell naturalgas to secure our borrowings. In addition, we have also mortgaged certain of our fixed assets and land userights to secure some of our loans. If we default on such loans, the lenders may foreclose such assets whichwe have pledged or mortgaged, which may disrupt and adversely affect our business. Although the termsof our borrowings may limit our ability to create certain security over our assets, there can be no assurancethat we will not pledge our assets to secure our borrowings in the future. In addition, there can also be noassurance that we will not default on any of our borrowings in the future.
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We may not be able to collect our other receivables.
We may not be able to collect our other receivables. As at 31 December 2018, 2019 and 2020, we had otherreceivables of approximately RMB2,512.6 million, RMB2,980.6 million and RMB3,000.0 million,respectively. As at 31 December 2020, other receivables with an age of over three years accounted forapproximately 13.6 per cent. of our other receivables. The recovery risk for receivables which remainoutstanding for a longer period of time is higher. If we are not able to recover our other receivables as theyare due, our financial condition may be materially and adversely affected.
We have a large amount of indebtedness and may incur additional indebtedness in the future, whichcould adversely affect our financial health and our ability to generate sufficient cash to satisfy debtobligations.
We have, and will continue to have after the establishment of the Programme and the offering of the Notesunder the Programme, a large amount of indebtedness, some of which are secured. See our financialstatements included in this Offering Circular for further details. As at 31 December 2020, we hadshort-term borrowings of approximately RMB5.2 billion, non-current liabilities due within one year ofapproximately RMB15.9 billion, long-term borrowings of approximately RMB58.6 billion and bondspayable of approximately RMB19.5 billion.
Our indebtedness may:
• adversely affect our corporate credit rating;
• limit our ability to satisfy our obligations under the Notes and other debt;
• increase the cost of any additional financing;
• increase our vulnerability to adverse general economic and industry conditions;
• require us to dedicate a substantial portion of our cash flow from operations to servicing andrepaying our indebtedness, thereby reducing the availability of our cash flow to fund workingcapital, capital expenditure and other general corporate purposes;
• limit our flexibility in planning for or reacting to changes in our businesses and the industriesin which we operates;
• reduce our competitiveness compared to competitors with less debt; and
• limit our ability to borrow additional funds.
If we incur additional debt, the risks that we face as a result of our current indebtedness and leverage couldintensify. In particular, a negative change in one or more of our credit ratings could adversely impact themarket price and the liquidity of the Notes, even if it is not a change in the rating of the Notes (if the Notesare rated).
Furthermore, if we are unable to comply with the restrictions and covenants in our current or future debtand other agreements, there could be a default under the terms of such agreements. In the event of a defaultunder such agreements, the lenders could terminate the contracts, accelerate the payment of theindebtedness and declare all amounts lent due and payable, as the case may be. If any of these eventsoccurs, our assets and cash flow may not be sufficient to repay all of such indebtedness in full, and wemay not be able to find alternative financing. Even if we could obtain alternative financing, it may not beon favourable or acceptable terms.
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The occurrence of epidemics, natural disasters and acts of God could materially and adversely affectour business, results of operations, financial condition and prospects.
Our business is subject to general economic and social conditions in the PRC. Natural disasters, epidemicsand other acts of God which are beyond our control may adversely affect the economy, infrastructure andlivelihood of the people in the PRC. Some regions in the PRC, including the cities where the Groupoperates, are under the threat of flood, earthquake, fire, drought, or epidemics such as Severe AcuteRespiratory Syndrome (“SARS”), H5N1 or H7N9 avian flu, the human swine flu (also known as InfluenzaA (“H1N1”)), Middle East Respiratory Syndrome (“MERS”), Ebola virus disease or, more recently,COVID-19.
More recently, the ongoing COVID-19 pandemic has adversely affected the global economy and financialmarkets. In December 2019, the first case of a novel strain of coronavirus, COVID-19, was identified. Thepandemic has since spread globally and there have been increasing initial infection and fatality rates acrossthe world. On 11 March 2020, the World Health Organization declared the COVID-19 outbreak apandemic. The ongoing COVID-19 pandemic and policies implemented by governments to deter thespread of the disease have had and may continue to have a material adverse effect on consumer confidenceand the general economic conditions which our business is subject to. Governments of many countries(including the PRC) have declared a state of emergency, closed their borders to international travellers andissued stay-at-home orders with a view to containing the pandemic. There can be no assurance that suchmeasures will be effective in ending or deterring the spread of the COVID-19 pandemic. As the COVID-19pandemic continues to spread globally, many more countries may be affected, which may result in theextension or implementation of further restrictive measures. The resultant disruptions to the supply chainand reduced levels of consumption, commercial activities and industrial production in the affectedcountries may result in an economic slowdown in such economies which, if prolonged, could cause aglobal recession. Although in early 2021, vaccination programmes have been rolled out in variouscountries, including the United States, the PRC, the European Union and the UK, the effect of thevaccination programmes on the COVID-19 pandemic remains uncertain, and many countries, includingIndia, are experiencing another wave of the COVID-19 pandemic, and in some cases new variants ofCOVID-19 could be more contagious. As the situation of the COVID-19 pandemic is still evolving, theheightened uncertainties surrounding the pandemic may pose a material adverse effect on our business,financial condition, results of operations, profitability and prospects.
While the central banks of various countries, including the Federal Reserve Board of Governors of theUnited States, have cut policy rates and/or announced stimulus packages, and national governments haveproposed or adopted various forms of economic relief, there can be no assurance that such monetary andfiscal policy measures will have the intended effects or that a global economic downturn will not occuror market volatilities will not persist. There can be no assurance that changes in the economic, social andpolitical conditions in the PRC or the global economy would not have a material adverse effect on ourbusiness, financial condition, results of operations, profitability and prospects.
Our revenue is currently derived mainly from our PRC operations, and any labour shortages, fall in energyconsumption or contraction or slowdown in the growth of domestic consumption in the PRC couldmaterially and adversely affect our business, results of operations, financial condition and prospects. Inaddition, if any of our employees are affected by any severe communicable disease including COVID-19,it could materially and adversely affect our business, results of operations, financial condition andprospects, which may also involve a closure of our office buildings and other facilities to prevent thespread of the disease. The spread of any severe communicable disease in the PRC may also affect theoperations of our customers and suppliers, which could materially and adversely affect our business,results of operations, financial condition and prospects. The continuous spread of COVID-19, a recurrenceof SARS or an outbreak of any other epidemics or other natural disasters in the PRC, especially in thecities where we have operations, may delay completion of our projects in operation and under constructionas scheduled, causing substantial increase in development costs and/or late delivery of our properties,which in turn may adversely affect our business, results of operations, financial condition and prospects.
The extent to which the COVID-19 pandemic will impact our business, financial condition, results ofoperations and prospects is uncertain and cannot be predicted.
The ongoing COVID-19 pandemic in the PRC and other parts of the world could materially and adverselyaffect the overall business sentiment and environment in the PRC and in the markets in which we operate,particularly if the pandemic is inadequately controlled.
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In particular, the administrative actions taken by local governmental authorities to control the spread ofthe COVID-19 pandemic may have an adverse impact on our businesses. For example, our businesses maybe adversely affected by certain relief measures such as price reduction measures implemented by theZhejiang Government in relation to public utilities such as water and electricity supply. Although we haveadopted various remedial measures to minimise the adverse impact of the ongoing COVID-19 pandemicon our businesses and operations, there can be no assurance that remedial measures adopted by us willhave the intended effects or that the adverse impact of the ongoing COVID-19 pandemic on us will notpersist.
The ongoing COVID-19 pandemic in the PRC may also affect the operations and financial condition ofour customers and suppliers, which in turn could materially and adversely affect our business, financialcondition, results of operations and prospects. The ongoing COVID-19 pandemic may also delaycompletion of our projects as scheduled, causing substantial increase in costs and/or late delivery, whichmay adversely affect our business, financial condition, results of operations and prospects.
The ongoing COVID-19 pandemic is expected to have an adverse impact on our businesses and it isimpossible to predict the magnitude of such impact, which could vary based on the duration of theoutbreak and the ability of the global community to contain the disease and implement economic stimulusmeasures. There are uncertainties as to how the COVID-19 pandemic will evolve and there can be noassurance that the ongoing COVID-19 pandemic in the PRC and other parts of the world would not havea material adverse effect on our business, financial condition, results of operations, profitability andprospects.
Increasing financing costs or insufficient funding may have an adverse effect on our expansion plansand results of operations.
Our ability to increase our revenue, net income and cash flows depends upon sufficient capitalexpenditure. Although we plan to finance a portion of our capital expenditure with the net proceeds of theoffering of the Notes under the Programme (unless otherwise specified in the relevant PricingSupplement), a significant portion of the capital expenditure will need to be financed in other forms suchas bank borrowings, which, in turn, will significantly increase our financial leverage. Certain loansborrowed by some of our subsidiaries are also secured by income from the sale of electricity. Additionalfinancing may not be available to us on commercially acceptable terms, or at all. If we are unable to securesufficient funding on acceptable terms on a timely basis, our business, results of operations and financialcondition may be materially and adversely affected.
Our ability to repay our debts is subject to interest rate fluctuations.
Our ability to repay our debt is subject to interest rate fluctuations. The PRC government has graduallyliberalised the regulation of interest rates in recent years. Further liberation may increase interest ratevolatility. As we have, and will continue to have, a substantial amount of indebtedness at floating interestrates, our financial position is susceptible to interest rate fluctuations. As at 31 December 2020, ourlong-term borrowings amounted to approximately RMB58.6 billion. Any significant increase in interestrates would negatively affect our ability to repay our debts.
Our coal trading business and results of operations are susceptible to the cyclical nature of coal marketsand are vulnerable to fluctuations in coal prices.
Our coal trading business and results of operations are dependent on the prices we charge for our coal, aswell as the domestic supply of and demand for coal. We price our coal by reference mainly to prices inthe PRC coal market, which are influenced by changes in supply and demand. Historically, the domesticcoal market has experienced alternating periods of increased demand and excessive supply caused by thecombination of numerous factors beyond our control. Such factors include, but are not limited to:
• global and domestic economic and political conditions and competition from other energysources;
• the rate of growth and expansion in industries with high coal demand, such as the power andmanufacturing industries;
• the rules and regulations of on-grid tariffs and the allocation of transportation capacity of thenational railway system by the PRC government; and
• environmental laws and regulations such as those relating to caps on carbon emissions.
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Fluctuations caused by these factors have affected, and may continue to affect, our profitability. There canbe no assurance that the domestic demand for coal will grow, that the domestic coal market will notexperience excessive supply, or that there will not be a significant drop in coal prices in the PRC.Overcapacity in the PRC coal industry, whether caused by a significant decrease in demand or a significantincrease in supply, or a significant decrease in domestic coal prices in the future, would most likely affectthe average selling price of our coal products and consequently have a material adverse effect on ourbusiness, results of operations and financial position.
The applications of natural gas as a vehicle and industrial fuel continue to be much less developed thanthose of coal for industrial use, and gasoline and diesel for vehicle use.
While our natural gas operations are an important segment of our business, coal, gasoline and dieselfuelling stations and service infrastructure have been more widely available in the PRC than those thatutilise natural gas. For natural gas vehicles and industrial fuels to achieve more widespread use in thePRC, they will require a promotional and educational effort and the development and supply of morenatural gas vehicles and fuelling stations. This will require significant continued effort by us, our industryas a whole as well as the PRC government, and we will continue to face competition from oil companies,coal companies and gasoline station operators. There can be no assurance that natural gas will ever achievethe level of acceptance as a vehicle and industrial fuel necessary for us to expand this portion of ourbusiness significantly.
We may diversify our business by investing in new areas of power generation in the future as part ofour growth strategy. The success of such growth by diversification is subject to various factors and wemay not be able to successfully implement such growth strategy.
As part of our growth strategy, we may develop and/or invest in new areas of power generation, which mayinclude renewable energy sources. Over the years, we have invested in power plants of various types ofrenewable energy, such as hydropower, wind power, photovoltaic power and biomass power. As we havehistorically focused primarily on thermal power plants for electricity generation, such diversification mayplace significant demands on our management and resources as we may not have the experience orexpertise necessary for the successful development of such projects on our own. We may enter into newstrategic alliances and partnerships or seek to acquire existing producers. Our success in implementingsuch growth and diversification strategy will depend on, among other things, our ability to identify andassess potential partners, investments and acquisitions, successfully finance such acquisitions, controlcosts and maintain sufficient operational and financial controls. Any potential acquisition, alliance or jointventure could involve a number of specific risks, including diversion of management’s attention, highercosts, unanticipated events or circumstances or failure of the newly developed energy portfolio, some orall of which could have a material adverse impact on our business, financial condition and results ofoperations.
The assumptions we use in performing our investment analysis and feasibility studies for new projectsmay not be the most up-to-date or accurate.
In performing investment analysis and feasibility studies, we consider factors including the growth ofelectricity demand in the area where the relevant power plant investment is to be located, the increase inthe supply of electricity in the local area, including the addition of new generation capacity, the capacityand average tariff of existing power plants in the area, sources of fuel supply, the related transportationchannels and the respective costs, and the location of the local load centre and connection to the localpower grid. However, these factors and other assumptions we use and consider in performing ourinvestment analysis and feasibility studies may not be the most up-to-date or accurate. Any uncertainty inthe assumptions we use in performing our investment analysis and feasibility studies may affect ourprojections for our new projects and, consequently, materially and adversely affect our business, resultsof operations and financial condition if our projections for such projects differ significantly from actualresults.
Our business operations may be materially and adversely affected by environmental regulations.
Our thermal power generation and coal mining operations produce gaseous emissions, waste water andsolid waste materials. Accordingly, we are subject to extensive and increasingly stringent environmentalprotection laws and regulations that impose fees for the discharge of pollutants and waste substances,
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require the establishment of reserves for reclamation and rehabilitation, and impose fines for seriousenvironmental violations. There is no assurance that the actual fee will not be higher than our estimates.For more details about the PRC’s environmental regulations and their impact on our operations, please see“Regulation” in this Offering Circular. PRC laws and regulations also provide for the possible closure bythe central government or local government of any power plant which fails to comply with orders requiringit to cease or rectify certain activities causing environmental damage. Although we believe our power andcoal mining operations are currently in compliance with all applicable environmental laws and regulationsin all material respects in the PRC, there have been minor incidents where we were issued notices by therelevant regulatory authority. Moreover, there is no assurance that the PRC government will not adoptstricter environmental laws or regulations in the future. The PRC is a party to the United NationsFramework Convention on Climate Change (“Climate Change Convention”), which is intended to limitemissions of “greenhouse” gases, such as carbon dioxide. Ceilings on such emissions could limit theproduction of electricity from fossil fuels, particularly coal, or increase the costs of such production. Atpresent, ceilings on the emissions of “greenhouse” gases have not been assigned to developing countriessuch as the PRC under the Climate Change Convention, and the PRC has objected to any imposition ofsuch ceilings, whether legally binding or voluntary in nature. The PRC has also ratified the ParisAgreement to the Climate Change Convention on 3 September 2016 which includes a commitment to peakCO2 emissions by 2030 at the latest, lower the carbon intensity of GDP by 60 per cent.-65 per cent. below2005 levels by 2030, increase the share of non-fossil energy carriers of the total primary energy supplyto around 20 per cent. by that time, and increase its forest stock volume by 4.5 billion m3, compared to2005 levels. Such commitment could require us to incur additional costs to comply with suchenvironmental requirements which would increase our operating costs and may materially and adverselyaffect our business and profitability.
We operate facilities that may cause significant harm to the natural or human environment or for whichaccidents, natural disasters or external attacks may have serious consequences.
Although we have adopted stringent risk control procedures for the operation of our facilities, suchfacilities, as currently operated, could be or could have been the source of industrial accidents orenvironmental and public health impacts, such as inadequately controlled emissions. In particular, largequantities of explosive, flammable or hazardous materials are stored in certain storage facilities. Thesefacilities may be located in industrial areas where other activities subject to similar risks are operated,which means that our facilities may be impacted by accidents occurring at neighbouring facilities ownedby other operators which are not under our control.
We implement appropriate measures to prevent and, if necessary, repair any industrial accidents orenvironmental damage caused by the facilities that we operate. These measures are intended, in particular,to protect us against the risk of an accident occurring in our own facilities and against the impact of suchan accident occurring in a neighbouring facility owned by a third party. However, there can be noassurance that the measures taken to control these risks will prove fully effective if any of the above eventswere to occur.
In addition, facilities or assets operated by us may be targeted by external attacks or malicious acts of anykind. Safety measures have been incorporated into the design of the facilities and sites, and protectivemeasures have been taken by us. Moreover, safety measures to counter all forms of attacks have beenimplemented in conjunction with the public authorities. Nonetheless, like any safety measures intended tocounter an external threat, there can be no guarantee that these will prove fully effective in all cases. Anattack or malicious act committed on these facilities could have consequences such as damage to personsand property for which we could be held liable on the basis of measures that are judged inadequate, andinterruptions to operations.
Any one of these events may have a material and adverse effect on our business, financial condition,results of operations and prospects.
Our operations are exposed to risks relating to occupational hazards and production safety.
We are subject to extensive laws, rules, regulations and policies imposed by the PRC governmentregarding our production safety for our businesses. The PRC government continues to strengthen theenforcement of safety regulations in relation to industries like power generation, coal mining and coaltransportation. There can be no assurance that more stringent laws, rules, regulations or policies regarding
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production safety will not be implemented or that the existing laws, rules, regulations and policies will notbe more stringently enforced. We may not be able to comply with all existing or future laws, rules,regulations and policies in relation to production safety without incurring significant costs or at all. Shouldwe fail to comply with any production safety laws, rules, regulations or policies, we would be requiredto rectify the production safety problems within a limited period. Failure to rectify any problem could leadto suspension of our operations.
In addition, we are subject to operational risks customary to the power industry. For example, ouroperations involve the use of certain materials, like fuel and heavy machinery, which involves inherentrisks that cannot be completely eliminated through preventive measures. We or our third party serviceproviders may encounter accidents, maintenance or technical difficulties, mechanical failures orbreakdowns during our operating process. The occurrence of such accidents may disrupt or result in asuspension of our operations and/or increased production costs and loss of revenues, which may, in turn,result in liability to us and harm to our reputation. Such incidents may also result in a breach of theconditions of our operation permits or safety permits, or any other consents, approvals or authorisationsobtained from the relevant authorities, any or all of which may result in fines and penalties or even therevocation of our mining permits.
There can be no assurance that accidents, such as explosions, fires, equipment mishandling or mechanicalfailures which result in property damage, severe personal injuries or even fatalities will not occur duringthe course of our operations. Should we fail to comply with any relevant laws, rules, regulations or policiesor should any accident occur as a result of any of the foregoing events, our business, financial conditionand results of operations may be adversely affected, and we may be subject to penalties, civil liabilitiesor criminal liabilities.
We depend on both management and operational expertise.
Our business, results of operations and financial condition depend heavily on an experienced andprofessional management and operational team that has significant experience in developing, constructing,managing, operating and acquiring power plants in the PRC. Our historical success is substantiallyattributable to the role played by a group of senior management and key employees. Although we havestrengthened our team by recruiting several high-level executives and employees with advanced degreeswho bring experience in administration and development, as well as power industry specialists, our futuresuccess depends significantly on the full involvement of these key executives and employees and ourability to continue to retain and recruit high-level personnel.
Further, due to the scarcity of qualified individuals in the energy industry, competition for qualifiedpersonnel with other energy companies in the PRC is intense. In order to attract and retain key personnel,we may need to offer higher compensation and other benefits. If we cannot retain such key executives andemployees or adequately hire qualified new executives and employees as our business grows, our business,financial condition and results of operations may be adversely affected.
We may have difficulty implementing and monitoring corporate policies across our subsidiaries in thePRC.
We strive to implement our corporate governance, operational and safety standards across each of oursubsidiaries in the PRC in a uniform manner. As at 31 December 2020, we held a controlling ownershipinterest or management right in a total of approximately 448 subsidiaries. Due to the large number ofenterprises in which we hold interest and our recent expansion in the number of new projects,implementing and monitoring these standards may prove difficult and failure to do so may result inviolations of local regulations or our own internal policies. There can be no assurance that we caneffectively monitor each subsidiary and prevent non-compliance. This may result in violations that couldaffect our reputation and business prospects in the PRC, which could materially and adversely affect ourfinancial condition and results of operations.
We have made and may continue to make strategic investments in securities, the value of which may besubject to fluctuation and we may incur losses or fair value losses on our investments.
We, including the Issuer, have made and will continue to make strategic investments in securities of otherentities from time to time, including shares in PRC public companies. As the domestic PRC stock marketshave been subject to instability since 2007, the market values of the listed shares and listed debts we hold
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through such strategic investments have also fluctuated accordingly. As at 31 December 2018, 2019 and2020, the value of our available-for-sale financial assets was approximately RMB4,216.9 million,RMB6,899.6 million and RMB6,883.7 million, respectively, and the Issuer held approximatelyHK$1,484.6 million, HK$1,387.2 million and HK$1,262.0 million, respectively, of the listed equityinvestments in the PRC and Hong Kong. For the years ended 31 December 2018, 2019 and 2020, the Issuerrecorded fair value loss of approximately HK$135.8 million, HK$97.0 million and HK$126.2 million onthe listed equity investments, respectively. There is no assurance that the strategic investment we(including the Issuer) have made or will make would be successful and the listed debt and equity securitiesthat we hold will not depreciate, and we (including the Issuer) may incur further fair value losses on ourinvestments in the future. Any fluctuation of the value of our investments in securities will directly affectour assets and investment return, which in turn could have a material adverse effect on our business andfinancial condition.
The auditors of the Issuer and the Company have received adverse regulatory decisions and warningsissued by relevant authorities in the PRC and Hong Kong in recent years, respectively.
Pan-China, the Company’s independent auditor, and Pan-China HK, the Issuer’s independent auditor, areregistered accounting firms in the PRC and Hong Kong, respectively. They are under the supervision ofrelevant PRC regulatory agencies or, as the case may be, Hong Kong regulatory agencies, including theMOFCOM, the China Securities Regulatory Commission and the Hong Kong Institute of Certified PublicAccountants (the “HKICPA”). In recent years, Pan-China has received a few administrative andregulatory actions and warnings, where the relevant PRC regulatory agencies indicated that there werecertain accounting irregularities and lack of sufficient audit procedures in Pan-China’s audit work forclients. Pan-China HK has received a few disciplinary orders with penalties from the HKICPA for itsfailure or neglect to observe, maintain or otherwise apply certain accounting standards in issuing opinionsin independent auditor’s reports, and to perform sufficient audit procedures in carrying out audit work forits clients.
As confirmed by Pan-China and Pan-China HK respectively, (i) the companies involved in theadministrative and regulatory actions and warnings as well as the disciplinary orders above were notrelated to the Group, (ii) the audit work performed for the Issuer and the Company is not affected by theabove incidents and (iii) the auditor’s reports included elsewhere in this Offering Circular remain validand effective. In addition, Pan-China and Pan-China HK confirmed that their ability to provide comfortletters and the qualification of the auditors participating in the issue of any Notes are not affected by suchadministrative and regulatory actions and warnings as well as the disciplinary orders. However, there canbe no assurance that the relevant PRC or Hong Kong regulatory agencies would not carry out any reviewof the audit and/or other assurance work conducted in relation to other companies by Pan-China andPan-China HK, nor can there be assurance that any further negative news about Pan-China or Pan-ChinaHK would not have a material and adverse effect on the Issuer, the Company or the Group.
Risks Relating to the Industry
We are facing increasing competition and some of our competitors may have more resources than us.
Competition is increasing as the PRC’s power industry undergoes the process of restructuring. Some of ourcompetitors, such as the five large independent power generation groups formerly comprising the StatePower Corporation prior to its restructuring, have been in operation longer than us and have access togreater financial, infrastructure or other resources than us. We also compete with power generationcompanies outside of Zhejiang Province, which provide electric power in Zhejiang Province. We competewith our competitors for coal, labour and capital required to develop and operate our power plants as wellas acquisition opportunities of land use rights and power plants. The ability of our competitors to accessresources that we cannot access may prevent us from acquiring additional land use rights or power plantsin strategic locations or from increasing our generating capacity, each of which may materially andadversely affect our business, financial condition and results of operations.
In addition, renewable energy resources in the PRC, including wind, solar, hydro, biomass, geothermal andocean power, benefit from various governmental incentives such as on-grid tariff premiums and dispatchpriorities. If the PRC government strengthens its support for other renewable energy sources, competitionfrom other renewable energy companies may intensify and our results of operations may be adverselyaffected.
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Increases in the supply of power may materially and adversely affect our power sales.
In recent years, significant numbers of new power plants, particularly thermal power plants, have beenbuilt throughout the PRC, including in the provinces in which we operate. Provincial governments takeinto account demand forecasts, among other things, when determining the number of new power plantprojects allowed within the province and/or grid. However, there is no guarantee that the provincialgovernments will accurately predict the demand for power in their respective jurisdictions, which may leadto discrepancies between growth in supply and demand for power that may affect our planned output andutilisation hours. For example, the average utilisation hours of our power plants were 3,844 hours for theyear ended 31 December 2020, representing a slight decrease from 4,008 hours for the correspondingperiod in 2019. However, decreases in the utilisation hours will have an adverse effect on our power sales,planned output and sales revenue. There can be no assurance that supply of power will not increase furtherin the future, and any such increases in the supply of power in the provinces in which we operate may havea material and adverse effect on our business, financial condition and results of operations.
The power industry reform may affect our power generation business.
The PRC government started an experimental programme in 1999 to effect power sales throughcompetitive bidding in some of the provinces where we operate our power plants. The on-grid tariffs forpower sold through competitive bidding are generally lower than the pre-approved on-grid tariffs forplanned output. There can be no assurance that the PRC government will not expand the programme inthe future. Any increased power sales through competitive bidding may reduce the on-grid tariffs and mayadversely affect our business, financial condition and results of operations.
In 2007, The State Council approved the “Circular of the National Development and ReformCommission and the State Energy Office on Several Opinions Concerning the Acceleration ofClosing Small Thermal Power Generating Units”, which requires thermal power generating units thatdo not meet certain minimum installed capacity requirements to cease operation. As at the date of thisOffering Circular, we do not have power generating units that fall within the scope of the circular. ThePRC government may in the future increase the minimum standard, however, and our power plants maybe materially and adversely affected.
In 2009, the PRC government started to promote the practice of direct power purchase by large powerend-users. The direct power purchase price, consisting of direct transaction price, on-grid dispatch anddistribution price and governmental levies and charges, is to be freely determined through negotiationbetween the power generation company and the large power end-user. The price of direct power purchaseis subject to demand in the power market, and may increase due to power supply shortfalls. Furthermore,the scale and mode of the transaction are also subject to the structure and level of development of the localeconomy. In 2013, the PRC government continued the reform of direct power purchases by large powerend-users. Although a direct power purchase may act as an alternative channel for our power sales, thereis uncertainty as to the effect of the practice of direct power purchase over our operating results. Theon-grid tariff-setting mechanism is evolving along with the reformation of the PRC electric powerindustry. There can be no assurance that it will not change in a manner which could adversely affect ourbusiness and results of operations.
It is expected that the PRC government will continue to promote reforms in the power industry. The furtherreforms could intensify competition, which may adversely affect our business, financial condition andresults of operations.
Risks Relating to Conducting Business in the PRC
Interpretation of PRC laws and regulations involves significant uncertainties.
The PRC legal system is based on written statutes. Prior court decisions may be cited for reference buthave limited precedential value. Since 1979, the PRC government has been developing a comprehensivesystem of commercial laws, and considerable progress has been made in introducing laws and regulationsdealing with economic matters such as foreign investment, corporate organisation and governance,commerce, taxation and trade. However, as these laws and regulations are relatively new, and due to thelimited volume of published cases and judicial interpretation and their lack of precedential force,interpretation and enforcement of these laws and regulations involve significant uncertainties. In
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particular, the PRC power generation industry is a highly regulated industry. Many aspects of our businesssuch as the connection and dispatch of electricity generation and the setting of on-grid and retail tariffsare subject to negotiation with the PRC government and the relevant government authority’s approval. Asthe PRC legal system develops together with the PRC power generation industry, there is no assurance thatchanges in such laws and regulations, or in their interpretation or enforcement, will not have a materialand adverse effect on our business operations.
Furthermore, the administration of PRC laws and regulations may be subject to a certain degree ofdiscretion by the executive authorities. This has resulted in the outcome of dispute resolutions not beingas consistent or predictable compared to more developed jurisdictions. In addition, it may be difficult toobtain a swift and equitable enforcement of laws in the PRC, or the enforcement of judgments by a courtof another jurisdiction.
Changes in the PRC’s economic, political and social conditions as well as government policies couldadversely affect our business, financial condition and results of operations.
The PRC economy differs from the economies of most developed countries in many respects, includinggovernment involvement, level of development, economic growth rate, control of foreign exchange, andallocation of resources. The PRC economy has been transitioning from a planned economy to a moremarket-oriented economy. In recent years, the PRC government has implemented measures emphasisingmarket forces for economic reform, the reduction of state ownership of productive assets and theestablishment of sound corporate governance in business enterprises. However, a large portion ofproductive assets in the PRC is still owned by the PRC government. The PRC government continues toplay a significant role in regulating industrial development, the allocation of resources, production, pricingand management, and there can be no assurance that the PRC government will continue to pursue a policyof economic reform or that any such reforms will not have an adverse effect on our business.
Our operations and financial results could also be materially and adversely affected by changes inpolitical, economic and social conditions or the relevant policies of the PRC government, such as changesin laws and regulations (or the interpretation thereof). For example, the PRC government may decide tochange its current policies with respect to power pooling, and our power plants which are currently notsubject to power pooling may end up being subject to power pooling. The power pooling process typicallyresults in a lower selling price than the tariffs received from the electricity dispatched as part of theplanned output, and as such, this could have an adverse impact on the results of our operations. Ouroperating results and financial condition may also be materially and adversely affected by other changesin taxation, changes in on-grid tariff-setting mechanisms for our power plants, changes in the usage andcosts of state controlled transportation services, and changes in state policies affecting the power and coalindustries. In addition, the growth of electricity demand in the PRC depends heavily on economic growth.If the PRC’s economic growth slows down or if the Chinese economy experiences a recession, the growthof electricity demand may also slow down or stop, and our business prospects may be materially andadversely affected. Our operations and financial results, as well as our ability to satisfy our obligationsunder the Notes, could also be materially and adversely affected by changes in measures which might beintroduced to control inflation, changes in the rate or method of taxation, the imposition of additionalrestrictions on currency conversion and the imposition of additional import restrictions.
The slowdown of the PRC’s economy caused in part by the recent challenging global economicconditions may adversely affect us.
A substantial part of our revenue is derived from power sales in the PRC. We rely, to a significant degree,on domestic demand for electric power to achieve revenue growth. Domestic demand for electric poweris materially affected by industrial development, growth of private consumption and overall economicgrowth in the PRC. The PRC economy is sensitive to global economic conditions, and it is impossible topredict how the PRC economy will develop in the future and whether it may slow down due to a globalcrisis or experience a financial crisis.
The outlook for the global economy and financial markets remains uncertain. In Asia and other emergingmarkets, some countries are expecting increasing inflationary pressure as a result of liberal monetarypolicy or excessive foreign fund inflow, or both. The United Kingdom’s exit from the European Union hasresulted in volatility in global financial markets, and it is expected to create mid-to long-term economicuncertainty to not only the economies of the United Kingdom and the European Union but also globally.
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In addition, the U.S. government’s policies may create uncertainty for the global economy and financialmarkets. The United States and the PRC have been involved in controversy over trade barriers in recentyears that have triggered the implementation or proposed implementation of tariffs on certain importedproducts into the two countries. On 15 January 2020, the U.S. government and the PRC government signedthe U.S.-China Economic and Trade Agreement (the “Phase I Agreement”) pursuant to which the UnitedStates agreed to cancel a portion of tariffs imposed on products from the PRC, and the PRC agreed toadditional purchases of goods and services from the United States. Both parties expressed a commitmentto further improve various trade issues. However, there can be no assurance that the Phase I Agreementwill be adhered to by both governments or successfully reduce trade tensions.
There are also trade tensions between the PRC and Australia following restrictions on Australian exportsimposed by the PRC as a result of political differences. Geopolitical events such as continued tensions inthe Middle East and the Korean peninsula, as well as the escalation of tensions between the United Statesand the PRC over trade policies, political and other issues could significantly undermine the stability ofthe global economy and financial markets. The reduced demand for exports produced in the PRC, reducedlevels of foreign and domestic investment in the PRC and decreased consumer confidence may result ina slowdown in growth in the markets of the PRC. Any slowdown of the PRC economy may create a credittightening environment, increase our interest expense, or reduce domestic demand for power, resulting inan adverse effect on our business, financial condition and results of operations.
The outbreak, or threatened outbreak, of any severe communicable disease in the PRC could materiallyand adversely affect our business, financial condition and results of operations.
The outbreak, or threatened outbreak, of any severe communicable disease (such as severe acuterespiratory syndrome, avian influenza or COVID-19) in the PRC could materially and adversely affect theoverall business sentiment and environment in the PRC, particularly if such outbreak is inadequatelycontrolled. Since it began in December 2019, COVID-19 has spread globally and there have beenincreased infection and fatality rates across the world. On 11 March 2020, the World Health Organizationdeclared the COVID-19 outbreak a pandemic. The COVID-19 pandemic and policies implemented bygovernments to deter the spread of the disease have had and may continue to have an adverse effect onconsumer confidence and the general economic conditions our business is subject to. Governments ofmany countries have declared a state of emergency, closed their borders to international travellers andissued stay-at-home orders with a view to containing the pandemic. There is no assurance that suchmeasures will be effective in ending or deterring the spread of COVID-19. As COVID-19 continues toaffect many countries across the world, there is significant uncertainty as to when the pandemic will endand governments may extend or implement further restrictive measures to contain the pandemic.Businesses have already faced significant disruptions as shops, offices and factories have been closed,restrictions on public gatherings have been put in place and major events have been suspended in manyaffected countries including the PRC, the U.S., the UK and many other countries in Europe. Even whenrestrictions are lifted or loosened, there may continue to be disruptions to the supply chain and reducedlevels of consumption, commercial activities and industrial production in countries that re-open. Thereduced economic activities in countries affected by the COVID-19 pandemic may soon precipitate aneconomic slowdown in those economies which, if prolonged, could cause a global recession. This, in turn,could materially and adversely affect domestic consumption, labour supply and, possibly, the GDP growthof the PRC. Our revenue is currently derived mainly from PRC operations, and any labour shortages orcontraction or slowdown in the growth of domestic consumption in the PRC could materially andadversely affect our business, financial condition and results of operations. In addition, if any of ouremployees are affected by any severe communicable disease, it could adversely affect or disruptproduction levels and operations at the relevant plants and materially and adversely affect our business,financial condition and results of operations, which may also involve a closure of our facilities to preventthe spread of the disease. The spread of any severe communicable disease in the PRC may also affect theoperations of our customers and suppliers, which could materially and adversely affect our business,financial condition and results of operations.
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We are subject to restrictions on the remittance of Renminbi into and out of the PRC and governmentalcontrols on currency conversion.
The PRC government imposes controls on the convertibility of Renminbi into foreign currencies and theremittance of currency out of the PRC. A substantial part of our gross revenue is denominated in Renminbi,a portion of which may need to be converted into other currencies in order to meet our foreign currencyobligations, such as payments of dividends, overseas acquisitions, and payments of principal and interestsunder the Notes or other foreign currency denominated debt, if any. For example, a portion of ourborrowings are denominated in US dollars and other foreign currencies.
Under existing PRC laws and regulations on foreign exchange, payments of current account items,including profit distributions, interest payments and trade and service-related foreign exchangetransactions, can be made in foreign currencies without prior approval from SAFE provided that certainprocedural requirements are complied with. Approval from, or registration with, competent governmentauthorities is required where Renminbi is to be converted into foreign currency and remitted out of thePRC to pay capital expenses such as the repayment of loans denominated in foreign currencies. Morerestrictions and extensive vetting processes have been put in place by SAFE to regulate cross-bordertransactions under the capital account, such as the Notice of SAFE on Further Promoting the Reform ofForeign Exchange Administration and Improving Authenticity and Compliance Review (《國家外匯管理局關於進一步推進外匯管理改革完善真實合規性審核的通知》). The PRC government may, at itsdiscretion, take measures to restrict access to foreign currencies for current account and capital accounttransactions under certain circumstances. If the foreign exchange control system prevents us fromobtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able tomake interest payments and/or principal repayment to the Noteholders or holders of other foreign currencydenominated debt, if any. In addition, there can be no assurance that new laws or regulations will not bepromulgated in the future that would have the effect of further restricting the remittance of Renminbi intoor out of the PRC.
Fluctuations of the Renminbi could affect our financial condition and results of operations.
Substantially all of our revenues are generated by our subsidiaries in the PRC and are denominated inRenminbi. The value of the Renminbi against other currencies may fluctuate and is affected by, amongother things, changes in the PRC’s political and economic conditions. On 21 July 2005, the PRCgovernment reformed its exchange rate regime by adopting a managed floating exchange rate regime basedon market supply and demand. Under this regime, the Renminbi is no longer pegged to the US dollar butis permitted to fluctuate within a narrow and managed band with reference to a portfolio of currencies.From 21 July 2005 to 17 March 2014, the floating band of interbank spot foreign exchange market tradingprice of Renminbi against the US dollar was gradually widened from 0.3 per cent. to 2 per cent. On 11August 2015, the PBOC adjusted the mechanism for market makers to form the central parity rate byrequiring them to consider the closing exchange rate of the last trading date, the supply and demand offoreign exchange and the rate change at primary international currencies. On 11 December 2015, the ChinaForeign Exchange Trade System (“CFETS”), a sub-institutional organisation of PBOC, published theCFETS Renminbi exchange rate index for the first time which weighs Renminbi against 24 currencies, toguide the market in order to measure the Renminbi exchange rate from a new perspective. Further to thePBOC’s adjustment on 11 August 2015, the value of Renminbi depreciated significantly against the USdollar. In January and February 2016, Renminbi experienced further fluctuation in value against the U.S.dollar.
There is no assurance as to how and to what extent the exchange rate of the Renminbi will fluctuate againstthe US dollar or any other foreign currency in the future. The PRC government may adopt further reformsof its exchange rate system, including making the Renminbi freely convertible in the future. However,there is no assurance if or when these further reforms will occur. We have payment obligations arisingfrom our trading activities overseas and debt obligations, both of which are denominated in foreigncurrencies. In this regard, depreciation of the Renminbi against the US dollar or any such other relevantforeign currencies could have an adverse effect on our business, financial condition and results ofoperations.
Furthermore, we are also subject to translation risks as the consolidated financial statements of the Issuerare denominated in Hong Kong dollar while the financial statements of our subsidiaries are measured andpresented in the currency of the primary economic environment in which the entity operates.
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The Group’s labour costs may increase for various reasons including the implementation of the PRCLabour Contract Law or inflation in the PRC.
The PRC Labour Contract Law (《中華人民共和國勞動合同法》) became effective on 1 January 2008 inthe PRC and was amended on 28 December 2012 and became effective on 1 July 2013. It imposes morestringent requirements on employers in relation to entry into fixed-term employment contracts anddismissal of employees. Pursuant to the PRC Labour Contract Law, the employer is required to make acompensation payment to a fixed-term contract employee when the term of their employment contractexpires, unless the employee does not agree to renew the contract even though the conditions offered bythe employer for renewal are the same or better than those stipulated in the current employment contract.In general, the amount of compensation payment is equal to the monthly wage of the employee multipliedby the number of full years that the employee has worked for the employer. A minimum wage requirementhas also been incorporated into the PRC Labour Contract Law. In addition, unless otherwise prohibited bythe PRC Labour Contract Law or objected to by the employees themselves, the employer is also requiredto enter into non-fixed-term employment contracts with employees who have previously entered intofixed-term employment contracts for two consecutive terms.
In addition, under the Regulations on Paid Annual Leave for Employees (《職工帶薪年休假條例》),which became effective on 1 January 2008, employees who have worked continuously for more than oneyear are entitled to paid annual leave ranging from 5 to 15 days, depending on the length of the employees’service. Employees who consent to waive such annual leave at the request of employers shall becompensated an amount equal to three times their normal daily salaries for each day being waived. Underthe National Leisure and Tourism Outline 2013–2020 (《民旅遊休閒綱要2013–2020》) which becameeffective on 2 February 2013, regulations on paid annual leave of employees shall have been implementedon a general basis by 2020. As a result of the PRC Labour Contract Law, the Regulations on Paid AnnualLeave for Employees and the National Leisure and Tourism Outline 2013– 2020, the Group’s labour costs(inclusive of those incurred by contractors) may increase. Further, under the PRC Labour Contract Law,when an employer terminates its PRC employees’ employment, the employer may be required tocompensate them for such amount which is determined based on their length of service with the employer,and the employer may not be able to efficiently terminate non-fixed-term employment contracts under thePRC Labour Contract Law without cause. In the event the Group decides to significantly change ordecrease its workforce, the PRC Labour Contract Law could adversely affect its ability to effect thesechanges in a cost-effective manner or in the manner that the Group desires, which could result in anadverse impact on the Group’s business, financial condition and results of operations.
Further, if there is a shortage of labour or for any reason the labour cost in the PRC rises significantly,the costs of production of the Group’s products is likely to increase. This may in turn affect the sellingprices of products, which may then affect the demand of such products and thereby adversely affect theGroup’s sales and financial condition. Increase in costs of other components required for production of theproducts may cause similar adverse effects, particularly if the Group is unable to identify and employ otherappropriate means to reduce the costs of production. In such circumstances, the profit margin maydecrease and the financial results may be adversely affected.
Risks Relating to the Notes Issued under the Programme and the Keepwell Deed
The Notes may not be a suitable investment for all investors.
Each potential investor in any Notes must determine the suitability of that investment in light of its owncircumstances. In particular, each potential investor should:
(i) have sufficient knowledge and experience to make a meaningful evaluation of the relevant Notes, themerits and risks of investing in the relevant Notes and the information contained or incorporated byreference in this Offering Circular, any applicable supplement to this Offering Circular or anyPricing Supplement;
(ii) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of itsparticular financial situation, an investment in the relevant Notes and the impact such investmentwill have on its overall investment portfolio;
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(iii) have sufficient financial resources and liquidity to bear all of the risks of an investment in therelevant Notes, including where principal or interest is payable in one or more currencies, or wherethe currency for principal or interest payments is different from the potential investor’s currency;
(iv) understand thoroughly the terms of the relevant Notes and be familiar with the behaviour of anyrelevant indices and financial markets; and
(v) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios foreconomic, interest rate and other factors that may affect its investment and its ability to bear theapplicable risks.
Some Notes may be complex financial instruments and such instruments may be purchased as a way toreduce risk or enhance yield with an understood, measured, appropriate addition of risk to the purchaser’soverall portfolios. A potential investor should not invest in Notes which are complex financial instrumentsunless it has the expertise (either alone or with the help of a financial adviser) to evaluate how the Noteswill perform under changing conditions, the resulting effects on the value of such Notes and the impactthis investment will have on the potential investor’s overall investment portfolio.
Additionally, the investment activities of certain investors are subject to legal investment laws andregulations, or review or regulation by certain authorities. Each potential investor should consult its legaladvisers to determine whether and to what extent: (i) the Notes constitute legal investments for suchinvestor; (ii) the Notes can be used as collateral for various types of borrowing; and (iii) other restrictionsapply to its purchase of any Notes. Financial institutions should consult their legal advisers or theappropriate regulators to determine the appropriate treatment of the Notes under any applicable risk-basedcapital or similar rules.
The Notes are unsecured obligations.
As the Notes are unsecured obligations, the repayment of the Notes may be compromised if:
(i) the Issuer enters into bankruptcy, liquidation, reorganisation or other winding-up proceedings;
(ii) there is a default in payment under the future secured indebtedness or other unsecured indebtednessof the Issuer; or
(iii) there is an acceleration of any of the indebtedness of the Issuer.
If any of the above events were to occur, the assets of the Issuer may not be sufficient to make paymentsto pay amounts due on the Notes.
The Issuer may not be able to meet its outstanding obligations under the Notes.
On certain dates, including the occurrence of any early redemption event specified in the Conditions, therelevant Pricing Supplement or otherwise, the Issuer may (and at maturity, will) be required to redeem allof the Notes. If such an event were to occur, the Issuer may not have sufficient cash on hand and may notbe able to arrange financing to redeem the Notes in time, or on acceptable terms, or at all. The ability toredeem the Notes in such event may also be limited by the terms of other debt instruments. Failure torepay, repurchase or redeem tendered Notes by or on behalf of the Issuer may constitute an event of defaultunder the Notes, which may also constitute a default under the terms of the Issuer’s other indebtedness.
The Keepwell Deed is not a guarantee of the payment obligations under the Notes and may not give riseto a debt claim in the event of any insolvency proceedings in relation to the Company.
The Company has entered into the Keepwell Deed in relation to the Notes to be issued under theProgramme. See “Description of the Keepwell Deed”. Upon the occurrence of certain events as set out inClause 8.2 of the Keepwell Deed, the Trustee shall provide a Trigger Notice to the Issuer and the Companyas provided in the Keepwell Deed. However, neither the Keepwell Deed nor any actions taken by theCompany thereunder can be deemed as a guarantee by the Company for the payment obligation of theIssuer under the Notes. Accordingly, the Company will only be obliged to make sufficient funds availableto the Issuer, rather than assume their payment obligations as in the case of a guarantee.
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In addition, under the Keepwell Deed, the Company has undertaken to, among other things, cause theIssuer to have sufficient liquidity to ensure timely payment of any amounts payable under or in respectof any of its indebtedness (including under the Notes in accordance with the Conditions and/or the TrustDeed and otherwise under the Trust Deed and the Agency Agreement). However, any claim by the Trusteeagainst the Company in relation to the Keepwell Deed will be effectively subordinated to all existing andfuture obligations of the Company’s subsidiaries, particularly its PRC operating subsidiaries, and allclaims by creditors of such subsidiaries (which do not guarantee the Notes) will have priority to the assetsof such entities over the claims of the Trustee and the Issuer under the Keepwell Deed.
In addition, the obligations under the Keepwell Deed may not give rise to a debt claim in the event of anyinsolvency proceedings in relation to the Company, and accordingly, the Noteholders may have limited orno remedies or recourses against the Company in connection with such insolvency proceedings.
Performance by the Company of its undertakings under the Keepwell Deed is subject to approvals of thePRC governmental authorities.
Performance by the Company of the Keepwell Deed is subject to the consent or approval from relevantPRC governmental authorities depending on the nature of such performance, including but not limited tothe NDRC, MOFCOM or SAFE. Accordingly, even if the Company intends to perform its obligationsunder the Keepwell Deed, including arranging for sufficient funds to enable the Issuer to meet itsobligations under the Notes, such performance may be subject to governmental or regulatory approvals,permits and filings. As such process is beyond the control of the Company, there can be no assurance thatthe Company will successfully obtain or complete either all or any of the requisite approvals, permits orfilings in time. In the event that the Company fails to do so, the Issuer may still have insufficient fundsto discharge its outstanding payment obligations to the holders of the Notes.
Performance by the Company of its undertaking under the Keepwell Deed may be subject to consentfrom third party creditors and shareholders, and may also be restricted if any of the equity interests aresecured in favour of third party creditors.
Under the terms of the Keepwell Deed, the Company agrees to purchase or procure a PRC incorporatedsubsidiary of the Company to purchase from one or more Relevant Transferor (as defined in the KeepwellDeed) the equity interest(s) held by it in the event that the Trustee has provided a Trigger Notice (asdefined in the Keepwell Deed) to the Issuer and the Company. The ability of the Company to perform thisundertaking may be affected by any present or future financing agreements of the Company and itssubsidiaries:
• in the event that such financial agreements contain non-disposal or other restrictive covenantsthat would prevent the sale of an equity interest by a Relevant Transferor, the Company and itssubsidiaries would need to obtain the consent from the third party creditor before the RelevantTransferor is able to proceed with the sale of such equity interest; and
• in the event that certain equity interests have been secured in favour of third party creditors,the Company and its subsidiaries would need to arrange for these security interests to bereleased before the Relevant Transferor is able to proceed with the sale of such equity interests.
Under the Conditions and the Keepwell Deed, there are no restrictions on the Company’s subsidiariesoutside the PRC entering into financing agreements with such non disposal or other restrictive covenantsor securing any equity interests in favour of their creditors. In the event the obligation to purchase underthe Keepwell Deed becomes effective, there is no assurance that the Relevant Transferor will be able toobtain any required consents from its creditors or that it will be able to arrange for any existing securityarrangement to be released in order for the sale of the equity interest to proceed. If such consents orreleases cannot be obtained, the Relevant Transferor may need to repay the indebtedness owed to its thirdparty creditors in order to be able to sell the relevant equity interests to the Company or its designatedsubsidiary, failing which, the Issuer may have insufficient funds to discharge their payment obligations tothe holders of the Notes.
In addition, if the Company chooses to acquire the equity interests of certain non-wholly-ownedcompanies of a Relevant Transferor, this may be subject to pre-emptive rights or other restrictions in suchcompany’s articles of association, shareholders’ agreement or otherwise that would require the sellingshareholder to obtain consent or waiver from other third party shareholders before any equity interest canbe sold to the Company or its subsidiaries or affiliate.
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In the event the obligation to purchase under the Keepwell Deed becomes effective, there is no assurancethat any required approvals or waivers can be obtained from third party shareholders in a timely manneror at all.
The Trustee may request the Noteholders to provide an indemnity and/or security and/or prefunding toits satisfaction.
In certain circumstances (including without limitation giving of written notice to the Issuer pursuant toCondition 10 of the Conditions and taking actions and/or steps and/or instituting proceedings pursuant toCondition 12 of the Conditions, the Trustee may (at its sole discretion) request Noteholders to provide anindemnity and/or security and/or prefunding to its satisfaction before it takes any actions and/or stepsand/or institutes proceedings on behalf of Noteholders. The Trustee shall not be obliged to take any suchactions and/or steps and/or institute any such proceedings if not indemnified and/or prefunded and/orsecured to its satisfaction. Negotiating and agreeing to an indemnity and/or security and/or prefunding canbe a lengthy process and may impact on when such actions and/or steps can be taken and/or when suchproceedings can be instituted. The Trustee may not be able to take actions and/or steps and/or instituteproceedings, notwithstanding the provision of an indemnity and/or security and/or prefunding to it, inbreach of the terms of the Trust Deed constituting the Notes or in circumstances where there is uncertaintyor dispute as to the applicable laws or regulations and, to the extent permitted by the agreements and theapplicable law, it will be for the Noteholders to take such actions and/or steps and/or institute suchproceedings directly.
Under the EIT Law, the Issuer may be classified as a “resident enterprise” of the PRC. Suchclassification could result in unfavourable tax consequences to the Issuer and its non-PRC Noteholders.
Under the Enterprise Income Tax Law of the PRC (the “EIT Law”), an enterprise established outside thePRC with a “de facto management body” within the PRC is deemed a “resident enterprise”, meaningthat it can be treated as a PRC enterprise for enterprise income tax purposes. The implementing rules ofthe EIT Law define “de facto management” as “substantial and overall management and control overthe production and operations, personnel, accounting, and properties” of the enterprise. If the relevantPRC tax authorities decide, in accordance with applicable tax rules and regulations, that the “de factomanagement body” of the Issuer is within the territory of the PRC, the Issuer may be held to be a PRC“resident enterprise” for the purpose of the EIT Law and be subject to enterprise income tax at the rateof 25 per cent. on its income sourced from both within and outside PRC.
The Issuer believes that it is currently not a PRC resident enterprise, and as at the date of this OfferingCircular, the Issuer has not been notified or informed by the PRC tax authorities that it is considered asa “resident enterprise” for the purpose of the EIT Law. However, the Issuer cannot assure Noteholdersthat it will not be deemed a “resident enterprise” under the EIT Law and other applicable implementationregulations and, therefore, be subject to enterprise income tax at a rate of 25 per cent. on its global incomein the future. If the Issuer is not considered to be a PRC resident enterprise for EIT Law purposes, thepayment of interest on the Notes to the non-PRC Noteholders will not be subject to PRC withholding tax.
Under the EIT Law and the implementation regulations thereunder, PRC withholding tax at a rate of 10per cent. is normally applicable to PRC-source income derived by non-resident enterprises or at a rate of20 per cent. to individuals, subject to adjustment by applicable treaty. The EIT Law’s implementationregulations further set forth that interest income is viewed as PRC-source income if the enterprise or theestablishment that pays or bears the interest is situated in the PRC. If the Issuer is deemed a PRC residententerprise for tax purposes, interest paid to non-PRC Noteholders may be regarded as PRC-sourced andtherefore be subject to PRC withholding tax at a rate of 10 per cent. for enterprise Noteholders under theEIT Law and 20 per cent. for individual Noteholders under the Individual Income Tax Law (or a lowertreaty rate, if any).
Any gains realised on the transfer of the Notes by such Noteholders may also be subject to PRC incometax at a rate of 10 per cent. for enterprise Noteholders or 20 per cent. for individual Noteholders, if suchgains are regarded as PRC-sourced. According to an arrangement between the PRC and Hong Kong forthe avoidance of double taxation, Noteholders who are Hong Kong residents, including both enterpriseholders and individual holders, will be exempted from PRC income tax on capital gains derived from asale or exchange of the Notes.
If a Noteholder, being a non-resident enterprise or non-resident individual, is required to pay any PRCincome tax on capital gains on the transfer of the Notes, the value of the relevant Noteholder’s investmentin the Notes may be materially and adversely affected.
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Any downgrading of our corporate ratings, or those of our subsidiaries, by rating agencies couldadversely affect our business and our liquidity.
Any adverse revision to our corporate ratings, or those of our subsidiaries, for domestic and internationaldebt by rating agencies such as Fitch, Moody’s and S&P may adversely affect our business and financialperformance and the trading price of the Notes. Further, our ability to obtain financing or to access tocapital markets may also be limited, thereby lowering our liquidity.
The Trust Deed does not contain restrictive financial or operating covenants.
The Trust Deed does not contain restrictive financial or operating covenants or restrictions on thepayments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by theIssuer. The Trust Deed does not contain any covenants or provisions that require the Issuer to achieve ormaintain any minimum financial results relating to its financial position or results of operations. TheIssuer’s ability to recapitalise, incur additional debt and take other actions that are not limited by the termsof the Trust Deed could have the effect of diminishing the ability of the Issuer to make payments on theNotes when due.
A change in English law which governs the Notes may adversely affect Noteholders.
The Notes are governed by English law in effect as at the date of issue of the relevant Notes. No assurancecan be given as to the impact of any possible judicial decision or change to English law or administrativepractice after the date of issue of the relevant Notes.
The regulation and reform of “benchmarks” rates of interest may adversely affect the value of the Noteslinked to or referencing such “benchmarks”.
Interest rates and indices which are deemed to be or used as “benchmarks” (including London InterbankOffered Rate (“LIBOR”) and Euro Interbank Offered Rate (“EURIBOR”)) are the subject of recentguidance and proposals for reform from the European Union (the “EU”) national and internationalregulatory bodies. Some of these reforms are already effective whilst others are still to be implemented.These reforms may cause such benchmarks to perform differently than in the past, to disappear entirely,or have other consequences which cannot be predicted. The discontinuation of a benchmark or changes toits administration could require changes to the way in which the Rate of Interest is calculated in respectof any Notes referencing or linked to such benchmark. The development of alternatives to a benchmarkmay result in Notes linked to or referencing such benchmark performing differently than would otherwisehave been the case if the alternatives to such benchmark had not developed. Any such consequence couldhave a material adverse effect on the value of and return on any Notes linked to or referencing such a“benchmark”.
More broadly, any of the national or international reforms, or the general increased regulatory scrutiny of“benchmarks”, could increase the costs and risks of administering or otherwise participating in the settingof a “benchmark” and complying with any such regulations or requirements. Such factors may have thefollowing effects on certain “benchmarks” (including, but not limited to, LIBOR or EURIBOR): (i)discourage market participants from continuing to administer or contribute to the “benchmark”; (ii)trigger changes in the rules or methodologies used in the “benchmark”; or (iii) lead to the disappearanceof the “benchmark”.
For example, the sustainability of the London interbank offered rate (“LIBOR”) has been questioned asa result of the absence of relevant active underlying markets and possible disincentives (including as aresult of regulatory reforms) for market participants to continue contributing to such benchmarks. In aspeech in July 2017, the Chief Executive of the United Kingdom Financial Conduct Authority (the “FCA”)committed the FCA to begin planning a transition away from LIBOR to alternative reference rates that arebased on actual transactions, such as the Sterling Over Night Index Average (“SONIA”). Theannouncement indicates indicated that the continuation of LIBOR in its current form is not guaranteedafter 2021. Subsequent speeches by the Chief Executive of the FCA and other FCA officials emphasisedthat market participants should not rely on the continued publication of LIBOR after the end of 2021. On5 March 2021, the FCA announced that (i) the publication of 24 LIBOR settings (as detailed in the FCAannouncement) will cease immediately after 31 December 2021, (ii) the publication of the overnight and12-month U.S. dollar LIBOR settings will cease immediately after 30 June 2023, (iii) immediately after
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31 December 2021, the 1-month, 3-month and 6-month sterling LIBOR settings will no longer berepresentative of the underlying market and economic reality that they are intended to measure andrepresentativeness will not be restored (and the FCA will consult on requiring the ICE BenchmarkAdministration Limited (the “IBA”) to continue to publish these settings on a synthetic basis, which willno longer be representative of the underlying market and economic reality they are intended to measure,for a further period after end 2021) and (iv) immediately after 30 June 2023, the 1-month, 3-month and6-month U.S. dollar LIBOR settings will no longer be representative of the underlying market andeconomic reality that they are intended to measure and representativeness will not be restored (and theFCA will consider the case for using its proposed powers to require IBA to continue publishing thesesettings on a synthetic basis, which will no longer be representative of the underlying market andeconomic reality they are intended to measure, for a further period after end June 2023).
It is not possible to predict with certainty whether, and to what extent, LIBOR and/or EURIBOR and/orother benchmark rates will continue to be supported going forwards. This may cause LIBOR and/orEURIBOR and/or other benchmark rates to perform differently than they have done in the past and mayhave other consequences which cannot be predicted. The transition from LIBOR to SONIA or theelimination of LIBOR, EURIBOR or any other benchmark, or changes in the manner of administration ofany benchmark, could require an adjustment to the Conditions, or result in other consequences, in respectof any Notes referencing such benchmark.
Any of the above changes or any other consequential changes as a result of national or internationalreforms or other initiatives or investigations could have a material adverse effect on the value of and returnon any Notes linked to, referencing, or otherwise dependent (in whole or in part) upon the relevantbenchmark. Investors should consult their own independent advisers and make their own assessment aboutthe potential risks imposed by the “benchmark” reforms in making any investment decision with respectto any Notes linked to or referencing the relevant benchmark.
Investors should consult their own independent advisers and make their own assessment about thepotential risks imposed by any international reforms in making any investment decision with respect toany Notes linked to or referencing a benchmark.
Investors should also be aware that, if LIBOR were discontinued or otherwise unavailable, the rate ofinterest on the floating rate Notes which reference LIBOR will be determined for the relevant period bythe fall-back provisions applicable to such Notes. Where Screen Rate Determination is specified as themanner in which the Rate of Interest in respect of Floating Rate Notes is to be determined, and LIBORhas been selected as the Reference Rate, the Conditions provide that the Rate of Interest shall bedetermined by reference to the Relevant Screen Page (or its successor or replacement). In circumstanceswhere LIBOR is discontinued, neither the Relevant Screen Page, nor any successor or replacement maybe available. Where the Relevant Screen Page is not available, and no successor or replacement for theRelevant Screen Page is available, the Conditions require the Issuer to appoint an Independent InvestmentBank to request for quotations and provide for the Rate of Interest to be determined by the CalculationAgent by reference to quotations from banks communicated to the Calculation Agent and the IndependentInvestment Bank. Where such quotations are not available (as may be the case if the relevant banks arenot submitting rates for the determination of LIBOR), the Rate of Interest may revert to the Rate of Interestapplicable as at the last preceding Interest Determination Date before LIBOR was discontinued, and ifLIBOR is discontinued permanently, the same Rate of Interest will continue to be the Rate of Interest foreach successive Interest Period until the maturity of the Floating Rate Notes, so that the Floating RateNotes will, in effect, become fixed rate notes utilising the last available LIBOR rate. Uncertainty as to thecontinuation of LIBOR, the availability of quotes from reference banks, and the rate that would beapplicable if LIBOR is discontinued may adversely affect the value of, and return on, the Floating RateNotes. Where ISDA Determination is specified as the manner in which the Rate of Interest in respect ofFloating Rate Notes is to be determined, the Conditions provide that the Rate of Interest in respect of theNotes shall be determined by reference to the relevant Floating Rate Option in the 2006 ISDA Definitions.Where the Floating Rate Option specified is a “LIBOR” Floating Rate Option, the Rate of Interest maybe determined by reference to the relevant screen rate or the rate determined on the basis of quotationsfrom certain banks. If LIBOR is permanently discontinued and the relevant screen rate or, failing that,quotations from banks are not available, the operation of these provisions may lead to uncertainty as tothe Rate of Interest that would be applicable, and may, adversely affect the value of, and return on, theFloating Rate Notes. If the Issuer issues Floating Rate Notes referencing LIBOR or other benchmarks,additional terms and conditions may be added in the relevant Pricing Supplement.
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Additional procedures may be required to be taken to hear English law governed matters in the HongKong courts. There is also no assurance that the PRC courts will recognise and enforce judgments ofthe Hong Kong courts in respect of English law matters.
The Notes, the Trust Deed, the Agency Agreement and the Keepwell Deed are governed by English law,whereas parties to these documents have submitted to the exclusive jurisdiction of the Hong Kong courts.However, most companies in the Group are incorporated in the PRC and a substantial amount of theGroup’s assets and companies are located in the PRC. Further, all of the Group’s management reside inthe PRC, together with their personal assets. Therefore, investors may encounter difficulties in effectingservice of process from outside PRC upon the Group or its management.
Moreover, it is understood that the enforcement of foreign judgments in the PRC is still subject touncertainties. In addition, the mechanisms for enforcement of rights under the corporate governanceframework to which the Group is subject are also relatively undeveloped and untested. The PRC has notentered into treaties or arrangements providing for the recognition and enforcement of judgments made bythe courts in most other jurisdictions. Therefore, it may not be possible for investors to effect service ofprocess upon the Group or its management in the PRC.
On 14 July 2006, the Supreme People’s Court of the PRC and the Hong Kong government signed theArrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Mattersby the Courts of the Mainland and the Hong Kong Special Administrative Region Pursuant to Choice ofCourt Agreements between Parties Concerned (《關於內地與香港特別行政區法院相互認可和執行當事人協議管轄的民商事案件判決的安排》) (the “Arrangement”), which is still in full force and effect as of thedate of this Offering Circular and will be replaced by and become invalid when the Arrangement onReciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts ofthe Mainland and Hong Kong (《關於內地與香港特別行政區法院相互認可和執行民商事案件判決的安排》) (the “New Arrangement”), which was signed on 18 January 2019, comes into effect. Pursuant tothe New Arrangement, if the parties have already signed the choice of court agreement in writing underthe Arrangement before the New Arrangement enter into force, the Arrangement shall still apply. Underthe Arrangement, where any designated People’s Court of the Mainland or any designated Hong Kongcourt has made an enforceable final judgment requiring payment of money in a civil and commercial casepursuant to a choice of court agreement in writing by the parties, any party concerned may apply to therelevant People’s Court of the Mainland or Hong Kong court for recognition and enforcement of thejudgment. However, the rights under the Arrangement are limited and the outcome and effectiveness of anyaction brought under the arrangement may still be uncertain.
Unlike other notes issued in the international capital markets where holders of such notes would typicallynot be required to submit to an exclusive jurisdiction, the Noteholders will be deemed to have submittedto the exclusive jurisdiction of the Hong Kong courts. Thus, the Noteholders’ ability to initiate a claimoutside Hong Kong will be limited.
In addition, recognition and enforcement of a Hong Kong court judgment could be refused if the PRCcourts consider that the enforcement of such judgment is contrary to the social and public interest of thePRC. While it is expected that the PRC courts will recognise and enforce a judgment given by a HongKong court and governed by English law, there can be no assurance that the PRC courts will do so for allsuch judgments as there is no established practice in this area.
The Notes may be represented by Global Notes or Global Certificates and holders of a beneficial interestin a Global Note or a Global Certificate must rely on the procedures of the relevant Clearing System(s).
Notes issued under the Programme may be represented by one or more Global Notes or GlobalCertificates. Such Global Notes or Global Certificates will be deposited with a common depositary forEuroclear and Clearstream, or lodged with a sub-custodian for the CMU (each of Euroclear, Clearstream,and the CMU, a “Clearing System”). Except in the circumstances described in the relevant Global Noteor Global Certificate, investors will not be entitled to receive definitive Notes. The relevant ClearingSystem(s) will maintain records of the beneficial interests in the Global Notes and the Global Certificates.While the Notes are represented by one or more Global Notes or Global Certificates, investors will be ableto trade their beneficial interests only through the Clearing Systems.
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While the Notes are represented by one or more Global Notes or Global Certificates, the Issuer willdischarge its payment obligations under the Notes by making payments to the relevant Clearing Systemfor distribution to their account holders or in the case of the CMU, to the persons for whose account(s)interests in such Global Note or Global Certificate are credited as being held in the CMU in accordancewith the CMU Rules at the relevant time.
A holder of a beneficial interest in a Global Note or a Global Certificate must rely on the procedures ofthe relevant Clearing System(s) to receive payments under the relevant Notes. The Issuer has noresponsibility or liability for the records relating to, or payments made in respect of, beneficial interestsin the Global Notes or the Global Certificates.
Holders of beneficial interests in the Global Notes or the Global Certificates will not have a direct rightto vote in respect of the relevant Notes. Instead, such holders will be permitted to act only to the extentthat they are enabled by the relevant Clearing System(s) to appoint appropriate proxies. Similarly, holdersof beneficial interests in the Global Notes or the Global Certificates will not have a direct right under therespective Global Notes or Global Certificates to take enforcement action against the Issuer in the eventof a default under the relevant Notes but will have to rely upon their rights under the Trust Deed.
Noteholders should be aware that definitive Notes which have a denomination that is not an integralmultiple of the minimum Specified Denomination may be illiquid and difficult to trade.
In relation to any issue of Notes which have a denomination consisting of a minimum SpecifiedDenomination (as defined in the Conditions) plus a higher integral multiple of another smaller amount, itis possible that the Notes may be traded in amounts in excess of the minimum Specified Denomination thatare not integral multiples of such minimum Specified Denomination. In such a case a Noteholder who, asa result of trading such amounts, holds a principal amount of less than the minimum SpecifiedDenomination will not receive a definitive Note in respect of such holding (should definitive Notes beprinted) and would need to purchase a principal amount of Notes such that it holds an amount equal to oneor more Specified Denominations. If definitive Notes are issued, holders should be aware that definitiveNotes which have a denomination that is not an integral multiple of the minimum Specified Denominationmay be illiquid and difficult to trade.
If the Issuer or any other member of the Group is unable to comply with the restrictions and covenantsin its debt agreements (if any), or the Notes, there could be a default under the terms of theseagreements, or the Notes, which could cause repayments or acceleration under such agreements.
If the Issuer or any other member of the Group is unable to comply with the restrictions and covenantsin the Notes, or current or future debt obligations and other agreements (if any), there could be a defaultunder the terms of these agreements. In the event of a default under these agreements, the holders of thedebt could terminate their commitments to lend to the Issuer or any other member of the Group, as the casemay be, accelerate repayment of the debt, declare all amounts borrowed due and payable or terminate theagreements, as the case may be. Furthermore, those debt agreements may contain cross-acceleration orcross-default provisions. If any of these events occur, there can be no assurance that our assets and cashflows would be sufficient to repay in full all of the Issuer’s or the relevant member’s indebtedness, or thatit would be able to find alternative financing. Even if the Issuer or such member could obtain alternativefinancing, there can be no assurance that it would be on terms that are favourable or acceptable to theIssuer or such member.
The insolvency laws of Hong Kong, the PRC and other local insolvency laws may differ from those ofanother jurisdiction with which the holders of the Notes are familiar.
As the Issuer and the Company were incorporated under the laws of Hong Kong and the PRC respectively,any insolvency proceeding relating to the Issuer or the Company would likely involve Hong Kong, or asthe case may be, the PRC insolvency laws, the procedural and substantive provisions of which may differfrom comparable provisions of the local insolvency laws of jurisdictions with which the holders of theNotes are familiar.
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The Notes are subject to modification and substitution and the Trustee may waive certain breaches oragree to the substitution of the Issuer’s successor without the consent of the Noteholders.
The Conditions and the Trust Deed provide that the Trustee may agree, without the consent of theNoteholders, to: (i) any modification of any of the Conditions or any of the provisions of the Trust Deed,the Agency Agreement or the Keepwell Deed that is in the opinion of the Trustee of a formal, minor ortechnical nature or is made to correct a manifest error or is to comply with any mandatory provision ofapplicable law, and (ii) any other modification (except as mentioned in the Trust Deed), and any waiveror authorisation of any breach or proposed breach, of any of the Conditions or any of the provisions ofthe Trust Deed, the Agency Agreement or the Keepwell Deed that is in the opinion of the Trustee notmaterially prejudicial to the interests of the Noteholders.
The Conditions and the Trust Deed also provide that the Trustee may agree, without the consent of theNoteholders or Couponholders, to the substitution of the Issuer’s successor in business or any Subsidiary(as defined in the Conditions) of the Issuer or its successor in business in place of the Issuer, or of anyprevious substituted company, as principal debtor under the Trust Deed and the Notes. In the case of sucha substitution the Trustee may agree, without the consent of the Noteholders or the Couponholders, to achange of the law governing the Notes, the Receipts, the Coupons, the Talons and/or the Trust Deedprovided that such change would not in the opinion of the Trustee be materially prejudicial to the interestsof the Noteholders. Any such substitution shall be binding on the Noteholders and the Couponholders.
Decisions that may be made on behalf of all holders of the Notes may be adverse to the interests ofindividual holders of the Notes.
The Conditions and the Trust Deed contain provisions for calling meetings of holders of the Notes toconsider matters affecting their interests generally. In addition, the Trust Deed provides that (i) aresolution in writing signed by or on behalf of the holders of not less than 90 per cent. in aggregateprincipal amount of the Notes for the time being outstanding shall for all purposes be as valid and effectiveas an Extraordinary Resolution passed at a meeting of Noteholders duly convened and held and (ii) aresolution approved by or on behalf the holders of not less than 90 per cent. in principal amount of theNotes outstanding by way of electronic consents at the relevant clearing system(s) in accordance with theiroperating rules and procedures shall be binding on all Noteholders and Couponholders. These provisionspermit defined majorities to bind all holders of the Notes including holders who did not attend and voteat the relevant meeting or give electronic consent and holders who voted in a manner contrary to themajority. Furthermore, there is a risk that the decision of the majority of holders of the Notes may beadverse to the interests of the individuals.
Risks Relating to the Structure of a Particular Issue of Notes
A wide range of Notes may be issued under the Programme. A number of these Notes may have featureswhich contain particular risks for potential investors. Set out below is a description of certain suchfeatures:
Notes subject to optional redemption by the Issuer may have a lower market value than Notes thatcannot be redeemed.
Unless in the case of any particular Tranche of Notes the relevant Pricing Supplement specifies otherwise,in the event that the Issuer would be obliged to increase the amounts payable in respect of any Notes dueto any withholding or deduction for any taxes, duties, assessments or governmental charges of whatevernature imposed, levied, collected, withheld or assessed by or within, Hong Kong or the PRC or in eachcase, any political subdivision or, any authority therein or thereof having power to tax, the Issuer mayredeem all outstanding Notes in accordance with the Conditions provided that certain requirements aremet. The relevant Pricing Supplement may specify other optional redemption right of the Issuer.
An optional redemption feature is likely to limit the market value of the relevant Tranche of Notes. Duringany period when the Issuer may elect to redeem Notes, the market value of those Notes generally will notrise substantially above the price at which they can be redeemed. This also may be true prior to anyredemption period.
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The Issuer may be expected to redeem Notes when its cost of borrowing is lower than the interest rate onthe Notes. At those times, an investor generally would not be able to reinvest the redemption proceeds atan effective interest rate as high as the interest rate on the Notes being redeemed and may only be ableto do so at a significantly lower rate. Potential investors should consider reinvestment risk in light of otherinvestments available at that time.
Dual Currency Notes have features which are different from single currency issues.
The Issuer may issue Notes with principal or interest payable in one or more currencies which may bedifferent from the currency in which the Notes are denominated. Potential investors should be aware that:
(i) the market price of such Notes may be volatile;
(ii) they may receive no interest;
(iii) payment of principal or interest may occur at a different time or in a different currency thanexpected; and
(iv) the amount of principal payable at redemption may be less than the principal amount of such Notesor even zero.
Failure by an investor to pay a subsequent instalment of partly paid Notes may result in an investorlosing all of its investment.
The Issuer may issue Notes where the issue price is payable in more than one instalment. Failure to payany subsequent instalments could result in an investor losing all of its investment.
The market price of variable rate Notes with a multiplier or other leverage factor may be volatile.
Notes with variable interest rates can be volatile securities. If they are structured to include multipliers orother leverage factors, or caps or floors, or any combination of those features or other similar relatedfeatures, their market values may be even more volatile than those for securities that do not include suchfeatures. Such volatility may affect the market value of the Notes.
Inverse Floating Rate Notes are generally more volatile than conventional floating rate debt securities.
Inverse Floating Rate Notes have an interest rate equal to a fixed rate minus a rate based upon a referencerate. The market values of such Notes typically are more volatile than market values of other conventionalfloating rate debt securities based on the same reference rate (and with otherwise comparable terms). Thisis because an increase in the reference rate not only decreases the interest rate of the Notes, but may alsoreflect an increase in prevailing interest rates, which further adversely affects the market value of theseNotes.
Notes carrying an interest rate which may be converted from fixed to floating interest rates and viceversa, may have lower market values than other Notes.
Fixed/Floating Rate Notes may bear interest at a rate that the Issuer may elect to convert from a fixed rateto a floating rate, or from a floating rate to a fixed rate. The Issuer’s ability to convert the interest ratewill affect the secondary market and the market value of such Notes since the Issuer may be expected toconvert the rate when it is likely to produce a lower overall cost of borrowing. If the Issuer converts froma fixed rate to a floating rate, the spread on the Fixed/Floating Rate Notes may be less favourable than thenprevailing spreads on comparable Floating Rate Notes tied to the same reference rate. In addition, the newfloating rate at any time may be lower than the rates on other Notes. If the Issuer converts from a floatingrate to a fixed rate, the fixed rate may be lower than then prevailing rates on its Notes.
The market prices of Notes issued at a substantial discount or premium tend to fluctuate more inrelation to general changes in interest rates than do prices for conventional interest bearing securities.
The market prices of the Notes issued at a substantial discount or premium to their principal amount tendto fluctuate more in relation to general changes in interest rates than do prices for conventional interestbearing securities. Generally, the longer the remaining term of the Notes, the greater the price volatilityas compared to conventional interest bearing securities with comparable maturities.
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Investors may lose part or all of their investment in any Index Linked Notes issued.
If, in the case of a particular Tranche of Notes, the relevant Pricing Supplement specifies that the Notesare Index Linked Notes or variable redemption amount Notes, there is a risk that an investor may lose thevalue of its entire investment or part of it.
Risks Relating to the Market Generally
Set out below is a brief description of certain market risks, including liquidity risk, exchange rate risk,interest rate risk and credit risk:
Notes issued under the Programme have no current active trading market and may trade at a discountto their initial offering price and/or with limited liquidity.
Notes issued under the Programme will be new securities which may not be widely distributed and forwhich there is currently no active trading market (unless in the case of any particular Tranche, suchTranche is to be consolidated with and form a single series with a Tranche of Notes which is alreadyissued). If the Notes are traded after their initial issuance, they may trade at a discount to their initialoffering price, depending upon prevailing interest rates, the market for similar securities, generaleconomic conditions and the Group’s financial condition. If the Notes are trading at a discount, investorsmay not be able to receive a favourable price for their Notes, and in some circumstances investors maynot be able to sell their Notes at all or at their fair market value. Although application may be made tothe Hong Kong Stock Exchange or any other stock exchange for any particular Tranche of Notes to beadmitted to listing on such stock exchange, there is no assurance that such Tranche of Notes will be soadmitted or that an active trading market will develop. In addition, the market for securities has beensubject to disruptions that have caused volatility in prices of securities similar to the Notes issued underthe Programme. Accordingly, there is no assurance that a liquid trading market will develop, or thatdisruptions will not occur, for any particular Tranche of Notes.
The liquidity and price of the Notes following the offering may be volatile.
The price and trading volume of the Notes may be highly volatile. Factors such as variations in the Group’srevenues, earnings and cash flows and proposals of new investments, strategic alliances and/oracquisitions, interest rates and fluctuations in prices for comparable companies could cause the price ofthe Notes to change. Any such developments may result in large and sudden changes in the volume andprice at which the Notes will trade. There is no assurance that these developments will not occur in thefuture.
Developments in other markets may adversely affect the market price of the Notes.
The market price of the Notes may be adversely affected by declines in the international financial marketsand world economic conditions. The market for the Notes is, to varying degrees, influenced by economicand market conditions in other markets, especially those in Asia. Although economic conditions aredifferent in each country, investors’ reactions to developments in one country can affect the securitiesmarkets and the securities of issuers in other countries, including China. Since the sub-prime mortgagecrisis in 2008, the international financial markets have experienced significant volatility. If similardevelopments occur in the international financial markets in the future, the market price of the Notes couldbe adversely affected.
Exchange rate risks and exchange controls may result in investors receiving less interest or principalthan expected.
The Issuer will pay principal, premium (if any) and interest on the Notes in the currency specified in therelevant Pricing Supplement (the “Specified Currency”). This presents certain risks relating to currencyconversions if an investor’s financial activities are denominated principally in a currency or currency unit(the “Investor’s Currency”) other than the Specified Currency. These include the risk that exchange ratesmay significantly change (including changes due to devaluation of the Specified Currency or revaluationof the Investor’s Currency) and the risk that authorities with jurisdiction over the Investor’s Currency mayimpose or modify exchange controls. An appreciation in the value of the Inventor’s Currency relative tothe Specified Currency would decrease: (i) the Investor’s Currency equivalent yield on the Notes; (ii) theInvestor’s Currency equivalent value of the principal payable on the Notes; and (iii) the Investor’sCurrency equivalent market value of the Notes.
Government and monetary authorities may impose (as some have done in the past) exchange controls thatcould adversely affect an applicable exchange rate. As a result, investors may receive less interest orprincipal than expected, or no interest or principal.
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Changes in market interest rates may adversely affect the value of Fixed Rate Notes.
Investment in Fixed Rate Notes involves the risk that subsequent changes in market interest rates mayadversely affect the value of Fixed Rate Notes. Generally, a rise in interest rates may cause a fall in theprices of the Fixed Rate Notes, resulting in a capital loss for the Noteholders. However, the Noteholdersmay reinvest the interest payments at higher prevailing interest rates. Conversely, when interest rates fall,the prices of the Fixed Rate Notes may rise. The Noteholders may enjoy a capital gain but interestpayments received may be reinvested at lower prevailing interest rates. If Noteholders sell the Notes theyhold before the maturity of such Notes, they may receive an offer less than their investment.
The credit ratings assigned to the Notes may not reflect all risks, and it may be downgraded orwithdrawn.
The Programme has been rated “A+” by Fitch and “(P)A2” by Moody’s. These ratings are only correct asat the date of this Offering Circular. One or more independent credit rating agencies may assign creditratings to an issue of Notes. The ratings may not reflect the potential impact of all risks related to structure,market, additional factors discussed above and other factors that may affect the value of the Notes. A creditrating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by therating agency at any time. Ratings can be lowered or withdrawn at any time. A reduction or withdrawalof the ratings may adversely affect the market price of the Notes and the Group’s ability to access the debtcapital markets.
Risks Relating to Renminbi-Denominated Notes
Notes denominated in Renminbi (the “Renminbi Notes”) may be issued under the Programme. RenminbiNotes contain particular risks for potential investors.
Renminbi is not freely convertible; there are significant restrictions on remittance of Renminbi into andoutside the PRC.
Renminbi is not freely convertible at present. The PRC government continues to regulate conversionbetween Renminbi and foreign currencies, including the Hong Kong dollar. There has been significantreduction in control by the PRC government in recent years, particularly over trade transactions involvingimport and export of goods and services as well as other frequent routine foreign exchange transactions.These transactions are known as current account items. On the other hand, remittance of Renminbi intoand out of the PRC for the settlement of capital account items, such as capital contributions, debt financingand securities investment, is generally only permitted upon obtaining specific approvals from, orcompleting specific registrations or filings with, the relevant authorities on a case-by-case basis and issubject to a strict monitoring system. Regulations in the PRC on the remittance of Renminbi into and outof the PRC for settlement of capital account items are being developed.
Although the Renminbi was added to the Special Drawing Rights basket created by the InternationalMonetary Fund in 2016 and policies further improving accessibility to Renminbi to settle cross-bordertransactions in foreign currencies were implemented by PBOC in 2018, there is no assurance that the PRCgovernment will continue to gradually liberalise control over cross-border remittance of Renminbi in thefuture, that any pilot schemes for Renminbi cross-border utilisation will not be discontinued or that newregulations in the PRC will not be promulgated in the future which have the effect of restricting oreliminating the remittance of Renminbi into or outside the PRC. In the event that funds cannot berepatriated outside the PRC in Renminbi, this may affect the overall availability of Renminbi outside thePRC and the ability of the Issuer to source Renminbi to finance its obligations under Notes denominatedin Renminbi.
Holders of beneficial interests in Renminbi Notes may be required to provide certifications and otherinformation (including Renminbi account information) in order to allow such holder to receive paymentsin Renminbi in accordance with the Renminbi clearing and settlement system for participating banks inHong Kong.
Holders of beneficial interests in the Notes denominated in Renminbi may be required to providecertifications and other information (including Renminbi account information) in order to allow suchholder to receive payments in Renminbi in accordance with the Renminbi clearing and settlement systemfor participating banks in Hong Kong.
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There is only limited availability of Renminbi outside Mainland China, which may affect the liquidityof Renminbi Notes and our ability to source Renminbi outside Mainland China to service suchRenminbi Notes.
As a result of the restrictions by the PRC government on cross-border Renminbi fund flows, theavailability of Renminbi outside of Mainland China is limited. While the PBOC has entered intoagreements on the clearing of Renminbi business with financial institutions in a number of financialcentres and cities (the “Renminbi Clearing Banks”), including but not limited to Hong Kong, and are inthe process of establishing Renminbi clearing and settlement mechanisms in several other jurisdictions(the “Settlement Arrangements”), the current size of Renminbi financial assets outside the PRC remainslimited.
There are restrictions imposed by the PBOC on Renminbi business participating banks in respect ofcross-border Renminbi settlement, such as those relating to direct transactions with PRC enterprises.Furthermore, Renminbi business participating banks do not have direct Renminbi liquidity support fromthe PBOC. The Renminbi Clearing Banks only have access to onshore liquidity support from the PBOCto square open positions of participating banks for limited types of transactions and are not obliged tosquare for participating banks any open positions resulting from other foreign exchange transactions orconversion services. In such cases, the participating banks will need to source Renminbi from the offshoremarket to square such open positions.
Although it is expected that the offshore Renminbi market will continue to grow in depth and size, itsgrowth is subject to many constraints as a result of PRC laws and regulations on foreign exchange. Thereis not assurance that new PRC regulations will not be promulgated or the Settlement Agreement will notbe terminated or amended in the future which will have the effect of restricting the availability ofRenminbi outside the PRC. The limited availability of Renminbi outside the PRC may affect the liquidityof the Renminbi Notes. To the extent we are required to source Renminbi outside the PRC to service theRenminbi Notes, there is no assurance that the Issuer will be able to source such Renminbi on satisfactoryterms, if at all.
Remittance of proceeds into or outside of the PRC in Renminbi may be difficult.
In the event that the Issuer decides to remit some or all of the proceeds into the PRC in Renminbi, itsability to do so will be subject to obtaining all necessary approvals from, and/or registration or filing with,the relevant PRC government authorities. However, there can be no assurance that the necessary approvalsfrom, and/or registration or filing with, the relevant PRC government authorities will be obtained at all or,if obtained, they will not be revoked or amended in the future.
In the event that the Issuer does remit some or all of the proceeds into the PRC in Renminbi and the Issuersubsequently is not able to repatriate funds outside the PRC in Renminbi, it will need to source Renminbioutside the PRC to finance its obligations under the Renminbi Notes, and its ability to do so will be subjectto the overall availability of Renminbi outside the PRC.
Investment in Renminbi Notes is subject to exchange rate risks.
The value of Renminbi against the US dollar and other foreign currencies fluctuates from time to time andis affected by changes in PRC and international political and economic conditions as well as many otherfactors. In August 2015, the PBOC changed the way it calculates the Renminbi’s daily mid-point againstthe US dollar, requiring the market-makers who submit for the PBOC’s reference rates to consider theprevious day’s closing spot rate, foreign-exchange demand and supply as well as changes in majorcurrency rates. This change, and other changes such as widening the trading band that may beimplemented, may increase the volatility in the value of the Renminbi against foreign currencies. Allpayments of interest and principal will be made with respect to Renminbi Notes in Renminbi. As a result,the value of these Renminbi payments in US dollar or other foreign currency terms may vary with theprevailing exchange rates in the marketplace. If an investor measures its investment returns by referenceto a currency other than Renminbi, an investment in the Renminbi Notes entails foreign exchange relatedrisks, including possible significant changes in the value of Renminbi relative to the currency by referenceto which an investor measures its investment returns. Depreciation of Renminbi against such currencycould cause a decrease in the effective yield of the Renminbi Notes below their stated coupon rates andcould result in a loss when the return on the Renminbi Notes is translated into such currency. Accordingly,the value of the investment made by a holder of the Renminbi Notes in that foreign currency will decline.
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Investment in Renminbi Notes is subject to interest rate risks.
The value of Renminbi payments under Renminbi Notes may be susceptible to interest rate fluctuationsoccurring within and outside the PRC, including PRC Renminbi repo rates and/or the Shanghai inter-bankoffered rate. The PRC government has gradually liberalised its regulation of interest rates in recent years.Further liberalisation may increase interest rate volatility. In addition, the interest rate for Renminbi inmarkets outside the PRC may significantly deviate from the interest rate for Renminbi in the PRC as aresult of foreign exchange controls imposed by PRC law and regulations and prevailing market conditions.
As Renminbi Notes may carry a fixed interest rate, the trading price of such Renminbi Notes willconsequently vary with the fluctuations in the Renminbi interest rates. If holders of the Renminbi Notespropose to sell their Renminbi Notes before their maturity, they may receive an offer lower than theamount they have invested.
Payments in respect of Renminbi Notes will only be made to investors in the manner specified in suchRenminbi Notes.
All payments to investors in respect of Renminbi Notes cleared through the CMU will be made solely by:(i) transfer to a Renminbi bank account maintained in Hong Kong in accordance with the prevailing rulesand procedures of the CMU, when Renminbi Notes are represented by a Global Note or Global Certificatecleared through the CMU; (ii) transfer to a Renminbi bank account maintained in Hong Kong or, if sospecified in the Pricing Supplement, a financial centre in which a Renminbi clearing bank operates, whenthe Renminbi Notes are represented by a Global Note or Global Certificate held with the commondepositary for Clearstream and Euroclear or any alternative clearing system, or (iii) transfer to a Renminbibank account maintained in Hong Kong in accordance with prevailing rules and regulations, whenRenminbi Notes are in definitive form. The Issuer cannot be required to make payment by any other means(including in any other currency or in bank notes, by cheque or draft or by transfer to a bank account inthe PRC).
There may be PRC tax consequences with respect to investment in the Renminbi Notes.
In considering whether to invest in the Renminbi Notes, investors should consult their individual taxadvisers with regard to the application of PRC tax laws to their particular situation as well as any taxconsequences arising under the laws of any other tax jurisdictions. The value of the holder’s investmentin the Renminbi Notes may be materially and adversely affected if the holder is required to pay PRC taxwith respect to acquiring, holding or disposing of and receiving payments under those Renminbi Notes.
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TERMS AND CONDITIONS OF THE NOTES
The following, other than the words in italics, is the text of the terms and conditions that, subject tocompletion and amendment and as supplemented or varied in accordance with the provisions of therelevant Pricing Supplement, shall be applicable to the Notes in definitive form (if any) issued in exchangefor the Global Note(s) or the Global Certificate representing each Series. Either (i) the full text of theseterms and conditions together with the relevant provisions of the Pricing Supplement or (ii) these termsand conditions as so completed, amended, supplemented or varied (and subject to simplification by thedeletion of non-applicable provisions), shall be endorsed on such Bearer Notes or on the Certificatesrelating to such Registered Notes. All capitalised terms that are not defined in these Conditions will havethe meanings given to them in the relevant Pricing Supplement. Those definitions will be endorsed on thedefinitive Notes or Certificates, as the case may be. References in the Conditions to “Notes” are to theNotes of one Series only, not to all Notes that may be issued under the Programme.
The Notes are constituted by an amended and restated trust deed dated 6 July 2021 (as may be furtheramended, supplemented and/or restated as at the date of issue of the Notes (the “Issue Date”), the “TrustDeed”) between ZHEJIANG ENERGY INTERNATIONAL LIMITED (浙江能源國際有限公司) (the“Issuer”), ZHEJIANG PROVINCIAL ENERGY GROUP COMPANY LIMITED (浙江省能源集團有限公司) (the “Company”), and THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED(the “Trustee”, which expression shall include all persons for the time being the trustee or trustees underthe Trust Deed) as trustee for the Noteholders (as defined below). These terms and conditions (the“Conditions”) include summaries of, and are subject to, the detailed provisions of the Trust Deed, whichincludes the form of the Bearer Notes, Certificates, Receipts, Coupons and Talons referred to below. Anamended and restated agency agreement dated 6 July 2021 (as may be further amended, supplementedand/or restated as at the Issue Date, the “Agency Agreement”) has been entered into in relation to theNotes between the Issuer, the Trustee, THE HONGKONG AND SHANGHAI BANKING CORPORATIONLIMITED as initial issuing and paying agent, and THE HONGKONG AND SHANGHAI BANKINGCORPORATION LIMITED as CMU lodging and paying agent for Notes to be held in the CentralMoneymarkets Unit Service operated by the Hong Kong Monetary Authority (the “CMU”) and the otheragents named in it. The issuing and paying agent, the CMU lodging and paying agent, the other payingagents, the registrar, the transfer agents and the calculation agent(s) for the time being (if any) are referredto below respectively as the “Issuing and Paying Agent”, the “CMU Lodging and Paying Agent”, the“Paying Agents” (which expression shall include the Issuing and Paying Agent and the CMU Lodging andPaying Agent), the “Registrar”, the “Transfer Agents” (which expression shall include the Registrar) andthe “Calculation Agent(s)”. For the purposes of these Conditions, all references to the Issuing and PayingAgent shall, with respect to a Series of Notes to be held in the CMU, be deemed to be a reference to theCMU Lodging and Paying Agent and all such references shall be construed accordingly. An amended andrestated keepwell, liquidity support and equity interest purchase covenants deed dated 6 July 2021 (as maybe further amended, supplemented and/or restated as at the Issue Date, the “Keepwell Deed”) between theIssuer, the Company and the Trustee has been entered into for the benefit of the Trustee on behalf of itselfand the Noteholders.
Copies of the Trust Deed, the Agency Agreement and the Keepwell Deed are available via e-mail or forinspection during usual business hours (being between 9.00 a.m. and 3.00 p.m.) at the principal office ofthe Trustee (which as at the date of the Trust Deed is at Level 24, HSBC Main Building, 1 Queen’s RoadCentral, Hong Kong) and at the specified office of the Issuing and Paying Agent following prior requestvia e-mail or in writing and proof of holding and identity satisfactory to the Trustee or, as the case maybe, the Issuing and Paying Agent.
The Noteholders, the holders of the interest coupons (the “Coupons”) relating to interest bearing Notesin bearer form and, where applicable in the case of such Notes, talons for further Coupons (the “Talons”)(the “Couponholders”) and the holders of the receipts for the payment of instalments of principal (the“Receipts”) relating to Notes in bearer form of which the principal is payable in instalments are entitledto the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed andthe Keepwell Deed and are deemed to have notice of those provisions applicable to them of the AgencyAgreement.
All capitalised terms that are not defined in these Conditions will have the meanings given to them in theTrust Deed or in the relevant Pricing Supplement. As used in these Conditions, “Tranche” means Noteswhich are identical in all respects.
1 FORM, DENOMINATION AND TITLE
The Notes are issued in bearer form (“Bearer Notes”) or in registered form (“Registered Notes”),in each case in the Specified Denomination(s) shown hereon.
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This Note is a Fixed Rate Note, a Floating Rate Note, a Zero Coupon Note, an Index Linked InterestNote, an Index Linked Redemption Note, an Instalment Note, a Dual Currency Note or a Partly PaidNote, a combination of any of the foregoing or any other kind of Note, depending upon the Interestand Redemption/Payment Basis shown hereon.
Bearer Notes are serially numbered and are issued with Coupons (and, where appropriate, a Talon)attached, save in the case of Zero Coupon Notes in which case references to interest (other than inrelation to interest due after the Maturity Date), Coupons and Talons in these Conditions are notapplicable. Instalment Notes are issued with one or more Receipts attached.
Registered Notes are represented by registered certificates (“Certificates”) and, save as provided inCondition 2(c), each Certificate shall represent the entire holding of Registered Notes by the sameholder.
Title to the Bearer Notes and the Receipts, Coupons and Talons shall pass by delivery. Title to theRegistered Notes shall pass by registration in the register that the Issuer shall procure to be kept bythe Registrar in accordance with the provisions of the Agency Agreement (the “Register”). Exceptas ordered by a court of competent jurisdiction or as required by law, the holder (as defined below)of any Note, Receipt, Coupon or Talon shall be deemed to be and shall be treated as its absoluteowner for all purposes whether or not it is overdue and regardless of any notice of ownership, trustor an interest in it, any writing on it (or on the Certificate representing it) or its theft or loss (or thatof the related Certificate) and no person shall be liable for so treating the holder.
In these Conditions, “Noteholder” means the bearer of any Bearer Note and the Receipts relating toit or the person in whose name a Registered Note is registered (as the case may be), “holder” (inrelation to a Note, Receipt, Coupon or Talon) means the bearer of any Bearer Note, Receipt, Couponor Talon or the person in whose name a Registered Note is registered (as the case may be) andcapitalised terms have the meanings given to them hereon, the absence of any such meaningindicating that such term is not applicable to the Notes.
2 NO EXCHANGE OF NOTES AND TRANSFERS OF REGISTERED NOTES
(a) No Exchange of Notes: Registered Notes may not be exchanged for Bearer Notes. BearerNotes of one Specified Denomination may not be exchanged for Bearer Notes of anotherSpecified Denomination. Bearer Notes may not be exchanged for Registered Notes.
(b) Transfer of Registered Notes: One or more Registered Notes may be transferred upon thesurrender (at the specified office of the Registrar or any Transfer Agent) of the Certificaterepresenting such Registered Notes to be transferred, together with the form of transferendorsed on such Certificate (or another form of transfer substantially in the same form andcontaining the same representations and certifications (if any), unless otherwise agreed by theIssuer), duly completed and executed and any other evidence as the Registrar or such TransferAgent may require. In the case of a transfer of part only of a holding of Registered Notesrepresented by one Certificate, a new Certificate shall be issued to the transferee in respect ofthe part transferred and a further new Certificate in respect of the balance of the holding nottransferred shall be issued to the transferor. All transfers of Notes and entries on the Registerwill be made subject to the detailed regulations concerning transfers of Notes scheduled to theAgency Agreement. The regulations may be changed by the Issuer, with the prior writtenapproval of the Registrar and the Trustee, or by the Registrar with the prior written approvalof the Trustee. A copy of the current regulations will be made available for inspection by theRegistrar (at the cost of the Issuer) to any Noteholder following written request and proof ofholding satisfactory to the Registrar.
Transfer of interests in the Notes evidenced by the Global Certificate will be effected inaccordance with the rules of the relevant clearing systems.
(c) Exercise of Options or Partial Redemption in Respect of Registered Notes: In the case ofan exercise of an Issuer’s or Noteholders’ option in respect of, or a partial redemption of, aholding of Registered Notes represented by a single Certificate, a new Certificate shall beissued to the holder to reflect the exercise of such option or in respect of the balance of the
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holding not redeemed. In the case of a partial exercise of an option resulting in RegisteredNotes of the same holding having different terms, separate Certificates shall be issued inrespect of those Notes of that holding that have the same terms. New Certificates shall only beissued against surrender of the existing Certificates to the Registrar or any Transfer Agent. Inthe case of a transfer of Registered Notes to a person who is already a holder of RegisteredNotes, a new Certificate representing the enlarged holding shall only be issued againstsurrender of the Certificate representing the existing holding.
(d) Delivery of New Certificates: Each new Certificate to be issued pursuant to Conditions 2(b)or 2(c) shall be available for delivery within seven business days of receipt of the completedform of transfer or Exercise Notice (as defined in Condition 6(f)) and surrender of theCertificate for exchange. Delivery of the new Certificate(s) shall be made at the specified officeof the Transfer Agent or of the Registrar (as the case may be) to whom delivery or surrenderof such form of transfer, Exercise Notice or Certificate shall have been made or, at the optionof the holder making such delivery or surrender as aforesaid and as specified in the relevantform of transfer, Exercise Notice or otherwise in writing, be mailed by uninsured post at therisk of the holder entitled to the new Certificate to such address as may be so specified, unlesssuch holder requests otherwise and pays in advance to the relevant Transfer Agent or, as thecase may be, the Registrar the costs of such other method of delivery and/or such insurance asit may specify. In this Condition 2(d), “business day” means a day, other than a Saturday orSunday or public holiday, on which banks are open for business in the place of the specifiedoffice of the relevant Transfer Agent or the Registrar (as the case may be).
(e) Transfers Free of Charge: Transfers of Notes and Certificates on registration, transfer,exercise of an option or partial redemption shall be effected without charge by or on behalf ofthe Issuer, the Registrar or any Transfer Agent, but upon payment by the relevant Noteholdersof any tax, duty or other governmental charges that may be imposed in relation to them (or thegiving of such indemnity and/or security and/or prefunding as the Registrar or the relevantTransfer Agent may require).
(f) Closed Periods: No Noteholder may require the transfer of a Registered Note to be registered(i) during the period of 15 days ending on the due date for redemption of, or payment of anyInstalment Amount in respect of, that Note, (ii) during the period of 15 days prior to any dateon which Notes are being called for redemption in part by the Issuer at its option, (iii) after anysuch Note has been called for redemption, (iv) during the period of seven days ending on (andincluding) any Record Date or (v) after an Exercise Notice or a Put Exercise Notice (as definedin Condition 6(d)) has been deposited in respect of a Note pursuant to Condition 6.
3 STATUS
The Notes and the Receipts and the Coupons relating to them constitute direct, unsubordinated,unconditional and (subject to Condition 4(a)) unsecured obligations of the Issuer and shall at alltimes rank pari passu and without any preference among themselves. The payment obligations of theIssuer under the Notes and the Receipts and the Coupons relating to them shall, save for suchexceptions as may be provided by applicable legislation and subject to Condition 4(a), at all timesrank at least equally with all other present and future unsecured and unsubordinated obligations ofthe Issuer.
4 NEGATIVE PLEDGE AND OTHER COVENANTS
(a) Negative Pledge
(i) So long as any Note or Coupon remains outstanding (as defined in the Trust Deed), theIssuer shall not, and shall ensure that none of its Subsidiaries will, create, or haveoutstanding, any mortgage, charge, lien, pledge or other security interest, upon the wholeor any part of its present or future undertaking, assets or revenues (including any uncalledcapital) to secure any Relevant Indebtedness, or to secure any guarantee or indemnity inrespect of any Relevant Indebtedness, without at the same time or prior thereto accordingto the Notes and the Coupons the same security as is created or subsisting to secure anysuch Relevant Indebtedness, guarantee or indemnity or such other security as either (A)the Trustee shall in its absolute discretion deem not materially less beneficial to theinterest of the Noteholders or (B) shall be approved by an Extraordinary Resolution (asdefined in the Trust Deed).
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(ii) So long as any Note or Coupon remains outstanding, the Issuer undertakes to procure that(A) the Company will not create or have outstanding any guarantee or indemnity inrespect of any Relevant Indebtedness outside the PRC without at the same time or priorthereto (aa) according to the Notes and the Coupons the same guarantee or indemnity or(bb) offering to exchange the Notes for securities issued or guaranteed by the Companywith terms substantially identical to those of the Notes as certified by an IndependentInvestment Bank; and (B) neither the Company nor any of its Subsidiaries will create orpermit to subsist any mortgage, charge, lien, pledge or other security interest, upon thewhole or any part of its present or future undertaking, assets or revenues (including anyuncalled capital) to secure any Relevant Indebtedness outside the PRC, or to secure anyguarantee or indemnity in respect of any Relevant Indebtedness outside the PRC withoutat the same time or prior thereto according to the Notes and the Coupons the samesecurity as is created or subsisting to secure any such Relevant Indebtedness, guaranteeor indemnity or such other security as either (A) the Trustee shall in its absolutediscretion deem not materially less beneficial to the interest of the Noteholders or (B)shall be approved by an Extraordinary Resolution, provided that:
(I) if regulatory approvals are required in order to effect the action set out in one butnot both of Condition 4(a)(ii)(A)(aa) and Condition 4(a)(ii)(A)(bb), then theCompany shall either (X) effect the action which does not require regulatoryapprovals or (Y) obtain all regulatory approvals required in order to effect the actionrequiring regulatory approvals and then effect such action; and
(II) if regulatory approvals are required in order to effect the action set out in bothCondition 4(a)(ii)(A)(aa) and Condition 4(a)(ii)(A)(bb), then the Company shall berequired to use its best efforts to obtain all such regulatory approvals but if, havingused such best efforts, it is unable to obtain such regulatory approvals, then theCompany shall be permitted to create a guarantee or indemnity in respect of suchRelevant Indebtedness outside the PRC under Condition 4(a)(ii)(A) withoutcomplying with Condition 4(a)(ii)(A)(aa) and Condition 4(a)(ii)(A)(bb).
(b) Financial Covenant
The Issuer undertakes that from the Issue Date and for so long as any Note or Coupon remainsoutstanding, the Issuer shall at all times maintain its Consolidated Net Worth at not less thanUS$1.00.
The financial covenant set out in this Condition 4(b) shall be tested by reference to the IssuerAudited Financial Reports as at the end of each Annual Relevant Period.
The Trustee is under no obligation to monitor compliance by the Issuer with this Condition 4(b)and shall not be responsible or liable to any Noteholder or any other person for not doing so.
(c) Financial Information
For so long as any Note or Coupon remains outstanding:
(i) the Company will furnish the Trustee with (A) a Compliance Certificate of the Company(on which the Trustee may rely conclusively as to such compliance) and a copy of therelevant Company Audited Financial Reports within 150 days of the end of each AnnualRelevant Period prepared in accordance with the Accounting Standards for BusinessEnterprises in China (audited by a recognised firm of independent accountants) and ifsuch statements shall be in the Chinese language, together with an English translation ofthe same translated by (aa) a recognised firm of independent accountants or (bb) aprofessional translation service provider and checked by a recognised firm of independentaccountants, together with a certificate signed by an Authorised Signatory of theCompany certifying that such translation is complete and accurate; and (B) a copy of therelevant Company Unaudited Semi-Annual Financial Reports within 90 days of the endof each Semi-Annual Relevant Period prepared on a basis consistent with the auditedconsolidated financial statements of the Company and its subsidiaries and, if such
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statements shall be in the Chinese language, together with an English translation of thesame translated by (aa) a recognised firm of independent accountants or (bb) aprofessional translation service provider and checked by a recognised firm of independentaccountants, together with a certificate signed by an Authorised Signatory of theCompany certifying that such translation is complete and accurate; and (C) a copy of therelevant Company Unaudited Quarterly Financial Reports within 90 days of the end ofeach Quarterly Relevant Period prepared on a basis consistent with the auditedconsolidated financial statements of the Company and its subsidiaries and, if suchstatements shall be in the Chinese language, together with an English translation of thesame translated by (aa) a recognised firm of independent accountants or (bb) aprofessional translation service provider, together with a certificate signed by anAuthorised Signatory of the Company certifying that such translation is complete andaccurate; provided that, if at any time the capital stock of the Company is listed fortrading on a recognised stock exchange, the Company may make available to the Trustee,as soon as they are available but in any event not more than 10 calendar days after anyfinancial or other reports of the Company are filed with the exchange on which theCompany’s capital stock is at such time listed for trading, true and correct copies of anyfinancial or other report filed with such exchange in lieu of the reports identified inCondition 4(c)(i)(A), Condition 4(c)(i)(B) and Condition 4(c)(i)(C) above and, if suchfinancial or other reports shall be in the Chinese language, together with an Englishtranslation of the same translated by (aa) a recognised firm of independent accountantsor (bb) a professional translation service provider and checked by a recognised firm ofindependent accountants, together with a certificate signed by an Authorised Signatory ofthe Company certifying that such translation is complete and accurate; and
(ii) the Issuer will furnish the Trustee with a Compliance Certificate of the Issuer (on whichthe Trustee may rely conclusively as to such compliance) and a copy of the relevant IssuerAudited Financial Reports within 150 days of the end of each Annual Relevant Period inaccordance with the Hong Kong Financial Reporting Standards issued by the Hong KongInstitute of Certified Public Accountants.
(d) Adjustment of Settlement Policy
Where required pursuant to Clause 8.2 of the Keepwell Deed, the Trustee shall give the Issuerand the Company a notice (the “Trigger Notice”) in writing in accordance with the Trust Deedand the Keepwell Deed notifying the Company of its obligations to promptly provide liquidityto the Issuer through the immediate adjustment of the settlement policy for any procurementbetween (i) the Issuer and (ii) the Company and/or its Subsidiaries in the manner set out in theKeepwell Deed such that the Issuer receives an amount equal to the Relevant Amount withinone Business Day (as defined in the Keepwell Deed) after the date of the Trigger Notice.
(e) Irrevocable Cross-Border RMB Standby Facility
In the event that the Trustee has given the Issuer and the Company a Trigger Notice inaccordance with the Trust Deed and the Keepwell Deed, the Company shall in accordance withthe Keepwell Deed, among other things, (i) as soon as practicable grant to the Issuer a standbyfacility in an amount in RMB sufficient to satisfy the payment obligations as provided in theKeepwell Deed, (ii) as soon as practicable open with a PRC commercial bank a special RMBaccount for the transfer and remittance of such amount to the Issuer, (iii) remit such amountto a specified account of the Issuer in Hong Kong through the special RMB account and (iv)cause the Issuer to use such amount received to discharge its obligations under the Notes, theCoupons, the Trust Deed, the Agency Agreement and the Keepwell Deed on the due datetherefor.
(f) Obligation to Acquire Equity Interest
In the event that the Trustee has given the Issuer and the Company a Trigger Notice inaccordance with the Trust Deed and the Keepwell Deed, the Company shall fulfill itsobligations to purchase certain equity interests under the Keepwell Deed. Upon the completionof any equity purchase made in accordance with the Keepwell Deed: (A) in the event the
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Relevant Transferor (as defined in the Keepwell Deed) is the Issuer, the Issuer undertakes to(i) direct the Company promptly to pay or procure to be paid an amount (being an amount noless than the amount sufficient to enable the Issuer to discharge in full its obligations under theNotes and the Trust Deed and those other payment obligations described under the KeepwellDeed) from the proceeds to be received by the Issuer in relation to such equity purchase madein accordance with the Keepwell Deed to or to the order of the Trustee and (ii) promptly do allsuch things (including entering into and executing any agreements or arrangements required)and take all actions necessary for the proceeds received in accordance with the Keepwell Deedto be applied solely towards the payment in accordance with the Trust Deed of any outstandingamounts as they fall due under the Keepwell Deed, the Trust Deed and the Notes (including anyinterest accrued but unpaid on the Notes) prior to any other use, disposal or transfer of theproceeds received; and (B) in the event the Relevant Transferor is not the Issuer, (i) theCompany and the Issuer shall procure that such Relevant Transferor on-lends the purchaseproceeds to the Issuer and (ii) the Issuer shall promptly credit any amounts received under theon-loan referred to in this Condition 4(f)(B)(i) to an account designated by the Trustee.
(g) Obligation to Invest
In the event that the Trustee has given the Issuer and the Company a Trigger Notice inaccordance with the Trust Deed and the Keepwell Deed notifying the Company of itsobligations to provide liquidity to the Issuer by investing (either by itself or through aSubsidiary of the Company as designated by it) in the Issuer (by equity investment orshareholders’ loan or a combination thereof) in the manner set out in the Keepwell Deed, theIssuer shall use its best efforts to do all such things and take all such actions as may benecessary or desirable to obtaining the relevant investment approvals as provided in theKeepwell Deed.
(h) Liquidity Notice
So long as any Note or Coupon remains outstanding, no later than 4.00 p.m. (Hong Kong time)on 31 March, 30 June, 30 September and 31 December in each year (or if that is not a LiquidityNotice Business Day, the next day which is a Liquidity Notice Business Day) (each, a“Liquidity Notice Date”), the Issuer shall send to the Company a notice in writingsubstantially in the form set out in Schedule 2 of the Keepwell Deed (a “Liquidity Notice”)certifying, as at the date of the Liquidity Notice, (i) that it has sufficient liquidity to meet itspayment obligations under all outstanding notes and coupons issued pursuant to the Programme(including the Notes and the Coupons) and the Trust Deed as they may fall due (together withevidence of available funding outside the PRC), and (ii) that no Event of Default or PotentialEvent of Default has occurred.
(i) Notification to NDRC
Where the Circular on Promoting the Reform of the Filings and Registration System forIssuance of Foreign Debt by Enterprises (國家發展改革委關於推進企業發行外債備案登記制管理改革的通知(發改外資 [2015] 2044號)) (the “NDRC Circular”) issued by the NDRC andwhich came into effect on 14 September 2015 and any implementation rules, regulations,certificates, circulars, notices or policies in connection therewith as issued by the NDRC fromtime to time applies, for the benefit of the relevant Series or Tranche of Notes to be issued inaccordance with these Conditions and the Trust Deed, the Issuer shall procure that theCompany will within the prescribed timeframe after the Issue Date of the relevant Tranche ofNotes file or cause to be filed with the NDRC the requisite information and documents inaccordance with the NDRC Circular (the “NDRC Post-issue Filing”) and comply with allapplicable PRC laws and regulations in connection therewith. The Issuer shall (i) procure thatwithin ten PRC Business Days after the submission of the NDRC Post-issue Filing, theCompany shall provide the Trustee with a certificate in English substantially in the form set outin the Trust Deed signed by an Authorised Signatory of the Company confirming thesubmission of the NDRC Post-issue Filing and attaching copies of the document(s) (if any)evidencing due filing with the NDRC, each certified by an Authorised Signatory of theCompany to be a true copy of the original; and (ii) within ten PRC Business Days after theprovision to the Trustee of the aforementioned certificate, give notice to the Noteholders inaccordance with Condition 16 of the same.
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The Trustee shall have no obligation or duty to monitor or ensure the completion of the NDRCPost-issue Filing on or before the deadline referred to above or to verify the accuracy, validityand/or genuineness of any certificate, confirmation, or other documents in relation to or inconnection with the NDRC Post-issue Filing or to give notice to the Noteholders confirmingthe completion of the NDRC Post-issue Filing, and shall not be liable to Noteholders or anyother person for not doing so.
(j) Definitions
In these Conditions:
“Annual Relevant Period” means in relation to each of the Company Audited FinancialReports and the Issuer Audited Financial Reports, each period of twelve months ending on thelast day of their respective financial year (being December 31 of that financial year unlessotherwise notified in writing to the Trustee and the Noteholders in accordance with Condition16);
“Company Audited Financial Reports” means the annual audited consolidated balance sheet,income statement, cash flow statement and statement of changes in equity of the Companytogether with any statements, reports (including any Directors’ and auditors’ reports) and notesattached to or intended to be read with any of them;
“Company Unaudited Quarterly Financial Reports” means the quarterly or any otherinterim reporting period (as required by applicable law or regulations) unaudited consolidatedbalance sheet, income statement and cash flow statement of the Company together with anystatements, reports (including any Directors’ and auditors’ review reports, if any) and notesattached to or intended to be read with any of them;
“Company Unaudited Semi-Annual Financial Reports” means the semi-annual unauditedconsolidated balance sheet, income statement and cash flow statement of the Company togetherwith any statements, reports (including any Directors’ and auditors’ review reports, if any) andnotes attached to or intended to be read with any of them;
“Compliance Certificate” means a certificate of the Company or the Issuer (as the case maybe) signed by any one of their respective Authorised Signatories that, having made allreasonable enquiries, to the best of the knowledge, information and belief of the Company orthe Issuer (as the case may be) as at a date (the “Certification Date”) not more than five daysbefore the date of the certificate:
(A) no Event of Default (as defined in Condition 10), Potential Event of Default or otherTriggering Event had occurred since the Certification Date of the last such certificate or(if none) the date of the Trust Deed or, if such an event had occurred, giving details ofit; and
(B) each of the Company and the Issuer (as the case may be) has complied with all itsobligations under the Trust Deed, the Keepwell Deed and the Notes, the Receipts and theCoupons or, if any non-compliance had occurred, giving details of it;
“Consolidated Net Worth” means, in respect of the Issuer, the excess of total assets of theIssuer and its consolidated Subsidiaries over total liabilities of the Issuer and its consolidatedSubsidiaries, total assets and total liabilities each to be determined in accordance with the HongKong Financial Reporting Standards consistently applied;
“Directors” means, in relation to the Issuer or the Company, members of the board of directorsof the Issuer or, as the case may be, the Company, from time to time;
“Hong Kong” means the Hong Kong Special Administrative Region of the People’s Republicof China;
“Independent Investment Bank” means an independent investment bank of internationalrepute (acting as an expert) selected and appointed by the Issuer (at the expense of the Issuer)and notified in writing to the Trustee and (for the purposes of Condition 5(b)) the CalculationAgent;
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“Issuer Audited Financial Reports” means the annual audited consolidated statement of profitor loss and other comprehensive income, statement of financial position, statement of changesin equity and statement of cash flows together with any statements, reports (including anyDirectors’ and auditors’ reports) and notes attached to or intended to be read with any of them;
“Liquidity Notice Business Day” means a day (other than a Saturday, Sunday or publicholiday) on which banks and foreign exchange markets are generally open for business inBeijing and Hong Kong;
“NDRC” means the National Development and Reform Commission of the PRC or itscompetent local counterpart;
“Potential Event of Default” means an event or circumstance which could with the giving ofnotice, lapse of time, issue of a certificate and/or fulfilment of any other requirement providedfor in Condition 10 become an Event of Default;
“PRC” means the People’s Republic of China which, for the purposes of these Conditions,shall not include Hong Kong, the Macau Special Administrative Region of the People’sRepublic of China and Taiwan;
“Programme” means the Medium Term Note Programme established by the Issuer on 8 March2019, as amended and/or updated from time to time, under which the Notes are issued;
“Quarterly Relevant Period” means in relation to the Company Unaudited QuarterlyFinancial Reports, each period of three months ending on the last day of the first quarter in itsfinancial year (being March 31 of that financial year unless otherwise notified in writing to theTrustee and the Noteholders in accordance with Condition 16) and each period of nine monthsending on the last day of the third quarter in its financial year (being September 30 of thatfinancial year unless otherwise notified in writing to the Trustee and the Noteholders inaccordance with Condition 16);
“Relevant Amount” means the following:
(i) if the Triggering Event is a Financial Ratio Failure, an amount in US dollars no less thanthe amount sufficient to enable the Issuer to remedy the Financial Ratio Failure calculatedon a pro forma basis;
(ii) if the Triggering Event is a Liquidity Notice Failure Event, an amount in the SpecifiedCurrency that is no less than the amount sufficient to enable the Issuer to meet itspayment obligations on the next Interest Payment Date; or
(iii) if the Triggering Event is an Event of Default or if a Trigger Notice is given in respectof a Series of Notes pursuant to Clause 8.2(i) or Clause 8.2(ii) of the Keepwell Deed, anamount in the Specified Currency that is no less than the amount sufficient to enable theIssuer to discharge in full its obligations under the Notes and the Trust Deed (includingwithout limitation the payment of the principal amount of the Notes then outstanding asat the date of the relevant Trigger Notice and any interest due and unpaid and/or accruedbut unpaid on the Notes up to but excluding the date of such Trigger Notice),
in any such case, together with all fees, costs, expenses and other amounts payable to theTrustee and/or the Agents under or in connection with the Notes, the Coupons, the Trust Deed,the Agency Agreement and/or the Keepwell Deed as at the date of such Trigger Notice plusprovisions for fees, costs, expenses and other amounts which may be incurred after the date ofthe Trigger Notice, as notified by the Trustee in the Trigger Notice;
“Relevant Indebtedness” means any present or future indebtedness which is in the form of orrepresented by any bond, note, debenture, debenture stock, loan stock, or other securities whichis, or is capable of being, listed, quoted or traded on any stock exchange or in any securitiesmarket (including, without limitation, any over-the-counter market) (which, for the avoidanceof doubt, does not include bi-lateral loans, syndicated loans or club deal loans);
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“Semi-Annual Relevant Period” means in relation to the Company Unaudited Semi-AnnualFinancial Reports, each period of six months ending on the last day of its first half financialyear (being June 30 of that financial year unless otherwise notified in writing to the Trustee andthe Noteholders in accordance with Condition 16);
a “Subsidiary” of any person means (a) any company or other business entity of which thatperson owns or controls (either directly or through one or more other Subsidiaries) more than50 per cent. of the issued share capital or other ownership interest having ordinary votingpower to elect directors, managers or trustees of such company or other business entity, or (b)any company or other business entity which at any time has its accounts consolidated withthose of that person or which, under the law, regulations or generally accepted accountingprinciples of the jurisdiction of incorporation of such person from time to time, should have itsaccounts consolidated with those of that person; and
“Triggering Event” means any of the following events:
(i) the Consolidated Net Worth of the Issuer falls below US$1.00 (a “Financial RatioFailure”); or
(ii) an Event of Default; or
(iii) the Issuer fails to provide the Company with a Liquidity Notice by the time on theLiquidity Notice Date and otherwise in accordance with the Keepwell Deed and suchfailure is not remedied within seven days from the Liquidity Notice Date (a “LiquidityNotice Failure Event”).
5 INTEREST AND OTHER CALCULATIONS
(a) Interest on Fixed Rate Notes: Each Fixed Rate Note bears interest on its outstanding principalamount from the Interest Commencement Date at the rate per annum (expressed as apercentage) equal to the Rate of Interest, such interest being payable in arrear on each InterestPayment Date. The amount of interest payable shall be determined in accordance withCondition 5(h).
(b) Interest on Floating Rate Notes and Index Linked Interest Notes:
(i) Interest Payment Dates: Each Floating Rate Note and Index Linked Interest Note bearsinterest on its outstanding principal amount from the Interest Commencement Date at therate per annum (expressed as a percentage) equal to the Rate of Interest, such interestbeing payable in arrear on each Interest Payment Date. The amount of interest payableshall be determined in accordance with Condition 5(h). Such Interest Payment Date(s)is/are either shown hereon as Specified Interest Payment Dates or, if no Specified InterestPayment Date(s) is/are shown hereon, Interest Payment Date shall mean each date whichfalls the number of months or other period shown hereon as the Interest Period after thepreceding Interest Payment Date or, in the case of the first Interest Payment Date, afterthe Interest Commencement Date.
(ii) Business Day Convention: If any date referred to in these Conditions that is specified tobe subject to adjustment in accordance with a Business Day Convention would otherwisefall on a day that is not a Business Day, then, if the Business Day Convention specifiedis (A) the Floating Rate Business Day Convention, such date shall be postponed to thenext day that is a Business Day unless it would thereby fall into the next calendar month,in which event (x) such date shall be brought forward to the immediately precedingBusiness Day and (y) each subsequent such date shall be the last Business Day of themonth in which such date would have fallen had it not been subject to adjustment, (B) theFollowing Business Day Convention, such date shall be postponed to the next day that isa Business Day, (C) the Modified Following Business Day Convention, such date shall bepostponed to the next day that is a Business Day unless it would thereby fall into the nextcalendar month, in which event such date shall be brought forward to the immediatelypreceding Business Day or (D) the Preceding Business Day Convention, such date shallbe brought forward to the immediately preceding Business Day.
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(iii) Rate of Interest for Floating Rate Notes: The Rate of Interest in respect of Floating RateNotes for each Interest Accrual Period shall be determined in the manner specified hereonand the provisions below relating to either ISDA Determination or Screen RateDetermination shall apply, depending upon which is specified hereon.
(A) ISDA Determination for Floating Rate Notes
Where ISDA Determination is specified hereon as the manner in which the Rate ofInterest is to be determined, the Rate of Interest for each Interest Accrual Periodshall be determined by the Calculation Agent as a rate equal to the relevant ISDARate. For the purposes of this sub-paragraph (A), “ISDA Rate” for an InterestAccrual Period means a rate equal to the Floating Rate that would be determined bythe Calculation Agent under a Swap Transaction under the terms of an agreementincorporating the ISDA Definitions and under which:
(x) the Floating Rate Option is as specified hereon;
(y) the Designated Maturity is a period specified hereon; and
(z) the relevant Reset Date is the first day of that Interest Accrual Period unlessotherwise specified hereon.
For the purposes of this sub-paragraph (A), “Floating Rate”, “Calculation Agent”,“Floating Rate Option”, “Designated Maturity”, “Reset Date” and “SwapTransaction” have the meanings given to those terms in the ISDA Definitions.
(B) Screen Rate Determination for Floating Rate Notes
(x) Where Screen Rate Determination is specified hereon as the manner in whichthe Rate of Interest is to be determined, the Rate of Interest for each InterestAccrual Period will, subject as provided below, be either:
(1) the offered quotation; or
(2) the arithmetic mean of the offered quotations,
(expressed as a percentage rate per annum) for the Reference Rate whichappears or appear, as the case may be, on the Relevant Screen Page as at either11.00 a.m. (London time in the case of LIBOR or Brussels time in the case ofEURIBOR or Hong Kong time in the case of HIBOR) or 11.15 a.m. (HongKong time) or if, at or around that time it is notified that the fixing will bepublished at 2.30 p.m. (Hong Kong time), then as of 2.30 p.m. (in the case ofCNH HIBOR) on the Interest Determination Date in question as determined bythe Calculation Agent. If five or more of such offered quotations are availableon the Relevant Screen Page, the highest (or, if there is more than one suchhighest quotation, one only of such quotations) and the lowest (or, if there ismore than one such lowest quotation, one only of such quotations) shall bedisregarded by the Calculation Agent for the purpose of determining thearithmetic mean of such offered quotations.
If the Reference Rate from time to time in respect of Floating Rate Notes isspecified hereon as being other than LIBOR or EURIBOR or HIBOR or CNHHIBOR, the Rate of Interest in respect of such Notes will be determined asprovided hereon.
(y) If the Relevant Screen Page is not available or if, sub-paragraph (x)(1) appliesand no such offered quotation appears on the Relevant Screen Page or ifsub-paragraph (x)(2) above applies and fewer than three such offeredquotations appear on the Relevant Screen Page in each case as at the timespecified above, subject as provided below, the Calculation Agent shall
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promptly inform the Issuer and the Issuer shall appoint an IndependentInvestment Bank and procure such Independent Investment Bank to request, ifthe Reference Rate is LIBOR, the principal London office of each of theReference Banks or, if the Reference Rate is EURIBOR, the principalEuro-zone office of each of the Reference Banks or, if the Reference Rate isHIBOR or CNH HIBOR, the principal Hong Kong office of each of theReference Banks, each to provide the Independent Investment Bank and theCalculation Agent with its offered quotation (expressed as a percentage rateper annum) for the Reference Rate if the Reference Rate is LIBOR, atapproximately 11.00 a.m. (London time), or if the Reference Rate isEURIBOR, at approximately 11.00 a.m. (Brussels time) or, if the ReferenceRate is HIBOR or CNH HIBOR, at approximately 11.00 a.m. (Hong Kongtime) on the Interest Determination Date in question. If two or more of theReference Banks provide the Independent Investment Bank and theCalculation Agent with such offered quotations, the Rate of Interest for suchInterest Accrual Period shall be the arithmetic mean of such offered quotationsas determined by the Calculation Agent.
(z) If paragraph (y) above applies and the Calculation Agent has receivedquotations from fewer than two Reference Banks, subject as provided below,(i) the Rate of Interest shall be the arithmetic mean of the rates per annum(expressed as a percentage) as communicated, at the request of theIndependent Investment Bank, to the Independent Investment Bank and theCalculation Agent by the Reference Banks or any two or more of them, atwhich such banks were offered, if the Reference Rate is LIBOR, atapproximately 11.00 a.m. (London time) or, if the Reference Rate isEURIBOR, at approximately 11.00 a.m. (Brussels time) or, if the ReferenceRate is HIBOR or CNH HIBOR, at approximately 11.00 a.m. (Hong Kongtime) on the relevant Interest Determination Date, deposits in the SpecifiedCurrency for a period equal to that which would have been used for theReference Rate by leading banks in, if the Reference Rate is LIBOR, theLondon inter-bank market or, if the Reference Rate is EURIBOR, theEuro-zone inter-bank market, or, if the Reference Rate is HIBOR or CNHHIBOR, the Hong Kong inter-bank market, as the case may be, or (ii) if fewerthan two of the Reference Banks provide the Independent Investment Bankand the Calculation Agent with such offered rates referred to in (i) above, theoffered rate for deposits in the Specified Currency for a period equal to thatwhich would have been used for the Reference Rate, or the arithmetic meanof the offered rates for deposits in the Specified Currency for a period equalto that which would have been used for the Reference Rate, at which, if theReference Rate is LIBOR, at approximately 11.00 a.m. (London time) or, ifthe Reference Rate is EURIBOR, at approximately 11.00 a.m. (Brussels time),or, if the Reference Rate is HIBOR or CNH HIBOR, at approximately 11.00a.m. (Hong Kong time) on the relevant Interest Determination Date, any oneor more banks (which bank or banks is or are in the opinion of the IndependentInvestment Bank suitable for such purpose) informs the IndependentInvestment Bank and the Calculation Agent it is quoting to leading banks in,if the Reference Rate is LIBOR, the London inter-bank market or, if theReference Rate is EURIBOR, the Euro-zone inter-bank market, or, if theReference Rate is HIBOR or CNH HIBOR, the Hong Kong inter-bank market,as the case may be, provided that, if the Rate of Interest cannot be determinedin accordance with the foregoing provisions of this paragraph (z), the Rate ofInterest shall be determined as at the last preceding Interest DeterminationDate (though substituting, where a different Margin or Maximum Rate ofInterest or Minimum Rate of Interest is to be applied to the relevant InterestAccrual Period from that which applied to the last preceding Interest AccrualPeriod, the Margin or Maximum Rate of Interest or Minimum Rate of Interestrelating to the relevant Interest Accrual Period, in place of the Margin orMaximum Rate of Interest or Minimum Rate of Interest relating to that lastpreceding Interest Accrual Period).
(iv) Rate of Interest for Index Linked Interest Notes: The Rate of Interest in respect of IndexLinked Interest Notes for each Interest Accrual Period shall be determined in the mannerspecified hereon and interest will accrue by reference to an Index or Formula as specifiedhereon.
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(c) Zero Coupon Notes: Where a Note the Interest Basis of which is specified to be Zero Couponis repayable prior to the Maturity Date and is not paid when due, the amount due and payableprior to the Maturity Date shall be the Early Redemption Amount of such Note. As from theMaturity Date, the Rate of Interest for any overdue principal of such a Note shall be a rate perannum (expressed as a percentage) equal to the Amortisation Yield (as described in Condition6(b)(i)).
(d) Dual Currency Notes: In the case of Dual Currency Notes, if the rate or amount of interestfalls to be determined by reference to a Rate of Exchange or a method of calculating Rate ofExchange, the rate or amount of interest payable shall be determined in the manner specifiedhereon.
(e) Partly Paid Notes: In the case of Partly Paid Notes (other than Partly Paid Notes which areZero Coupon Notes), interest will accrue as aforesaid on the paid-up principal amount of suchNotes and otherwise as specified hereon.
(f) Accrual of Interest: Interest shall cease to accrue on each Note on the due date for redemptionunless, upon due presentation, payment is improperly withheld or refused, in which eventinterest shall continue to accrue (both before and after judgment) at the Rate of Interest in themanner provided in this Condition 5 to the Relevant Date (as defined in Condition 8).
(g) Margin, Maximum Rates of Interest or Minimum Rates of Interest, Maximum InstalmentAmounts or Minimum Instalment Amounts and Maximum Redemption Amounts andMinimum Redemption Amounts and Rounding:
(i) If any Margin is specified hereon (either (x) generally, or (y) in relation to one or moreInterest Accrual Periods), an adjustment shall be made to all Rates of Interest, in the caseof (x), or the Rates of Interest for the specified Interest Accrual Periods, in the case of(y), calculated in accordance with Condition 5(b) above by adding (if a positive number)or subtracting the absolute value (if a negative number) of such Margin, subject alwaysto Condition 5(g)(ii).
(ii) If any Maximum Rate of Interest or Minimum Rate of Interest, Maximum InstalmentAmount or Minimum Instalment Amount or Maximum Redemption Amount or MinimumRedemption Amount is specified hereon, then any Rate of Interest, Instalment Amount orRedemption Amount shall be subject to such maximum or minimum, as the case may be.
(iii) For the purposes of any calculations required pursuant to these Conditions (unlessotherwise specified), (x) all percentages resulting from such calculations shall berounded, if necessary, to the nearest one hundred-thousandth of a percentage point (with0.000005 of a percentage point being rounded up), (y) all figures shall be rounded toseven significant figures (provided that if the eighth significant figure is a 5 or greater,the seventh significant figure shall be rounded up) and (z) all currency amounts that falldue and payable shall be rounded to the nearest unit of such currency (with half a unitbeing rounded up), save in the case of yen, which shall be rounded down to the nearestyen. For these purposes “unit” means the lowest amount of such currency that is availableas legal tender in the countries of such currency.
(h) Calculations: The amount of interest payable per Calculation Amount in respect of any Notefor any Interest Accrual Period shall be equal to the product of the Rate of Interest, theCalculation Amount specified hereon, and the Day Count Fraction for such Interest AccrualPeriod, unless an Interest Amount (or a formula for its calculation) is applicable to such InterestAccrual Period, in which case the amount of interest payable per Calculation Amount in respectof such Note for such Interest Accrual Period shall equal such Interest Amount (or be calculatedin accordance with such formula). Where any Interest Period comprises two or more InterestAccrual Periods, the amount of interest payable per Calculation Amount in respect of suchInterest Period shall be the sum of the Interest Amounts payable in respect of each of thoseInterest Accrual Periods. In respect of any other period for which interest is required to becalculated, the provisions above shall apply save that the Day Count Fraction shall be for theperiod for which interest is required to be calculated.
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(i) Determination and Publication of Rates of Interest, Interest Amounts, Final RedemptionAmounts, Early Redemption Amounts, Optional Redemption Amounts and InstalmentAmounts: The Calculation Agent shall, as soon as practicable on each Interest DeterminationDate, or such other time on such date as the Calculation Agent may be required to calculate anyrate or amount or make any determination or calculation, determine such rate and calculate theInterest Amounts for the relevant Interest Accrual Period, calculate the Final RedemptionAmount, Early Redemption Amount, Optional Redemption Amount or Instalment Amount ormake such determination or calculation, as the case may be, and cause the Rate of Interest andthe Interest Amounts for each Interest Accrual Period and the relevant Interest Payment Dateand, if required to be calculated, the Final Redemption Amount, Early Redemption Amount,Optional Redemption Amount or any Instalment Amount to be notified to the Trustee, theIssuer, each of the Paying Agents, the Noteholders and any other Calculation Agent appointedin respect of the Notes that is to make a further calculation upon receipt of such informationas soon as possible after their determination or calculation but in no event later than (A) thecommencement of the relevant Interest Period, if determined prior to such time, in the case ofnotification to such exchange of a Rate of Interest and Interest Amount, or (B) in all othercases, the fourth Business Day after such determination. The Issuer, if the Notes are listed ona stock exchange and the rules of such exchange or other relevant authority so require, shall,as soon as practicable after being notified by the Calculation Agent as contemplated in theimmediately preceding sentence, notify such exchange or other relevant authority. Where anyInterest Payment Date or Interest Period Date is subject to adjustment pursuant to Condition5(b)(ii), the Interest Amounts and the Interest Payment Date so published may subsequently beamended (or appropriate alternative arrangements made with the consent of the Trustee by wayof adjustment) without notice in the event of an extension or shortening of the Interest Period.If the Notes become due and payable under Condition 10, the accrued interest and the Rate ofInterest payable in respect of the Notes shall nevertheless continue to be determined orcalculated as previously in accordance with this Condition 5 but no publication of the Rate ofInterest or the Interest Amount so determined or calculated need be made unless the Trusteeotherwise requires. The determination or calculation of any rate or amount, the obtaining ofeach quotation and the making of each determination or calculation by the Calculation Agent(s)shall (in the absence of manifest error) be final and binding upon all parties and theNoteholders.
(j) Definitions: In these Conditions, unless the context otherwise requires, the following definedterms shall have the meanings set out below:
“Business Day” means:
(i) in the case of a currency other than euro or Renminbi, a day (other than a Saturday orSunday) on which commercial banks and foreign exchange markets settle payments in theprincipal financial centre for such currency; and/or
(ii) in the case of euro, a day on which the TARGET System is operating (a “TARGETBusiness Day”); and/or
(iii) in the case of Renminbi, a day (other than a Saturday, Sunday or public holiday) on whichcommercial banks in Hong Kong are generally open for business and settlement ofRenminbi payments in Hong Kong; and/or
(iv) in the case of a currency and/or one or more Business Centres a day (other than a Saturdayor a Sunday) on which commercial banks and foreign exchange markets settle paymentsin such currency in the Business Centre(s) or, if no currency is indicated, generally ineach of the Business Centres;
“Day Count Fraction” means, in respect of the calculation of an amount of interest on anyNote for any period of time (from and including the first day of such period to but excludingthe last) (whether or not constituting an Interest Period or an Interest Accrual Period, the“Calculation Period”):
(i) if “Actual/Actual” or “Actual/Actual – ISDA” is specified hereon, the actual number ofdays in the Calculation Period divided by 365 (or, if any portion of that Calculation
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Period falls in a leap year, the sum of (A) the actual number of days in that portion of theCalculation Period falling in a leap year divided by 366 and (B) the actual number of daysin that portion of the Calculation Period falling in a non-leap year divided by 365)
(ii) if “Actual/365 (Fixed)” is specified hereon, the actual number of days in the CalculationPeriod divided by 365
(iii) if “Actual/365 (Sterling)” is specified hereon, the actual number of days in theCalculation Period divided by 365 or, in the case of an Interest Payment Date falling ina leap year, 366
(iv) if “Actual/360” is specified hereon, the actual number of days in the Calculation Perioddivided by 360
(v) if “30/360”, “360/360” or “Bond Basis” is specified hereon, the number of days in theCalculation Period divided by 360, calculated on a formula basis as follows:
Day Count Fraction =[360 x (Y2 – Y1)] + [30 x (M2 – M1)] + (D2 – D1)
360
where:
“Y1” is the year, expressed as a number, in which the first day of the Calculation Periodfalls;
“Y2” is the year, expressed as a number, in which the day immediately following the lastday included in the Calculation Period falls;
“M1” is the calendar month, expressed as a number, in which the first day of theCalculation Period falls;
“M2” is the calendar month, expressed as a number, in which the day immediatelyfollowing the last day included in the Calculation Period falls;
“D1” is the first calendar day, expressed as a number, of the Calculation Period, unlesssuch number would be 31, in which case D1 will be 30; and
“D2” is the calendar day, expressed as a number, immediately following the last dayincluded in the Calculation Period, unless such number would be 31 and D1 isgreater than 29, in which case D2 will be 30;
(vi) if “30E/360” or “Eurobond Basis” is specified hereon, the number of days in theCalculation Period divided by 360, calculated on a formula basis as follows:
Day Count Fraction =[360 x (Y2 – Y1)] + [30 x (M2 – M1)] + (D2 – D1)
360
where:
“Y1” is the year, expressed as a number, in which the first day of the Calculation Periodfalls;
“Y2” is the year, expressed as a number, in which the day immediately following the lastday included in the Calculation Period falls;
“M1” is the calendar month, expressed as a number, in which the first day of theCalculation Period falls;
“M2” is the calendar month, expressed as a number, in which the day immediatelyfollowing the last day included in the Calculation Period falls;
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“D1” is the first calendar day, expressed as a number, of the Calculation Period, unlesssuch number would be 31, in which case D1 will be 30; and
“D2” is the calendar day, expressed as a number, immediately following the last dayincluded in the Calculation Period, unless such number would be 31, in which caseD2 will be 30;
(vii) if “30E/360 (ISDA)” is specified hereon, the number of days in the Calculation Perioddivided by 360, calculated on a formula basis as follows:
Day Count Fraction =[360 x (Y2 – Y1)] + [30 x (M2 – M1)] + (D2 – D1)
360
where:
“Y1” is the year, expressed as a number, in which the first day of the Calculation Periodfalls;
“Y2” is the year, expressed as a number, in which the day immediately following the lastday included in the Calculation Period falls;
“M1” is the calendar month, expressed as a number, in which the first day of theCalculation Period falls;
“M2” is the calendar month, expressed as a number, in which the day immediatelyfollowing the last day included in the Calculation Period falls;
“D1” is the first calendar day, expressed as a number, of the Calculation Period, unless (i)that day is the last day of February or (ii) such number would be 31, in which caseD1 will be 30; and
“D2” is the calendar day, expressed as a number, immediately following the last dayincluded in the Calculation Period, unless (i) that day is the last day of February butnot the Maturity Date or (ii) such number would be 31, in which case D2 will be 30;
(viii) if “Actual/Actual-ICMA” is specified hereon,
(A) if the Calculation Period is equal to or shorter than the Determination Period duringwhich it falls, the number of days in the Calculation Period divided by the productof (x) the number of days in such Determination Period and (y) the number ofDetermination Periods normally ending in any year; and
(B) if the Calculation Period is longer than one Determination Period, the sum of:
(x) the number of days in such Calculation Period falling in the DeterminationPeriod in which it begins divided by the product of (1) the number of days insuch Determination Period and (2) the number of Determination Periodsnormally ending in any year; and
(y) the number of days in such Calculation Period falling in the nextDetermination Period divided by the product of (1) the number of days in suchDetermination Period and (2) the number of Determination Periods normallyending in any year,
where:
“Determination Period” means the period from and including a Determination Datein any year to but excluding the next Determination Date;
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“Determination Date” means the date(s) specified as such hereon or, if none is sospecified, the Interest Payment Date(s);
“Euro-zone” means the region comprised of member states of the European Unionthat adopt the single currency in accordance with the Treaty establishing theEuropean Community, as amended;
“Interest Accrual Period” means the period beginning on (and including) the InterestCommencement Date and ending on (but excluding) the first Interest Period Dateand each successive period beginning on (and including) an Interest Period Date andending on (but excluding) the next succeeding Interest Period Date;
“Interest Amount” means:
(i) in respect of an Interest Accrual Period, the amount of interest payable perCalculation Amount for that Interest Accrual Period and which, in the case ofFixed Rate Notes, and unless otherwise specified hereon, shall mean the FixedCoupon Amount or Broken Amount specified hereon as being payable on theInterest Payment Date ending the Interest Period of which such InterestAccrual Period forms part; and
(ii) in respect of any other period, the amount of interest payable per CalculationAmount for that period;
“Interest Commencement Date” means the Issue Date or such other date as may bespecified hereon;
“Interest Determination Date” means, with respect to a Rate of Interest and InterestAccrual Period, the date specified as such hereon or, if none is so specified, (i) thefirst day of such Interest Accrual Period if the Specified Currency is Sterling orHong Kong dollars or Renminbi (other than where the Specified Currency isRenminbi and the Reference Rate is CNH HIBOR) or (ii) the day falling twoBusiness Days in London for the Specified Currency prior to the first day of suchInterest Accrual Period if the Specified Currency is neither Sterling nor euro norHong Kong dollars nor Renminbi or (iii) the day falling two TARGET BusinessDays prior to the first day of such Interest Accrual Period if the Specified Currencyis euro or (iv) the day falling two Business Days in Hong Kong prior to the first dayof such Interest Accrual Period if the Specified Currency is Renminbi and theReference Rate is CNH HIBOR;
“Interest Period” means the period beginning on and including the InterestCommencement Date and ending on but excluding the first Interest Payment Dateand each successive period beginning on and including an Interest Payment Dateand ending on but excluding the next succeeding Interest Payment Date unlessotherwise specified hereon;
“Interest Period Date” means each Interest Payment Date unless otherwise specifiedhereon;
“ISDA Definitions” means the 2006 ISDA Definitions, as published by theInternational Swaps and Derivatives Association, Inc., unless otherwise specifiedhereon;
“Rate of Interest” means the rate of interest payable from time to time in respect ofthis Note and that is either specified or calculated in accordance with the provisionshereon;
“Reference Banks” means, in the case of a determination of LIBOR, the principalLondon office of four major banks in the London inter-bank market and, in the caseof a determination of EURIBOR, the principal Euro-zone office of four major banks
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in the Euro-zone inter-bank market and, in the case of a determination of HIBOR,the principal Hong Kong office of four major banks in the Hong Kong inter-bankmarket, and in the case of a determination of CNH HIBOR, the principal HongKong office of four major banks dealing in Chinese Yuan in the Hong Konginter-bank market, in each case selected by the Independent Investment Bank or asspecified hereon;
“Reference Rate” means the rate specified as such hereon;
“Relevant Screen Page” means such page, section, caption, column or other part ofa particular information service as may be specified hereon (or any successor orreplacement page, section, caption, column or other part of a particular informationservice);
“Specified Currency” means the currency specified as such hereon or, if none isspecified, the currency in which the Notes are denominated; and
“TARGET System” means the Trans-European Automated Real Time GrossSettlement Express Transfer (known as TARGET2) System which was launched on19 November 2007 or any successor thereto.
(k) Calculation Agent: The Issuer shall procure that there shall at all times be one or moreCalculation Agents if provision is made for it or them hereon and for so long as any Note isoutstanding (as defined in the Trust Deed). Where more than one Calculation Agent isappointed in respect of the Notes, references in these Conditions to the Calculation Agent shallbe construed as each Calculation Agent performing its respective duties under theseConditions. If the Calculation Agent is unable or unwilling to act as such or if the CalculationAgent fails duly to establish the Rate of Interest for an Interest Accrual Period or to calculateany Interest Amount, Instalment Amount, Final Redemption Amount, Early RedemptionAmount or Optional Redemption Amount, as the case may be, or to comply with any otherrequirement, the Issuer shall (with prior written notification to the Trustee) select and appointa bank of international repute or financial institution of international repute engaged in theinterbank market (or, if appropriate, money, swap or over-the-counter index options market)that is most closely connected with the calculation or determination to be made by theCalculation Agent (acting through its principal London office or any other office activelyinvolved in such market) to act as such in its place. The Calculation Agent may not resign itsduties without a successor having been appointed as aforesaid.
6 REDEMPTION, PURCHASE AND OPTIONS
(a) Redemption by Instalments and Final Redemption:
(i) Unless previously redeemed, purchased and cancelled as provided in this Condition 6,each Note that provides for Instalment Dates and Instalment Amounts shall be partiallyredeemed on each Instalment Date at the related Instalment Amount specified hereon. Theoutstanding principal amount of each such Note shall be reduced by the InstalmentAmount (or, if such Instalment Amount is calculated by reference to a proportion of theprincipal amount of such Note, such proportion) for all purposes with effect from therelated Instalment Date, unless payment of the Instalment Amount is improperly withheldor refused, in which case, such amount shall remain outstanding until the Relevant Daterelating to such Instalment Amount.
(ii) Unless previously redeemed, purchased and cancelled as provided in this Condition 6,each Note shall be finally redeemed on the Maturity Date specified hereon at its FinalRedemption Amount (which, unless otherwise provided hereon, is its principal amount)or, in the case of a Note falling within Condition 6(a)(i) above, its final InstalmentAmount.
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(b) Early Redemption:
(i) Zero Coupon Notes:
(A) The Early Redemption Amount payable in respect of any Zero Coupon Note, theEarly Redemption Amount of which is not linked to an index and/or a formula, uponredemption of such Note pursuant to Condition 6(c), Condition 6(e) or Condition6(f) or upon it becoming due and payable as provided in Condition 10 shall be theAmortised Face Amount (calculated as provided below) of such Note unlessotherwise specified hereon.
(B) Subject to the provisions of sub-paragraph (C) below of this Condition 6(b)(i), theAmortised Face Amount of any such Note shall be the scheduled Final RedemptionAmount of such Note on the Maturity Date discounted at a rate per annum(expressed as a percentage) equal to the Amortisation Yield (which, if none is shownhereon, shall be such rate as would produce an Amortised Face Amount equal to theissue price of the Notes if they were discounted back to their issue price on the IssueDate) compounded annually.
(C) If the Early Redemption Amount payable in respect of any such Note upon itsredemption pursuant to Condition 6(c), Condition 6(e) or Condition 6(f) or upon itbecoming due and payable as provided in Condition 10 is not paid when due, theEarly Redemption Amount due and payable in respect of such Note shall be theAmortised Face Amount of such Note as defined in sub-paragraph (B) above of thisCondition 6(b)(i), except that such sub-paragraph shall have effect as though thedate on which the Note becomes due and payable were the Relevant Date. Thecalculation of the Amortised Face Amount in accordance with this sub-paragraph(C) shall continue to be made (both before and after judgment) until the RelevantDate, unless the Relevant Date falls on or after the Maturity Date, in which case theamount due and payable shall be the scheduled Final Redemption Amount of suchNote on the Maturity Date together with any interest that may accrue in accordancewith Condition 5(c).
Where such calculation is to be made for a period of less than one year, it shall be madeon the basis of the Day Count Fraction shown hereon.
(ii) Other Notes: The Early Redemption Amount payable in respect of any Note (other thanNotes described in Condition 6(b)(i) above), upon redemption of such Note pursuant toCondition 6(c), Condition 6(e) or Condition 6(f) or upon it becoming due and payable asprovided in Condition 10, shall be the Final Redemption Amount unless otherwisespecified hereon.
(iii) Calculations: None of the Trustee or the Agents (unless otherwise agreed by theCalculation Agent) shall be under any duty to determine, calculate or verify theredemption amount payable under this Condition 6 and none of them will be responsibleor liable to Noteholders or any other person for any loss arising from any failure by it todo so.
(c) Redemption for Taxation Reasons: The Notes may be redeemed at the option of the Issuer inwhole, but not in part, on any Interest Payment Date (if this Note is either a Floating Rate Noteor an Index Linked Interest Note) or at any time (if this Note is neither a Floating Rate Notenor an Index Linked Interest Note), on giving not less than 30 nor more than 60 days’ noticeto the Noteholders in accordance with Condition 16 and to the Trustee and the Issuing andPaying Agent or, as the case may be, the CMU Lodging and Paying Agent in writing (whichnotice shall be irrevocable) at their Early Redemption Amount (as described in Condition 6(b)above) (together with interest accrued to but excluding the date fixed for redemption), if (i) theIssuer satisfies the Trustee in writing immediately prior to the giving of such notice that it hasor will become obliged to pay Additional Tax Amounts as provided or referred to in Condition8 as a result of any change in, or amendment to, the laws or regulations of Hong Kong or thePRC or, in each case, any political subdivision or any authority thereof or therein having power
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to tax, or any change in the application or official interpretation of such laws or regulations,which change or amendment becomes effective on or after the date on which agreement isreached to issue the first Tranche of the Notes, and (ii) such obligation cannot be avoided bythe Issuer taking reasonable measures available to it, provided that no such notice ofredemption shall be given earlier than 90 days prior to the earliest date on which the Issuerwould be obliged to pay such Additional Tax Amounts were a payment in respect of the Notesthen due. Prior to the giving of any notice of redemption pursuant to this Condition 6(c), theIssuer shall deliver to the Trustee (A) a certificate signed by an Authorised Signatory of theIssuer stating that the obligation referred to in (i) above of this Condition 6(c) cannot beavoided by the Issuer taking reasonable measures available to it and (B) an opinion ofindependent legal or tax advisers of recognised standing to the effect that such change oramendment as is referred to in (i) above of this Condition 6(c) has occurred (irrespective ofwhether such amendment or change is then effective). The Trustee shall be entitled to acceptsuch certificate and opinion as sufficient evidence of the satisfaction of the conditionsprecedent set out in (i) and (ii) above of this Condition 6(c) without further enquiry and withoutliability to any Noteholder, in which event it shall be conclusive and binding on Noteholdersand Couponholders.
(d) Redemption for Put Event or Change of Control Event: At any time following theoccurrence of a Put Event (in the case of the Notes which are rated by any Rating Agency) ora Change of Control Event (in the case of the Notes which are not rated), the holder of any Notewill have the right, at such holder’s option, to require the Issuer to redeem all but not some onlyof that holder’s Notes on the Put Settlement Date at 101 per cent. of their principal amount,together with accrued interest to but excluding such Put Settlement Date. To exercise suchright, the holder of the relevant Note must deposit (in the case of Bearer Notes) such Note(together with all unmatured Receipts and Coupons and unexchanged Talons) with any PayingAgent or (in the case of Registered Notes) the Certificate representing such Note(s) with theRegistrar or any Transfer Agent at its specified office, together with a duly completed andsigned notice of redemption, in the form for the time being current, obtainable from thespecified office of any Paying Agent, the Registrar or any Transfer Agent (as applicable) (a“Put Exercise Notice”), by not later than 30 days following the occurrence of a Put Event (inthe case of the Notes which are rated by any Rating Agency) or a Change of Control Event (inthe case of the Notes which are not rated) or, if later, 30 days following the date upon whichnotice thereof is given to Noteholders by the Issuer in accordance with Condition 16. The “PutSettlement Date” shall be the 14th day after the expiry of such period of 30 days as referredto above.
A Put Exercise Notice, once delivered, shall be irrevocable and the Issuer shall redeem theNotes subject to the Put Exercise Notices delivered as aforesaid on the Put Settlement Date.
The Issuer shall give notice to Noteholders in accordance with Condition 16 and to the Trusteeand the Issuing and Paying Agent or, as the case may be, the CMU Lodging and Paying Agentin writing and (in the case of the Notes which are rated by any Rating Agency) to the relevantRating Agency by not later than 14 days following the first day on which it becomes aware ofthe occurrence of a Change of Control Event.
In the case of the Notes which are rated by any Rating Agency, the Issuer shall also give noticeto Noteholders in accordance with Condition 16 and to the Trustee and the Issuing and PayingAgent or, as the case may be, the CMU Lodging and Paying Agent in writing by not later than14 days following the first day on which it becomes aware of the occurrence of a Put Event,which notice shall specify the procedure for exercise by holders of their rights to requireredemption of the Notes pursuant to this Condition 6(d).
The Trustee and the Agents shall not be required to take any steps to ascertain whether aChange of Control Event or a Put Event has occurred and shall not be responsible or liable toNoteholders, the Issuer, the Company or any other person for any loss or liability arising fromany failure to do so.
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In this Condition 6(d):
a “Change of Control Event” occurs when:
(i) (a) the Zhejiang SASAC or (b) the People’s Government of Zhejiang Province or (c) theCentral People’s Government of the PRC (each, a “Government”) together cease todirectly or indirectly hold or own 100 per cent. of the issued share capital of theCompany; or
(ii) the Company ceases to directly or indirectly hold or own 100 per cent. of the issued sharecapital of the Issuer; or
(iii) the Company consolidates with or merges into or sells or transfers all or substantially allof its assets to any other person or persons, acting together, except where such person(s)(in the case of asset transfer) or the surviving entity (in the case of consolidation ormerger) is/are wholly owned, directly or indirectly, by a Government(s);
“Credit Rating” means a credit rating from a Rating Agency;
“Fitch” means Fitch Ratings Ltd. and its successors;
“Moody’s” means Moody’s Investors Services, Inc. and its successors;
a “Put Event” will be deemed to occur if:
(i) there is a Relevant Event, or
(ii) there is a Rating Withdrawal Event;
“Rating Downgrade” means within a period ending 120 days after the date notice of the Changeof Control Event first becomes public (which period shall be extended so long as the Notes areunder consideration (as publicly announced within such 120-day period) for rating review), theCredit Rating for the Notes from any Rating Agency is downgraded;
“Rating Withdrawal Event” means at any time the Credit Rating for the Notes from any RatingAgency is withdrawn;
“Rating Agency” means any of Moody’s, Fitch or S&P or any of their respective successors andassigns;
“Relevant Event” means the occurrence of both a Change of Control Event and a RatingDowngrade;
“S&P” means S&P Global Ratings and its successors; and
“Zhejiang SASAC” means the State-owned Assets Supervision and AdministrationCommission of the People’s Government of Zhejiang Province.
(e) Redemption at the Option of the Issuer: If Call Option is specified hereon, the Issuer may,on giving not less than 15 nor more than 30 days’ irrevocable notice to the Noteholders (or suchother notice period as may be specified hereon) and to the Trustee and the Issuing and PayingAgent or, as the case may be, the CMU Lodging and Paying Agent in writing redeem all or, ifso provided, some of the Notes on any Optional Redemption Date. Any such redemption ofNotes shall be at their Optional Redemption Amount specified hereon (which may be the EarlyRedemption Amount (as described in Condition 6(b) above)), together with interest accrued tobut excluding the date fixed for redemption. Any such redemption or exercise must relate toNotes of a principal amount at least equal to the Minimum Redemption Amount to be redeemedspecified hereon and no greater than the Maximum Redemption Amount to be redeemedspecified hereon.
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All Notes in respect of which any such notice is given shall be redeemed on the date specifiedin such notice in accordance with this Condition 6(d).
In the case of a partial redemption the notice to Noteholders shall also contain the certificatenumbers of the Bearer Notes, or in the case of Registered Notes shall specify the principalamount of Registered Notes drawn and the holder(s) of such Registered Notes, to be redeemed,which shall have been drawn in such place and in such manner as may be determined by theIssuer and notified in writing to the Trustee, subject to compliance with any applicable lawsand stock exchange or other relevant authority requirements.
(f) Redemption at the Option of Noteholders: If Put Option is specified hereon, the Issuer shall,at the option of the holder of any such Note, upon the holder of such Note giving not less than15 nor more than 30 days’ notice to the Issuer (or such other notice period as may be specifiedhereon) redeem such Note on the Optional Redemption Date(s) at its Optional RedemptionAmount specified hereon (which may be the Early Redemption Amount (as described inCondition 6(b) above)), together with interest accrued to but excluding the date fixed forredemption.
To exercise such option the holder must deposit (in the case of Bearer Notes) such Note(together with all unmatured Receipts and Coupons and unexchanged Talons) with any PayingAgent or (in the case of Registered Notes) the Certificate representing such Note(s) with theRegistrar or any Transfer Agent at its specified office, together with a duly completed optionexercise notice (an “Exercise Notice”) in the form obtainable from any Paying Agent, theRegistrar or any Transfer Agent (as applicable) within the notice period. No Note or Certificateso deposited and option exercised may be withdrawn (except as provided in the AgencyAgreement) without the prior consent of the Issuer.
(g) Partly Paid Notes: Partly Paid Notes will be redeemed, whether at maturity, early redemptionor otherwise, in accordance with the provisions of this Condition and the provisions specifiedhereon.
(h) Notice of Redemption: All Notes in respect of which any notice of redemption is given underthis Condition 6 shall be redeemed on the date specified in such notice in accordance with thisCondition 6. If there is more than one notice of redemption given in respect of any Note (whichshall include any notice given by the Issuer pursuant to Condition 6(c) and Condition 6(e) andany Put Exercise Notice or Exercise Notice given by a Noteholder pursuant to Condition 6(d)and Condition 6(f)), the notice given first in time shall prevail and in the event of two noticesbeing given on the same date, the first to be given shall prevail.
(i) Purchases: The Issuer, the Company and their respective Subsidiaries may at any timepurchase Notes (provided that all unmatured Receipts and Coupons and unexchanged Talonsrelating thereto are attached thereto or surrendered therewith) in the open market or otherwiseat any price. The Notes so purchased, while held by or on behalf of the Issuer, the Companyor any such Subsidiary, shall not entitle the holder to vote at any meetings of the Noteholdersand shall not be deemed to be outstanding for certain purposes, including without limitation forthe purposes of calculating quorums at meetings of the Noteholders or for the purposes ofConditions 10, 11(a) and 12.
(j) Cancellation: All Notes purchased by or on behalf of the Issuer, the Company or theirrespective Subsidiaries shall be surrendered for cancellation, in the case of Bearer Notes, bysurrendering each such Note together with all unmatured Receipts and Coupons and allunexchanged Talons to the Issuing and Paying Agent and, in the case of Registered Notes, bysurrendering the Certificate representing such Notes to the Registrar and, in each case, if sosurrendered, shall, together with all Notes redeemed by the Issuer, be cancelled forthwith(together with all unmatured Receipts and Coupons and unexchanged Talons attached theretoor surrendered therewith). Any Notes so surrendered for cancellation may not be reissued orresold and the obligations of the Issuer in respect of any such Notes shall be discharged.
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7 PAYMENTS AND TALONS
(a) Bearer Notes: Payments of principal and interest in respect of Bearer Notes shall, subject asmentioned below, be made against presentation and surrender of the relevant Receipts (in thecase of payments of Instalment Amounts other than on the due date for redemption andprovided that the Receipt is presented for payment together with its relevant Note), Notes (inthe case of all other payments of principal and, in the case of interest, as specified in Condition7(f)(vi)) or Coupons (in the case of interest, save as specified in Condition 7(f)(ii)), as the casemay be:
(i) in the case of a currency other than Renminbi, by transfer to an account denominated insuch currency with, a Bank; and
(ii) in the case of Renminbi, by transfer to a Renminbi account maintained by or on behalfof the Noteholder with a bank in Hong Kong.
In this Condition 7(a) and in Condition 7(b), “Bank” means a bank in the principal financialcentre for such currency or, in the case of euro, in a city in which banks have access to theTARGET System.
Payments of principal and interest in respect of Bearer Notes held in the CMU will be madeto the person(s) for whose account(s) interests in the relevant Bearer Note are credited as beingheld with the CMU in accordance with the CMU Rules (as defined in the Agency Agreement)at the relevant time and payment made in accordance thereof shall discharge the obligationsof the Issuer in respect of that payment.
(b) Registered Notes:
(i) Payments of principal (which for the purposes of this Condition 7(b) shall include finalInstalment Amounts but not other Instalment Amounts) in respect of Registered Notesshall be made against presentation and surrender of the relevant Certificates at thespecified office of any of the Transfer Agents or of the Registrar and in the mannerprovided in Condition 7(b)(ii).
(ii) Interest (which for the purpose of this Condition 7(b) shall include all InstalmentAmounts other than final Instalment Amounts) on Registered Notes shall be paid to theperson shown on the Register at the close of business on the fifteenth day before the duedate for payment thereof or in the case of Renminbi or otherwise specified, on the fifthbusiness day before the due date for payment thereof (the “Record Date”). Payments ofinterest on each Registered Note shall be made:
(A) in the case of a currency other than Renminbi, by transfer to an account in therelevant currency maintained by the payee with a Bank, details of which appear onthe Register at the close of business on the Record Date; and
(B) in the case of Renminbi, by transfer to the registered account of the Noteholder.
In this Condition 7(b), “registered account” means the Renminbi account maintained byor on behalf of the Noteholder with a bank in Hong Kong, details of which appear on theRegister at the close of business on the Record Date and “business day” means a day(other than a Saturday or a Sunday) on which banks and foreign exchange markets areopen for business in the place in which the specified office of the Registrar is located.
Payments of principal and interest in respect of Registered Notes held in the CMU willbe made to the person(s) for whose account(s) interests in the relevant Registered Notesare credited as being held with the CMU in accordance with the CMU Rules (as definedin the Agency Agreement) at the relevant time and payment made in accordance thereofshall discharge the obligations of the Issuer in respect of that payment.
So long as the Global Certificate is held on behalf of Euroclear Bank SA/NV, ClearstreamBanking S.A. or any other clearing system, each payment in respect of the Global
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Certificate will be made to the person shown as the holder in the Register at the close ofbusiness of the relevant clearing system on the Clearing System Business Day before thedue date for such payments, where “Clearing System Business Day” means a weekday(Monday to Friday, inclusive) except 25 December and 1 January.
(c) Payments in the United States: Notwithstanding the foregoing, if any Bearer Notes aredenominated in US dollars, payments in respect thereof may be made at the specified office ofany Paying Agent in New York City in the same manner as aforesaid if (i) the Issuer shall haveappointed Paying Agents with specified offices outside the United States with the reasonableexpectation that such Paying Agents would be able to make payment of the amounts on theNotes in the manner provided above when due, (ii) payment in full of such amounts at all suchoffices is illegal or effectively precluded by exchange controls or other similar restrictions onpayment or receipt of such amounts and (iii) such payment is then permitted by United Stateslaw, without involving, in the opinion of the Issuer, any adverse tax consequence to the Issuer.
(d) Payments subject to Fiscal Laws: Payments will be subject in all cases to (i) any fiscal orother laws and regulations applicable thereto in the place of payment, but without prejudice tothe provisions of Condition 8 and (ii) any withholding or deduction required pursuant to anagreement described in Section 1471(b) of the U.S. Internal Revenue Code of 1986 (the“Code”) or otherwise imposed pursuant to Sections 1471 through 1474 of the Code, anyregulations or agreements thereunder, any official interpretations thereof, or (without prejudiceto the provisions of Condition 8) any law implementing an intergovernmental approach thereto.No commission or expenses shall be charged to the Noteholders or Couponholders in respectof such payments.
(e) Appointment of Agents: The Issuing and Paying Agent, the CMU Lodging and Paying Agent,the Paying Agents, the Registrar, the Transfer Agents and the Calculation Agent initiallyappointed by the Issuer and their respective specified offices are listed below. The Issuing andPaying Agent, the CMU Lodging and Paying Agent, the Paying Agents, the Registrar, theTransfer Agents and the Calculation Agent(s) act solely as agents of the Issuer and do notassume any obligation or relationship of agency or trust for or with any Noteholder orCouponholder. The Issuer reserves the right at any time with the prior written approval of theTrustee to vary or terminate the appointment of the Issuing and Paying Agent, the CMULodging and Paying Agent, any other Paying Agent, the Registrar, any Transfer Agent or theCalculation Agent(s) and to appoint additional or other Paying Agents or Transfer Agents,provided that the Issuer shall at all times maintain (i) an Issuing and Paying Agent, (ii) aRegistrar in relation to Registered Notes, (iii) a Transfer Agent in relation to Registered Notes,(iv) a CMU Lodging and Paying Agent in relation to Notes accepted for clearance through theCMU, (v) one or more Calculation Agent(s) where these Conditions so require and (vi) suchother agents as may be required by any other stock exchange on which the Notes may be listed,in each case, as approved in writing by the Trustee.
In addition, the Issuer shall promptly appoint a Paying Agent in New York City in respect ofany Bearer Notes denominated in US dollars in the circumstances described in Condition 7(c).
Notice of any such change or any change of any specified office shall promptly be given by theIssuer to the Noteholders.
(f) Unmatured Coupons and Receipts and unexchanged Talons:
(i) Upon the due date for redemption of Bearer Notes which comprise Fixed Rate Notes(other than Dual Currency Notes or Index Linked Interest Notes), such Notes should besurrendered for payment together with all unmatured Coupons (if any) relating thereto,failing which an amount equal to the face value of each missing unmatured Coupon (or,in the case of payment not being made in full, that proportion of the amount of suchmissing unmatured Coupon that the sum of principal so paid bears to the total principaldue) shall be deducted from the Final Redemption Amount, Early Redemption Amount orOptional Redemption Amount, as the case may be, due for payment. Any amount sodeducted shall be paid in the manner mentioned above against surrender of such missingCoupon within a period of 10 years from the Relevant Date for the payment of suchprincipal (whether or not such Coupon has become void pursuant to Condition 9).
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(ii) Upon the due date for redemption of any Bearer Note comprising a Floating Rate Note,Dual Currency Note or Index Linked Interest Note, unmatured Coupons relating to suchNote (whether or not attached) shall become void and no payment shall be made inrespect of them.
(iii) Upon the due date for redemption of any Bearer Note, any unexchanged Talon relating tosuch Note (whether or not attached) shall become void and no Coupon shall be deliveredin respect of such Talon.
(iv) Upon the due date for redemption of any Bearer Note that is redeemable in instalments,all Receipts relating to such Note having an Instalment Date falling on or after such duedate (whether or not attached) shall become void and no payment shall be made in respectof them.
(v) Where any Bearer Note that provides that the relevant unmatured Coupons are to becomevoid upon the due date for redemption of those Notes is presented for redemption withoutall unmatured Coupons, and where any Bearer Note is presented for redemption withoutany unexchanged Talon relating to it, redemption shall be made only against the provisionof such indemnity as the Issuer may require.
(vi) If the due date for redemption of any Note is not a due date for payment of interest,interest accrued from the preceding due date for payment of interest or the InterestCommencement Date, as the case may be, shall only be payable against presentation (andsurrender if appropriate) of the relevant Bearer Note or Certificate representing it, as thecase may be. Interest accrued on a Note that only bears interest after its Maturity Dateshall be payable on redemption of such Note against presentation of the relevant Note orCertificate representing it, as the case may be.
(g) Talons: On or after the Interest Payment Date for the final Coupon forming part of a Couponsheet issued in respect of any Bearer Note, the Talon forming part of such Coupon sheet maybe surrendered at the specified office of the Issuing and Paying Agent in exchange for a furtherCoupon sheet (and if necessary another Talon for a further Coupon sheet) (but excluding anyCoupons that may have become void pursuant to Condition 9).
(h) Non-Business Days: If any date for payment in respect of any Note, Receipt or Coupon is nota business day, the holder shall not be entitled to payment until the next following business daynor to any interest or other sum in respect of such postponed payment. In this Condition 7(h),“business day” means a day (other than a Saturday or a Sunday) on which banks and foreignexchange markets are open for business in the relevant place of presentation, in suchjurisdictions as shall be specified as “Financial Centres” hereon and:
(i) (in the case of a payment in a currency other than euro and Renminbi) where payment isto be made by transfer to an account maintained with a bank in the relevant currency, onwhich foreign exchange transactions may be carried on in the relevant currency in theprincipal financial centre of the country of such currency; or
(ii) (in the case of a payment in euro) which is a TARGET Business Day; or
(iii) (in the case of a payment in Renminbi) on which banks and foreign exchange markets areopen for business and settlement of Renminbi payments in Hong Kong.
8 TAXATION
All payments of principal and interest by or on behalf of the Issuer in respect of the Notes, theReceipts and the Coupons shall be made free and clear of, and without withholding or deduction foror on account of, any taxes, duties, assessments or governmental charges of whatever natureimposed, levied, collected, withheld or assessed by or within, Hong Kong or the PRC or in each case,any political subdivision or any authority therein or thereof having power to tax, unless suchwithholding or deduction is required by law.
Where such withholding or deduction is made by the Issuer by or within the PRC at the rate up toand including the aggregate rate applicable on the date on which agreement is reached to issue the
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first Tranche of the Notes (the “Applicable Rate”), the Issuer will increase the amounts paid by itto the extent required so that the net amount received by Noteholders and Couponholders equals theamounts which would otherwise have been receivable by them had no such withholding or deductionbeen required.
If the Issuer is required to make a deduction or withholding (i) by or within the PRC in excess ofthe Applicable Rate or (ii) by or within or Hong Kong, the Issuer shall pay such additional amounts(“Additional Tax Amounts”) as will result in receipt by the Noteholders and Couponholders of suchamounts as would have been received by them had no such withholding or deduction been required,except that no such Additional Tax Amounts shall be payable in respect of any Note, Receipt orCoupon:
(a) Other connection: to a holder (or to a third party on behalf of a holder) who is liable to suchtaxes, duties, assessments or governmental charges in respect of such Note, Receipt or Couponby reason of his having some connection with Hong Kong or the PRC other than the mereholding of the Note, Receipt or Coupon; or
(b) Presentation more than 30 days after the Relevant Date: presented (or in respect of whichthe Certificate representing it is presented) for payment more than 30 days after the RelevantDate except to the extent that the holder of it would have been entitled to such Additional TaxAmounts on presenting it for payment on the last day of such period of 30 days.
As used in these Conditions, “Relevant Date” in respect of any Note, Receipt or Coupon means thedate on which payment in respect of it first becomes due or (if any amount of the money payable isimproperly withheld or refused) the date on which payment in full of the amount outstanding is madeor (if earlier) the date seven days after that on which notice is duly given to the Noteholders that,upon further presentation of the Note (or relevant Certificate), Receipt or Coupon being made inaccordance with these Conditions, such payment will be made, provided that payment is in fact madeupon such presentation. References in these Conditions to (i) “principal” shall be deemed to includeany premium payable in respect of the Notes, all Instalment Amounts, Final Redemption Amounts,Early Redemption Amounts, Optional Redemption Amounts, Amortised Face Amounts and all otheramounts in the nature of principal payable pursuant to Condition 6 or any amendment or supplementto it, (ii) “interest” shall be deemed to include all Interest Amounts and all other amounts payablepursuant to Condition 5 or any amendment or supplement to it and (iii) “principal” and/or “interest”shall be deemed to include any additional amounts that may be payable under this Condition 8 or anyundertaking given in addition to or in substitution for it under the Trust Deed.
Neither the Trustee nor any Agent shall be responsible for paying any tax, duty, charges, withholdingor other payment referred to in this Condition 8 or for determining whether such amounts are payableor the amount thereof, and none of them shall be responsible or liable for any failure by the Issuer,any Noteholder or any third party to pay such tax, duty, charges, withholding or other payment inany jurisdiction or to provide any notice or information to the Trustee or any Agent that wouldpermit, enable or facilitate the payment of any principal, premium (if any), interest or other amountunder or in respect of the Notes without deduction or withholding for or on account of any tax, duty,charge, withholding or other payment imposed by or in any jurisdiction.
9 PRESCRIPTION
Claims against the Issuer for payment in respect of the Notes, Receipts and Coupons (which, for thispurpose, shall not include Talons) shall be prescribed and become void unless made within 10 years(in the case of principal) or five years (in the case of interest) from the appropriate Relevant Datein respect of them.
10 EVENTS OF DEFAULT
If any of the following events (each an “Event of Default”) occurs, the Trustee at its discretion may,and if so requested by holders of at least 25 per cent. of the aggregate principal amount of the Notesthen outstanding or if so directed by an Extraordinary Resolution shall, (provided in any such casethat the Trustee shall first have been indemnified and/or secured and/or prefunded to its satisfaction),give written notice to the Issuer declaring that the Notes are, and they shall immediately become, dueand payable at their Early Redemption Amount together (if applicable) with accrued interest:
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(a) Non-Payment: the Issuer fails to pay (i) the principal of or any premium on any of the Noteswhen due; or (ii) any interest on the Notes within ten days after the due date for such payment;or
(b) Breach of Other Obligations: the Company or the Issuer does not perform or comply with anyone or more of its other obligations in the Notes, the Keepwell Deed or the Trust Deed (asapplicable) (other than those referred to in Condition 10(a)), which default is in the opinion ofthe Trustee incapable of remedy or, if in the opinion of the Trustee capable of remedy, is notremedied within 30 days after notice of such default shall have been given to the Issuer by theTrustee; or
(c) Cross-Default: (i) any other present or future indebtedness of the Company, the Issuer or anyof their respective Subsidiaries for or in respect of moneys borrowed or raised becomes (orbecomes capable of being declared) due and payable prior to its stated maturity by reason ofany actual default, event of default or the like (howsoever described), or (ii) any suchindebtedness is not paid when due or, as the case may be, within any originally applicable graceperiod, or (iii) the Company, the Issuer or any of their respective Subsidiaries fails to pay whendue any amount payable by it under any present or future guarantee for, or indemnity in respectof, any moneys borrowed or raised provided that the aggregate amount of the relevantindebtedness, guarantees and indemnities in respect of which one or more of the eventsmentioned above in this Condition 10(c) have occurred equals or exceeds US$80,000,000 or itsequivalent in other currencies (on the basis of the middle spot rate for the relevant currencyagainst the US dollar as quoted by any leading bank on the day on which this Condition 10(c)operates); or
(d) Enforcement Proceedings: a distress, attachment, execution or other legal process is levied,enforced or sued out on or against a material part of the property, assets or revenues of theCompany, the Issuer or any of their respective Principal Subsidiaries and is not discharged orstayed within 30 days; or
(e) Security Enforced: any mortgage, charge, pledge, lien or other encumbrance, present orfuture, created or assumed by the Company, the Issuer or any of their respective PrincipalSubsidiaries over all or a material part of the assets of the Company, the Issuer or the relevantPrincipal Subsidiary, as the case may be, becomes enforceable and any step is taken to enforceit (including the taking of possession or the appointment of a receiver, manager or other similarperson) and is not discharged within 30 days; or
(f) Insolvency: the Company, the Issuer or any of their respective Principal Subsidiaries is (or is,or could be, deemed by law or a court of competent jurisdiction to be) insolvent or bankruptor unable to pay its debts, stops, suspends or threatens to stop or suspend payment of all or amaterial part of its debts, proposes or makes any agreement for the deferral, rescheduling orother readjustment of all of its debts, proposes or makes a general assignment or anarrangement or composition with or for the benefit of the relevant creditors in respect of all ora material part of its debts or a moratorium is agreed or declared in respect of or affecting allor a material part of the debts of the Company, the Issuer or any of their respective PrincipalSubsidiaries, as the case may be; or
(g) Winding-up: an administrator is appointed, an order is made or an effective resolution ispassed for the winding-up or dissolution or administration of the Company, the Issuer or anyof their respective Principal Subsidiaries, or the Company, the Issuer or any of their respectivePrincipal Subsidiaries ceases or threatens to cease to carry on all or substantially all of itsbusiness or operations, except for (A) the purpose of and followed by a reconstruction,amalgamation, reorganisation, merger or consolidation (i) on terms approved by anExtraordinary Resolution, or (ii) whereby the undertaking and assets of a Principal Subsidiaryare transferred to or otherwise vested in the Issuer, the Company or any of their respectiveSubsidiaries; (B) a solvent winding up of any Principal Subsidiary of the Company other thanthe Issuer; or (C) a disposal of a Principal Subsidiary of the Issuer or the Company on an arm’slength basis where the assets (whether in cash or otherwise) resulting from such disposal arevested in the Issuer, the Company or any of their respective Subsidiaries; or
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(h) Authorisation and Consents: any action, condition or thing (including the obtaining oreffecting of any necessary consent, approval, authorisation, exemption, filing, licence, order,recording or registration) at any time required to be taken, fulfilled or done in order (i) toenable the Issuer and the Company lawfully to enter into, exercise their respective rights andperform and comply with their respective obligations under the Notes, the Trust Deed and theKeepwell Deed (except to the extent permitted under the Keepwell Deed), (ii) to ensure thatthose obligations are legally binding and enforceable and (iii) to make the Notes, the TrustDeed and the Keepwell Deed admissible in evidence in the courts of Hong Kong is not taken,fulfilled or done; or
(i) Illegality: it is or will become unlawful for the Company or the Issuer to perform or complywith any one or more of their respective obligations under any of the Notes, the Trust Deed orthe Keepwell Deed; or
(j) Keepwell Deed: the Keepwell Deed is not or is claimed by the Company not to be in full forceand effect, or the Keepwell Deed is modified, amended or terminated other than in accordancewith its terms; or
(k) Analogous Events: any event occurs which under the laws of any relevant jurisdiction has ananalogous effect to any of the events referred to in Conditions 10(a) to 10(j) (both inclusive).
In this Condition 10, “Principal Subsidiary” means any Subsidiary of the Issuer or the Company:
(a) whose revenue or (in the case of a Subsidiary which itself has Subsidiaries) consolidatedrevenue, as shown by its latest audited income statement are at least five per cent. of theconsolidated revenue as shown by the latest audited consolidated income statement of theIssuer or the Company (as applicable) and its Subsidiaries including, for the avoidance ofdoubt, the Issuer or the Company (as applicable) and its consolidated Subsidiaries’ share ofprofits of Subsidiaries not consolidated and of jointly controlled entities and after adjustmentsfor minority interests; or
(b) whose gross profit or (in the case of a Subsidiary which itself has Subsidiaries) consolidatedgross profit, as shown by its latest audited income statement are at least five per cent. of theconsolidated gross profit as shown by the latest audited consolidated income statement of theIssuer or the Company (as applicable) and its Subsidiaries including, for the avoidance ofdoubt, the Issuer or the Company (as applicable) and its consolidated Subsidiaries’ share ofprofits of Subsidiaries not consolidated and of jointly controlled entities and after adjustmentsfor minority interests; or
(c) whose gross assets or (in the case of a Subsidiary which itself has Subsidiaries) consolidatedgross assets, as shown by its latest audited balance sheet are at least five per cent. of theconsolidated gross assets of the Issuer or the Company (as applicable) and its Subsidiaries asshown by the latest audited consolidated balance sheet of the Issuer or the Company (asapplicable) and its Subsidiaries, including, for the avoidance of doubt, the investment of theIssuer or the Company (as applicable) in each Subsidiary whose accounts are not consolidatedwith the consolidated audited accounts of the Issuer or the Company (as applicable) and afteradjustment for minority interests; or
(d) to which the whole or substantially the whole of the assets of a Subsidiary which immediatelyprior to such transfer was a Principal Subsidiary is transferred, provided that the PrincipalSubsidiary which so transfers its assets shall forthwith upon such transfer cease to be aPrincipal Subsidiary and the Subsidiary to which the assets are so transferred shall cease to bea Principal Subsidiary at the date on which the first audited accounts (consolidated, ifappropriate), of the Issuer or the Company (as applicable) prepared as of a date later than suchtransfer are issued, unless such Subsidiary would continue to be a Principal Subsidiary on thebasis of such accounts by virtue of the provisions of paragraphs (a), (b) or (c) above of thisdefinition;
provided that, in relation to paragraphs (a), (b) and (c) above of this definition:
(i) in the case of a corporation or other business entity becoming a Subsidiary after the end of thefinancial period to which the latest consolidated audited accounts of the Issuer or the Company
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(as applicable) relate, the reference to the then latest consolidated audited accounts of theIssuer or the Company (as applicable) for the purposes of the calculation above shall, untilconsolidated audited accounts of the Issuer or the Company (as applicable) for the financialperiod in which the relevant corporation or other business entity becomes a Subsidiary areavailable be deemed to be a reference to the then latest consolidated audited accounts of theIssuer or the Company (as applicable) adjusted to consolidate the latest audited accounts(consolidated in the case of a Subsidiary which itself has Subsidiaries) of such Subsidiary insuch accounts;
(ii) if at any relevant time in relation to the Issuer or the Company (as applicable) or any Subsidiarywhich itself has Subsidiaries no consolidated accounts are prepared and audited, revenue, grossprofit or gross assets of the Issuer or the Company (as applicable), and/or any such Subsidiaryshall be determined on the basis of pro forma consolidated accounts prepared for this purposeby the Issuer or the Company (as applicable);
(iii) if at any relevant time in relation to any Subsidiary, no accounts are audited, its revenue, grossprofit or gross assets (consolidated, if appropriate) shall be determined on the basis of proforma accounts (consolidated, if appropriate) of the relevant Subsidiary prepared for thispurpose by the Issuer or the Company (as applicable); and
(iv) if the accounts of any Subsidiary (not being a Subsidiary referred to in proviso (i) above) arenot consolidated with those of the Issuer or the Company (as applicable), then thedetermination of whether or not such subsidiary is a Principal Subsidiary shall be based on apro forma consolidation of its accounts (consolidated, if appropriate) with the consolidatedaccounts (determined on the basis of the foregoing) of the Issuer or the Company (asapplicable).
In addition, any Subsidiary which is not itself a Principal Subsidiary shall nevertheless be treated asa Principal Subsidiary if the revenue (or consolidated revenue if the Subsidiary itself hassubsidiaries), gross profit (or consolidated gross profit if the Subsidiary itself has subsidiaries) orgross assets (or consolidated gross assets if the Subsidiary itself has subsidiaries) attributable to suchSubsidiary when aggregated with the revenue (or consolidated revenue if appropriate), gross profit(or consolidated gross profit if appropriate) or gross assets (or consolidated gross assets ifappropriate) attributable to any other Subsidiary which is not itself a Principal Subsidiary and withrespect to which any of the events referred to in this Condition 10 has occurred since the Issue Dateof the Notes, exceeds five per cent. of the consolidated revenue, consolidated gross profit orconsolidated gross assets of the Issuer or the Company (as applicable) and its Subsidiaries as shownin the latest audited financial statements.
11 MEETINGS OF NOTEHOLDERS, MODIFICATION, WAIVER AND SUBSTITUTION
(a) Meetings of Noteholders: The Trust Deed contains provisions for convening meetings ofNoteholders to consider any matter affecting their interests, including without limitation thesanctioning by Extraordinary Resolution of a modification of any of these Conditions or anyprovisions of the Trust Deed, the Agency Agreement or the Keepwell Deed. Such a meetingmay be convened by the Issuer or the Trustee and shall be convened by the Trustee if it isrequested to do so by Noteholders holding not less than 10 per cent. in aggregate principalamount of the Notes for the time being outstanding and subject to the Trustee beingindemnified and/or secured and/or pre-funded to its satisfaction against all costs and expenses.The quorum for any meeting convened to consider an Extraordinary Resolution will be two ormore persons holding or representing more than 50 per cent. in aggregate principal amount ofthe Notes for the time being outstanding, or at any adjourned meeting two or more personsbeing or representing Noteholders whatever the principal amount of the Notes held orrepresented, unless the business of such meeting includes consideration of proposals, inter alia,(i) to amend the dates of maturity or redemption of the Notes, any Instalment Date or any datefor payment of interest or Interest Amounts on the Notes, (ii) to reduce or cancel the principalamount of, or any Instalment Amount of, or any premium payable on redemption of, the Notes,(iii) to reduce the rate or rates of interest in respect of the Notes or to vary the method or basisof calculating the rate or rates or amount of interest or the basis for calculating any InterestAmount in respect of the Notes, (iv) if a Minimum Rate of Interest, Maximum Rate of Interest,
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Minimum Instalment Amount, Maximum Instalment Amount, Minimum Redemption Amountand/or Maximum Redemption Amount is shown hereon, to reduce any such minimum and/ormaximum, (v) to vary any method of, or basis for, calculating the Final Redemption Amount,the Early Redemption Amount or the Optional Redemption Amount, including the method ofcalculating the Amortised Face Amount, (vi) to vary the currency or currencies of payment ordenomination of the Notes, (vii) to modify the provisions concerning the quorum required atany meeting of Noteholders or the majority required to pass an Extraordinary Resolution, or(viii) to cancel or amend the Keepwell Deed other than in accordance with Condition 11(b), inwhich case the necessary quorum will be two or more persons holding or representing not lessthan 66 per cent., or at any adjourned meeting not less than 33 per cent., in aggregate principalamount of the Notes for the time being outstanding. Any Extraordinary Resolution duly passedshall be binding on all Noteholders (whether or not they were present at the meeting at whichsuch resolution was passed and whether or not they voted in favour of such resolution) and onall Couponholders.
The Trust Deed provides that a resolution in writing signed by or on behalf of the holders ofnot less than 90 per cent. in aggregate principal amount of the Notes for the time beingoutstanding shall for all purposes be as valid and effective as an Extraordinary Resolutionpassed at a meeting of Noteholders duly convened and held. Such a resolution in writing maybe contained in one document or several documents in the same form, each signed by or onbehalf of one or more Noteholders.
These Conditions may be amended, modified or varied in relation to any Series of Notes by theterms of the relevant Pricing Supplement in relation to such Series.
(b) Modification of the Trust Deed, the Agency Agreement or the Keepwell Deed: The Trusteemay (but shall not be obliged to) agree, without the consent of the Noteholders orCouponholders, to (i) any modification of any of these Conditions or any of the provisions ofthe Trust Deed, the Agency Agreement or the Keepwell Deed that is in the opinion of theTrustee of a formal, minor or technical nature or is made to correct a manifest error or is tocomply with any mandatory provision of applicable law, and (ii) any other modification (exceptas mentioned in the Trust Deed), and any waiver or authorisation of any breach or proposedbreach, of any of these Conditions or any of the provisions of the Trust Deed, the AgencyAgreement or the Keepwell Deed that is in the opinion of the Trustee not materially prejudicialto the interests of the Noteholders. Any such modification, authorisation or waiver shall bebinding on the Noteholders and the Couponholders and, unless the Trustee otherwise agrees,such modification, authorisation or waiver shall be notified by the Issuer to the Noteholders assoon as practicable thereafter.
(c) Substitution: The Trust Deed contains provisions permitting (but not obliging) the Trustee toagree, subject to such amendment of the Trust Deed and such other conditions as the Trusteemay in its discretion require, but without the consent of the Noteholders or the Couponholders,to the substitution of the Issuer’s successor in business or any Subsidiary of the Issuer or itssuccessor in business in place of the Issuer, or of any previous substituted company, asprincipal debtor under the Trust Deed and the Notes. In the case of such a substitution theTrustee may agree, without the consent of the Noteholders or the Couponholders, to a changeof the law governing the Notes, the Receipts, the Coupons, the Talons and/or the Trust Deedprovided that such change would not in the opinion of the Trustee be materially prejudicial tothe interests of the Noteholders.
(d) Entitlement of the Trustee: In connection with the performance and exercise of its functions,rights, powers and discretions (including but not limited to those referred to in this Condition11), the Trustee shall have regard to the interests of the Noteholders as a class and shall nothave regard to the consequences of such exercise for individual Noteholders or Couponholdersand the Trustee shall not be entitled to require on behalf of any Noteholders or Couponholders,nor shall any Noteholder or Couponholder be entitled to claim, from the Issuer or the Trusteeany indemnification or payment in respect of any tax consequence of any such exercise uponindividual Noteholders or Couponholders.
(e) Directions from Noteholders: Notwithstanding anything to the contrary in these Conditions,the Trust Deed, the Keepwell Deed or the Agency Agreement, whenever the Trustee is required
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or entitled by the terms of these Conditions, the Trust Deed, the Keep Deed or AgencyAgreement to exercise any discretion or power, take any action, make any decision or give anydirection or certification, the Trustee is entitled, prior to exercising any such discretion orpower, taking any such action, making any such decision, or giving any such direction orcertification, to seek directions from the Noteholders by way of an Extraordinary Resolutionand shall have been indemnified and/or secured and/or pre-funded to its satisfaction against allaction, proceedings, claims and demands to which it may be or become liable and all costs,charges, damages, expenses (including without limitation legal expenses) and liabilities whichmay be incurred by it in connection therewith, and, in the absence of its own fraud, grossnegligence or wilful default, the Trustee is not responsible for any loss or liability incurred byany person as a result of any delay in it exercising such discretion or power, taking such action,making such decision, or giving such direction or certification where the Trustee is seekingsuch directions or if such directions are not forthcoming.
12 ENFORCEMENT
At any time after the Notes become due and payable, the Trustee may, at its discretion and withoutfurther notice, take such steps and/or actions and/or institute such proceedings against the Issuerand/or the Company as it may think fit to enforce the terms of the Trust Deed, the Keepwell Deed,the Notes, the Receipts and the Coupons (as relevant), but it need not take any such steps, actionsand/or proceedings unless (a) it shall have been so directed by an Extraordinary Resolution or sorequested in writing by Noteholders holding at least 25 per cent. in aggregate principal amount ofthe Notes then outstanding, and (b) it shall have been indemnified and/or secured and/or pre-fundedto its satisfaction. No Noteholder, Receiptholder or Couponholder may proceed directly against theIssuer and/or the Company unless the Trustee, having become bound so to proceed, fails to do sowithin a reasonable time and such failure is continuing.
13 INDEMNIFICATION OF THE TRUSTEE
The Trust Deed contains provisions for the indemnification of the Trustee and for its relief fromresponsibility including provisions relieving it from taking proceedings to enforce payment unlessfirst indemnified and/or secured and/or pre-funded to its satisfaction. The Trustee is entitled to enterinto business transactions with the Issuer or the Company and any entity related directly or indirectlyto the Issuer or the Company without accounting for any profit.
None of the Trustee or any of the Agents shall be responsible for the performance by the Issuer, theCompany and any other person appointed by the Issuer in relation to the Notes of the duties andobligations on their part expressed in respect of the same and, unless it has written notice from theIssuer or the Company to the contrary, the Trustee and each Agent shall assume that the same arebeing duly performed. None of the Trustee or any Agent shall be liable to any Noteholder orCouponholder or any other person for any action taken by the Trustee or such Agent in accordancewith the instructions of the Noteholders. The Trustee shall be entitled to rely on any direction,request or resolution of Noteholders given by holders of the requisite principal amount of Notesoutstanding or passed at a meeting of Noteholders convened and held in accordance with the TrustDeed.
Whenever the Trustee is required or entitled by the terms of the Trust Deed, the Keepwell Deed orthese Conditions to exercise any discretion or power, take any action, make any decision or give anydirection, the Trustee is entitled, prior to its exercising any such discretion or power, taking any suchaction, making any such decision or giving any such direction, to seek directions from theNoteholders by way of Extraordinary Resolution, and the Trustee shall not be responsible for anyloss or liability incurred by any person as a result of any delay in it exercising such discretion orpower, taking such action, making such decision or giving such direction where the Trustee isseeking such direction or in the event that no such directions are received. The Trustee shall not beunder any obligation to monitor compliance with the provisions of the Trust Deed, the AgencyAgreement, the Keepwell Deed or these Conditions.
The Trustee may rely without liability to Noteholders or Couponholders on any report, confirmationor certificate or any advice or opinion of any legal advisers, accountants, financial advisers, financialinstitution or any other expert or professional adviser, whether or not addressed to it and whether
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their liability in relation thereto is limited (by its terms or by any engagement letter relating theretoentered into by the Trustee or any other person or in any other manner) by reference to a monetarycap, methodology or otherwise. The Trustee may accept and shall be entitled to rely on any suchreport, confirmation, certificate, advice or opinion, in which event such report, confirmation,certificate, advice or opinion shall be binding on the Issuer, the Company and the Noteholders.
14 REPLACEMENT OF NOTES, CERTIFICATES, RECEIPTS, COUPONS AND TALONS
If a Note, Certificate, Receipt, Coupon or Talon is lost, stolen, mutilated, defaced or destroyed, itmay be replaced, subject to applicable laws, regulations and stock exchange or other relevantauthority regulations, at the specified office of the Issuing and Paying Agent (in the case of BearerNotes, Receipts, Coupons or Talons) and of the Registrar (in the case of Certificates) or such otherPaying Agent or Transfer Agent, as the case may be, as may from time to time be designated by theIssuer for the purpose and notice of whose designation is given to Noteholders, in each case onpayment by the claimant of the fees and costs incurred in connection therewith and on such termsas to evidence, security and indemnity (which may provide, inter alia, that if the allegedly lost, stolenor destroyed Note, Certificate, Receipt, Coupon or Talon is subsequently presented for payment or,as the case may be, for exchange for further Coupons, there shall be paid to the Issuer on demandthe amount payable by the Issuer in respect of such Notes, Certificates, Receipts, Coupons or furtherCoupons) and otherwise as the Issuer may require. Mutilated or defaced Notes, Certificates,Receipts, Coupons or Talons must be surrendered before replacements will be issued.
15 FURTHER ISSUES
The Issuer may from time to time without the consent of the Noteholders or Couponholders createand issue further securities either having the same terms and conditions as the Notes in all respects(or in all respects except for the issue date, the first payment of interest on them and, if applicable,the deadline for submission of the NDRC Post-issue Filing) and so that such further issue shall beconsolidated and form a single series with the outstanding securities of any series (including theNotes) or upon such terms as the Issuer may determine at the time of their issue. Any furthersecurities forming a single series with the outstanding Notes constituted by the Trust Deed or anydeed supplemental to it shall be constituted by the Trust Deed or a deed supplemental to the TrustDeed. References in these Conditions to the Notes include (unless the context requires otherwise)any such other securities issued pursuant to this Condition 15 and consolidated and forming a singleseries with the Notes. The Trust Deed contains provisions for convening a single meeting of theNoteholders and the holders of securities of other series where the Trustee so decides.
16 NOTICES
Notices required to be given to the holders of Registered Notes pursuant to these Conditions shallbe mailed to them at their respective addresses in the Register and deemed to have been given onthe fourth weekday (being a day other than a Saturday or a Sunday) after the date of mailing. Noticesrequired to be given to the holders of Bearer Notes pursuant to these Conditions shall be valid ifpublished in a daily newspaper of general circulation in Asia (which is expected to be the Wall StreetJournal Asia). If any such publication is not practicable, notice shall be validly given if publishedin another leading daily English language newspaper with general circulation in Asia. The Issuershall also ensure that notices are duly published in a manner that complies with the rules andregulations of any stock exchange or other relevant authority on which the Notes are for the timebeing listed. Any such notice shall be deemed to have been given on the date of such publication or,if published more than once or on different dates, on the first date on which publication is made, asprovided above.
Couponholders shall be deemed for all purposes to have notice of the contents of any notice givento the holders of Bearer Notes in accordance with this Condition 16.
So long as any Notes are represented by a Global Note or Global Certificate and the Global Noteor, as the case may be, the Global Certificate is held on behalf of Euroclear Bank SA/NV andClearstream Banking S.A. any notice to the Noteholders shall be validly given by the delivery of therelevant notice to Euroclear Bank SA/NV and Clearstream Banking S.A. for communication by therelevant clearing system to entitled accountholders in substitution for notification as required by theConditions and any such notice shall be deemed to have been given to the Noteholders on the dateof delivery to such clearing system.
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So long as any Notes are represented by a Global Note or Global Certificate and the Global Noteor, as the case may be, the Global Certificate is held on behalf of the CMU, any notice to theNoteholders shall be validly be given by delivery of the relevant notice to the CMU in substitutionfor notification as required by the Conditions, and any such notice shall be deemed to have beengiven to the Noteholders on the date of delivery to the CMU.
17 CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999
Save as contemplated on Condition 12, no person shall have any right to enforce any term orcondition of the Notes under the Contracts (Rights of Third Parties) Act 1999.
18 GOVERNING LAW AND JURISDICTION
(a) Governing Law: The Trust Deed, the Keepwell Deed, the Notes, the Receipts, the Couponsand the Talons and any non-contractual obligations arising out of or in connection with themare governed by, and shall be construed in accordance with, English law.
(b) Jurisdiction: The courts of Hong Kong are to have exclusive jurisdiction to settle any disputesthat may arise out of or in connection with any Notes, Receipts, Coupons or Talons, theKeepwell Deed or the Trust Deed and accordingly any legal action or proceedings arising outof or in connection with any Notes, Receipts, Coupons or Talons, the Keepwell Deed or theTrust Deed (“Proceedings”) may be brought in such courts. Each of the Issuer and theCompany in the Keepwell Deed and the Trust Deed has irrevocably submitted to thejurisdiction of such courts.
(c) Agent for Service of Process: The Company has irrevocably agreed to receive service ofprocess at the Issuer’s registered office (currently at Room 1405, 14/F, Harbour Centre, 25Harbour Road, Wanchai, Hong Kong) in any Proceedings in Hong Kong.
(d) Waiver of Immunity: Each of the Issuer and the Company has waived any right to claimsovereign or other immunity from jurisdiction or execution and any similar defence, and hasirrevocably consented to the giving of any relief or the issue of any process, including, withoutlimitation, the making, enforcement or execution against any property whatsoever (irrespectiveof its use or intended use) of any order or judgment made or given in connection with anyProceedings.
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FORM OF PRICING SUPPLEMENT
The Pricing Supplement in respect of each Tranche of Notes will be substantially in the following form,duly supplemented (if necessary), amended (if necessary) and completed to reflect the particular terms ofthe relevant Notes and their issue.
[MiFID II PRODUCT GOVERNANCE/PROFESSIONAL INVESTORS AND ECPS ONLY TARGETMARKET – Solely for the purposes of [the/each] manufacturer’s product approval process, the targetmarket assessment in respect of the Notes has led to the conclusion that: (i) the target market for the Notesis eligible counterparties and professional clients only, each as defined in Directive 2014/65/EU (asamended, “MiFID II”); and (ii) all channels for distribution of the Notes to eligible counterparties andprofessional clients are appropriate. [Consider any negative target market.] Any person subsequentlyoffering, selling or recommending the Notes (a “distributor”) should take into consideration themanufacturer[’s/s’] target market assessment; however, a distributor subject to MiFID II is responsible forundertaking its own target market assessment in respect of the Notes (by either adopting or refining themanufacturer[’s/s’] target market assessment) and determining appropriate distribution channels.]
[UK MiFIR PRODUCT GOVERNANCE/PROFESSIONAL INVESTORS AND ECPS ONLYTARGET MARKET – Solely for the purposes of [the/each] manufacturer’s product approval process, thetarget market assessment in respect of the Notes has led to the conclusion that: (i) the target market forthe Notes is only eligible counterparties, as defined in the FCA Handbook Conduct of BusinessSourcebook (“COBS”), and professional clients, as defined in Regulation (EU) No 600/2014 as it formspart of domestic law by virtue of the European Union (Withdrawal) Act 2018 (“UK MiFIR”); and (ii) allchannels for distribution of the Notes to eligible counterparties and professional clients are appropriate.[Consider any negative target market]. Any [person subsequently offering, selling or recommending theNotes (a “distributor”)] [distributor] should take into consideration the manufacturer[’s/s’] target marketassessment; however, a distributor subject to the FCA Handbook Product Intervention and ProductGovernance Sourcebook (the “UK MiFIR Product Governance Rules”) is responsible for undertaking itsown target market assessment in respect of the Notes (by either adopting or refining themanufacturer[’s/s’] target market assessment) and determining appropriate distribution channels.]
[PRIIPs REGULATION – PROHIBITION OF SALES TO EEA RETAIL INVESTORS – The Notesare not intended to be offered, sold or otherwise made available to and should not be offered, sold orotherwise made available to any retail investor in the European Economic Area (“EEA”). For thesepurposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point(11) of Article 4(1) of [MiFID II]/[Directive 2014/65/EU] (as amended, “MiFID II”); (ii) a customerwithin the meaning of Directive (EU) 2016/97 (the “Insurance Distribution Directive”), where thatcustomer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II[.]/[;or] [(iii) not a qualified investor as defined in Regulation (EU) 2017/1129 (the “ProspectusRegulation”).]1 Consequently no key information document required by Regulation (EU) No 1286/2014(as amended, the “PRIIPs Regulation”) for offering or selling the Notes or otherwise making themavailable to retail investors in the EEA has been prepared and therefore offering or selling the Notes orotherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPsRegulation.]
[UK PRIIPs REGULATION – PROHIBITION OF SALES TO UK RETAIL INVESTORS – The Notesare not intended to be offered, sold or otherwise made available to and should not be offered, sold orotherwise made available to any retail investor in the United Kingdom (the “UK”). For these purposes, aretail investor means a person who is one (or more) of: (i) a retail client, as defined in point (8) of Article2 of Regulation (EU) No 2017/565 as it forms part of domestic law by virtue of the European Union(Withdrawal) Act 2018 (the “EUWA”); (ii) a customer within the meaning of the provisions of theFinancial Services and Markets Act 2000 (the “FSMA”) and any rules or regulations made under theFSMA to implement the Insurance Distribution Directive, where that customer would not qualify as aprofessional client, as defined in point (8) of Article 2(1) of Regulation (EU) No 600/2014 as it forms partof domestic law by virtue of the EUWA[.]/[; or] [(iii) not a qualified investor as defined in Article 2 of
1 Paragraph (iii) is not required where the Notes have a denomination of at least C100,000 or equivalent.
– 81 –
the Prospectus Regulation as it forms part of domestic law by virtue of the EUWA.]2 Consequently no keyinformation document required by the PRIIPs Regulation as it forms part of domestic law by virtue of theEUWA (the “UK PRIIPs Regulation”) for offering or selling the Notes or otherwise making themavailable to retail investors in the UK has been prepared and therefore offering or selling the Notes orotherwise making them available to any retail investor in the UK may be unlawful under the UK PRIIPsRegulation.]
[In connection with Section 309B of the Securities and Futures Act (Chapter 289) of Singapore (the“SFA”) and the Securities and Futures (Capital Markets Products) Regulations 2018 of Singapore (the“CMP Regulations 2018”), the Issuer has determined, and hereby notifies all relevant persons (as definedin Section 309A(1) of the SFA), that the Notes are [prescribed capital markets products]/[capital marketsproducts other than prescribed capital markets products] (as defined in the CMP Regulations 2018) and[are] [Excluded]/[Specified] Investment Products (as defined in MAS Notice SFA 04-N12: Notice on theSale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on InvestmentProducts).]3
This document is for distribution to professional investors (as defined in Chapter 37 of the RulesGoverning the Listing of Securities on The Stock Exchange of Hong Kong Limited) (“ProfessionalInvestors”) only.
Notice to Hong Kong investors: The Issuer and the Company confirm that the Notes are intended forpurchase by Professional Investors only and will be listed on The Stock Exchange of Hong KongLimited (the “Hong Kong Stock Exchange”) on that basis. Accordingly, the Issuer and the Companyconfirm that the Notes are not appropriate as an investment for retail investors in Hong Kong.Investors should carefully consider the risks involved.
The Hong Kong Stock Exchange has not reviewed the contents of this document, other than to ensurethat the prescribed form disclaimer and responsibility statements, and a statement limitingdistribution of this document to Professional Investors only have been reproduced in this document.Listing of the Programme and the Notes on the Hong Kong Stock Exchange is not to be taken as anindication of the commercial merits or credit quality of the Programme, the Notes, the Issuer or theCompany or quality of disclosure in this document. Hong Kong Exchanges and Clearing Limited andthe Hong Kong Stock Exchange take no responsibility for the contents of this document, make norepresentation as to its accuracy or completeness and expressly disclaim any liability whatsoever for anyloss howsoever arising from or in reliance upon the whole or any part of the contents of this document.
This document includes particulars given in compliance with the Rules Governing the Listing of Securitieson The Stock Exchange of Hong Kong Limited for the purpose of giving information with regard to theIssuer and the Company. Each of the Issuer and the Company accepts full responsibility for the accuracyof the information contained in this document and confirms, having made all reasonable enquiries, that tothe best of its knowledge and belief there are no other facts the omission of which would make anystatement herein misleading.
2 Paragraph (iii) is not required where the programme contains a blanket prohibition on the issue of notes with adenomination of less than C100,000 or equivalent.
3 For any Notes to be offered to Singapore investors, the Issuer to consider whether it needs to re-classify the Notespursuant to Section 309B of the SFA prior to the launch of the offer.
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WARNING
The contents of this document have not been reviewed by any regulatory authority of any jurisdiction. Youare advised to exercise caution in relation to the offering of the Notes. If you are in any doubt about anyof the contents of this document, you should obtain independent professional advice.
Pricing Supplement dated [●]
ZHEJIANG ENERGY INTERNATIONAL LIMITED
Issue of [Aggregate Principal Amount of Tranche] [Title of Notes]under the US$2,000,000,000 Medium Term Note Programme
This document constitutes the Pricing Supplement relating to the issue of Notes described herein.
Terms used herein shall be deemed to be defined as such for the purposes of the Terms and Conditions ofthe Notes (the “Conditions”) set forth in the Offering Circular dated [current date]. This PricingSupplement contains the final terms of the Notes and must be read in conjunction with such OfferingCircular dated [current date] [and the supplemental Offering Circular dated [date]].
[The following alternative language applies if the first tranche of an issue which is being increased wasissued under an Offering Circular with an earlier date.
Terms used herein shall be deemed to be defined as such for the purposes of the Terms and Conditions (the“Conditions”) set forth in the Offering Circular dated [original date]. This Pricing Supplement containsthe final terms of the Notes and must be read in conjunction with the Offering Circular dated [current date][and the supplemental Offering Circular dated [date]], save in respect of the Conditions which areextracted from the Offering Circular dated [original date] and are attached hereto.]
[Include whichever of the following apply or specify as “Not Applicable”. Note that the numbering shouldremain as set out below, even if “Not Applicable” is indicated for individual paragraphs or sub-paragraphs. Italics denote guidance for completing the Pricing Supplement.]
1 (i) Issuer: ZHEJIANG ENERGY INTERNATIONALLIMITED
(ii) Company (Keepwell Provider): ZHEJIANG PROVINCIAL ENERGY GROUPCOMPANY LIMITED
2 [(i)] Series Number: [●]
[(ii) Tranche Number: [●] (If fungible with an existing Series, detailsof that Series, including the date on which theNotes become fungible).]
[(iii) Date on which the Notes will beconsolidated and form a single Series:]
[[The Notes will be consolidated and form asingle Series with [identify earlier Tranches] on[the Issue Date/exchange of the temporaryGlobal Note for interests in the PermanentGlobal Note, as referred to in paragraph [25]below, which is expected to occur on or about[date]][Not Applicable]]
3 Specified Currency or Currencies: [●]
4 Aggregate Principal Amount:
[(i)] Series: [●]
[(ii) Tranche: [●]]
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5 [(i)] Issue Price: [●] per cent. of the Aggregate Principal Amount[plus accrued interest from [insert date] (in thecase of fungible issues only, if applicable)]
[(ii) Net Proceeds: [●] (Required only for listed issues)]
6 (i) Specified Denominations4, 5: [●]
(ii) Calculation Amount: [●]
7 (i) Issue Date: [●]
(ii) Interest Commencement Date: [Specify/Issue Date/Not Applicable]
8 Maturity Date: [Specify date or (for Floating Rate Notes)Interest Payment Date falling in or nearest tothe relevant month and year]6
13 [(i)] Date of the Pre-issuance NDRCRegistration Certificate evidencing theregistration of the issue of the Noteswith the NDRC:
[●](N.B Only relevant where the NDRC Circularapplies)
[(ii) Date of [Board] approval for issuanceof Notes [and provision of the KeepwellDeed] obtained:
[●][and [●], respectively]](N.B Only relevant where Board (or similar)authorisation is required for the particulartranche of Notes or related Keepwell Deed)
4 If the Notes have a maturity of less than one year from the date of their issue, the minimum denomination may needto be £100,000 or its equivalent in other currencies.
5 If the specified denomination is expressed to be C100,000 or its equivalent and multiples of a lower principal amount(for example C1,000), insert the additional wording as follows: C100,000 and integral multiples of C1,000 in excessthereof up to and including C199,000. No notes in definitive form will be issued with a denomination above C199,000.
6 Note that for Renminbi or Hong Kong dollar denominated Fixed Rate Notes where Interest Payment Dates are subjectto modification it will be necessary to use the second option here.
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14 Listing: [The Hong Kong Stock Exchange/Other(specify)/None] (For Notes to be listed on theHong Kong Stock Exchange, insert the expectedeffective listing date of the Notes)
15 Method of distribution: [Syndicated/Non-syndicated]
PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE
16 Fixed Rate Note Provisions: [Applicable/Not Applicable](If not applicable, delete the remainingsubparagraphs of this paragraph)
(i) Rate[(s)] of Interest: [●] per cent. per annum [payable [annually/semiannually/quarterly/monthly/other (specify)] inarrear]
(ii) Interest Payment Date(s): [●] in each year [adjusted in accordance with[specify Business Day Convention and anyapplicable Business Centre(s) for the definitionof “Business Day”]]
(iii) Fixed Coupon Amount[(s)]:(Applicable to Notes in definitive form)
[●] per Calculation Amount7
(iv) Broken Amount(s):(Applicable to Notes in definitive form)
[[●] per Calculation Amount, payable on theInterest Payment Date falling [in/on] [●]/NotApplicable]
(v) Day Count Fraction: [30/360/Actual/Actual – [ICMA/ISDA]/other]
(vi) [Determination Date(s): [[●] in each year (insert regular interestpayment dates, ignoring issue date or maturitydate in the case of a long or short first or lastcoupon. N.B. only relevant where Day CountFraction is Actual/Actual – ICMA)]
(vii) Other terms relating to the method ofcalculating interest for Fixed RateNotes:
[Not Applicable/give details]
17 Floating Rate Note Provisions: [Applicable/Not Applicable](If not applicable, delete the remainingsubparagraphs of this paragraph)
(i) Interest Period(s): [●]
(ii) Specified Interest Payment Dates: [●](Specified Period and Specified Interest PaymentDates are alternatives. If the Business DayConvention is the FRN Convention, FloatingRate Convention or Eurodollar Convention,insert “Not Applicable”)
7 For Renminbi or Hong Kong dollar denominated Fixed Rate Notes where the Interest Payment Dates are subject tomodification the following alternative wording is appropriate: “Each Fixed Coupon Amount shall be calculated bymultiplying the product of the Rate of Interest and the Calculation Amount by the Day Count Fraction and roundingthe resultant figure to the nearest CNY0.01 (CNY0.005 being rounded upwards for the case of Renminbi denominatedFixed Rate Notes) or to the nearest HK$0.01 (HK$0.005 being rounded upwards for the case of Hong Kong dollardenominated Fixed Rate Notes).”
– 85 –
(iii) Interest Period Date(s): [Not Applicable]/[●]
(iv) First Interest Payment Date: [●]
(v) Business Day Convention: [Floating Rate Business Day Convention/Following Business Day Convention/Modified Following Business Day Convention/Preceding Business Day Convention/other (give details)][Not Applicable]
(vi) Business Centre(s): [Not Applicable/give details]
(vii) Manner in which the Rate(s) of Interestis/are to be determined:
(viii) Party responsible for calculating theRate(s) of Interest and/or InterestAmount(s)
[[Name] shall be the Calculation Agent]
(ix) Screen Rate Determination:
• Reference Rate: [[●] month [●]] (For example, LIBOR orEURIBOR)
• Interest Determination Date(s): [●]
• Relevant Screen Page: [●] (For example, Reuters LIBOR 01/EURIBOR01)
(x) ISDA Determination:
• Floating Rate Option: [●]
• Designated Maturity: [●]
• Reset Date: [●]
• ISDA Definitions: [2000/2006/specify other]
(xi) Margin(s): [+/–] [●] per cent. per annum
(xii) Minimum Rate of Interest: [●] per cent. per annum
(xiii) Maximum Rate of Interest: [●] per cent. per annum
(xiv) Day Count Fraction: [●] (See Condition 5 for options)
(xv) Fallback provisions, roundingprovisions, denominator and any otherterms relating to the method ofcalculating interest on Floating RateNotes, if different from those set out inthe Conditions:
[●]
18 Zero Coupon Note Provisions: [Applicable/Not Applicable](If not applicable, delete the remainingsubparagraphs of this paragraph)
(i) Amortisation Yield: [●] per cent. per annum
– 86 –
(ii) Day Count Fraction in relation to EarlyRedemption Amounts:
[●]
(iii) Any other formula/basis of determiningamount payable:
[Applicable/Not Applicable](If not applicable, delete the remainingsubparagraphs of this paragraph)
(i) Index/Formula/other variable: [give or annex details]
(ii) Party, if any, responsible for calculatingthe rate(s) of Interest and/or InterestAmount(s) (if not the Issuing andPaying Agent):
[●]
(iii) Provisions for determining Couponwhere calculation by reference to Indexand/or Formula and/or other variable isimpossible or impracticable or otherwisedisrupted:
[●]
(iv) Interest or Calculation Period(s): [●]
(v) Specified Interest Payment Dates: [●]
(vi) Business Day Convention: [Floating Rate Business Day Convention/Following Business Day Convention/Modified Following Business Day Convention/Preceding Business Day Convention/other (give details)]
(vii) Business Centre(s): [●]
(viii) Minimum Rate of Interest: [●] per cent. per annum
(ix) Maximum Rate of Interest: [●] per cent. per annum
(x) Day Count Fraction: [●]
20 Dual Currency Note Provisions: [Applicable/Not Applicable](If not applicable, delete the remainingsubparagraphs of this paragraph)
(i) Rate of Exchange/method of calculatingRate of Exchange:
[give details]
(ii) Party, if any, responsible for calculatingthe rate(s) of Interest and/or InterestAmount(s) (if not the Issuing andPaying Agent):
[●]
(iii) Provisions applicable where calculationby reference to Rate of Exchangeimpossible or impracticable:
[●]
(iv) Person at whose option SpecifiedCurrency(ies) is/are payable:
[●]
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PROVISIONS RELATING TO REDEMPTION
21 Issuer Call: [Applicable/Not Applicable](If not applicable, delete the remainingsubparagraphs of this paragraph)
(i) Optional Redemption Date(s): [●]
(ii) Optional Redemption Amount(s) andmethod, if any, of calculation of suchamount(s):
[[●] per Calculation Amount/specify other/seeAppendix]
(iii) If redeemable in part:
(a) Minimum Redemption Amount: [●]
(b) Maximum Redemption Amount: [●]
(iv) Notice period (if other than as set out inthe Conditions):
[●]
22 Investor Put: [Applicable/Not Applicable](If not applicable, delete the remainingsubparagraphs of this paragraph)
(i) Optional Redemption Date(s): [●]
(ii) Optional Redemption Amount(s) andmethod, if any, of calculation of suchamount(s):
[[●] per Calculation Amount/specify other/seeAppendix]
(iii) Notice period (if other than as set out inthe Conditions):
[●]
23 Final Redemption Amount: [[●] per Calculation Amount/specify other/seeAppendix]]
24 Early Redemption Amount(s) payable onredemption for taxation reasons or on eventof default or other early redemption and/orthe method of calculating the same (ifrequired or if different from that set out inthe Conditions):
[Not Applicable/[●] per CalculationAmount/specify other/see Appendix]
GENERAL PROVISIONS APPLICABLE TO THE NOTES
25 Form of Notes: [Bearer Notes:[Temporary Global Note exchangeable for aPermanent Global Note which is exchangeablefor Definitive Notes in the limited circumstancesspecified in the Permanent Global Note]
[Temporary Global Note exchangeable forDefinitive Notes on [●] days’ notice]8
8 If the Specified Denominations of the Notes in paragraph 6 includes language substantially to the following effect:“[C100,000] and integral multiples of [C1,000] in excess thereof up to and including [C199,000]”, the TemporaryGlobal Note shall not be exchangeable on [●] days’ notice.
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[Permanent Global Note exchangeable forDefinitive Notes in the limited circumstancesspecified in the Permanent Global Note]]
[Registered Notes:Global Certificate exchangeable for DefinitiveCertificates in the limited circumstancesdescribed in the Global Certificate]
26 Financial Centre(s) or other specialprovisions relating to payment dates:
[Not Applicable/give details.Note that this paragraph relates to the date andplace of payment, and not interest period enddates, to which sub-paragraph 17(vi) relates]
27 Talons for future Coupons or Receipts to beattached to Definitive Notes (and dates onwhich such Talons mature):
[Yes/No. If yes, give details]
28 Details relating to Partly Paid Notes:amount of each payment comprising the IssuePrice and date on which each payment is tobe made [and consequences (if any) of failureto pay, including any right of the Issuer toforfeit the Notes and interest due on latepayment]:
[Not Applicable/give details]
29 Details relating to Instalment Notes:amount of each instalment and date on whicheach payment is to be made:
[Not Applicable/The provisions annexed to thisPricing Supplement apply]
31 Any applicable currency disruption/fallbackprovisions:
[Not Applicable/give details]
32 Other terms or special conditions: [Not Applicable/give details]
DISTRIBUTION
33 (i) If syndicated, names and addresses ofManagers:
[Not Applicable/give names and addresses]
(ii) Stabilisation Manager(s) (if any): [Not Applicable/give name]
34 If non-syndicated, name and address ofDealer:
[Not Applicable/give name and address]
35 U.S. Selling Restrictions: Reg. S Category [1/2];(In the case of Bearer Notes) – [TEFRA CRules/TEFRA D Rules/TEFRA Not Applicable](In the case of Registered Notes) – TEFRA NotApplicable
36 Prohibition of Sales to EEA Retail Investors: [Applicable/Not Applicable](If the Notes clearly do not constitute“packaged” products, “Not Applicable” shouldbe specified. If the Notes may constitute“packaged” products and no KID will beprepared, “Applicable” should be specified.)
– 89 –
37 Prohibition of Sales to UK Retail Investors: [Applicable/Not Applicable](If the Notes clearly do not constitute“packaged” products, “Not Applicable” shouldbe specified. If the Notes may constitute“packaged” products and no KID will beprepared, “Applicable” should be specified.)
42 Any clearing system(s) other than[Euroclear/Clearstream]/[the CMU] and therelevant identification number(s):
[Not Applicable/give name(s) and number(s)]
43 Delivery: Delivery [against/free of] payment
44 Additional Paying Agent(s) (if any): [●]
GENERAL
45 The aggregate principal amount of Notesissued has been translated into US dollars atthe rate of [●], producing a sum of (for Notesnot denominated in US dollars):
[Not Applicable/US$[●]]
46 [Ratings: The Notes to be issued are expected to be rated:[S&P: [●]][Moody’s: [●]][Fitch: [●]][Other: [●]]
47 Private Bank Rebate/Commission: [Not Applicable/give details]9
48 Legal Entity Identifier: 3003001GY0MK7Y7R9393
[USE OF PROCEEDS
Give details if different from the “Use of Proceeds” section in the Offering Circular.]
[STABILISING
In connection with this issue, [insert name of Stabilisation Manager] (the “Stabilisation Manager(s)”) (orpersons acting on behalf of any Stabilisation Manager(s)) may over-allot Notes or effect transactions witha view to supporting the market price of the Notes at a level higher than that which might otherwiseprevail. However, there is no assurance that the Stabilisation Manager(s) (or persons acting on behalf ofany Stabilisation Manager(s)) will undertake stabilisation action. Any stabilisation action may begin on orafter the date on which adequate public disclosure of the terms of the offer of the Notes is made and, ifbegun, may be discontinued at any time, but it must end no later than the earlier of 30 days after the issuedate of the Notes and 60 days after the date of the allotment of the Notes. Any stabilisation action or
9 To be included if a PB rebate is paid: [The Issuer [and the Company] ha[ve/s] agreed with the Dealer[s] that [it/they]will pay a commission to certain private banks in connection with the distribution of the Notes to their clients. Thiscommission will be based on the principal amount of the Notes so distributed, and may be deducted from the purchaseprice for the Notes payable by such private banks upon settlement.]
– 90 –
over-allotment must be conducted by the relevant Stabilisation Manager(s) (or persons acting on behalf ofany Stabilisation Manager(s)) in accordance with all applicable laws and rules.]
PURPOSE OF PRICING SUPPLEMENT
This Pricing Supplement comprises the final terms required for issue [and admission to trading on [theHong Kong Stock Exchange]] of the Notes described herein pursuant to the Issuer’s US$2,000,000,000Medium Term Note Programme.
RESPONSIBILITY
The Issuer accepts responsibility for the information contained in this Pricing Supplement. Signed onbehalf of ZHEJIANG ENERGY INTERNATIONAL LIMITED:
By:Duly authorised
– 91 –
SUMMARY OF PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM
Initial Issue of Notes
Global Notes and Global Certificates may be delivered on or prior to the original issue date of the Trancheto a Common Depositary for Euroclear and Clearstream (the “Common Depositary”) or a sub-custodianfor the CMU.
Upon the initial deposit of a Global Note with the Common Depositary for Euroclear and Clearstream orwith a sub-custodian for the CMU or registration of Registered Notes in the name of (i) any nominee for,or for the Common Depositary for, Euroclear and Clearstream or (ii) the Hong Kong Monetary Authorityas operator of the CMU and delivery of the relevant Global Note or Global Certificate to the CommonDepositary or the sub-custodian for the CMU (as the case may be), Euroclear or Clearstream or the CMU(as the case may be) will credit each subscriber with a principal amount of Notes equal to the principalamount thereof for which it has subscribed and paid.
Notes that are initially deposited with the Common Depositary may also be credited to the accounts ofsubscribers with (if indicated in the relevant Pricing Supplement) other clearing systems through direct orindirect accounts with Euroclear and Clearstream held by such other clearing systems. Conversely, Notesthat are initially deposited with any other clearing system may similarly be credited to the accounts ofsubscribers with Euroclear, Clearstream or other clearing systems.
Relationship of Accountholders with Clearing Systems
Each of the persons shown in the records of Euroclear, Clearstream or any other clearing system (an“Alternative Clearing System”) as the holder of a Note represented by a Global Note or a GlobalCertificate must look solely to Euroclear, Clearstream or any such Alternative Clearing System (as the casemay be) for his share of each payment made by the Issuer to the bearer of such Global Note or the holderof the underlying Registered Notes, as the case may be, and in relation to all other rights arising under theGlobal Notes or Global Certificates, subject to and in accordance with the respective rules and proceduresof Euroclear, Clearstream or such Alternative Clearing System (as the case may be). Such persons shallhave no claim directly against the Issuer in respect of payments due on the Notes for so long as the Notesare represented by such Global Note or Global Certificate and such obligations of the Issuer will bedischarged by payment to the bearer of such Global Note or the holder of the underlying Registered Notes,as the case may be, in respect of each amount so paid.
If a Global Note or a Global Certificate is lodged with a sub-custodian for or registered with the CMU,the person(s) for whose account(s) interests in such Global Note or Global Certificate are credited as beingheld with the CMU in accordance with the relevant rules of CMU shall be the only person(s) entitled orin the case of Registered Notes, directed or deemed by the CMU as entitled to receive payments in respectof Notes represented by such Global Note or Global Certificate and the Issuer will be discharged bypayment to, or to the order of, such person(s) for whose account(s) interests in such Global Note or GlobalCertificate are credited as being held in the CMU in respect of each amount so paid. Each of the personsshown in the records of the CMU as the beneficial holder of a particular principal amount of Notesrepresented by such Global Note or Global Certificate must look solely to the CMU for his share of eachpayment so made by the Issuer in respect of such Global Note or Global Certificate.
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Exchange
Temporary Global Notes
Each temporary Global Note will be exchangeable, free of charge to the holder, on or after its ExchangeDate:
(i) if the relevant Pricing Supplement indicates that such Global Note is issued in compliance with theTEFRA C Rules or in a transaction to which TEFRA is Not Applicable (as to which, see “Summaryof the Programme – United States Selling Restrictions”), in whole, but not in part, for the DefinitiveNotes defined and described below; and
(ii) otherwise, in whole or in part upon certification as to non-U.S. beneficial ownership in the form setout in the Agency Agreement for interests in a permanent Global Note or, if so provided in therelevant Pricing Supplement, for Definitive Notes.
The CMU may require that any such exchange for a permanent Global Note is made in whole and not inpart and in such event, no such exchange will be effected until all relevant accountholders (as set out ina CMU Issue Position Report (as defined in the rules of the CMU) or any other relevant notificationsupplied to the CMU Lodging and Paying Agent by the CMU) have so certified.
The holder of a temporary Global Note will not be entitled to collect any payment of interest, principalor other amount due on or after the Exchange Date unless, upon due certification, exchange of thetemporary Global Note for an interest in a permanent Global Note or for Definitive Notes is improperlywithheld or refused.
Permanent Global Notes
Each permanent Global Note will be exchangeable, free of charge to the holder, on or after its ExchangeDate in whole but not, except as provided under the paragraph below, in part for Definitive Notes if thepermanent Global Note is held on behalf of Euroclear, Clearstream, the CMU or an Alternative ClearingSystem and any such clearing system is closed for business for a continuous period of 14 days (other thanby reason of holidays, statutory or otherwise) or announces an intention permanently to cease business orin fact does so.
Each permanent Global Note is exchangeable in part (provided, however, that if such permanent GlobalNote is held by or on behalf of Euroclear and/or Clearstream, or as the case may be, the CMU, the rulesof Euroclear and/or Clearstream or the CMU, as the case may be, so permit) if so provided, and inaccordance with, the Conditions relating to Partly Paid Notes.
In the event that a Global Note is exchanged for Definitive Notes, such Definitive Notes shall be issuedin Specified Denomination(s) only. A Noteholder who holds a principal amount of less than the minimumSpecified Denomination will not receive a Definitive Note in respect of such holding and would need topurchase a principal amount of Notes such that it holds an amount equal to one or more SpecifiedDenominations.
Global Certificates
The following will apply in respect of transfers of Notes held in Euroclear, Clearstream, the CMU or anAlternative Clearing System. These provisions will not prevent the trading of interests in the Notes withina clearing system whilst they are held on behalf of such clearing system, but will limit the circumstancesin which the Notes may be withdrawn from the relevant clearing system. Transfers of the holding of Notesrepresented by any Global Certificate pursuant to Condition 2(b) may only be made in part if the relevantclearing system is closed for business for a continuous period of 14 days (other than by reason of holidays,statutory or otherwise) or announces an intention permanently to cease business or does in fact do so orwith the consent of the Issuer provided that, in the case of the first transfer of part of a holding ascontemplated above, the holder of Notes represented by any Global Certificate has given the Registrar notless than 30 days’ notice at its specified office of the Registered Holder’s intention to effect such transfer.
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In the event that a Global Certificate is exchanged for definitive Certificates, such definitive Certificatesshall be issued in Specified Denomination(s) only. A Noteholder who holds a principal amount of less thanthe minimum Specified Denomination will not receive a definitive Certificate in respect of such holdingand would need to purchase a principal amount of Notes such that it holds an amount equal to one or moreSpecified Denominations.
Delivery of Notes
On or after any due date for exchange, the holder of a Global Note may surrender such Global Note or,in the case of a partial exchange, present it for endorsement to or to the order of the Issuing and PayingAgent (or, in the case of Notes lodged with the CMU, the CMU Lodging and Paying Agent).
In exchange for any Global Note, or the part thereof to be exchanged, the Issuer will (i) in the case of atemporary Global Note exchangeable for a permanent Global Note, deliver, or procure the delivery of, apermanent Global Note in an aggregate principal amount equal to that of the whole or that part of atemporary Global Note that is being exchanged or, in the case of a subsequent exchange, endorse, orprocure the endorsement of, a permanent Global Note to reflect such exchange or (ii) in the case of aGlobal Note exchangeable for Definitive Notes, deliver, or procure the delivery of, an equal aggregateprincipal amount of duly executed and authenticated Definitive Notes. Global Notes, Global Certificatesand Definitive Notes will be delivered outside the United States and its possessions.
In this Offering Circular, “Definitive Notes” means, in relation to any Global Note, the definitive BearerNotes for which such Global Note may be exchanged (if appropriate, having attached to them all Couponsand Receipts in respect of interest or Instalment Amounts that have not already been paid on the GlobalNote and a Talon). Definitive Notes will be security printed in accordance with any applicable legal andstock exchange requirements in or substantially in the form set out in the Schedules to the Trust Deed. Onexchange in full of each permanent Global Note, the Issuer will, if the holder so requests, procure that itis cancelled and returned to the holder together with the relevant Definitive Notes.
Exchange Date
“Exchange Date” means, in relation to a temporary Global Note, the day falling after the expiry of 40 daysafter its issue date and, in relation to a permanent Global Note, a day falling not less than 60 days, afterthat on which the notice requiring exchange is given and on which banks are open for business in the cityin which the specified office of the Issuing and Paying Agent or, as the case may be, the CMU Lodgingand Paying Agent is located and in the city in which the relevant clearing system is located.
Amendment to Conditions
The temporary Global Notes, permanent Global Notes and Global Certificates contain provisions thatapply to the Notes that they represent, some of which modify the effect of the terms and conditions of theNotes set out in this Offering Circular. The following is a summary of certain of those provisions:
Payments
No payment falling due after the Exchange Date will be made on any Global Note unless exchange for aninterest in a permanent Global Note or for Definitive Notes is improperly withheld or refused.
Payments on any temporary Global Note issued in compliance with the TEFRA D Rules before theExchange Date will only be made against presentation of certification as to non-U.S. beneficial ownershipin the form set out in the Agency Agreement. All payments in respect of Notes represented by a GlobalNote (except with respect to a Global Note held through the CMU) will be made against presentation forendorsement and, if no further payment falls to be made in respect of the Notes, surrender of that GlobalNote to or to the order of the Issuing and Paying Agent as shall have been notified to the Noteholders forsuch purpose. A record of each payment so made will be enfaced on each Global Note, which endorsementwill be prima facie evidence that such payment has been made in respect of the Notes. For the purposeof any payments made in respect of a Global Note, the relevant place of presentation (if applicable) shallbe disregarded in the definition of “business day” set out in Condition 7(h).
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All payments in respect of Notes represented by a Global Certificate (other than a Global Certificate heldthrough the CMU) will be made to, or to the order of, the person whose name is entered on the Registerat the close of business on the record date which shall be the Clearing System Business Day immediatelyprior to the date for payment, where “Clearing System Business Day” means Monday to Friday inclusiveexcept 25 December and 1 January.
In respect of a Global Note or Global Certificate representing Notes held through the CMU, any paymentsof principal, interest (if any) or any other amounts shall be made to the person(s) for whose account(s)interests in the relevant Global Note or Global Certificate are credited (as set out in the records of theCMU) at the close of business on the Clearing System Business Day immediately prior to the date forpayment and, save in the case of final payment, no presentation of the relevant Global Note or GlobalCertificate shall be required for such purpose. For the purposes of this paragraph, “Clearing SystemBusiness Day” means a day on which the CMU is operating and open for business.
So long as the Notes are represented by a Global Note or Global Certificate and the Global Note or GlobalCertificate is held on behalf of a clearing system, the Issuer has undertaken, inter alia, to pay interest inrespect of such Notes from the Interest Commencement Date in arrear at the rates, on the dates forpayment, and in accordance with the method of calculation provided for in the Conditions, save that thecalculation is made in respect of the total aggregate amount of the Notes represented by the Global Noteor Global Certificate.
Prescription
Claims against the Issuer in respect of Notes that are represented by a permanent Global Note shall becomevoid unless it is presented for payment within a period of 10 years (in the case of principal) and five years(in the case of interest) from the appropriate Relevant Date (as defined in Condition 8).
Meetings
The holder of a permanent Global Note or of the Notes represented by a Global Certificate shall (unlesssuch permanent Global Note or Global Certificate represents only one Note) be treated as two persons forthe purposes of any quorum requirements of a meeting of Noteholders and, at any such meeting, the holderof a permanent Global Note or of the Notes represented by a Global Certificate shall be treated as havingone vote in respect of each integral currency unit of the Specified Currency of the Notes.
Cancellation
Cancellation of any Note represented by a permanent Global Note that is required by the Conditions to becancelled (other than upon its redemption) shall be effected by reduction in the principal amount of therelevant permanent Global Note on its presentation to or to the order of the Issuing and Paying Agent (or,in the case of Notes lodged with the CMU, the CMU Lodging and Paying Agent) for endorsement in therelevant schedule of such permanent Global Note or in the case of a Global Certificate, by reduction inthe aggregate principal amount of the Certificates in the Register, whereupon the principal amount thereofshall be reduced for all purposes by the amount so cancelled and endorsed.
Purchase
Notes represented by a permanent Global Note may only be purchased by the Issuer, the Company or anyof their respective subsidiaries if they are purchased together with the rights to receive all future paymentsof interest and Instalment Amounts (if any) thereon.
Issuer’s Option
Any option of the Issuer provided for in the Conditions while such Notes are represented by a permanentGlobal Note shall be exercised by the Issuer giving notice to the Noteholders within the time limits setout in and containing the information required by the Conditions, except that the notice shall not berequired to contain the serial numbers of Notes drawn in the case of a partial exercise of an option andaccordingly no drawing of Notes shall be required.
In the event that any option of the Issuer is exercised in respect of some but not all of the Notes of anySeries, the rights of accountholders with a clearing system in respect of the Notes will be governed by thestandard procedures of Euroclear, Clearstream, the CMU or any other clearing system (as the case may be).
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Noteholders’ Options
Any option of the Noteholders provided for in the Conditions while such Notes are represented by apermanent Global Note may be exercised by the holder of the permanent Global Note giving notice to theIssuing and Paying Agent (or, in the case of Notes lodged with the CMU, the CMU Lodging and PayingAgent) within the time limits relating to the deposit of Notes with a Paying Agent set out in the Conditionsin accordance with the rules and procedures of Euroclear and Clearstream, CMU or any other relevantclearing system, failing which, substantially in the form of the notice available from any Paying Agent,except that the notice shall not be required to contain the serial numbers of the Notes in respect of whichthe option has been exercised, and stating the principal amount of Notes in respect of which the optionis exercised and at the same time presenting the permanent Global Note to the Issuing and Paying Agent(or, in the case of Notes lodged with the CMU, the CMU Lodging and Paying Agent), or to a Paying Agentacting on behalf of the Issuing and Paying Agent (or, in the case of Notes lodged with the CMU, the CMULodging and Paying Agent) for notation.
Notices
So long as any Notes are represented by a Global Note or a Global Certificate and such Global Note orGlobal Certificate is held on behalf of (i) Euroclear and/or Clearstream or any other clearing system(except as provided in (ii) below), notices required to be given in respect of the Notes may be validly givenby delivery of the relevant notice to that clearing system for communication by it to entitledaccountholders in substitution for notification as required by the Conditions or (ii) the CMU, noticesrequired to be given in respect of the Notes shall be validly given by delivery of the relevant notice to theCMU in substitution for notification as required by the Conditions or by delivery of the relevant noticeto the holder of the Global Note or Global Certificate, and any such notice shall be deemed to have beengiven to the Noteholders on the day on which such notice is delivered to the CMU.
Partly Paid Notes
The provisions relating to Partly Paid Notes are not set out in this Offering Circular, but will be containedin the relevant Pricing Supplement and thereby in the Global Notes. While any instalments of thesubscription moneys due from the holder of Partly Paid Notes are overdue, no interest in a Global Noterepresenting such Notes may be exchanged for an interest in a permanent Global Note or for DefinitiveNotes (as the case may be). If any Noteholder fails to pay any instalment due on any Partly Paid Noteswithin the time specified, the Issuer may forfeit such Notes and shall have no further obligation to theirholders in respect of them.
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DESCRIPTION OF THE KEEPWELL DEED
The following contains summaries of certain key provisions of the Keepwell Deed. Such statements do notpurport to be complete and are qualified in their entirety by reference to the Keepwell Deed. Capitalisedterms used but not defined in this section have the meanings given to them in the Keepwell Deed.
Pursuant to the Keepwell Deed, the Company has undertaken with the Issuer and the Trustee that, amongothers, it shall, directly or indirectly, own and hold 100 per cent. of the issued share capital of the Issuer.In addition, the Company has undertaken that it shall cause:
• the Issuer to have a Consolidated Net Worth of not less than US$1.00 at all times; and
• the Issuer to have sufficient liquidity to ensure timely payment by the Issuer of any amountspayable under or in respect of any of its indebtedness (including under the Notes in accordancewith the Conditions and/or the Trust Deed and otherwise under the Trust Deed and the AgencyAgreement).
Subject to certain exceptions, the Company has also undertaken to the Trustee that:
• neither the Company nor any of its Subsidiaries will create or permit to subsist any mortgage,charge, lien, pledge or other security interest, upon the whole or any part of its present or futureundertaking, assets or revenues (including any uncalled capital) to secure any RelevantIndebtedness outside the PRC or to secure any guarantee or indemnity in respect of anyRelevant Indebtedness outside the PRC without at the same time or prior thereto according tothe Notes and the Coupons the same security as is created or subsisting to secure any suchRelevant Indebtedness, guarantee or indemnity or such other security as either (a) the Trusteeshall in its absolute discretion deem not materially less beneficial to the interest of theNoteholders or (b) shall be approved by an Extraordinary Resolution; and
• the Company will not create or have outstanding any guarantee or indemnity in respect of anyRelevant Indebtedness outside the PRC without at the same time or prior thereto (a) accordingto the Notes and the Coupons the same guarantee or indemnity or (b) offering to exchange theNotes for securities issued or guaranteed by the Company with terms substantially identical tothose of the Notes as certified by an Independent Investment Bank.
The Company has further undertaken:
• to procure that the articles of association of the Issuer shall not be amended in a manner thatis, directly or indirectly, adverse to holders of the Notes;
• to cause the Issuer to remain in full compliance with the Conditions, the Trust Deed and allapplicable rules and regulations in Hong Kong;
• promptly to take any and all action necessary to comply with its obligations under the KeepwellDeed;
• to cause the Issuer to take all action necessary in a timely manner to comply with its obligationsunder the Keepwell Deed; and
• to procure that in the event the Issuer on-lends the proceeds of the issue of Notes to theCompany or any of its Subsidiaries, the Company shall cause such recipient of the proceeds ofthe issue of Notes to pay the interest and principal in respect of such intercompany loan ontime.
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Pursuant to the Keepwell Deed, each of the Issuer and the Company has undertaken to promptly notify theTrustee in writing of the occurrence of any of the following events (each, a “Triggering Event”):
• the Consolidated Net Worth of the Issuer falls below US$1.00 (a “Financial Ratio Failure”);or
• an Event of Default; or
• the Issuer fails to provide the Company with a Liquidity Notice by the time on the LiquidityNotice Date and otherwise in accordance with Clause 7 of the Keepwell Deed and such failureis not remedied within seven days from the Liquidity Notice Date (a “Liquidity Notice FailureEvent”).
The Trustee shall promptly provide a Trigger Notice to the Issuer and the Company in respect of any Seriesof Notes after:
• a Noteholder has notified it in writing that (a) an Event of Default has occurred or (b) suchNoteholder believes that an Event of Default has or may have occurred;
• the Trustee has given notice to the Issuer pursuant to Condition 10 that the relevant Series ofNotes are immediately due and payable; or
• the Trustee has received a notice from the Issuer or the Company pursuant to Clause 8.1 of theKeepwell Deed notifying the Trustee that a Triggering Event has occurred.
In the event that the Trustee has provided a Trigger Notice to the Issuer and the Company, the Companyshall:
• promptly provide liquidity to the Issuer through the immediate adjustment of the settlementpolicy for any procurement between (i) the Issuer and (ii) the Company and/or its Subsidiariessuch that the Issuer receives an amount equal to the Relevant Amount within one Business Dayafter the date of the Trigger Notice;
• subject to prevailing laws, regulations and government policies at such time and if required, theapprovals from or registration with competent PRC government authorities,
(i) as soon as practicable, grant to the Issuer a standby facility (the “Standby Facility”)pursuant to which the Company will remit an amount in RMB that can be converted bythe Issuer into the Relevant Amount (the “RMB Amount”);
(ii) as soon as practicable open with a PRC commercial bank a special RMB account for thetransfer and remittance of the RMB Amount to the Issuer according to the relevant PRClaws;
(iii) remit the RMB Amount to a specified account of the Issuer in Hong Kong through thespecial RMB account; and
(iv) cause the Issuer to use the RMB Amount to discharge its obligations under the relevantSeries of Notes and Coupons, the Trust Deed, the Agency Agreement and the KeepwellDeed on the due date therefor,
• subject to obtaining all necessary approvals, consents, licences, orders, permits and any otherauthorisations from the relevant Approval Authorities, purchase (either by itself or through aPRC incorporated Subsidiary of the Company as designated by it), the Equity Interest held bythe Issuer and/or the Equity Interest held by any other Subsidiaries of the Companyincorporated outside the PRC, as designated by the Company and notified in writing to theTrustee within two Business Days after the date of the Trigger Notice, or in the absence of adesignation and notification within two Business Days after the date of the Trigger Notice, theEquity Interest held by all the Subsidiaries of the Company incorporated outside the PRC. Thepurchase price of the Equity Interest will be determined by the Company provided that such
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purchase price shall be no less than the aggregate of (i) the Relevant Amount, plus (ii) anamount equivalent to the interest payable at the stated rate of interest on the relevant Series ofNotes for one interest period; and
• subject to obtaining all necessary approvals, consents, licences, orders, permits and any otherauthorisations from the relevant Approval Authorities, invest (either by itself or through aSubsidiary of the Company as designated by it (the “Designated Investor”)) in the Issuer (byequity investment or shareholders’ loan or a combination thereof) at the Relevant Amount onthe terms set out in the Keepwell Deed and an investment agreement to be executed betweenthe Issuer and the Company (or as the case may be, the Designated Investor).
“Relevant Amount” means:
• if the Triggering Event is a Financial Ratio Failure, an amount in US dollars no less than theamount sufficient to enable the Issuer to remedy the Financial Ratio Failure calculated on a proforma basis;
• if the Triggering Event is a Liquidity Notice Failure Event, an amount, in respect of each Seriesof Notes outstanding, in the Specified Currency of the relevant Series of Notes that is no lessthan the amount sufficient to enable the Issuer to meet its payment obligations on the nextInterest Payment Date in respect of the relevant Series of Notes; or
• if the Triggering Event is an Event of Default in respect of a Series of Notes or if a TriggerNotice is given in respect of a Series of Notes in the case where (i) a Noteholder has notifiedit in writing that (a) an Event of Default has occurred or (b) such Noteholder believes that anEvent of Default has or may have occurred, or (ii) the Trustee has given notice to the Issuerpursuant to Condition 10 that the relevant Series of Notes are immediately due and payable, anamount in the Specified Currency of such Series of Notes that is no less than the amountsufficient to enable the Issuer to discharge in full its obligations under such Series of Notes andthe Trust Deed,
in any such case together with all fees, costs, expenses and other amounts payable to the Trustee and/orthe Agents under or in connection with such Series of Notes and the Coupons, the Trust Deed, the AgencyAgreement and/or the Keepwell Deed as at the date of such Trigger Notice plus provisions for fees, costs,expenses and other amounts which may be incurred after the date of the Trigger Notice, as notified by theTrustee in the Trigger Notice.
Each of the Company and the Issuer has agreed and acknowledged in the Keepwell Deed that the termsof the Standby Facility shall be at arm’s length (or more favourable to the Issuer) and shall not require anysecurity from the Issuer.
The Keepwell Deed is not a guarantee or a legal binding obligation of the Company to pay any amountdue under the Notes. The performance by the Company of certain of its obligations under the KeepwellDeed may be subject to the approvals, registrations, clearance or other authorisation of or filings with PRCgovernment authorities and the Company shall only be required to use its best endeavours to obtain andmake such approvals, registrations, filings, clearance or other authorisation. See “Risk factors – Risksrelating to the Notes issued under the Programme and the Keepwell Deed – The Keepwell Deed is nota guarantee of the payment obligations under the Notes and may not give rise to a debt claim in theevent of any insolvency proceedings in relation to the Company”.
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USE OF PROCEEDS
The Issuer intends to use the net proceeds of each Tranche of Notes for refinancing and general corporatepurposes of the Issuer.
If, in respect of any particular issue, there is a particular identified use of proceeds, this will be specifiedin the applicable Pricing Supplement.
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CAPITALISATION AND INDEBTEDNESS OF THE COMPANY
The following table sets forth the consolidated capitalisation and indebtedness of the Company as at31 December 2020 on an actual basis.
The following table should be read in conjunction with “Summary Consolidated Financial and OtherInformation” and the Company’s consolidated financial statements and related notes included elsewherein this Offering Circular.
(1) US dollar translations are provided for indicative purposes only and are unaudited. These translations were calculatedbased on an exchange rate of RMB6.5250 to US$1.00, the Noon Buying Rate on 31 December 2020 (being the lastbusiness day in December 2020).
(2) Total indebtedness equals the sum of short-term indebtedness and long-term indebtedness.
(3) Total capitalisation equals the sum of total indebtedness and total equity.
Since 31 December 2020, the Company has issued debt securities in an aggregate amount of approximatelyRMB9.5 billion in the PRC.
Except as otherwise disclosed in this Offering Circular, there has been no material change in theconsolidated capitalisation and indebtedness of the Company since 31 December 2020.
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CAPITALISATION AND INDEBTEDNESS OF THE ISSUER
The following table sets forth the consolidated capitalisation and indebtedness of the Issuer as at31 December 2020 on an actual basis.
The following table should be read in conjunction with “Summary Consolidated Financial and OtherInformation” and the Issuer’s consolidated financial statements and related notes included elsewhere inthis Offering Circular.
(1) US dollar translations are provided for indicative purposes only and are unaudited. These translations were calculatedbased on an exchange rate of HK$7.7534 to US$1.00, the Noon Buying Rate on 31 December 2020 (being the lastbusiness day in December 2020).
(2) Total indebtedness equals the sum of short-term indebtedness and long-term indebtedness.
(3) Total capitalisation equals the sum of total indebtedness and total equity.
The Issuer has, since 31 December 2020, in the ordinary course of business, incurred additionalborrowings to finance its business operations.
Except as otherwise disclosed in this Offering Circular, there has been no material change in theconsolidated capitalisation and indebtedness of the Issuer since 31 December 2020.
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EXCHANGE RATES
PRC
The PBOC sets and publishes daily a base exchange rate with reference primarily to the supply anddemand of Renminbi against a basket of currencies in the market during the prior day. The PBOC alsotakes into account other factors, such as the general conditions existing in the international foreignexchange markets. From 1994 to 20 July 2005, the conversion of Renminbi into foreign currencies,including Hong Kong dollars and US dollars, was based on rates set daily by the PBOC on the basis ofthe previous day’s inter-bank foreign exchange market rates and then current exchange rates in the worldfinancial markets. During this period, the official exchange rate for the conversion of Renminbi to USdollars remained generally stable. Although the PRC government introduced policies in 1996 to reducerestrictions on the convertibility of Renminbi into foreign currencies for current account items, conversionof Renminbi into foreign currencies for capital items, such as foreign direct investment, loan principal andsecurities trading, still requires the approval of SAFE and other relevant authorities. On 21 July 2005, thePRC government introduced a managed floating exchange rate system to allow the value of the Renminbito fluctuate within a regulated band based on market supply and demand and by reference to a basket ofcurrencies. On the same day, the value of the Renminbi appreciated by approximately 2 per cent. againstthe US dollar. On 17 March 2014, the floating band for the trading prices in the inter-bank foreignexchange market of the Renminbi against the US dollar was expanded to 2 per cent. around the centralparity rate. This allows the Renminbi to fluctuate against the US dollar by up to 2 per cent. above or belowthe central parity rate published by PBOC. From 21 July 2005 to 30 June 2015, the value of the Renminbiappreciated by approximately 33.5 per cent. against the US dollar. Subsequently, the Renminbi depreciated4.3 per cent. from 30 June 2015 to 31 December 2015. The PBOC authorised the China Foreign ExchangeTrade System, a sub-institutional organisation of the PBOC, effective since 4 January 2006, to announcethe central parity exchange rate of certain foreign currencies against the Renminbi on each business day.This rate is set as the central parity for the trading against the Renminbi in the inter-bank foreign exchangespot market and the over-the-counter exchange rate for the business day. On 11 August 2015, the PBOCannounced an adjustment to the central parity mechanism of quoting Renminbi against the US dollar, asa step towards allowing a more market-based determination of the Renminbi exchange rate. On 11December 2015, the China Foreign Exchange Trade System published the CFETS Renminbi exchange rateindex for the first time which weighs the Renminbi based on 13 currencies, to guide the market in orderto measure the Renminbi exchange rate from a new perspective. On 1 January 2017, 11 additionalcurrencies were added to the CFETS Renminbi exchange rate index, increasing the number of currenciesreferenced to 24. The PRC government may make further adjustments to the exchange rate system in thefuture.
The following table sets forth the exchange rate of the Renminbi against the US dollar. The exchange raterefers to the noon buying rate as set forth in the weekly H.10 statistical release of the U.S. Federal ReserveBoard.
(1) Annual averages were calculated by using the average of the exchange rates on the last day of each month during therelevant year. Monthly averages or average for a period are calculated by using the average of the daily rates duringthe relevant month or period.
Hong Kong
The Hong Kong dollar is freely convertible into other currencies, including the US dollar. Since 17October 1983, the Hong Kong dollar has been linked to the US dollar at the rate of HK$7.80 to US$1.00.The Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China (the“Basic Law”), which came into effect on 1 July 1997, provides that no foreign exchange control policiesshall be applied in Hong Kong.
The market exchange rate of the Hong Kong dollar against the US dollar continues to be determined bythe forces of supply and demand in the foreign exchange market. However, against the background of thefixed rate system which applies to the issuance and withdrawal of Hong Kong currency in circulation, themarket exchange rate has not deviated significantly from the level of HK$7.80 to US$1.00. In May 2005,the Hong Kong Monetary Authority broadened the 22-year-old trading band from the original rate ofHK$7.80 per US dollar to a rate range of HK$7.75 to HK$7.85 per US dollar. The Hong Kong governmenthas indicated its intention to maintain the link within that rate range. Under the Basic Law, the Hong Kongdollar will continue to circulate and remain freely convertible. The Hong Kong government has also statedthat it has no intention of imposing exchange controls in Hong Kong and that the Hong Kong dollar willremain freely convertible into other currencies, including the US dollar.
The following table sets forth the exchange rate of the Hong Kong dollar against the US dollar. Theexchange rate refers to the noon buying rate as set forth in the weekly H.10 statistical release of the U.S.Federal Reserve Board.
(1) Annual averages were calculated by using the average of the exchange rates on the last day of each month during therelevant year. Monthly averages or average for a period are calculated by using the average of the daily rates duringthe relevant month or period.
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DESCRIPTION OF THE ISSUER
Overview
The Issuer, Zhejiang Energy International Limited, was incorporated on 11 August 2004 and is registeredas a company with limited liability under the laws of Hong Kong, with company number 916646. Theregistered office of the Issuer is located at Room 1405, 14/F, Harbour Centre, 25 Harbour Road, Wanchai,Hong Kong. The Issuer is a subsidiary of the Company. On 5 February 2014, the Issuer changed its namefrom “Hong Kong Xingyuan Investment & Trading Company Limited” to “Zhejiang Energy Group(Hong Kong) Limited”. On 2 May 2017, the Issuer changed its name from “Zhejiang Energy Group(Hong Kong) Limited” to “Zhejiang Energy International Limited”. Throughout the years, the Issuerhas built a solid reputation and strong brand influence in overseas markets.
Share Capital
The share capital of the Issuer is HK$4,131,640,995 divided into 4,024,587,050 ordinary shares, all ofwhich are issued and fully paid. As at the date of this Offering Circular, the Company directly holds 60per cent. of the Issuer’s share capital, while Zheneng Capital Holdings Co., Ltd., a wholly-ownedsubsidiary of the Company, holds 40 per cent. of the Issuer’s share capital.
Business
Rooted in Hong Kong, the Issuer is our primary overseas investment and financing platform. The Issueralso acts as an investment holding company and the main body for our overseas merger and acquisitionoperation, and plays a strategically important role as our international investment platform. It is alsoresponsible for securing overseas financings for the Company. As at 31 December 2020, the Issuer hadtotal assets of HK$29,426.2 million.
Investment Holding
The Issuer acts as an investment holding company and holds listed debt and equity securities investments.The Issuer focuses on investments that supplements our businesses such as coal-fired power, wind poweror hydropower projects, which are primarily funded by its own offshore financing and our capitalinjections. In December 2017, the Issuer acquired 35 per cent. equity interest in Brazil San SimaoHydropower Station, the 9th largest hydropower station in Brazil with an installed capacity of 1,710 MW.In August 2019, the Issuer and Zheneng Capital Holdings Co., Ltd. acquired 29.79 per cent. equity interestin Jinjiang Environment, a company listed on the Singapore Exchange (stock code: BWM), and becameits largest controlling shareholder. In November 2019, Jinjiang Environment announced its change ofname from “China Jinjiang Environment Holding Company Limited” to “Zheneng JinjiangEnvironment Holding Company Limited”. As at the date of this Offering Circular, the Issuer andZheneng Capital Holdings Co., Ltd. indirectly hold 29.57 per cent. equity interest in Jinjiang Environment.As at 31 December 2018, 2019 and 2020, the Issuer held approximately HK$1,484.6 million, HK$1,387.2million and HK$1,262.0 million of listed equity investments in the PRC and Hong Kong, respectively. Forthe years ended 31 December 2018, 2019 and 2020, the Issuer recorded fair value loss of approximatelyHK$135.8 million, HK$97.0 million and HK$126.2 million on the listed equity investments, respectively.See “Risk Factors – Risks Relating to Our Business – We have made and may continue to make strategicinvestments in securities, the value of which may be subject to fluctuation and we may incur losses orfair value losses on our investments”.
Financing Activities
In addition, the Issuer plays an important role in securing overseas funding for the Company with differentfinancing options such as working capital loans and offshore bonds issuance. With the support and benefitfrom our reputation, the Issuer had aggregate banking facilities with various financial institutions in theamount of approximately US$0.6 billion as at 31 December 2020, of which approximately US$0.5 billionwas unutilised.
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Trading of Raw Materials
Trading of raw materials had been the Issuer’s main source of income. For the years ended 31 December2018, 2019 and 2020, approximately 89.2 per cent., 50.3 per cent. and 15.9 per cent. of the Issuer’sturnover was generated from coal trading, respectively, and approximately 3.8 per cent., 6.6 per cent. and0.3 per cent. of the Issuer’s turnover was generated from fuel oil trading, respectively. As part of ourstrategy for the Issuer to become our primary overseas investment and financing platform, the Issuergradually transferred its trading of raw materials business (the “Trading Business Transfer”) to oursubsidiary, Zheneng International Energy Trading (Hong Kong) Co., Ltd., from 2020 onwards. Since thecompletion of the Trading Business Transfer in November 2020, the Issuer’s primary source of income hasbeen derived from its investment and financing activities.
Directors of the Issuer
The directors of the Issuer as at the date of this Offering Circular are Chen Yiqin, Gao Min and ZhouYongsheng.
The senior management of the Issuer was appointed by the Company.
Legal Proceedings
The Issuer is not involved in any material litigation or arbitration proceedings, and it is not aware of anypending or threatened action against it which is material in the context of the issue of the Notes as at thedate of this Offering Circular.
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DESCRIPTION OF THE GROUP
Overview
We are a leading state-owned energy and electric power enterprise in the PRC, primarily engaged in thepower generation, coal trading and mining, natural gas and petroleum businesses. We play an importantrole in the provision of energy and electric power in Zhejiang Province. We are a state-owned companywith limited liability as approved by the Zhejiang Government. As the only energy and electric powerenterprise under the Zhejiang SASAC, we supplied approximately 50.0 per cent., 48.0 per cent. and 46.0per cent. of the power generation and approximately 81.4 per cent., 79.5 per cent. and 73.4 per cent. ofthe pipeline natural gas in Zhejiang Province in 2018, 2019 and 2020, respectively.
Power generation is our core business. For the years ended 31 December 2018, 2019 and 2020, operatingrevenue generated from our power generation business was approximately RMB44.8 billion, RMB45.6billion and RMB44.4 billion, respectively, representing approximately 48.1 per cent., 40.8 per cent. and41.3 per cent., respectively, of our total operating revenue. As a power generation company which has thelargest installed power capacity among provincial state-owned enterprises in the PRC, we develop, invest,construct, manage and operate power plants, and sell the power generated by such power plants to relevantpower grid companies. We also engage in the coal trading and mining business, in which we source coalfrom third parties and the coal mines in which we have ownership interest and then distribute and sell thecoal we procure to power generation companies in the PRC. In addition, we engage in the natural gasbusiness, in which we focus on building, owning and operating natural gas pipelines, through which wedistribute and sell natural gas to our customers. Further, we have commenced our petroleum business in2017. We primarily engage in crude oil trading, oil storage and transportation, fuel oil refilling, refinedoil sale and the construction and investment of auxiliary infrastructure projects such as oil depots,terminals, oil pipelines and integrated energy supply service stations. Our other businesses mainly includetechnology and environmental protection, energy financing and coal gas businesses.
We have attained prominent status and recognition in the energy and power generation industry both inZhejiang Province and nationwide. As at the date of this Offering Circular, we ranked among the “Top TenExcellent Enterprises” in Zhejiang Province and our generator set won the honorary title of “NationalGrade A Reliability Unit”. We ranked first among the regional energy and power generation companiesand were one of the top State-owned Enterprises in Zhejiang Province according to total assets and totalrevenue as at the date of this Offering Circular. For five consecutive years, we were elected the “MostSocially Responsible Enterprise in Zhejiang Province”. In 2018, we were among the top 10 nationalpower generation enterprises by installed capacity. We have a good reputation in the PRC capital markets.For instance, the Company was recognised as Quality Debt Issuer (優質債券發行人) by the ShanghaiStock Exchange in 2019. In the “Top 500 Enterprises of China in 2019” list published jointly by ChinaEnterprise Confederation and China Enterprise Directors Association, we ranked 204th and ranked firstamong provincial power generation enterprises. In the “Top 100 Enterprises of Zhejiang in 2020” and“Top 100 Service Enterprises of Zhejiang in 2020” lists published jointly by Zhejiang EnterpriseConfederation, Zhejiang Enterprise Directors Association and Zhejiang Industrial and EconomyAssociation, we ranked 17th and 7th, respectively.
As at 31 December 2018, 2019 and 2020, we had total assets of approximately RMB210,561.0 million,RMB241,507.8 million and RMB276,425.9 million, respectively. For the years ended 31 December 2018,2019 and 2020, we recorded total operating revenue of approximately RMB93,219.5 million,RMB111,805.5 million and RMB107,385.4 million, respectively, and net profit of approximatelyRMB4,458.2 million, RMB7,332.6 million and RMB8,984.0 million, respectively.
Our History and Development
We are a state-owned company with limited liability as approved by the Zhejiang Government. We wereestablished with the assets of the original Zhejiang Power Development Co., Ltd. and Zhejiang Coal GroupCompany as our base. We registered with Zhejiang Administration for Industry and Commerce with aregistered capital of RMB3.5 billion on 21 March 2001. In November 2005, after being approved by theZhejiang SASAC and building on the basis of our paid-in capital of approximately RMB4,348.9 million,we capitalised our capital reserve of approximately RMB5,651.1 million. After the capitalisation, we havea registered capital of RMB10.0 billion and paid-in capital of RMB10.0 billion.
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The following table sets forth the key milestones in our development:
Year Events
2001 . . . . . . . . . . . . . . . . • In February 2001, with the approval of the Zhejiang Government, wewere organised on the basis of Zhejiang Power Development Co., Ltd.and Zhejiang Coal Group Company, with a registered capital ofRMB3.5 billion.
• In May 2001, we started operation.
2002 . . . . . . . . . . . . . . . . • In June 2002, the “Agreement in Principle for the Establishment ofPower Plants Along the Coastal Areas of Zhejiang Provincethrough Cooperation” was jointly signed by the provincial planningcommission, provincial electric power company, Beijing GuohuaElectric Power Company and the provincial energy group inHangzhou.
• In September 2002, Huaguangtan Hydropower Plant – the firsthydropower plant that we owned, constructed, and managed – becameoperational.
2003 . . . . . . . . . . . . . . . . • In February 2003, we were formally in charge of managing powergeneration enterprises and projects in Zhejiang Province.
2004 . . . . . . . . . . . . . . . . • In January 2004, natural gas under the “transmission of natural gasfrom west to east” programme was first provided in Zhejiang.
• In April 2004, as one of the national and provincial key projectsduring the 10th five-year plan, a 600MW power generating unit atJiaxing Power Generation (Phase II) became the first such unit whichsuccessfully completed the grid-connected power generation.
• In December 2004, the No. 4 power generating unit (600MW) forJiaxing Power Generation (Phase II) was formally put intocommercial operation.
2005 . . . . . . . . . . . . . . . . • In June 2005, we and Datong Coal Mine Group entered into anagreement for the joint investment in and development of theMajialiang Mine in Shanxi Province.
• In October 2005, the No. 6 power generating unit for the JiaxingPower Generation (Phase II) was formally put into commercialoperation. As a result, our installed capacity exceeded 10,000 MW.
• In November 2005, we successfully completed the goal set out by theZhejiang Government at the beginning of the year to “speed up theconstruction of power plants, reduce power shortages, andcomplete the construction of generators with a total combinedcapacity of 5,000 MW within the year”.
• In December 2005, the construction of Hangyong line was completedfor the transmission of natural gas extracted from East China Sea toZhejiang Province.
2006 . . . . . . . . . . . . . . . . • In March 2006, the No. 1 power generating unit of Lanxi PowerGeneration – the first 600 MW supercritical power generating unitsolely developed, managed and constructed by us – commencedgrid-connected power generation.
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Year Events
2007 . . . . . . . . . . . . . . . . • In January 2007, we formulated the “Comprehensive EnergyStrategy” to coordinate our development in different industries, withthe power generating business as our core business.
• In March 2007, the largest natural gas pipeline in the world (in termsof overall scale) crossing Qiantang River was successfully built, witha total length of over 2,400 m and a cross-sectional circumference of0.813 m, thus achieving the goal of connecting natural gas betweenthe east and west of Zhejiang Province.
2008 . . . . . . . . . . . . . . . . • In April 2008, Tankeng Hydropower Plant – a national key project andthe largest poverty alleviation project in Zhejiang Province by then –was officially put into operation.
• In August 2008, the first power generating unit of Beihai Hydropowercommenced grid-connected power generation.
2009 . . . . . . . . . . . . . . . . • In June 2009, we completed the desulphurisation reform of all ourcoal-fired power plants.
• In October 2009, all assets of Zhejiang Water Resources &Hydropower Investment Group Company were injected into us, andthe former became the core enterprise of the Group in the renewableenergy sector.
2010 . . . . . . . . . . . . . . . . • In 2010, Zhejiang Natural Gas Development Co., Ltd. was reorganisedthrough the introduction of Sinopec, thus shaping the “six-into-one”operation framework of “multiple sources of natural gas and onepipe network” in Zhejiang Province.
• In February 2010, the “transmission of natural gas from Sichuan toeastern China” programme reached Zhejiang Province.
• In August 2010, we began to provide industrial aid to Xinjiang andentered into an agreement with the People’s Government of AksuMunicipality for a thermal power project with a total investment ofRMB2 billion.
2011 . . . . . . . . . . . . . . . . • In October 2011, Jiaxing Power Generation (Phase III) and BinhaiThermal Power Generation (Phase I) (amounting to 260 MW) wereput into commercial operation for power generation purpose. As aresult, our gross installed capacity exceeded 22,000 MW.
2012 . . . . . . . . . . . . . . . . • In October 2012, we formally entered into an agreement in relation tothe transfer of 51 per cent. equity interest of Ningbo Marine GroupCompany Limited (“Ningbo Marine”) with its shareholders, such asNingbo Zhonghe Investment Co., Ltd., which increased its ownshipping capacity by more than 1.2 Mt.
• In 2012, we started the construction of Yongtaiwen and Jinliwennatural gas pipelines – two provincial-level natural gas pipelines witha total length of 540 km – which significantly improved the naturalgas supply in Zhejiang.
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Year Events
2013 . . . . . . . . . . . . . . . . • In April 2013, we made a capital investment in Fangjiashan nuclearpower (the project for the extension of Qinshan (Phase I)), whichfurther expanded our installed capacity of nuclear power.
• In June 2013, we acquired Yili Xintian Coal Chemical Co., Ltd.,actively participating in coal-to-gas conversion and ensuring thesupply of natural gas in Zhejiang Province.
• In September 2013, the coal gasification project of Zhundong wasgranted a “permit” by the NDRC.
• In December 2013, Zhejiang Zheneng Electric Power Co., Ltd.merged with Zhejiang Southeast Electric Power Co., Ltd. by way ofabsorption and entered into the A-share market, achieving our goal oflisting our whole power generation business.
• In 2013, we recorded a gross profit of over RMB10 billion.
2014 . . . . . . . . . . . . . . . . • In January 2014, the 36.5-km 500-kilovolt transmission line and thein-situ GIS equipment of Zheneng Liuheng Power Plant weresuccessfully put into operation.
• In April 2014, the Company entered into contracts with variousinternational coal suppliers in relation to the import of a total of 2.56Mt of coal at the 12th China International Coal Conference.
• In June 2014, we merged with Changguang Group Co., Ltd. by way ofabsorption, which made us the first batch of pilot enterprises in thestate-owned assets reform of Zhejiang Province.
• In June 2014, we completed the denitrification reform of all ourcoal-fired power plants.
• In September 2014, we successfully issued US$300 million offshorebonds.
• In October 2014, our listed subsidiary Zhejiang Zheneng ElectricPower Co., Ltd. successfully issued US$10 billion convertible bonds.
2015 . . . . . . . . . . . . . . . . • In January 2015, the People’s Government of Xinjiang AutonomousRegion approved the new project for the Aksu Textile Industrial CityPower Generation.
• In February 2015, Zheneng Coal Branch and Zhejiang Fifth MineralsLogistics Co., Ltd. reached an agreement with the international cargoship single vessel 130,000 tons capacity contract, marking the officiallaunch of the Group’s import of coal chartering work.
• In September 2015, China’s first 1.05 million kW full-featuredultra-low emission coal-fired thermal power unit – Unit No. 1 of theTaizhou No. 2 Power Generation was officially put into operation.
• In 2015, we realised a total profit of RMB14.55 billion, a record highsince our establishment.
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Year Events
• In 2015, we created the notion of “ultra-low emission” first in thePRC and the term was adopted into annual government work report byPremier Li Keqiang.
2016 . . . . . . . . . . . . . . . . • In September 2016, based on the “Comprehensive Energy Strategy”formulated in 2007, we proposed the development route of “energydevelopment, science and technology development, financialaffluence, overseas entrepreneurship”, with the aim of acceleratingthe pace of innovative development and transformative upgrade.
• In November 2016, we established Zheneng Capital Holdings Co.,Ltd. with a registered capital of RMB10 billion based on the“financial affluence” route.
2017 . . . . . . . . . . . . . . . . • We strengthened the capital operation and established green energyindustrial fund.
• In July 2017, we completed the ultra-low emission reform of all ourcoal-fired power plants.
• In September 2017, we led the establishment of Zhejiang ProvincialPetroleum Co., Ltd. (“Zhejiang Petroleum”), which signalled ourfirst complete presence in the entire energy industry chain.
• In December 2017, our first oversea investment project – Brazil SanSimao Hydropower Station, completed the closing of franchisingright.
2018 . . . . . . . . . . . . . . . . • In January 2018, we were awarded the first prize of NationalTechnology Invention for the research project “Research,Development and Application of Ultra-Low Emissions Technologyfor Coal-Fired Units”.
• In December 2018, the Jiaxing No. 1 wind power generating unitcommenced construction.
2019 . . . . . . . . . . . . . . . . • In June 2019, the Issuer and our wholly-owned subsidiary, ZhenengCapital Holdings Co., Ltd., entered into an agreement in relation to theacquisition of 29.79 per cent. equity interest of Jinjiang Environment.Following the completion of the transaction in August 2019, webecame the largest controlling shareholder of Jinjiang Environment.In November 2019, Jinjiang Environment announced its change ofname from “China Jinjiang Environment Holding CompanyLimited” to “Zheneng Jinjiang Environment Holding CompanyLimited”.
• In October 2019, the first comprehensive hydrogen power supplyservice station in Zhejiang Province was put into trial operation.
2020 . . . . . . . . . . . . . . . . • In April 2020, we were listed as a “Zhejiang Province Strengtheningby Transportation Construction Pilot Unit” to promote thedevelopment of the five pillar industries in Zhejiang Province.
2021 . . . . . . . . . . . . . . . . • In May 2021, the shares of Zhejiang Provincial New EnergyInvestment Group Co., Ltd. were successfully listed on the ShanghaiStock Exchange (stock code: 600032).
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CORPORATE STRUCTURE
The following chart sets forth a simplified corporate structure of the Group, which shows the Issuer, theCompany, the Company’s shareholders, the Company’s selected subsidiaries and the Company’s directshareholding in each of such subsidiaries as at the date of this Offering Circular:
60.00% 40.00%
100.00% Zhejiang Guoxin Holdings Group Co., Ltd.
（浙江國信控股集團有限公司）
Zhejiang Energy Natural Gas Group Co., Ltd.
（浙江能源天然氣集團有限公司）
Zhejiang Changguang (Group) Co., Ltd.
(浙江長廣(集團)有限責任公司)
100.00%
10.00%
100.00%
100.00%
100.00%
100.00%
Zhejiang Electric Power Construction Co., Ltd.
（浙江省電力建設有限公司）
Zhejiang Fuxing Fuel Co., Ltd.
（浙江富興電力燃料有限公司）
Ningbo Marine Group Company Limited
（寧波海運集團有限公司）
Zhejiang Zheneng Electric Power Co., Ltd.
（浙江浙能電力股份有限公司）
Zhejiang Energy International Limited
(浙江能源國際有限公司)
(the Issuer)
Zheneng Capital Holdings Co., Ltd.
(浙能資本控股有限公司)
51.00%
68.47%(1)
Zhejiang Provincial Energy Group Finance Co., Ltd.
（浙江省能源集團財務有限責任公司）
100.00%
91.00%(2)
69.23%
90.00%
State-owned Assets Supervision and Administration Commission
under the People’s Government of Zhejiang Province
Zhejiang Finance Development Company
(浙江省財務開發有限責任公司)
Zhejiang Zheneng Xingyuan Energy Saving Technology Co., Ltd.
(浙江浙能興源節能科技有限公司)Zhejiang New Energy Investment Group Co., Ltd.
(浙江省新能源投資集團股份有限公司)
60.00%Zhejiang Provincial Petroleum Co., Ltd.
(浙江省石油股份有限公司)
Zhejiang Provincial Energy Group Company Limited
(浙江省能源集團有限公司)
(the Company)
Notes:
(1) As at the date of this Offering Circular, the Company, Zhejiang Zheneng Xingyuan Energy Saving Technology Co.,Ltd. and the Issuer directly own approximately 68.47 per cent., 3.68 per cent. and 0.03 per cent. of the share capitalof Zhejiang Zheneng Electric Power Co., Ltd., respectively.
(2) As at the date of this Offering Circular, the Company and Zhejiang Electric Power Construction Co., Ltd. directly ownapproximately 91.00 per cent. and 3.00 per cent. of the share capital of Zhejiang Provincial Energy Group Finance Co.,Ltd., respectively, while Zhejiang Zheneng Electric Power Co., Ltd. indirectly, through its subsidiaries, ownsapproximately 6.00 per cent. of the share capital of Zhejiang Provincial Energy Group Finance Co., Ltd.
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Competitive Strengths
We have the following competitive strengths:
We enjoy our strong relationship with and support from the Zhejiang Government
As a leading energy supplier in Zhejiang Province and the primary platform for the ZhejiangGovernment’s external energy cooperation, we have maintained a strong relationship with the ZhejiangGovernment since our founding in 2001. We are a state-owned company approved by the ZhejiangGovernment, and the Zhejiang SASAC is our controlling shareholder. With the support of the ZhejiangProvincial Party Committee and the Zhejiang Government, we are the leading energy, coal and gassupplier in Zhejiang Province and undertake the role to implement the regional energy strategy and ensurethe stability of gas supply in Zhejiang Province. According to our memorandum and articles of association,members of our board of directors other than employee directors are appointed by the Zhejiang SASAC.Employee directors are elected from the employee representative conference or by other methods. Throughthese strong ties with the Zhejiang Government, we have benefited from long-term strategic guidance forour development.
With strong government support, we have been able to achieve operational and financial growth. We arethe only energy and electric power enterprise under the Zhejiang SASAC, and have been able to maintainstable revenue growth. For the years ended 31 December 2018, 2019 and 2020, we recorded total operatingrevenue of approximately RMB93,219.5 million, RMB111,805.5 million and RMB107,385.4 million,respectively. As the only energy and electric power enterprise under the Zhejiang SASAC, we suppliedapproximately 50.0 per cent., 48.0 per cent. and 46.0 per cent. of the power generation and approximately81.4 per cent., 79.5 per cent. and 73.4 per cent. of the pipeline natural gas in Zhejiang Province in 2018,2019 and 2020, respectively.
We have access to the massive energy market in Zhejiang Province
Zhejiang Province, where we are located at, has one of the most developed economies and energy marketsin the PRC. Zhejiang Province is situated at the southern part of the Yangtze River Economic Belt, andtogether with Anhui, Jiangsu and Shanghai, forms the group of cities in the Yangtze River Delta, being oneof the six largest groups of cities in the world. In 2020, Zhejiang Province ranked fourth in terms of GDPamong all provinces and municipalities in the PRC, ranked sixth in terms of urbanisation in the PRC withan urbanisation rate of approximately 72.17 per cent., and recorded a disposable income per capita ofapproximately RMB52,397 ranking third in the PRC. With a developed economy, Zhejiang Province hasone of the largest energy markets in the PRC. According to the statistics released by the ZhejiangProvincial Statistics Bureau and the PRC National Statistics Yearbook, the overall power usage inZhejiang Province was approximately 483.0 billion kWh in 2020, representing a CAGR of approximately5.67 per cent. from 2016 to 2020, and the natural gas consumption in Zhejiang Province wasapproximately 14.3 billion m3 in 2020, representing a CAGR of approximately 12.91 per cent. from 2016to 2020. As the only energy and electric power enterprise under the supervision of the Zhejiang SASAC,we supplied over 107.9 billion kWh of electricity and contributed 46.0 per cent. of the power generationin Zhejiang Province in 2020. In addition, we supplied over 10.5 billion m3 of natural gas in 2020,representing approximately 73.4 per cent. of the natural gas consumption in Zhejiang Province in 2020.Our coal business includes the production, supply and distribution of coal, and we supplied approximately64.1 Mt of coal in 2020, representing approximately 40 per cent. of the coal consumption in ZhejiangProvince in 2020. Our subsidiary, Zhejiang Natural Gas Development Co., Ltd., is the only companyauthorised by the Zhejiang Government to construct and operate natural gas pipeline networks at theprovincial level, and is responsible for the investment in and the construction and operation of provincialnatural gas transmission pipeline networks. Our subsidiaries has obtained up to 30 years of concession toexclusive operation throughout Zhejiang Province including areas in Shangyu, Yiwu, Jinyun and Anji.
We have also heavily invested in nuclear power projects within and outside Zhejiang Province. As at thedate of this Offering Circular, the total installed capacity for the nuclear power projects that we investedin is approximately 9,084 MW. We believe our important role in the Zhejiang energy market representsone of our key competitive strengths.
We have a clear development strategy
In the course of our development, we have adopted a phased development strategy that corresponds withour growth story. From 2003 to 2006, we adopted a “focusing on electricity generation while developingother areas” strategy in our initial development phase to meet the market demands created by the severepower shortage in Zhejiang Province during this period. In January 2007, we formulated the“Comprehensive Energy Strategy” to coordinate our development in different industries, with the powergenerating business as our core business. Specifically, our development strategy in this phase extends ouroperation in the power generation supply chain in a comprehensive manner. Our comprehensive energystrategy includes promotion of green energy, pursuit of technological leadership, acceleration of industrytransformation, deepening of regional cooperation and implementation of combination between industryand finance.
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Since 2011, we have entered into the innovation and expanding phase and we adopted the strategy of“Energy Industry as Foundation, Science and Technology as Driving Force, Financial Manipulationas Leverage and Overseas Business as Expansion” to further enrich our Comprehensive EnergyStrategy. Under this strategy, we regard technological innovation as the primary productive force to driveour business development and lead our industrial transformation. We position ourselves as a serviceprovider centred on customers and oriented by market demand, and our goal is to leverage our leadingposition in the energy market to create overall business synergy and to stimulate market demands. Since2020, we strive to be the world’s first class integrated energy service provider and a leading enterprise indifferent respects. For further information, see “Business Strategies”.
We are highly efficient in the energy industry
As a company that provides extensive coverage of different types of energy products in the PRC, wepossess strong competitiveness in the energy industry, and we also provide supporting services in relationto our power business to achieve industrial synergy. We have been able to lower our net coal consumptionrate and increase the portion of our high-efficiency units. In 2001, approximately 63 per cent. and 37 percent. of our coal-fired units had an installed capacity below 200 MW and between 200 MW and 300 MW,respectively. As at 31 December 2020, approximately 21.3 per cent. of our coal-fired units had an installedcapacity of over 1,000 MW while approximately 56.7 per cent., 20.6 per cent. and 1.4 per cent. of ourcoal-fired units had an installed capacity of between 600 MW and 1,000 MW, between 300 MW and 600MW and below 200 MW, respectively. In 2020, our coal-fired units with an installed capacity above 6,000kW has a standard coal consumption rate for power generation of approximately 298.66 g per kWh. Wemaintained a standard coal consumption rate among our power plants at an average of 296.5 g per kWhfrom 2017 to 2020 while the average among power plants in the PRC for the same period was 307.2 g perkWh. We have also been able to maintain our auxiliary power consumption rate of our power plants to lessthan 5 per cent. For the years ended 31 December 2018, 2019 and 2020, the auxiliary power consumptionrate of our power plants amounted to approximately 4.95 per cent., 4.97 per cent. and 4.95 per cent.,respectively.
In relation to our natural gas business, we are the primary constructor and operator of natural gas pipelinenetworks in Zhejiang Province and have standardised construction and operation of provincial natural gaspipelines and grids. In addition, our established relationships with PetroChina group, Sinopec group andCNOOC group, three of the major oil companies in the PRC and our active involvement in our coal-to-gasconversion operation have helped secure our upstream sources for natural gas. We expect that these factorswill help position us to take advantage of the projected robust demand for natural gas in Zhejiang Provincein the future.
In relation to our coal trading and mining business, we utilise a supplier classification system to helpensure a stable supply of coal by classifying our coal suppliers into three categories: (i) “strategic”suppliers, which provide us with coal in accordance with pricing terms determined every quarter; (ii)“quantity guaranteed” suppliers, who supply coal to us in accordance with pricing terms determinedevery month or every ten days; and (iii) ad hoc suppliers, which supply coal to us in accordance withmarket price at the time of the sale. We believe our supplier classification system enables us to minimisethe impact of short-term price fluctuations in the coal supply market. We also take advantage of ourself-built ports in seaside locations to facilitate convenient transportation of coal.
We operate in a safe and reliable production environment and possess advanced environmentalprotection technology
We maintain a stringent safety management system and conduct regular and ad hoc safety inspections toensure the safety of our operations. We perform routine semi-annual, monthly and daily safety inspectionsto ensure a safe and reliable production environment. In addition, our operation is standardised throughapproximately 300 internal regulations with over 9,300 rules and standards covering all daily operationalmatters. We have also purchased the relevant life insurance and property insurance policies in accordancewith PRC regulations. Environment and safety considerations are included in our bidding process for theoutsourced projects in affiliate companies. We also cooperate with third-party management companies tomonitor safety. In addition, we conduct spot checks and regular inspections and assessments on ouroperation departments.
As a result of our safety measures, we are able to operate in a safe and reliable production environment.As at 31 December 2020, our main provincial natural gas pipelines in Zhejiang had run safely for 4,406consecutive days. During 2020, our units did not have any unplanned outage and had run for more than300 consecutive days. Among them, our power plant at Jiahua Power Generation ran continuously for5,874 days as at 31 December 2020. In addition, the reliability of our power generation units continuesto improve. In addition, we have been awarded the “Outstanding Enterprise” by the Zhejiang ProvincialSafety Production Committee in its annual production safety target management accountability assessmentfor 18 years in a row since 2003.
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We also possess advanced and national leading environmental protection technologies. We play animportant role in Zhejiang Province’s commitment to the PRC central government to reduce emissions. Wecompleted the desulphurisation reform of all our coal-fired power plants in June 2009 and denitrificationreform of all our coal-fired power plants in June 2014. In July 2017, we completed ultra-low emissionreform of all our coal-fired power plants. Our advanced environmental protection technologies havereceived numerous awards throughout the years, including the 2017 National Technology Invention Award(First Class), the 2010 China Machinery Industry Science and Technology Award (First Class) and the2005 China Electric Power Science and Technology Award (Third Prize). In December 2020, we wereawarded the first prize of Scientific and Technological Advancement by the China Petroleum andChemical Industry Association for the project “Development and Application of CompleteIndustrialisation Technology for Recovery of Phenol and Ammonia from Coal ChemicalWastewater” undertaken under the National Science and Technology Support Programme.
We have prudent financial management policies and access to diversified financing channels
We have access to multiple sources of financing to fund our business operations. We have financed ourbusinesses through bank borrowings, mid-term notes, ultra short-term financing bonds, convertible bondsand corporate bonds, among others. We believe we have established good relationships with onshore andoffshore commercial banks in financing our businesses. We believe that our ability to access multiplesources of financing has provided and will continue to provide us with flexibility to fund our operationsand enhance our liquidity position. We maintain strong relationships with various banks, including but notlimited to Industrial and Commercial Bank of China, China Construction Bank, Bank of China,Agricultural Bank of China, Bank of Communications, China Development Bank, The Export-ImportBank of China, Postal Savings Bank of China, China Merchants Bank, China Minsheng Bank, IndustrialBank, Shanghai Pudong Development Bank, China Everbright Bank, ICBC International and StandardChartered Bank. As at 31 December 2020, we had a total approved credit line of approximately RMB279.2billion, of which approximately RMB204.9 billion remained unutilised. Approximately 53.0 per cent. ofour total indebtedness as at 31 December 2020 was composed of long-term borrowings and approximately17.7 per cent., 14.4 per cent., 6.8 per cent., 4.7 per cent. and 3.4 per cent. were composed of bondspayable, non-current liabilities due within one year, ultra short-term financing bonds, short-termborrowings and others, respectively. Our prudent financial management policies have helped us maintainlow leverage ratios, including debt control policies and liquidity management policies. We are activelyexploring other financing channels to gradually optimise our mix of direct and indirect financing. Underour liquidity management policies, we aim to effectively control financial risks and reduce financing coststhrough the centralised management of our subsidiaries’ financing arrangement, thereby achieving a robustliquidity profile. Benefiting from our prudent financial management policies, we have been able tomaintain healthy leverage ratios.
We have an experienced management team with sound corporate governance
We have an experienced management team with a strong track record in the energy industry. We believeour success is largely attributable to our experienced senior management team. We believe that we willcontinue to benefit from the experience and industry knowledge of our senior management members. Forfurther information, see “Management”.
In addition, we maintain a unified, standardised, informationised and refined corporate management andcontrol system. To operate efficiently, we have integrated the operations for various aspects of ourbusinesses. For example, we have integrated and standardised our resource, financing and materialprocurement, which has helped us control our procurement and financing costs. We also run an integratedfunds management by centralising financing, collection, payment and allocation of funds. In addition, ouroperation is standardised through approximately 300 internal regulations with over 9,300 rules andstandards covering all daily operational matters. We also maintain a detail-oriented budget managementsystem that tracks our management of daily production and maintenance, which represents what webelieve to be a first-class cost control system and allow us to achieve leading standards in the PRC acrosskey performance indicators, such as coal consumption rate, production safety and profitability. We havealso strengthened our information infrastructure and have built centralised information systems such asenterprise resource planning (“ERP”) system, financial services sharing platform, contract managementsystem, fund management system, integrated planning and statistics and numerical risk management,covering the streamlined management of personnel, finance, assets and sale. The integrated structureenables us to build cloud computing platforms, big data platforms and industrial network platforms. Ourinformation systems are constructed in a standardised and systematic manner and equipped with networksecurity systems.
Business Strategies
Based in Zhejiang Province, our goal is to further expand nationally and globally by deepening ourinstitutional reform and innovating our means of energy supplies and becomes a cleaner, safer and moreefficient national leading energy service provider that is highly competitive globally. We strive to be the
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world’s first class integrated energy service provider and a leading enterprise in eight different respects:“green energy”, “research and technology”, “capital and finance”, “modernisation and reform”,“digitalisation and intelligence”, “training and management of talents”, “international cooperation”and “state leadership”. We intend to accomplish these goals by executing the following strategies:
Further optimise our Energy Production and Supply System
Our primary focus has been on the investment and operations of power generation assets, and we willcontinue to operate, strengthen and expand our energy production and supply system. We plan to optimisethe structure of our energy business by increasing the proportion of high-capacity coal-fired unitsapplication while vigorously developing the pipelines for our natural gas network and building newhydrogenation stations. Further, we intend to continue to enhance our energy conversion efficiency byimproving our heating capacity and thereby reducing the net coal consumption rates of our thermal powerunits. In addition, we will participate in the energy supply transformation of chemical and industrial parksand develop new business models for comprehensive energy supply.
Continue to expand our Energy Storage and Transportation System
We will continue to expand our energy storage and transportation system by improving our coal reservecapacity and promoting the integration and reorganisation of Zhejiang Province’s petroleum and naturalgas pipeline network. We will also continue to establish our own liquefied natural gas (“LNG”) receivingstation to support the addition of our increased oil transportation capacity. We intend to build theframework of a global shipping network devoted to coal, oil and LNG products.
Continue to strengthen our Eco-friendly Energy and Cycling Economy System
We will continue to strengthen our eco-friendly energy and cycling economy system. In particular, we willfurther expand our organic waste gas and maritime vessels exhaust gas treatment system, achieve zerodischarge of wastewater from our power plants and optimise recycling of reclaimed water. We also planto continue to promote scientific and technological innovation by increasing our human, and financialresources investment in research and development (“R&D”). We intend to continue to implement thesemajor scientific and technological R&D projects, including the utilisation of urban solid waste biomasstechnology, and promote commercialisation of technologies which we believe will be beneficial to thedevelopment of our businesses.
Continue to improve our Characteristic Energy Financing Service System
We will continue to improve our energy financing service system by accelerating the construction ofprovincial-level comprehensive environmental equity trading, natural gas trading and coal tradingplatforms. We plan to expand our investment to energy banking and financing business, specialised energyproducts insurance business, supply chain financing business and green energy funds.
Continue to build our Digital Energy System
We will continue to build our digital energy system by building mart power plants and by realising theintelligent transformation of oil and gas pipeline. We aim to accelerate the construction of a remotecentralised control platform for integrated energy supply and to form a digital transportation dispatchcentre, and thereby completes our implementation of management cloud, industrial cloud, service cloud,and energy big data platforms.
Continue to expand our funding channels to ensure well-capitalised growth
As our power generation, coal trading, natural gas and real estate business are all capital-intensivebusinesses, we will continue to integrate our development objectives with funding objectives so as tosupport our rapid development and ensure adequate funding for our investment and operations. We willalso make use of our listed and financial subsidiaries for equity funds raising, financial leasing, trust andother forms of fund-raising activities.
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Continue to enhance our geographical coverage and further our overseas operations
We plan to enhance our geographical coverage through inter-provincial regional energy cooperation in thePRC. For example, while Zhejiang Province has a developed energy market, it does not have a rich depositof coal, an essential material in coal-fired power plants. Sourcing coal from other provinces has expandedour geographical footprint and provided us with the necessary raw materials for our power generationoperations, thus enhancing our energy security. We are also the main platform for energy cooperation forthe Zhejiang Government, implementing regional schemes and nuclear power cooperation schemes withinand outside the province. For example, we establish CNNP Zheneng Energy Co., Ltd. together with ChinaNational Nuclear, in equal half shares, for the purpose of developing nuclear power. We have also investedin the Huaizhe Coal Power project to construct the Gubei Coal Mine in Anhui Province, as well as fourcoal-fired power generating units. The Huaizhe Coal Power project is a major integrated coal powerproject that enhances the energy development cooperation between Zhejiang Province and Anhui Provinceby complementing the two provinces’ respective advantages in energy resources. The project is animportant part of our strategic plan of “Power Transmission from Anhui Province to the East”, and isalso the first project under our “Comprehensive Energy Strategy” outside Zhejiang Province. All powergenerated by the project is supplied to Zhejiang Province, providing the province with energysustainability in the province. We plan to continue to pursue similar cooperation opportunities outsideZhejiang Province that would allow us to enhance our geographical coverage. In doing so, we hope to takefull advantage of the PRC government’s national policy of encouraging regional economic cooperation.
In addition, we also intend to actively expand overseas. For example, as an offshore entity, the Issuer playsa strategically important role in our coal supply chain and is also responsible for securing offshorefinancings for the Company. We plan to continue to enhance our overseas operations.
Recent Developments
Unaudited and Unreviewed Consolidated Financial Information of the Group as at and for the ThreeMonths Ended 31 March 2021
As at the date of this Offering Circular, the Company has prepared the Group’s unaudited and unreviewedconsolidated financial information as at and for the three months ended 31 March 2021 (the “March 2021Financial Information”).
As at 31 March 2021, the Group recorded an increase in non-current liabilities when compared to thebalance as at 31 December 2020, primarily due to (i) an increase in the Group’s long-term borrowingsprimarily as a result of entering into new loans to fund its projects, and (ii) an increase in bonds payableas a result of issuance of debt securities by the Group in the PRC. In addition, the Group recorded anincrease in short-term borrowings when compared to the balance as at 31 December 2020 primarily dueto its working capital needs.
Save for the financial information disclosed in the preceding paragraphs, the March 2021 FinancialInformation is not included in and does not form a part of this Offering Circular. The March 2021 FinancialInformation has not been audited or reviewed by a certified public accountant, and should not be reliedupon by investors to provide the same quality of information associated with information that has beensubject to an audit or review. None of the Arrangers, the Dealers, the Trustee or the Agents or any of theirrespective directors, officers, employees, agents, representatives, advisers or affiliates or any person whocontrols any of them make any representation or warranty, express or implied, regarding the accuracy orsufficiency of the March 2021 Financial Information for an assessment of, and potential investors mustexercise caution when using such data to evaluate, the Group’s financial condition and results ofoperations. In addition, the March 2021 Financial Information should not be taken as an indication of theexpected financial condition or results of operations of the Company or the Group for the full financialyear ending 31 December 2021.
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Transfer of equity interest in the Company to Zhejiang Finance Development Company
In January 2021, the Zhejiang SASAC transferred 10 per cent. of its equity interest in the Company toZhejiang Finance Development Company (the “Transfer”). Zhejiang Finance Development Company iswholly-owned by the Ministry of Finance of Zhejiang Province and is responsible for the investment andoperation of state-owned capital in Zhejiang Province. The Transfer was initiated in accordance with therequirements of the State Council for the purpose of enriching the social security fund. Upon thecompletion of the Transfer, Zhejiang Finance Development Company has entrusted the Zhejiang SASACto exercise on its behalf the voting rights it held in respect of the Company. As at the date of this OfferingCircular, the Zhejiang SASAC holds 90 per cent. of the Company’s share capital, while Zhejiang FinanceDevelopment Company holds 10 per cent. of the Company’s share capital.
The Outbreak of COVID-19
The outbreak of COVID-19 has caused substantial disruptions in the PRC and international economies andmarkets as well as additional uncertainties in our operating environment. We have been closely monitoringthe impact of the outbreak and continued escalation of COVID-19 on our businesses and will keep ourcontingency measures and risk management under review as the situation evolves. For more details, see“Risk Factors – Risks Relating to our Business – The occurrence of epidemics, natural disasters andacts of God could materially and adversely affect our business, results of operations, financial conditionand prospects” and “Risk Factors – Risks Relating to our Business – The extent to which the COVID-19pandemic will impact our business, financial condition, results of operations and prospects is uncertainand cannot be predicted”.
Business Segments
Power Generation Business
After 20 years of development, we have become a power generation company that covers the mostextensive energy industry sectors and has the largest installed power capacity among provincialstate-owned enterprises in the PRC. As at 31 December 2018, 2019 and 2020, the installed capacity of thepower plants in which we have a controlling ownership interest or management right was 34,309.4 MW,35,239.9 MW and 36,552.4 MW, respectively. While the majority of our power plants are thermal powerplants, we also have a significant stake in the renewable energy business, including controlling ownershipinterests and management rights in hydropower plants, wind power plants, photovoltaic power plants andbiomass power plants. As at the date of this Offering Circular, we control or have an ownership interestin a total of 13 hydropower companies, eight wind power companies, 63 photovoltaic power companiesand 25 biomass power companies. In addition, we hold a majority ownership interest in all nuclear powerplants in Zhejiang. For the years ended 31 December 2018, 2019 and 2020, the total power generated fromthe power plants in which we have a controlling ownership interest or management right amounted toapproximately 143.5 billion kWh, 139.6 billion kWh and 136.8 billion kWh, respectively.
Power generation is our core business. For the years ended 31 December 2018, 2019 and 2020, theoperating revenue generated from our power generation business was approximately RMB44.8 billion,RMB45.6 billion and RMB44.4 billion, respectively, representing approximately 48.1 per cent., 40.8 percent. and 41.3 per cent., respectively, of our total operating revenue.
Coal Trading and Mining Business
We primarily source coal from third parties and the coal mines in which we have ownership interest. Forthe years ended 31 December 2018, 2019 and 2020, we sourced approximately 64.2 Mt, 56.8 Mt and 51.7Mt of coal, respectively, from third parties. For the same periods, the coal mines in which we haveownership interest produced approximately 13.9 Mt, 13.7 Mt and 14.3 Mt of coal, respectively.
We then sell the coal we have sourced to third parties. For the years ended 31 December 2018, 2019 and2020, the operating revenue generated from our coal trading business was approximately RMB11.8 billion,RMB26.6 billion and RMB28.8 billion, respectively, representing approximately 12.7 per cent., 23.8 percent. and 26.8 per cent., respectively, of our total operating revenue.
Natural Gas Business
Our natural gas business focuses on building, owning and operating natural gas pipelines, through whichwe distribute and sell natural gas to our customers. For the years ended 31 December 2018, 2019 and 2020,the operating revenue generated from our natural gas business was approximately RMB22.9 billion,RMB27.5 billion and RMB20.7 billion, respectively, representing approximately 24.6 per cent., 24.6 percent. and 19.3 per cent., respectively, of our total operating revenue.
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Petroleum Business
In September 2017, our subsidiary, Zhejiang Petroleum, was formed as part of our strategy to create aworld-class international oil transportation hub in the Yangtze River Delta that provides high-qualitycomprehensive energy supply service system and refined oil storage and distribution base that covers theeastern coast as well as central inland provinces by 2030. Through Zhejiang Petroleum, we primarilyengage in crude oil trading, oil storage and transportation, fuel oil refilling, refined oil sale and theconstruction and investment of auxiliary infrastructure projects such as oil depots, terminals, oil pipelinesand integrated energy supply service stations.
As at 31 December 2020, Zhejiang Petroleum completed the construction of 168 integrated energy supplyservice stations in Zhejiang Province, of which approximately 120 stations have been put into operation.It had also acquired the Guangsha Group Huangzheshan Oil Storage & Transportation Project with apotential extension capacity of 15.0 million m3. Our Taizhou Yuanzhou Oil Depot is expected tocommence operation in July 2021 and has completed transit of 20,000 tons of oil products in its trialoperation. In addition, our proposal to construct the Yushan Crude Oil Pipeline has been approved and theconstruction was commenced in December 2020. We have also built our first comprehensive energy supplyservice station with hydrogenation function in October 2019, with a daily hydrogenation capacity of 500.0kg.
Other Businesses
We also engage in other businesses, including technology and environmental protection, energy financingand coal gas businesses.
Power Generation Business
As the largest provincial power generation company in the PRC in terms of installed capacity, we develop,invest, construct, manage and operate power plants, and sell the power generated by such power plants torelevant power grid companies. As at 31 December 2018, 2019 and 2020, the installed capacity of thepower plants in which we had a controlling interest or management rights was approximately 34,309.4MW, 35,239.9 MW and 36,552.4 MW, respectively.
We mainly derive our operating revenue from our power generation business. For the years ended31 December 2018, 2019 and 2020, the operating revenue generated from our power generation businesswas approximately RMB44.8 billion, RMB45.6 billion and RMB44.4 billion, respectively, representingapproximately 48.1 per cent., 40.8 per cent. and 41.3 per cent., respectively, of our total operating revenue.
While the majority of our power plants are thermal power plants, we also have a significant stake in therenewable energy business, including controlling ownership interests and management rights inhydropower plants, wind power plants, photovoltaic power plants and biomass power plants. Most of ourthermal power plants are powered by coal, and the remaining thermal power plants are powered by naturalgas. The following table sets forth the total installed capacity of the power plants in which we have acontrolling interest or management rights by type as at 31 December 2020:
For the years ended 31 December 2018, 2019 and 2020, total power generated from the power plants inwhich we had a controlling interest or management rights amounted to approximately 143.5 billion kWh,139.6 billion kWh and 136.8 billion kWh, respectively. For the same periods, we sold approximately 135.1billion kWh, 131.0 billion kWh and 127.7 billion kWh of electricity, respectively.
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The following table sets forth the operational data of our power plants for the years ended 31 December2018, 2019 and 2020, respectively:
Most of our power plants are located in Zhejiang Province. With the rapid growth of power demand inZhejiang Province in recent years, we have accelerated our investment in the construction of power plantsand other supplies. As a result, our total installed capacity has increased steadily. As at 31 December 2020,the total installed capacity of our renewable energy power plants was 3,543 MW, among which 845 MWwere contributed by our hydropower plants, 283 MW were contributed by our wind power plants, 1,760MW were contributed by our photovoltaic power plants and 655 MW were contributed by our biomasspower plants. Our Tankeng Hydropower station, the largest conventional hydropower unit in ZhejiangProvince to date in terms of installed capacity, has an installed capacity of 604.0 MW. For the years ended31 December 2018, 2019 and 2020, we added a total of 37 new photovoltaic power generation projectswith an installed capacity of 1,415 MW, covering 11 provinces and autonomous regions across the PRC.We have also added one straw biomass power plant and 20 waste-to-energy power plants, covering 11provinces and autonomous regions across the PRC.
The following table sets forth the total power generated from our power plants for the years ended 31December 2018, 2019 and 2020, respectively:
(1) Total power generated from our thermal power plants includes total power generated from our biomass power plants,which amounted to approximately 0.35 billion kWh, 1.35 billion kWh and 3.41 billion kWh for the years ended 31December 2018, 2019 and 2020, respectively.
The following table sets forth certain information relating to 30 major power plants in operation in whichwe have a controlling interest and management rights as at 31 December 2020:
Gaotai County ZhengtaiPhotovoltaic Power Generation(高臺縣正泰光伏發電) . . . . . . . .
Photovoltaic power Gansu 100.0 51.0
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Projects under Construction
We promote the development of offshore wind power plants. As at 31 December 2020, we had four majorprojects under construction. The following table sets forth certain data relating to our projects underconstruction as at 31 December 2020:
Power plantInstalledcapacity
Beneficialinterest
held by us
Estimated yearof operation
commencement Location Type
(MW) (%)
ZhenhaiRelocationProject (鎮海遷建項目). . .
1,320 51.0 2020 Zhenhai,Zhejiang
Thermal power– coal
Jiaxing One(嘉興一號) . .
300 100.0 2020 Jiaxing,Zhejiang
Wind power
Zhugensha(竹根沙) . . . .
302 51.0 2020 Zhugensha,Jiangsu
Wind power
Shengsi Two(嵊泗二號) . .
400 50.0 2020 Zhoushan,Zhejiang
Wind power
Development and Maintenance of Power Plants
The process of developing power plants and commencing commercial operations is usually lengthy. See“Risk Factors – Risks Relating to Our Business – Power plant development, acquisition andconstruction is a complex and time-consuming process and we may encounter difficulties or delaysduring the construction of new projects”. However, leveraging our extensive experience in developingand constructing power plants, we have been able to identify potentially profitable power plant projectsand obtain the relevant PRC government approvals for the majority of our projects in a timely manner.
Opportunity Identification and Feasibility Study
We initially identify an area in which additional electric power is needed by determining its existinginstalled capacity and projected demand for electric power. The initial assessment of a proposed powerplant involves a preliminary feasibility study. The feasibility study examines the proposed power plant’sland use requirements, geographic nature, access to power grid, fuel supply arrangements (thermal and gaspower plants), hydrological conditions, wind conditions, local requirements for permits and licenses andthe ability of potential customers to afford the proposed power tariff. To determine projected demand,factors such as economic growth, population growth and industrial expansion are used. To gauge theexpected supply of electricity, the capacities of existing plants and plants under construction ordevelopment are studied.
Approval
Power plant projects are subject to approvals by national or local governmental authorities. In January2007, the Office of the National Energy Leading Group and the NDRC, with the approval of the StateCouncil, jointly issued the directive “Acceleration of Shutdowns of Small Thermal Generation Units”.Based on such directive, power generation companies are encouraged to close small thermal generatingunits and replace them with newly built large units, and their new projects may be granted priority in theconstruction process if such power generation companies actively abide by the directive.
Permits
When developing a new power plant, we, along with third parties, are required to obtain permits beforecommencement of the project. Such permits include operating licenses and similar approvals related toplant site, land use, construction and the environment. To encourage the co-operation with and supportfrom the local governments of the localities of the power plants, it has been and will continue to be ourstrategy to make investments in such power plants together with the relevant local governments.
Power Plant Construction
The construction of our power plants, including equipment procurement and installation, site preparationand civil works are generally subcontracted to subcontractors through a competitive bidding process. Themajority of our power plants are completed on or ahead of schedule, enabling certain units to enter serviceand begin generating income earlier than the estimated in-service date.
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Plant Start-up and Operation
After a power plant is constructed, we conduct a trial run to test its installation and systems. Aftersuccessfully passing the trial run, the power plant may commence commercial operation. We havehistorically operated and intend to continue to operate power plants in which we have an controllinginterest, as well as a number of power plants in which we own a non-controlling interest. The power plantswe operate have established management structures, generally employing one general manager who isresponsible for the management of the plant, two to three deputy managers, who are responsible for sales,daily management duties and daily operations duties, and a financial controller. The general manager andthe financial controller are appointed by and directly report to the board of directors of the company whichowns the power plant.
Repair and Maintenance
Each of our power plants schedules regular inspections and repairs for each of its generation units.Timetables and procedures for the repair and maintenance of generation units are set up by each projectcompany in accordance with what we believe to be typical practices in the power generation industry. Westagger our overhaul schedules so as to minimise any effects of the planned shutdowns for overhaulpurposes.
Pricing and On-grid Tariffs
Pricing in the PRC power generation industry is regulated by the NDRC through the institution of on-gridtariffs and retails tariffs. These tariffs generally reflect production costs plus a reasonable investmentreturn. Other factors that the NDRC considers when determining on-grid tariffs include fuel type, coststructure, economic life of the facility and applicable tax rates and the tariff may be further adjusted inlight of material changes such as significant fluctuation in the market price of fuel.
Thermal Power
While the on-grid tariff for coal-fired power plants usually depend on the local grid companies to whichthe power plants are connected, certain of the power plants controlled and minority-invested by us supplytheir electricity to power grids outside the area in which the power plants are located and are able to enjoya higher tariff than the tariff that would have been available should they supply the electricity to their localgrid companies.
Hydropower
The current tariff-setting mechanism for hydropower is designed to enable the projects to recover alloperating and debt servicing costs and to earn a reasonable rate of return on the net fixed assets. Thedetermination of average costs of a hydropower project usually takes into consideration: (i) constructioncosts; (ii) operating and administrative expenses; (iii) maintenance and repair costs; and (iv) financeexpenses on outstanding debts. Normally hydropower projects receive lower tariffs compared to thermalpower projects, as hydropower projects have: (i) minimal fuel costs; and (ii) lower operating andmaintenance costs. In recent years, the NDRC and local pricing bureaus have implemented measures toimprove the profitability of hydropower projects in the PRC. The on-grid tariff for hydropower plantsvaries from one hydropower plant to another hydropower plant.
Wind Power
The on-grid tariffs for wind power in the PRC are subject to the geographically unified tariffs issued bythe NDRC. Specifically, the PRC is categorised into four wind resource zones, and the same standardon-grid tariff applies to all wind power projects in the same zone. For wind power projects approved bythe NDRC or provincial NDRCs after 31 December 2005 but before 1 August 2009, the on-grid tariff isgoverned by the “government guided price”. The on-grid tariffs for concession wind power projects weredetermined through public tender and then approved by the government, while the on-grid tariffs fornon-concession wind power projects were approved by the relevant pricing authorities with reference tothe approved prices of concession projects in neighbouring areas. In 2014, NDRC further reduced theon-grid tariff for wind power projects commencing operation after 31 December 2015 in three windresource zones by RMB0.02 per kWh.
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In addition, with respect to renewable energy projects approved after 1 January 2006 (including, amongothers, wind, solar, geothermal and biomass power projects but excluding hydropower projects), the pricepremium for on-grid renewable power over the benchmark on-grid tariff for the desulphurised coal powerin the same province, together with the grid connection cost of on-grid renewable power, will effectivelybe borne by all electricity end users. Grid companies charge a tariff surcharge on selling prices at theprovincial and national levels to reflect their extra costs for purchasing and inter-connecting renewablepower. The tariff surcharge provides additional funds to grid companies to pay for electricity generated byour renewable energy projects.
The following table sets forth the respective average on-grid tariff for thermal power, hydropower, windpower and photovoltaic power in the PRC for the years ended 31 December 2018, 2019 and 2020:
(1) The average on-grid tariff for thermal power includes the average on-grid tariff for power generated from coal, gasand biomass.
Nuclear Power
In recent years, we increased our investment in nuclear power projects in and outside of ZhejiangProvince. As such, we have steadily increased the total installed capacity of our nuclear power plants inoperation or under construction. As at 31 December 2020, we had approximately 28 per cent., 20 per cent.and 10 per cent. ownership interest, respectively, in Phase I, Phase II and Phase III of Qinshan NuclearPower Plant with designed installed capacity of approximately 2,488 MW, 2,600 MW and 1,400 MW,respectively. We also held 20 per cent. ownership interest in Sanmen Nuclear Power Plant, which had aninstalled capacity of 2,500 MW as at 31 December 2020.
Electricity Sale
Power Purchase Agreements
We sell electricity to State Grid Zhejiang Electric Power Company (“State Grid Zhejiang”), astate-owned grid company in Zhejiang, and local grid companies in other provinces and autonomousregions in the PRC, such as Xinjiang, Gansu and Ningxia. We also sell electricity by way of direct powersupply to other companies through competitive bidding and by way of spot transactions in the electricitymarket. Our power purchase agreement with State Grid Zhejiang generally follows the model contractjointly published by the SERC and the State Administration of Commerce and Industry. The agreement hasa fixed term of five years. For thermal power, the agreement provides that the annual utilisation hours ofthe power plant will be determined with reference to the average annual utilisation hours of the similargenerating units connected to the same grid. For hydropower and wind power, according to the PRCRenewable Energy Law, the local grid companies, such as State Grid Zhejiang, must purchase all thepower generated by our hydropower projects and wind power projects at a price fixed or approved by thePRC governmental authorities as long as such projects have met all the national and industry technicalspecifications.
In addition, we are required by the power purchase agreements to generate power in accordance with thedispatch orders of the State Grid Zhejiang. The power purchase agreement also includes other standardterms providing for matters such as on-grid tariffs, dispatch and payment.
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Electricity Sale Reform
Electricity sale through competitive bidding is one of the objectives of power market reform. The PRCgovernment started in 1999 to experiment with a programme to effect electricity sale through competitivebidding in some provinces, and has been gradually expanding the programme with a view towards creatinga market-oriented electric power industry. Pursuant to the opinions regarding promotion of electric powersystem reform in the period of “The 11th Five-Year Plan” adopted by the State Council in November2006, the SERC will accelerate the reform to establish an electric power market suitable to China’scircumstances. Although there have been small, experimental power sales through a bidding process in thepower markets in the Northeastern region and Eastern region, the use of the bidding method in power saleshad not yet been substantively implemented during the two years ended 31 December 2011 and 2012.
Furthermore, the PRC government started in 2009 to experiment with a programme for direct powerpurchase by large power end-users, and has promulgated rules governing the price and method of directpower purchase transactions, as well as market entrance and exit mechanisms. In response, we haveconducted research on the programme for direct power purchase by large power end-users and have beenseeking opportunities to cooperate with local governments, grid companies and enterprises to developintegrated energy service businesses. We have entered into integrated energy service cooperationframework agreements with various local governments and have cooperated with grid companies for thedevelopment of incremental power distribution network business. Leveraging our capacity to supplydifferent sources of energy and our strong technology service, we believe integrated energy service isexpected to be more profitable than electricity sale.
Fuel Procurement
The majority of our power plants are fuelled by coal, and coal costs represent our major operating costs.In addition to coal, we also need gas and oil for the operations of certain of our power plants. BecauseZhejiang Province does not have a rich deposit of coal, we source most of our coal from other provinces,including Inner Mongolia, Shanxi Province, Shaanxi Province and Hebei Province. We have entered intomid-to long-term coal supply strategic cooperation agreement with large-scale coal companies, generallywith a term of three to five years. In addition, we have entered into long-term supply contracts with coalmines which we believe to have the capacity to provide us with a stable and reliable supply of coal.
For the years ended 31 December 2018, 2019 and 2020, we procured approximately 64.2 Mt, 56.8 Mt and51.7 Mt of coal, respectively, of which approximately 10.1 Mt, 6.8 Mt and 8.5 Mt of coal, respectively,were imported. Our coal trading volume has also steadily increased.
For the years ended 31 December 2018, 2019 and 2020, our raw coal purchase price was approximatelyRMB591 per ton, RMB583 per ton and RMB545 per ton, respectively.
In recent years, coal prices have fluctuated significantly. We have managed to secure coal supply byclosely monitoring market conditions and expanding our coal imports from coal supply resources outsidethe PRC.
Most of the coal supplies for our thermal coal power plants are obtained from a number of domestic andforeign suppliers. We expect to make further investments in the coal trading and mining business in orderto increase our production capacity, thereby increasing our self-sufficiency.
Competition and Dispatch
All power plants in the PRC are subject to dispatch conducted by various dispatch centres. A dispatchcentre is required to dispatch electricity pursuant to the “Regulations on the Administration of ElectricPower Dispatch Networks and Grids”, issued by the State Council with effect from 1 November 1993and amended on 8 January 2011, and in accordance with its agreements with power plants subject to itsdispatch. Power generation companies are also required to enter into on-grid dispatch agreements withpower grid companies. As a result, there is competition for favourable dispatch treatment in the PRCpower industry, especially during the off-peak load periods. More efficient power plants usually operateat higher output than less efficient power plants. We believe that, in order to increase system stability, largeand efficient power plants such as the ones we own will be preferred as base load plants to generate powerfor the grids to which they connect. We believe that our dispatch arrangements with the local powercorporations and dispatch centres, high quality equipment, lower coal consumption rates, higher efficiencyof plant operations, lower emissions levels and larger capacity represent competitive advantages in themarkets in which we operate.
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Coal Trading and Mining Business
We primarily source coal from third parties and the coal mines in which we have ownership interest. Ascoal costs represent a significant portion of our total operating costs, we believe that by further integratingvertically through expanding our own coal supplies, we can have a better control of coal costs and overallproduction costs and enhance our bargaining power in coal purchase negotiations with third party coalsuppliers. We believe this would elevate our coal self-sufficiency rate and profit margin. For the yearsended 31 December 2018, 2019 and 2020, we sourced approximately 64.2 Mt, 56.8 Mt and 51.7 Mt ofcoal, respectively, from third parties. For the same periods, the coal mines in which we have ownershipinterest produced approximately 13.9 Mt, 13.7 Mt and 14.3 Mt of coal, respectively.
For the years ended 31 December 2018, 2019 and 2020, the operating revenue generated from our coaltrading and mining business was approximately RMB11.8 billion, RMB26.6 billion and RMB28.8 billion,respectively, representing approximately 12.7 per cent., 23.8 per cent. and 26.8 per cent., respectively, ofour total operating revenue.
Coal Reserves
We had interest in three coal mines as at 31 December 2020, namely, the Gubei Mine in Anhui Province,the Majialiang Mine in Shanxi Province and Selian Mine in Inner Mongolia. The three coal mines havea total geological reserves of approximately 4,217 Mt according to the PRC mining standard. Thefollowing table presents certain operating data of our mines as at 31 December 2020:
Gubei Mine Majialiang Mine Selian Mine Total
Geological Reserves (Mt) . . . . . . . 320 1,075 756 4,217Annual Production Capacity (Mt) . . 5.0 12.0 5.0 22.0Production Commencement Date . . December 2007 December 2012 September 2019 –
Mining Rights
The mining rights of each of these three coal mines are owned by project companies in which we have anownership interest. The mining right holders own all necessary production certificates for these mines.Registered owners of mining right are required to pay mining rights fees and taxes to the relevantgovernment authorities. The following table sets forth certain data of these mining rights as at 31December 2020:
Under PRC laws and regulations, where residual reserves remain after the expiration of the mining rightspermits, the holders of such mining rights may, within 30 days prior to the expiration of the term, applyfor extensions of the mining rights permits. There is no minimum residual reserve requirement for therenewal of mining rights permits. If there are no changes in the area, there are no other conditions for theapplication, provided that the holder of the mining rights has fulfilled all of its obligations under therelevant mining rights permits.
Coal Production
Our underground mining operations mainly involve the following processes:
• Tunnelling. We use inclines to reach the coal seams when constructing an underground mine. Thesetunnels are created by drilling and blasting.
• Extracting. The coal is excavated by a shearer and then transported to the surface by conveyors. Wenormally use the longwall mining method for extracting operations, which we believe can achievehigher production volumes, higher recovery rates and higher levels of safety and reliability ascompared to traditional mining methods.
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• Conveying. We convey the coal we extract from the coal mines in which we have ownership interestto ground storage via conveyor systems.
• Coal processing. We classify and/or blend different types of coal to adjust the coal characteristicsand quality to meet customer specifications. Such coal is required to go through our internal qualitycontrol system before being loaded onto either trucks or railway cars for delivery.
• Reclamation. We will reclaim and restore mining sites to their prior condition after completion ofmining operations to comply with PRC laws.
Procurement of Coal
For information about our procurement of coal, please refer to “– Power Generation Business – FuelProcurement”.
In addition to coal trading and mining, we also own coal transportation business, coal transit ports andconduct coal-testing business.
Coal Transportation
We successfully acquired a 51 per cent. ownership interest in Ningbo Marine in 2012, and as at the dateof this Offering Circular, the transportation capacity of Ningbo Marine reached over 1.58 Mt. NingboMarine operates electrical coal transportation business from northern coal ports to power station inZhejiang Province and coastal areas south of Zhejiang Province, as well as some international lines. Webelieve that the acquisition of Ningbo Marine has improved and will further improve our shipmentcapacity and strengthen the control of our costs of fuel shipment.
As at the date of this Offering Circular, we own 32 ships with a total transportation capacity of over 1.58Mt. For the year ended 31 December 2020, we completed 1,007 voyages of coal transportation andachieved total cargo turnover of more than 97.5 billion ton-km.
Coal Transit Ports
In June 2009, the Zhoushan Liuheng Coal and Power Integration Terminal (the “Zhoushan Terminal”),in which we have a controlling interest, was launched. The first phase of this terminal includes a150,000-ton discharging berth, a 50,000-ton discharging berth, a 35,000-ton loading berth, a 20,000-tonloading berth and a 5,000-ton loading berth. The annual handling capacity of the first phase of thisterminal is designed to be 30 Mt (discharging 15 Mt and loading 15 Mt). The terminal also includes aconstruction wharf capable of bearing 3,000 tons to serve as a wharf for heavy lifts, as well as a stack areafor up to 3.1 Mt of coal. As the largest coal transit terminal in eastern China, the Zhoushan Terminal wasput on trial in June 2009. For the years ended 31 December 2018, 2019 and 2020, the Zhoushan Terminaldischarged 9.2 Mt, 13.1 Mt and 11.4 Mt of coal, respectively, and loaded 12.2 Mt, 12.5 Mt and 11.9 Mtof coal, respectively. As at the date of this Offering Circular, we own and operate 31 coal terminals witha handling capacity of over 62.0 Mt.
Coal Inspection
We undertake the inspection of coal used by our operation and other enterprises through our subsidiary,Zhejiang Yuehua Energy Testing Co., Ltd. Our coal-testing operations ensure the quality of our coalpurchase. In 2020, we completed a total of approximately 131.1 Mt of coal inspection, approximately 34.2Mt of which were commissioned by the market. As coal plays a vital role in our electricity generationbusiness, our coal trading and mining business has strengthened our control over fuel costs and improvedthe competitiveness of our power generation business.
Natural Gas Business
We also engage in the natural gas business, in which we focus on building, owning and operating naturalgas pipelines, through which we distribute and sell natural gas to our customers. We are the primaryconstructor and operator of natural gas pipeline networks in Zhejiang Province, and are responsible for theinvestment in and the construction and operation of provincial natural gas transmission pipeline networks.For the years ended 31 December 2018, 2019 and 2020, the operating revenue generated from our naturalgas business was approximately RMB22.9 billion, RMB27.5 billion and RMB20.7 billion, respectively,representing approximately 24.6 per cent., 24.6 per cent. and 19.3 per cent., respectively, of our totaloperating revenue.
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Due to the lack of natural gas sources within Zhejiang Province, we have partnered with Sinopec groupto diversify our natural gas procurement channels, which has enhanced our ability to secure natural gasfor distribution.
Natural Gas Pipelines Operations
We build, own and operate natural gas pipelines, through which we transmit natural gas throughlong-distance transmission pipelines. As at 31 December 2020, we had completed the construction of andoperated natural gas pipelines with an aggregate length of approximately 1,987.6 km in Zhejiang Province,forming a comprehensive network of natural gas pipelines across every county. The table below sets forthcertain information relating to our natural gas pipelines in operation as at 31 December 2020:
As at 31 December 2020, the total aggregate length of our natural gas pipelines in construction amountedto approximately 536.2 km. The table below sets forth certain information relating to our natural gaspipelines in construction as at 31 December 2020:
Our customer base primarily consists of gas power plants and city users. The table below sets forth thevolume of piped gas sold by customer type for the years ended 31 December 2018, 2019 and 2020:
We have entered into a take-or-pay agreement with PetroChina Company Limited. For the years ended31 December 2018, 2019 and 2020, our total volume of natural gas sold was approximately 11.0billion m3, 11.8 billion m3 and 10.5 billion m3, respectively.
Petroleum Business
In September 2017, our subsidiary, Zhejiang Petroleum, was formed as part of our strategy to create aworld-class international oil transportation hub in the Yangtze River Delta that provides high-qualitycomprehensive energy supply service system and refined oil storage and distribution base that covers theeastern coast as well as central inland provinces by 2030. Through Zhejiang Petroleum, we primarilyengage in crude oil trading, oil storage and transportation, fuel oil refilling, refined oil sale and theconstruction and investment of auxiliary infrastructure projects such as oil depots, terminals, oil pipelinesand integrated energy supply service stations.
The expansion into the petroleum business is in accordance with the strategic deployment of the ProvincialParty Committee and the Provincial Government and the “One Centre, Three Bases and OneDemonstration Zone” strategy in the Zhoushan Free Trade Zone. We plan to carry out a three-phaseimplementation of the oil storage and transportation system, the oil trading and sales system, and the fueloil processing and filling system. The “three systems” cover the entire oil industry supply chain fromupstream resource acquisition, midstream oil storage and transportation, and downstream terminal sales.
As at 31 December 2020, Zhejiang Petroleum completed the construction of 168 integrated energy supplyservice stations in Zhejiang Province, of which approximately 120 stations have been put into operation.It had also acquired the Guangsha Group Huangzheshan Oil Storage & Transportation Project with apotential extension capacity of 15.0 million m3. Our Taizhou Yuanzhou Oil Depot is expected to
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commence operation in July 2021 and has completed transit of 20,000 tons of oil products in its trialoperation. In addition, our proposal to construct the Yushan Crude Oil Pipeline has been approved and theconstruction was commenced in December 2020. We have also built our first comprehensive energy supplyservice station with hydrogenation function in October 2019, with a daily hydrogenation capacity of 500.0kg. In December 2018, we established Zhejiang Petroleum Trading (Singapore) Pte. Ltd. that mainlyengaged in crude oil, refined oil, fuel oil, LNG and other energy commodities trading businesses.
In 2019, we established Zhejiang Petroleum Offshore Fuel Co., Ltd. jointly with Total S.A., to fullyleverage our combined competitive strength in domestic and overseas fuel markets. Our businessexpansion is firmly based in the eastern China, and we plan to continually extend our business in the PRCand seek a global presence in the energy market. For the year ended 31 December 2020, we realised a salesvolume of approximately 0.3 Mt of bonded fuel oil and approximately 1.4 Mt of refined oil. We strive toincrease the supply of low-sulphur oil and build low-sulphur oil plant. In 2019, we invested in andestablished the first Sino-foreign joint venture in the crude oil trade industry, and for the years ended 31December 2019 and 2020, we achieved a sales volume of approximately 5 Mt and 7.16 Mt crude oil,respectively.
Other Businesses
We also engage in other businesses, including technology and environmental protection, energy financingand coal gas businesses.
Technology and Environmental Protection
We engage in the technology and environmental protection business. Taking advantage of upstream anddownstream synergy, our technology and environmental protection business includes environmentalprotection, energy saving, logistics supply chain and project construction and consultation, with leadingenvironmental protection technologies. We own a number of key official chartered qualifications,including Electrical Engineering EPC Qualification (First Class), Building Constriction Engineering EPCQualification (First Class), Water Conservancy and Hydropower Engineering EPC Qualification (FirstClass) and Environmental Engineering Design Qualification (A Class). Our constructed projects wonseven Lu Ban Awards and eight National High-Quality Project Gold Medal Awards. In January 2018, wewere awarded the first prize of National Technology Invention for the research project “Research,Development and Application of Ultra-Low Emissions Technology for Coal-Fired Units”. In addition,our self-developed mixed ship desulphurisation system, being the first system in the PRC, has been putinto operation in August 2019, allowing us to be the first enterprise in the PRC and the second enterpriseworldwide which possesses such core technologies.
Energy Financing
With respect to our energy financing business, we primarily provide machinery, equipment and vehiclesleasing services, delivery consulting services, and distribution and finance leasing of machinery,equipment and relevant parts. We aim to promote the development of green energy, the coordination ofenergy production and financing and the transformation of state-owned enterprises. In addition, we hold10 per cent. ownership interest in Zheshang Property and Casualty Insurance Company Limited, whichengages in insurance business. In November 2016, we established Zheneng Capital Holdings Co., Ltd.With registered capital of RMB10.0 billion, the main business of Zheneng Capital Holdings Co., Ltd.includes equity investment, fund management, financial leasing, carbon trading, real estate and assetmanagement. Holding eight subsidiaries, Zheneng Capital Holdings Co., Ltd. also invested in OrientSecurities, Zheshang Insurance and China Zheshang Bank and initiated the first green energy industrialfund in the PRC, “Zhejiang Zheneng Green Energy Equity Investment Fund” (the “Green EnergyFund”), with a total investment size of approximately RMB50.0 billion, of which approximately RMB7.3billion has been invested. Among the companies and projects invested in by the Green Energy Fund, theshares of Zhejiang Provincial New Energy Investment Group Co., Ltd. (stock code: 600032) and ChinaThree Gorges Renewables (Group) Co., Ltd. (stock code: 600905) were successfully listed on the ShanghaiStock Exchange recently. In addition, we also have certain subsidiaries under the financial services sector,including Zhejiang Provincial Energy Group Finance Co., Ltd., Zhejiang Zheneng Finance Leasing Co.,Ltd., Shanghai Puneng Finance Leasing Co., Ltd., Zhejiang Energy Real Estate Co., Ltd., etc.
Environmental Matters
We are subject to various PRC national environmental laws and regulations and also environmentalregulations promulgated by the local governments in whose jurisdictions we have operations in. Accordingto the PRC national environmental laws, the Ministry of Environmental Protection of the PRC sets
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national environmental protection standards and the local environmental protection department may setstricter local standards. Enterprises are required to comply with the stricter of the two standards.
The PRC has adopted extensive environmental laws and regulations that affect the operation of the powergeneration industry. There are national and local standards applicable to emissions control, discharges tosurface and subsurface water and disposal, and the generation, handling, storage, transportation, treatmentand disposal of solid waste materials.
The environmental regulations require us to register or file an environmental impact report (together withthe project proposal) with the relevant environmental administration for approval before we undertake andconstruct a new generation unit or any major expansion or renovation of an existing generation unit. Thenew generation unit or the expanded or renovated unit will not be permitted to operate unless the relevantenvironmental administration has inspected to its satisfaction that the environmental equipment installedin the facility satisfies environmental requirements.
We have installed desulphurisation facilities and denitrification facilities with all of our newly constructedgenerating units. We have also renovated the existing generating units to enhance the efficiency ofdesulphurisation systems and equip such units with denitrification facilities. In addition, we continue toreduce the total amount of sulphur dioxide emissions, in order to effectively control the total amount ofnitrogen oxide emissions, and push forward mercury emissions monitoring in three pilot power plants inFuzhou, Yushe and Beijing, respectively. Our Safety Supervision, Energy Saving and EnvironmentalDepartment is responsible for the management and monitoring of environmental matters directly.
We have built mine water and sewage treatment stations next to our newly built and old operating mines.To achieve treatment of harmless discharge, we use processes such as precipitation, flotation, filtration,purification and disinfection to recycle or discharge mine water and sewage according to prescribedstandards. Our various equipment, facilities and construction sites adopt measures such as the use ofsilencers, sound insulation, noise reduction and vibration reduction to reduce noise pollution. For open-pitand underground mine areas, our facilities and transport processes adopt measures such as sprinklers,smoke and wind suppression to eliminate dust, and desulphurisation and denitrification to reduce airpollution. Solid waste is used for flat fields, for repairing roads and as building materials. Constructionwaste and household garbage is buried according to its classification. We strive for results in landreclamation, subsidence area management and soil and water conservation, and will continue to worktowards energy conservation and emission reduction, including the reduction of sulphur dioxide andnitrogen oxide emissions.
All of our subsidiaries have the relevant institutional framework for environmental protection and energyconservation, as well as monitoring and supervisory facilities. They have not encountered incidents ofenvironmental pollution, and have not been subject to penalties from the environmental protectiondepartment save for minor incidents where notices were issued by the relevant regulatory authority whichdo not have a material adverse effect on our business, results of operations and financial position. Theywill continue to work on environmental protection and management, as well as energy conservation.
We believe that our environmental protection systems and facilities are sufficient for us to comply withall currently applicable national, local and foreign environmental laws and regulations in all materialrespects. For the years ended 31 December 2018, 2019 and 2020, we had not been imposed with anymaterial administrative penalties due to any activities that cause pollution to the environment.
Health and Safety Compliance
We are exposed to a variety of risks associated with our business operations, in particular power generatingand coal mining operations. These risks and hazards could result in damage to, or destruction of, propertyor generating units, personal injury, environmental damage, business interruption and possible legalliability.
We have established a production safety department responsible for general safety and for ensuring a safework environment. To deal with potential emergency incidents, we have also set up the emergencymanagement system, including preventative action plans, emergency drills and formation of an emergencyresponse team. In addition, we observe coal mining safety standards and promote safe productiontechnology and on-site management. For the years ended 31 December 2018, 2019 and 2020, we did notencounter any major equipment accidents, major fire accidents, major traffic accidents or large-scalepollution accidents.
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Intellectual Property
Our intellectual property mainly consists of patents, trade secrets, trademarks and proprietary information.As at 31 December 2020, we held approximately 800 patents in the PRC and other jurisdictions. We havenot been engaged in any litigation or legal proceedings for violation of intellectual property rights thatcould have a material adverse impact on our business, results of operations and financial position.
Employees
As at 31 December 2020, we have around 23,066 employees in total. We strictly abide by PRC applicablelaws and regulations, requiring all employees to sign labour contracts. Our employees participate invarious basic social insurance plans organised by municipal and provincial governments whereby we arerequired to make monthly contributions to these plans at certain rates of the employees’ salary asstipulated by relevant local regulations. The total remuneration of our employees generally includessalaries, bonuses and allowances. For the years ended 31 December 2018, 2019 and 2020, we did notexperienced any strikes, work stoppages, labour disputes or actions which affected the operation of anyof our respective businesses. We believe that our subsidiaries maintain good relationships with theirrespective employees.
Insurance
Our material assets are mainly covered by insurance with major PRC insurance companies, such asproperty all risks insurance and machinery breakdown insurance. Our insurance policies are reviewed onan annual basis.
Consistent with what we believe to be customary practice in the PRC, we do not maintain any third partyliability insurance to cover claims in respect of personal injury, property or environmental damages arisingfrom accidents on our property or relating to our operations, nor do we carry business interruptioninsurance. We believe that our insurance coverage is adequate and is standard for the power industry andcoal mining industry in the PRC.
Legal and Regulatory Proceedings
We were not a party to any legal or arbitration proceedings, pending or threatened, that may have, or havehad during the last 12 months, a material adverse effect on our business, results of operations or financialcondition as at the date of this Offering Circular.
Management
Board of Directors
The board of directors is our Company’s decision-making body and is responsible for a number of matters,including decision-making regarding significant events of our Company, proposals regarding ourmemorandum and articles of association and any amendments thereto, development strategies, operationaland investment plans, external guarantees, working capital, financing, donation, asset write-off, budgetplans, profit distribution plans, internal control, internal rules, registered capital, debt offering,compliance with the relevant decisions and requirements of the Zhejiang SASAC and reporting to theZhejiang SASAC.
According to our memorandum and articles of association, members of our board of directors other thanemployee directors are appointed by the Zhejiang SASAC. Employee directors are elected from theemployee representative conference or by other methods. Directors serve three-year terms. Uponcompletion of his/her term, a director may be re-appointed or re-elected.
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The following table sets out our directors and their positions on the board of directors of the Company asat the date of this Offering Circular:
Mr. Hu Zhongming has served as our Chairman and secretary of our party committee since December2020. Prior to joining us, Mr. Hu had served as the deputy director of the Market Circulation SystemDivision of the Zhejiang Economic Reform Commission, assistant to the Mayor of Shangyu City, thedirector of and member of the party leadership group of the Administrative Division of the Secretary ofthe Zhejiang Economic Reform Office, and member of the party leadership group of the ZhejiangDevelopment and Reform Commission. He had also served as the deputy general manager and member ofthe party committee of Zhejiang Changguang (Group) Co., Ltd., the deputy mayor of Quzhou City,chairman and secretary of the party committee of Juhua Group Corporation, and member of the standingcommittee of the Communist Party of China Quzhou Municipal Committee. Mr. Hu holds a bachelor’sdegree.
Mr. Zhan Min has served as our director, deputy secretary of our party committee and deputy generalmanager since May 2020. From September 2019 to May 2020, he had served as our director, deputysecretary of the party committee and deputy general manager, leading our operation team. Prior to joiningus, Mr. Zhan had served as deputy county mayor of Tonglu County, deputy secretary-general of HangzhouMunicipal Government, deputy principal of the Party School of Hangzhou Municipal Committee of theCommunist Party of China, deputy dean of Hangzhou Administration College, deputy dean of theHangzhou Municipal Institute of Socialism and district mayor of Hangzhou Binjiang District. Mr. Zhanholds a master’s degree in business administration and is a senior engineer.
Mr. Lu Xiang has served as our director and deputy secretary of our party committee since December2017. Prior to joining us, Mr. Lu had served as deputy director of the Personnel Office of the OverseasChinese Affairs Office, director of the Personnel Department of the Overseas Chinese Affairs Office of theZhejiang Government, and its party committee member, secretary of the disciplinary committee andmember of the party committee of Zhejiang International Business Group Co., Ltd. Mr. Lu holds abachelor’s degree and is a senior economist and a certified public accountant.
Mr. Fan Xiaoning has served as our director since July 2015 and our deputy general manager and amember of our party committee since January 2006. From December 2001 to January 2006, he had servedas assistant to the general manager of the Company. Prior to joining us, Mr. Fan had served as secretaryfor confidential work, assistant researcher and researcher of Zhejiang Planned Economy Commission, andsecretary to the vice governor of the General Office of Zhejiang Government. Mr. Fan holds a master’sdegree in business administration and is a senior economist.
Mr. Sun Weiheng has served as our director and a member of our party committee since April 2017. Priorto joining us, Mr. Sun had served as deputy chief officer and chief officer of Zhejiang Meixi Power PlantPower Generation Branch, principal of Jiaxing Power Plant Production Preparation Office OperationIntern (Training) Team, director of Jiaxing Power Plant Operation Department, director assistant, deputysecretary of the party committee and secretary of the disciplinary committee of Jiaxing Power Plant, anddirector and deputy secretary of the party committee of Taizhou Power Plant. Mr. Sun holds a bachelor’sdegree in thermal energy and power engineering and is a senior engineer.
Mr. Hu Bin has served as our employee director, a member of our party committee and union presidentsince August 2019. Prior to joining us, Mr. Hu had served as the person-in-charge of the Youth LeagueCommittee of Hangzhou Xiaoshan Airport Co., Ltd., general manager and general manager of the WearingSecurity Department of Hangzhou International Airport Air Cargo Terminal Co., Ltd. and a member of theparty committee, secretary of the disciplinary committee and general legal counsel of Juhua GroupCorporation. Mr. Hu holds a master’s degree in business administration and is a senior political engineer.
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Ms. Chen Luxia has served as our part-time external director since June 2020. Ms. Chen concurrentlyserves as the general manager of Zhejiang Tongfang Accountant Firm Co., Ltd. Ms. Chen holds abachelor’s degree and is a senior accountant.
Board of Supervisors
According to our memorandum and articles of association, our board of supervisors is responsible for,among others, inspecting our financials, overseeing instances of violations of laws, rules and ourmemorandum and articles of association by our directors and management personnel, rectifying actions bydirectors and management personnel that may harm our interest and proposing the convening of interimboard meetings.
The chairman of our board of supervisors shall be appointed by the Zhejiang Government. Full-timesupervisors shall be appointed by the Zhejiang SASAC. Employee supervisors shall be elected from theemployee representative conference or by other methods. Supervisors serve three-year terms.
The following table sets out our supervisors and their positions on the board of supervisors of theCompany as at the date of this Offering Circular:
Ms. Wu Xijun has served as our deputy chief supervisor since January 2021. She had served as a full-timeexternal supervisor at Zhejiang Travel Group Co., Ltd. and Zhejiang Changguang (Group) Co., Ltd. Priorto joining us, Ms. Wu had served as a staff member of the Sales Division and Finance Division of TaizhouHuangyan Scientific Instruments Plant, cadre of the Financial and Taxation Bureau in Huangyan District,cadre of the Housing Reform Office in Huangyan District, accounting clerk at the Party School of TaizhouCommittee of the Chinese Communist Party and a full-time supervisor at a number of companies,including Zhejiang Mechanical & Electrical Group Co., Ltd. Ms. Wu obtained a bachelor’s degree ineconomic management from Party School of the Central Committee of the Communist Party of China andis a senior accountant.
Ms. Zhang Yi has served as our full-time supervisor since January 2021. Ms. Zhang previously workedat Zhejiang Airlines, Zhejiang Branch of Air China and other airlines. She had also served as a full-timesupervisor of the Zhejiang Provincial Enterprises External Supervisory Committee, Zhejiang AirportGroup Co., Ltd., Zhejiang Communications Investment Group Co., Ltd. and Zhejiang Provincial SeaportInvestment & Operation Group Co., Ltd. Ms. Zhang holds a bachelor’s degree in economics and is a senioraccountant, a registered internal auditor and a fellow member of the Association of Chartered CertifiedAccountants.
Mr. Sun Chaoyang has served as our employee supervisor since August 2019. Mr. Sun had served as thedirector of the General Office of Zhejiang Electric Power Construction Co., Ltd., chief financial officerof Zhejiang Wenzhou Telulai Power Generation Co., Ltd., chief accountant, party committee member anddeputy general manager of Huaizhe Coal and Electricity Co., Ltd., deputy general manager and partycommittee member of Zhejiang Petroleum, and deputy chief economist and chief officer of the AuditDepartment of the Company. Mr. Sun holds a bachelor’s degree and is an accountant.
Mr. Liu Bohui has served as our employee supervisor since June 2020. Mr. Liu had served as a designerof Zhejiang Electric Power Design Institute, chief economist and deputy general manager of ZhejiangTiandi Environmental Protection Engineering Co., Ltd., chief officer of the Planning and OperationDepartment of Zhejiang Xingyuan Investment Co., Ltd., assistant to the general manager of ZhejiangEnergy Natural Gas Operation Co., Ltd., and chief officer of the Strategic Management Department andthe Legal Department of the Company. Mr. Liu holds a master’s degree in engineering and is a seniorengineer.
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Senior Management of the Company
Our senior management team includes our general manager, deputy general managers and other seniormanagement personnel. Our general manager and deputy general managers are recommended by theZhejiang SASAC and then appointed by our board of directors. They serve three-year terms, and uponcompletion of each term, may be reappointed.
The following table sets out our senior management and their positions in the Company as at the date ofthis Offering Circular:
For details regarding Mr. Zhan Min, see “– Board of Directors” above.
For details regarding Mr. Fan Xiaoning, see “– Board of Directors” above.
Mr. Wang Jiantang has served as our deputy general manager and a member of our party committee sinceMay 2019. Mr. Wang had served as a cadre of Safety Supervision Department of Zhejiang Coal IndustryCorporation, deputy manager of Zhejiang Coal Mining Machinery Manufacturing Engineering Company,deputy general manager and general manager of Zhejiang Coal Mining Engineering Machinery Company,member and secretary of Discipline Inspection Committee of Zhejiang Coal Development Company,deputy director of Zhejiang Zheneng Fuxing Fuel Company, deputy general manager of Zhejiang ZhenengGroup Coal and Transportation Branch Company, deputy general manager and member of the partycommittee of Zhejiang Zheneng Group Xinjiang Branch Company, general manager and secretary of theparty committee of Zhejiang Zheneng Group Coal and Transportation Branch Company. Mr. Wang holdsa master’s degree in engineering and is a senior engineer.
Mr. Ni Zhen has served as our deputy general manager and a member of our party committee since May2020. Mr. Ni had served as a reporter of Zhejiang Electric Power News under the Zhejiang Electric PowerBureau and had held various positions at the Company, Zheneng Jiaxing Power Generation Co., Ltd. andZhejiang Zheneng Electric Power Co., Ltd. Mr. Ni holds a master’s degree in business administration andis a senior economist.
Mr. Ye Yuanzu has served as our deputy general manager since October 2020. Mr. Ye previously servedas a manager of the Planning and Finance Department of Zhejiang Financial Securities Co., Ltd., thegeneral manager of the Planning and Finance Department of Caitong Securities Broker Co., Ltd. and thechief financial officer of Yongan Futures Broker Co., Ltd. He also held various positions at Yongan FuturesCo., Ltd. and Caitong Securities Co., Ltd. Mr. Ye holds a master’s degree in business administration andis an intermediate accountant.
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REGULATION
This section summarises the main PRC laws and regulations which are relevant to the Group’s businessand operations. As this is a summary, it does not contain a detailed analysis of relevant laws andregulations.
Power Industry
Regulatory Authorities and Self-regulatory Organisations of Power Industry
The PRC power industry is subject to regulation by the NDRC, the SERC and the National EnergyAdministration. The self-regulatory organisation of the industry is the China Electricity Council.
The NDRC is primarily responsible for the formulation of the development strategy, long-andmedium-term plan and annual plan of the PRC power industry, research and formulation of major policiesof the State with regard to the power industry and market, organisation and determination of the price forpower supply, supervision and inspection of the implementation of the pricing policy of the powerindustry, and examination, approval and inspection of major power construction projects described in the“Catalogue of Investment Projects Approved by the Government” (《政府核准的投資項目目錄》)promulgated in 2016, as well as the management of the National Energy Administration pursuant to therequirements of the State Council.
The SERC is primarily responsible for a variety of matters related to the power industry, including theformulation of operational rules of the PRC power market, supervision of the operation of the powermarket, making recommendations for the adjustment of electricity price to the government department incharge of electricity pricing, supervision and inspection of the production quality standard of powerenterprises, issuance and administration of electric power business licenses, and handling of power marketdisputes.
The National Energy Administration is primarily responsible for the preparation of energy developmentplan, industrial policies and the organisation and implementation thereof, drafting of laws, regulations andrules with respect to energy, facilitation of energy system reform, preparation of the relevant reformproposals; management of the power industry, organisation and formulation of industry standards,monitoring of industrial development, coordination of the industrial production and construction and thebalance between demand and supply; examination, approval and review energy fixed assets investmentprojects in the national plan and annual plan according to the authority stipulated by the State Council;dealing with energy early warning and alert system, release of power information, participation in poweroperation and adjustment, as well as emergency protection; taking initiative to develop power internationalcooperation; and approval and review of overseas major power investment projects according to theprescribed authority.
In accordance with the “State Council Institutional Reform and Functional Transformation Plan” (《國務院機構改革和職能轉變方案》) issued on 14 March 2013, the State Council will reorganise the NationalEnergy Administration to improve the energy supervision and management system. Pursuant to the Plan,the responsibilities of both the National Energy Administration and the SERC will be consolidated toreorganise the National Energy Administration for the purposes of facilitating the development and energyreform and strengthening energy supervision and management. The main responsibilities of the NationalEnergy Administration will be as follows: preparing, organising and implementing energy developmentstrategies, plans and policies, studying and making recommendations for energy system reform, andsupervising and managing energy. The SERC will also no longer be preserved. Following the reform, theState Energy Administration will continue to be under the administration of NDRC.
Major Laws, Regulations and Policies of Power Industry
The basic laws and regulations applicable to the power industry includes the “Electric Power Law of thePeople’s Republic of China”, the “Regulations on Electricity Regulation Supervision”, and the“Provisions on the Administration of Electric Power Business Licenses”, which regulate all aspects ofthe power industry.
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The “Electric Power Law of the People’s Republic of China” (《中華人民共和國電力法》), which wasissued on 28 December 1995 and effective on 1 April 1996 and amended on 27 August 2009, 24 April 2015and 29 December 2018, respectively, states its purposes as safeguarding and promoting the developmentof power business, protecting the lawful rights and interests of investors, operators and users of the powerindustry, and ensuring safe power operation. The Law provides the basic requirements for the construction,production, supply and use of power, management of power grids, electricity price and power tariff, aswell as the protection of power facilities.
On 15 February 2005, the State Council issued the “Regulations on Electric Power Supervision” (《電力監管條例》), which became effective on 1 May 2005. In accordance with the Regulations, the powerregulatory authorities of the State Council shall perform their duties of power regulation andadministrative enforcement pursuant to these Regulations and the relevant requirements of the StateCouncil. Their power regulation work is to maintain the order of the power market, protect the lawfulrights and interests of investors, regulators and users of the power industry and social and public interestsaccording to law, ensuring the safety and stable operation of power systems, and promote the healthydevelopment of power business. Their regulatory responsibilities include: issuing and administratingpower business licenses pursuant to the relevant laws and the relevant requirements of the State Council;implementing supervision over the market share of power generating enterprises in each power market;regulating power grid connection of power generating plants, power grid interconnection, as well as theimplementation of relevant rules and regulations during the coordinated operation between powergenerating plants and power grids; regulating the circumstances where the power market is fairly andindiscriminately open to any parties engaging in power transactions in the power market and powertransmission enterprises make their respective power grids open to all in a fair manner according to law;and regulating the circumstances where power enterprises and power dispatch trading authoritiesimplement operational rules of the power market, and power dispatch trading authorities implement powerdispatch rules.
On 28 September 2005, the SERC issued the “Provisions on the Administration of Electric PowerBusiness Licenses” (《電力業務許可證管理規定》), which became effective on 1 December 2005 andamended on 30 May 2015. Under the Provisions, any enterprise engaging in power business (the businessof power generation, power transmission or power supply. In particular, the power supply businessincludes power distribution business and power sale business) within the territory of the People’s Republicof China shall obtain an electric power business license pursuant to the Provisions. Save for any specialcircumstances prescribed by the SERC, no unit or individual shall operate power business without anelectric power business license. Electric power business licenses are divided into 3 categories: powergeneration, power transmission and power supply. An enterprise engaging in power generation businessshould obtain an electric power business license for power generation. An enterprise engaging in powertransmission business should obtain an electric power business license for power transmission. Anenterprise engaging in power supply business should obtain an electric power business license for powersupply. An enterprise engaging in two types of power business or more should obtain electric powerbusiness licenses for more than two types of power business.
In February 2002, the State Council released the “Notice on Printing and Forwarding the Proposal forPower System Reform” (《關於印發電力體制改革方案的通知》), which states clearly the guidingprinciples, objectives and major tasks of power system reform, reorganises the state-owned power assets,establish the reorganisation approach for separation of plants and grids so as to lay down the structure ofbasic business of the PRC, such as power generation, transmission and distribution, and defines theresponsibilities of respective parties; determines a new mechanism for electricity price to be used in pricebidding, states clearly the implementation of a power system reform in stages in order to improve theancillary measures for power system reform. On this basis, the State Council adopted the “ImplementingOpinions Regarding Promotion of Electric Power System Reform in the Period of the “11th Five-YearPlan” (《國務院辦公廳轉發電力體制改革工作小組關於“十一五”深化電力體制改革實施意見的通知》)(the “Opinions”), which became effective on 6 April 2007 and was abolished on 27 November 2015. TheOpinions confirmed the major development of the PRC power system reform in the period of the “11thFive-Year Plan”, further stated clearly the overall approach and basic principles of promoting powersystem reform in the period of the “11th Five-Year Plan”, and planned for the major tasks of such reform.
On 20 December 2012, the Office of the State Council issued the “Guiding Opinions RegardingPromotion of Electric Power Coal Market Reform” (Guo Ban Fa [2012] No. 57) (《國務院辦公廳關於深化電煤市場化改革的指導意見》(國辦發[2012]57號)), which requires to grasp the favourable
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opportunity to promote electric power coal market reform. The major specific tasks are as follows: (1) theestablishment of a new mechanism required for connection of the production and transportation of electricpower coal. Since 2013, key contracts and the dual mechanism of electric power coal price have beencancelled. Coal enterprises and power enterprises can enter into contracts and determine prices throughnegotiation at their sole discretion; (2) the strengthening of the coal market; (3) improvement of a jointmechanism for coal and power price. When the price of electric power coal fluctuates more than 5 percent., corresponding adjustment will be made to on-grid power tariffs on an annualised basis. Thepercentage of fluctuation of coal price of power enterprises will also be adjusted from 30 per cent. to 40per cent.; (4) promotion of the reform of electric power coal transportation market; (5) promotion ofreform of the power market. Joint operation of coal and power enterprises are encouraged to enhancecomplementary advantages among them. The dispatch mode of power generation will be improved. On thebasis of insisting on the dispatch of units with the characteristics of energy saving, environmentalprotection and high efficiency, economic dispatch factors will gradually be increased. The units with alower price for power generation will be first arranged for use when the same conditions are offered soas to facilitate enterprises to improve their management, reduce energy consumption and enhance theirtechnical standards.
Under the guidance of the above outline documents, the relevant departments formulated detailed laws andregulations in respect of the determination of electricity price, development of power supply projects,power dispatch, safety production and environmental protection.
Coal Industry
Regulation in Coal Industry
The coal industry was previously supervised by the Ministry of Coal Industry of the People’s Republic ofChina, and it has been under the supervision of the State Council, the NDRC, the Ministry of Land andResources, the Ministry of Environmental Protection and the State Administration of Coal Mine Safetysince the Ministry of Coal Industry was dissolved. The self-regulatory organisation of the coal industryis China National Coal Association.
The State Council is responsible for examining and approving major investment projects in the coalindustry determined in the “Catalogue of Investment Projects Approved by the Government” (《政府核准的投資項目目錄》) issued in 2016. In addition, the State Council directs, guides and advises on thesound and stable development of the coal industry in general.
The NDRC formulates policies and investment strategies for the coal industry. It examines and approvesprojects in this industry and, together with MOFCOM, regulates coal export activities and export quotas.Besides, it also supervises the general market operation of the coal industry.
The Ministry of Land and Resources has the right to grant land use rights and mining rights, and the rightto examine and approve the transfer or lease of mining rights as well. It is also responsible for verifyingvalue estimation of mining rights and reserves.
The Ministry of Environmental Protection formulates laws, regulations and rules in connection withenvironmental protection. It leads environmental impact assessments for major economic andtechnological schemes, development proposals and material economic development projects, and it alsoexamines and evaluates the impact of the operation of enterprises in heavy polluting industries onenvironment.
Major Laws, Regulations and Policies in Coal Industry
Major laws and regulations in connection with coal production and management include “MineralResources Law of the People’s Republic of China, Coal Industry Law of the People’s Republic of China(2013 Amendment) and Measures for the Supervision over Coal Management”.
In accordance with the “Mineral Resources Law of the People’s Republic of China” (《中華人民共和國礦產資源法》), which became effective on 1 October 1986 and was amended on 29 August 1996 and 27August 2009 respectively, mineral resources belong to the state, and the right of state ownership in mineralresources is exercised by the State Council. Anyone engaged in exploring or mining of mineral resourcesshall meet the prescribed qualifications, and shall make applications to the Ministry of Land andResources to obtain the right of exploration or mining before conducting any business.
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The “Coal Industry Law of the People’s Republic of China” (《中華人民共和國煤炭法》) becameeffective on 1 December 1996. It covers various aspects in coal production and management includingexploration of coal resources, examination and approval of construction of coal mines, management ofsafety in production, coal trading, protection of coal mining areas, and protection of and supervision onemployees in coal enterprises. On 29 June 2013, during the meeting of the third session of the 12thNational People’s Congress Standing Committee, the Committee members reviewed and adoptedamendments to the “Coal Industry Law of the People’s Republic of China”, and the coal productionpermits and the examination and approval of coal business qualification were duly repealed. On 7November 2016, two articles in the “Coal Industry Law of the People’s Republic of China” relating tosome requirements to establish a coal mining enterprise and an application for establishing a coal miningenterprise have been deleted. On 18 July 2013, the State Council released the “Decision of the StateCouncil on Repealing and Amending Some Administrative Regulations” (《國務院關於廢止和修改部分行政法規的決定(2013)》), in which the “Measures for the Administration of Coal Production Permits”(《煤炭生產許可管理辦法》) was duly repealed. On 6 December 2013, the NDRC issued the“Announcement to Solicit Public Opinions on the Measures for the Supervision over Coal Management(as amended)”. The “Measures for the Supervision over Coal Management” (《煤炭經營監管辦法》)was amended in accordance with the amended “Coal Industry Law of the People’s Republic of China”(《中華人民共和國煤炭法》), and the administrative permit to coal trading qualification was dulyrepealed.
Pipeline Gas Operation Industry
Regulation in Pipeline Gas Operation Industry
Gas business is mainly supervised by the construction authority of the State Council, that is, the Ministryof Housing and Urban-Rural Development of the People’s Republic of China. Besides, the Ministry ofLand and Resources, the Ministry of Transport, authorities of the State Administration of Work Safety andgovernment price authorities regulate gas operation to the full extent of their respective duties.
The Ministry of Housing and Urban-Rural Development manages gas operation nationwide. Its key dutiesinclude formulating practice standards for gas business, planning and implementing state gas developmentschemes and supervising work safety issues in the gas business. Local gas administrative authorities abovethe county level take charge of gas management in their respective region.
The Ministry of Land and Resources examines and approves the exploration and mining of natural gas andcoal-bed gas.
The Ministry of Transport is responsible for supervising the safety transportation of gas. It issues permitsto road transport and water transport of hazardous goods in accordance with relevant regulations ontransport of hazardous goods.
The authorities of the State Administration of Work Safety supervises gas safety and formulates relevantcontingency plans.
The government price authorities above the county level is responsible for determining and adjusting gasprices based on opinions from pipeline gas customers, operators and other relevant parties.
Major Laws, Regulations and Policies in Pipeline Gas Operation Industry
On 19 March 2004, the Ministry of Construction issued “Measures for the Administration on theFranchise of Municipal Public Utilities” (《市政公用事業特許經營管理辦法》), which became effectiveon 1 May 2004 and was amended on 4 May 2015. These measures are applicable to the implementationof franchising according to law of water supply, gas feed, heating, public traffic, sewage disposal, and therelevant industries. Municipal administrative authorities of construction govern such franchise. Operatorsmust obtain approval from the aforementioned authorities through market competition mechanism andthus be licensed to conduct gas business.
On 19 November 2010, the State Council issued “Regulation on the Administration of Urban Gas” (《城鎮燃氣管理條例》), which became effective on 1 March 2011 and was amended on 6 February 2016. Thisregulation set forth provisions in connection with urban gas development plan and emergency guarantee,gas operation and service, gas using, gas facilities protection and relevant administrative activities. It
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further clarifies that the state applies a licensing system to gas operation. Any enterprise engaged in gasbusiness shall first obtain a gas business certificate issued by the gas administrative department of thelocal people’s government above the county level, and then register with the administrative department forindustry and commerce on the strength of the gas business certificate. This regulation also disciplines,among others, the supervision and inspection on gas quality, gas pricing and gas safety accidentsprevention and handling.
Environmental Protection and Safety and Labour Protection in the PRC
Environmental Protection
The main PRC environmental laws and regulations applicable to construction and operation of our powerplants include the Environmental Protection Law of the PRC (《中華人民共和國環境保護法》), the Lawof the PRC on the Prevention and Treatment of Water Pollution (《中華人民共和國水污染防治法》), theLaw of the PRC on the Prevention and Treatment of Air Pollution (《中華人民共和國大氣污染防治法》),the Law of the PRC on Prevention and Treatment of Solid Waste Pollution (《中華人民共和國固體廢物污染環境防治法》) and the Law of the PRC on Appraising Environment Impacts (《中華人民共和國環境影響評價法》).
Thermal Power Plants
All power plants in the PRC are subject to the national environmental statutes, which include theEnvironmental Protection Law of the PRC (《中華人民共和國環境保護法》), the Law of theEnvironmental Impact Assessment of the PRC (《中華人民共和國環境影響評價法》), the Law of Watersof the PRC (《中華人民共和國水法》), the Law on the Prevention and Treatment of Water Pollution of thePRC (《中華人民共和國水污染防治法》), the Law on the Prevention and Treatment of Air Pollution of thePRC (《中華人民共和國大氣污染防治法》), the Law on the Prevention and Treatment of Solid WastePollution of the PRC (《中華人民共和國固體廢物污染防治法》), the Law on Ocean EnvironmentProtection of the PRC (《中華人民共和國海洋環境保護法》) and the Regulations on Administration ofEnvironmental Protection for Projects Construction (《建設項目環境保護管理條例》) as well as theirimplementation rules and related regulations (collectively, the “National Environmental Laws”) and theenvironmental rules promulgated by the local governments in whose jurisdictions our various power plantsare located. According to the National Environmental Laws, the MEP sets national environmentalstandards and local environmental protection agencies may set local environmental standards when thereare no national standards or stricter local standards. Enterprises are required to comply with the stricterof the two mandatory standards.
According to the National Environmental Laws, the construction of all power plants shall be subject to theenvironmental impact assessment procedures which are different depending on the environmental impactof different types of power plants. After the completion of construction and before commercial operation,all power plants shall be subject to the environmental protection inspection for construction completion,and shall satisfy the specific environmental protection requirements on the projects formulated by theenvironmental authorities.
The relevant environmental protection laws and regulations generally impose fees for discharge ofpollutants and also impose fines for violations of laws, regulations or emissions standards, and provide forpossible closure by the central or local government of any power plant which fails to comply with ordersrequiring it to cease or rectify the activities causing environmental damage. The development of a powerplant is subject to environmental evaluation which requires the approval of the PRC environmentalprotection authority. Each power plant must be tested and approved by local environmental agenciesbefore commissioning, and is subject to continuous government monitoring after commissioning.
Pursuant to the Emission Standards of Air Pollutants for Thermal Power Plants (《火電廠大氣污染物排放標準》) effective on 1 January 2012 (the “Emission Standards”), starting from July 1, 2014, theaverage concentration of sulfur dioxide discharged by all the existing thermal boilers of a power plantshall not exceed 200 mg per m3, except in Guangxi, Chongqing, Sichuan, Guizhou, which the limit of coalburning boilers is 400 mg per m3. And for the thermal boiler built after 1 January 2012, the concentrationof sulfur dioxide discharged shall not exceed 100 mg per m3, save for the standards in Guangxi,Chongqing, Sichuan and Guizhou. Before 1 January 2008, all thermal power plants will be required toinstall continuous emission monitoring systems pursuant to the National Plan on Prevention and Controlof Acid Rain and SO2 during the 11th Five-Year Period (《國家酸雨和二氧化硫污染防治“十一五”規劃》). On 19 May 2005, the NDRC announced certain principles in choosing desulphurisation equipmentas well as a system to evaluate already-installed desulphurisation equipment.
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Safety and Labour Protection
The Safety Production Law of the PRC (《中華人民共和國安全生產法》), which became effective on 1November 2002 and was revised on 31 August 2014, is the principal law governing the supervision andadministration of safety production and labour protection for power projects. In accordance with theMeasures on Supervision and Administration of the Safety Generation of Electric Power (《電力安全生產監督管理辦法》), issued by the NDRC in February 2015, power plants are responsible for maintainingtheir safety operations in accordance with requirements set by the regional grid in which they are located.Power plants are required to report to the SERC, the State Administration of Work Safety and relevantlocal government authorities, within 24 hours, any safety accident that causes worker fatalities or isclassified as a serious or extraordinary accident. According to the Circular of SERC on Circulation of theMeasures for Administration on Commencement and Exit of Commercial Operation of Newly-builtPower-Generation Units (Trial) (《國家電力監管委員會關於印發<新建發電機組進入及退出商業運營管理辦法(試行)的通知》) effective on 1 November 2011, the approved newly-built thermal and hydropower-generating turbines interconnected to the grids of the provincial and higher levels shall satisfy therelevant conditions and pass the interconnection safety evaluation conducted by the SERC beforecommercial operations. The existing thermal and hydro power-generating turbines shall be suspended afterthe application for withdrawal. With regard to the hydro power plants, their dam shall be subject to theregulations relating to dam safety including the Rules of Administration of Safety of Operation of Damsof Hydro Power Stations (《水電站大壩運行安全管理規定》) issued by SERC and effective on 1 January2005, according to which, the large dams of the hydro power plants shall be subject to the inspection andregistration of the Large Dam Safety Supervision Centre of SERC (國家電力監管委員會大壩安全監察中心), and the Safety Registration Certificate on Hydro Power Plant Dams shall be obtained by the hydropower plants. With regard to the thermal power plants, their boilers shall be subject to the inspection andregulation of the Administration of Quality Supervision, Inspection and Quarantine in accordance with theRegulations of Supervision of Safety of Special Equipments (《特種設備安全監察條例》).
The main PRC employment laws and regulations applicable to our power plants include the Labour Lawof the PRC (《中華人民共和國勞動法》), the Employment Contract Law of the PRC (《中華人民共和國勞動合同法》) and the Implementing Regulations of the Employment Contract Law of the PRC (《中華人民共和國勞動合同法實施條例》).
The Employment Contract Law of the PRC (《中華人民共和國勞動合同法》) was promulgated on 29 June2007 and became effective on 1 January 2008 and was amended on 28 December 2012. This law governsthe establishment of employment relationships between employers and employees, and the execution,performance, termination of, and the amendment to, employment contracts. Compared to the PRC LabourLaw, the new PRC Employment Contract Law provides additional protection to employees by requiringwritten labour employment contracts and long-term contractual employment relationships, limiting thescope of the circumstances under which employees could be required to pay penalties for breach ofemployment contracts and imposing stricter sanctions on employers who fail to pay remuneration or socialsecurity premiums for their employees.
Pursuant to the Interim Regulations on the Collection and Payment of Social Insurance Premiums (《社會保險費徵繳暫行條例》) promulgated and effective on 22 January 1999 and amended on 24 March 2019,the Regulations on Work Injury Insurance (《工傷保險條例》) effective on 1 January 2004 and amendedon 20 December 2010, and the Trial Measures on Maternity Insurance for Employees of Enterprises (《企業職工生育保險試行辦法》) effective on 1 January 1995, basic pension insurance, medical insurance andunemployment insurance, work injury insurance and maternity insurance are collectively referred to associal insurance. Each of the PRC companies and their employees are required to contribute to the socialinsurance plan. Pursuant to the Regulation on the Administration of Housing Fund (《住房公積金管理條例》) promulgated and effective on 3 April 1999, as amended on 24 March 2002 and 24 March 2019, PRCcompanies must register with the applicable housing fund management centres and establish specialhousing fund accounts in entrusted banks. Each of the PRC companies and their employees are requiredto contribute to the housing fund and their respective deposits shall not be less than 5 per cent. of anindividual employee’s monthly average wage during the preceding year.
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TAXATION
The following summary of certain tax consequences of the purchase, ownership and disposition of theNotes is based upon applicable laws, regulations, rulings and decisions in effect as at the date of thisOffering Circular, all of which are subject to change (possibly with retroactive effect). This discussiondoes not purport to be a comprehensive description of all the tax considerations that may be relevant toa decision to purchase, own or dispose of the Notes and does not purport to deal with consequencesapplicable to all categories of investors, some of which may be subject to special rules. Neither thesestatements nor any other statements in this Offering Circular are to be regarded as advice on the taxposition of any holder of the Notes or any persons acquiring, selling or otherwise dealing in the Notes oron any tax implications arising from the acquisition, sale or other dealings in respect of the Notes. Personsconsidering the purchase of the Notes should consult their own tax advisers concerning the possible taxconsequences of buying, holding or selling any Notes under the laws of their country of citizenship,residence or domicile.
PRC Taxation
The following summary describes the principal PRC tax consequences of ownership and disposition of theNotes by beneficial owners who, or which, are not residents of Mainland China for the PRC tax purposes.These beneficial owners are referred to as non-PRC Noteholders in this “PRC Taxation” section. Inconsidering whether to invest in the Notes, investors should consult their individual tax advisers withregard to the application of PRC tax laws to their particular situations as well as any tax consequencesarising under the laws of any other tax jurisdiction. Reference is made to PRC taxes from the taxable yearbeginning on or after 1 January 2008.
Pursuant to the Enterprise Income Tax Law effective on 1 January 2008 and the PRC Individual IncomeTax Law effective on 1 January 2019, and their respective implementation regulations, an income tax isimposed on payments of interest by way of withholding in respect of the Notes, made by the Issuer (if theIssuer is regarded as a PRC enterprise under the Enterprises Income Tax Law and/or the Individual IncomeTax Law) to non-resident Noteholders, including non-resident enterprises and non-resident individuals.The current rates of such income tax are 20 per cent. (for non-resident individuals) and 10 per cent. (fornon-resident enterprises) of the gross amount of the interest. If the relevant PRC tax authorities decide,in accordance with applicable tax rules and regulations, that the “de facto management bodies” of theIssuer are within the territory of the PRC, the Issuer may be held to be a PRC tax resident enterprise forthe purpose of the Enterprise Income Tax Law and be subject to enterprise income tax at the rate of 25per cent. in respect of its income sourced from both within and outside PRC. If the Issuer is regarded asa PRC tax resident enterprise, such enterprise income tax shall be withheld by the Issuer that is acting asthe obligatory withholder and it shall withhold the tax amount from each payment due.
However, the tax so charged on interests paid on the Notes to non-resident Noteholders who or which areresidents of Hong Kong (including enterprise holders and individual holders) as defined under theArrangement between Mainland China and the Hong Kong Special Administrative Region for theAvoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income(《內地和香港特別行政區關於對所得避免雙重徵稅和防止偷漏稅的安排》) which was promulgated on21 August 2006 (the “Tax Arrangement”) for the purpose of the avoidance of double taxation will be 7per cent. of the gross amount of the interest pursuant to the Tax Arrangement and relevant interpretationof the Tax Arrangement formulated by the State Administration of Taxation of China.
Under the Enterprise Income Tax Law and its implementation rules, any gains realised on the transfer ofthe Notes by holders who are deemed under the Enterprise Income Tax Law as non-resident enterprisesmay be subject to PRC enterprise income tax if such gains are regarded as income derived from sourceswithin the PRC. Under the Enterprise Income Tax Law, a “non-resident enterprise” means an enterpriseestablished under the laws of a jurisdiction other than the PRC and whose actual administrativeorganisation is not in the PRC, which has established offices or premises in the PRC, or which has notestablished any offices or premises in the PRC but has obtained income derived from sources within thePRC. In addition, there is uncertainty as to whether gains realised on the transfer of the Notes byindividual holders who are not PRC citizens or residents will be subject to PRC individual income tax. Ifsuch gains are subject to PRC income tax, the 10 per cent. enterprise income tax rate and 20 per cent.individual income tax rate will apply respectively unless there is an applicable tax treaty or arrangementthat reduces or exempts such income tax. The taxable income will be the balance of the total incomeobtained from the transfer of the Notes minus all costs and expenses that are permitted under PRC tax lawsto be deducted from the income. According to the Tax Arrangement, Noteholders who are Hong Kongresidents, including both enterprise holders and individual holders, may be exempted from PRC incometax on capital gains derived from a sale or exchange of the Notes.
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In addition, pursuant to Circular 36 which took effect on 1 May 2016, entities and individuals providingservices within the PRC are subject to VAT. The services are treated as being sold within the PRC whereeither the service provider or the service recipient is located in the PRC. The services subject to VATinclude the provision of financial services such as the provision of loans. Circular 36 further clarifies that“loans” refer to the activity of lending capital for another’s use and receiving interest income thereon.Based on the definition of “loans” under Circular 36, the issuance of the Notes is likely to be treated asa “loan” provided by the Noteholders to the Issuer, which thus shall be regarded as financial services forVAT purposes. In general, the income derived from the provision of loans will not be subject to VAT inthe PRC if none of the Issuer or the Noteholders is within the PRC. However, it is uncertain whether aforeign incorporated company which is deemed to be a PRC resident enterprise would be regarded as beingwithin the PRC. In the event that the Issuer is deemed to be a PRC resident enterprise and is deemed tobe within the PRC by the PRC tax authorities, the Noteholders may be deemed to be providing financialservices to the Issuer within the PRC and consequently, the amount of interest on the Notes payable bythe Issuer to any non-resident Noteholders may be subject to withholding VAT at the rate of 6 per cent.plus related surcharges.
Where a holder of the Notes who is an entity or individual located outside of the PRC resells the Notesto an entity or individual located outside of the PRC and derives any gain, since neither the serviceprovider nor the service recipient is located in the PRC, theoretically Circular 36 does not apply and theIssuer does not have the obligation to withhold the VAT or the local levies. However, there is uncertaintyas to the applicability of VAT if either the seller or buyer of Notes is located inside the PRC.
The interpretation and enforcement of Circular 36 and other applicable laws and regulations pertaining toPRC VAT involve uncertainties, and the above statements may be subject to further change upon theissuance of further clarification rules and/or different interpretation by the competent tax authority. Thereis uncertainty as to the application of Circular 36.
Pursuant to the Enterprise Income Tax Law, the PRC Individual Income Tax Law and the VAT reformdetailed above, if the Issuer is regarded as a PRC tax resident enterprise, it shall withhold income tax(should such tax apply) from the payments of interest in respect of the Notes for any non-residentNoteholder and the Issuer shall withhold VAT (should such tax apply) from the payments of interest inrespect of the Notes for any Noteholder located outside of the PRC. However, in the event that the Issueris required to make such a deduction or withholding (whether by way of income tax, VAT or otherwise),the Issuer have agreed to pay such additional amounts as will result in receipt by the Noteholders of suchamounts after such withholding or deduction as would have been received by them had no suchwithholding or deduction been required, as further set out in the “Terms and Conditions of the Notes”.
No PRC stamp duty will be imposed on non-resident Noteholders either upon issuance of the Notes orupon a subsequent transfer of Notes to the extent that the register of holders of the Securities is maintainedoutside the PRC and the issuance and the sale of the Notes is made outside of the PRC.
Hong Kong Taxation
Withholding Tax
No withholding tax is payable in Hong Kong in respect of payments of principal or interest on the Notesor in respect of any capital gains arising from the sale of the Notes.
Profits Tax
Hong Kong profits tax is chargeable on every person carrying on a trade, profession or business in HongKong in respect of profits arising in or derived from Hong Kong from such trade, profession or business(excluding profits arising from the sale of capital assets).
Interest on the Notes may be deemed to be profits arising in or derived from Hong Kong from a trade,profession or business carried on in Hong Kong in the following circumstances:
(i) interest on the Notes is derived from Hong Kong and is received by or accrues to a corporationcarrying on a trade, profession or business in Hong Kong;
(ii) interest on the Notes is derived from Hong Kong and is received by or accrues to a person, other thana corporation, carrying on a trade, profession or business in Hong Kong and is in respect of the fundsof that trade, profession or business;
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(iii) interest on the Notes is received by or accrues to a financial institution (as defined in the InlandRevenue Ordinance (Cap. 112) of Hong Kong (the “IRO”)) and arises through or from the carryingon by the financial institution of its business in Hong Kong; or
(iv) interest on the Notes is received by or accrues to a corporation, other than a financial institution, andarises through or from the carrying on in Hong Kong by the corporation of its intra-group financingbusiness (within the meaning of section 16(3) of the IRO).
Sums received by or accrued to a financial institution by way of gains or profits arising through or fromthe carrying on by the financial institution of its business in Hong Kong from the sale, disposal andredemption of Notes will be subject to Hong Kong profits tax. Sums received by or accrued to acorporation, other than a financial institution, by way of gains or profits arising through or from thecarrying on in Hong Kong by the corporation of its intra-group financing business (within the meaning ofsection 16(3) of the IRO) from the sale, disposal or other redemption of Notes will be subject to HongKong profits tax.
Sums derived from the sale, disposal or redemption of Notes will be subject to Hong Kong profits taxwhere received by or accrued to a person, other than a financial institution, who carries on a trade,profession or business in Hong Kong and the sum has a Hong Kong source unless otherwise exempted.The source of such sums will generally be determined by having regard to the manner in which the Notesare acquired and disposed of.
In certain circumstances, Hong Kong profits tax exemptions (such as concessionary tax rates) may beavailable. Investors are advised to consult their own tax advisors to ascertain the applicability of anyexemptions to their individual position.
Stamp Duty
Stamp duty will not be payable on the issue of Bearer Notes provided that either:
(i) such Bearer Notes are denominated in a currency other than the currency of Hong Kong and are notrepayable in any circumstances in the currency of Hong Kong; or
(ii) such Bearer Notes constitute loan capital (as defined in the Stamp Duty Ordinance (Cap. 117) ofHong Kong (the “SDO”)).
If stamp duty is payable, it is payable by the Issuer on the issue of Bearer Notes at a rate of 3 per cent.of the market value of the Bearer Notes at the time of issue. No stamp duty will be payable on anysubsequent transfer of Bearer Notes.
No stamp duty is payable on the issue of Registered Notes. Stamp duty may be payable on any transferof Registered Notes if the relevant transfer is required to be registered in Hong Kong. Stamp duty will,however, not be payable on any transfer of Registered Notes provided that either:
(i) such Registered Notes are denominated in a currency other than the currency of Hong Kong and arenot repayable in any circumstances in the currency of Hong Kong; or
(ii) such Registered Notes constitute loan capital (as defined in the SDO).
If stamp duty is payable in respect of the transfer of Registered Notes, it will be payable at the rate of 0.2per cent. (of which 0.1 per cent. is payable by the seller and 0.1 per cent. is payable by the purchaser)normally by reference to the consideration or its value, whichever is higher. The Hong Kong governmenthas passed the Revenue (Stamp Duty) Bill 2021 to increase the relevant rate of stamp duty from 0.2 percent. to 0.26 per cent. (of which 0.13 per cent. is payable by the seller and 0.13 per cent. is payable bythe purchaser), with such increase due to take effect on 1 August 2021. In addition, stamp duty is payableat the fixed rate of HK$5 on each instrument of transfer executed in relation to any transfer of theRegistered Notes if the relevant transfer is required to be registered in Hong Kong.
The Proposed Financial Transactions Tax (“FTT”)
On 14 February 2013, the European Commission published a proposal (the “Commission’s Proposal”) fora Directive for a common FTT in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria,Portugal, Slovenia and Slovakia (the “participating Member States”). However, Estonia has since statedthat it will not participate.
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The Commission’s Proposal has very broad scope and could, if introduced, apply to certain dealings in theNotes (including secondary market transactions) in certain circumstances.
Under the Commission’s Proposal the FTT could apply in certain circumstances to persons both within andoutside of the participating Member States. Generally, it would apply to certain dealings in the Noteswhere at least one party is a financial institution, and at least one party is established in a participatingMember State. A financial institution may be, or be deemed to be, “established” in a participating MemberState in a broad range of circumstances, including (a) by transacting with a person established in aparticipating Member State or (b) where the financial instrument which is subject to the dealings is issuedin a participating Member State.
A joint statement issued in May 2014 by ten of the eleven participating Member States indicated anintention to implement the FTT progressively, such that it would initially apply to shares and certainderivatives, with this initial implementation occurring by 1 January 2016.
The FTT proposal remains subject to negotiation between the participating Member States. It maytherefore be altered prior to any implementation, the timing of which remains unclear. Additional EUMember States may decide to participate.
Prospective holders of the Notes are advised to seek their own professional advice in relation to the FTT.
FATCA Withholding
Pursuant to certain provisions of the U.S. Internal Revenue Code of 1986, commonly known as FATCA,a “foreign financial institution” may be required to withhold on certain payments it makes (“foreignpassthru payments”) to persons that fail to meet certain certification, reporting, or related requirements.The Issuer may be a foreign financial institution for these purposes. A number of jurisdictions have enteredinto, or have agreed in substance to, intergovernmental agreements with the United States to implementFATCA (“IGAs”), which modify the way in which FATCA applies in their jurisdictions. Under theprovisions of IGAs as currently in effect, a foreign financial institution in an IGA jurisdiction wouldgenerally not be required to withhold under FATCA or an IGA from payments that it makes. Certainaspects of the application of the FATCA provisions and IGAs to instruments such as the Notes, includingwhether withholding would ever be required pursuant to FATCA or an IGA with respect to payments oninstruments such as the Notes, are uncertain and may be subject to change. Even if withholding would berequired pursuant to FATCA or an IGA with respect to payments on instruments such as the Notes, suchwithholding would not apply prior to the date that is two years after the date on which final regulationsdefining foreign passthru payments are published in the U.S. Federal Register. Holders should consulttheir own tax advisors regarding how these rules may apply to their investment in the Notes.
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DESCRIPTION OF DIFFERENCES BETWEEN PRC ACCOUNTINGSTANDARDS AND INTERNATIONAL FINANCIAL REPORTING STANDARDS
The consolidated financial statements of the Company included in this Offering Circular have beenprepared and presented in accordance with the PRC GAAP. PRC GAAP is substantially in line with IFRS,except for certain modifications between PRC GAAP and IFRS, which might be relevant to the financialinformation of the Group included herein.
The following is a general summary of certain differences between PRC GAAP and IFRS as applicableto the Group. The differences identified below are limited to those significant differences that areappropriate to the consolidated financial statements of the Company. The Company is responsible forpreparing the summary below. Since the summary is not meant to be exhaustive, there can be no assuranceregarding the completeness of the summary. The Company has not prepared a complete reconciliation ofthe consolidated financial information and related footnote disclosure between PRC GAAP and IFRS andhas not quantified such differences. Had any such quantification or reconciliation been undertaken by theGroup, other potentially significant accounting and disclosure differences may be required that are notidentified below. Additionally, no attempt has been made to identify possible future differences betweenPRC GAAP and IFRS as a result of prescribed changes in accounting standards. Regulatory bodies thatpromulgate PRC GAAP and IFRS have significant projects ongoing that could affect future comparisonssuch as this one. Finally, no attempt has been made to identify future differences between PRC GAAP andIFRS that may affect the financial information as a result of transactions or events that may occur in thefuture. Accordingly, no assurance is provided that the following summary of differences between PRCGAAP and IFRS is complete.
In making an investment decision, investors must rely upon their own examination of the Issuer, theCompany, the Group, the terms of the offering and other disclosure contained herein. Each investor shouldconsult its own professional advisers for an understanding of the differences between PRC GAAP andIFRS and/or between PRC GAAP and other generally accepted accounting principles, and how thosedifferences might affect the financial information contained herein.
Government Grant
Under PRC GAAP, the relocation compensation for public interests shall be recognised as specialpayables. The income from compensation attributable to losses of fixed assets and intangible assets,related expenses, losses from production suspension incurred during the relocation and reconstructionperiod and purchases of assets after the relocation shall be transferred from special payables to deferredincome and accounted for in accordance with the government grants standard. The surplus reached afterdeducting the amount transferred to deferred income shall be recognised in capital reserve.
Under IFRS, if an entity relocates for reasons of public interests, the compensation received shall berecognised in profit and loss.
Reversal of an Impairment Loss
Under PRC GAAP, once an impairment loss is recognised for a long term asset (including fixed assets,intangible assets and goodwill, etc.), it shall not be reversed in any subsequent period.
Under IFRS, an impairment loss recognised in prior periods for an asset other than goodwill could bereversed if there has been a change in the estimates used to determine the asset’s recoverable amount sincethe last impairment loss was recognised.
Related Party Disclosures
Under PRC GAAP, government-related entities are not treated as related parties.
Under IFRS, government-related entities are still treated as related parties.
Fixed Assets and Intangible Assets
Under PRC GAAP, only the cost model is allowed.
Under IFRS, an entity can choose either the cost model or the revaluation model as its accounting policy.
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SUBSCRIPTION AND SALE
Summary of Dealer Agreement
The Dealers have, in a dealer agreement dated 8 March 2019 (as amended and/or supplemented by the firstsupplemental dealer agreement dated 3 January 2020 and the second supplemental dealer agreement dated6 July 2021 and from time to time, the “Dealer Agreement”), agreed with the Issuer and the Companya basis on which they or any of them may from time to time agree to subscribe for the Notes. Any suchagreement will extend to those matters stated under “Terms and Conditions of the Notes”. Under the termsof the Dealer Agreement, the Issuer will pay (and the Company will ensure that the Issuer has sufficientfunds to do so) each Relevant Dealer a commission as agreed between them in respect of Notes subscribedby it. The Issuer has agreed to reimburse (and the Company will ensure that the Issuer has sufficient fundsto do so) the Arrangers for certain of its expenses incurred in connection with the establishment of theProgramme and any future update of the Programme and the Dealers for certain of their activities inconnection with the Programme.
The Dealer Agreement provides that the Issuer and the Company will jointly and severally indemnify theDealers against certain liabilities in connection with the offer and sale of the Notes. The Dealer Agreemententitles the Dealers to terminate any agreement that they make to subscribe for Notes in certaincircumstances prior to payment for such Notes being made to the Issuer.
The Dealers and their respective affiliates are full service financial institutions engaged in variousactivities, which may include securities trading, commercial and investment banking, financial advisory,investment management, principal investment, hedging, financing and brokerage activities (“BankingServices or Transactions”). The Dealers and their respective affiliates may have, from time to time,performed, and may in the future perform, various Banking Services or Transactions with the Issuer andthe Company and/or their respective subsidiaries and affiliates, for which they received, or will receive,fees and expenses.
In the ordinary course of their various business activities, the Dealers and their respective affiliates makeor hold a broad array of investments and actively trade debt and equity securities (or related derivativesecurities) and financial instruments (including bank loans) for their own account and for the accounts oftheir customers and may at any time hold long and short positions in such securities and instruments. Suchinvestment and securities activities may involve securities and instruments of the Issuer and/or theCompany, including the Notes and could adversely affect the trading prices and liquidity of the Notes. TheDealers and their affiliates may make investment recommendations and/or publish or express independentresearch views (positive or negative) in respect of the Notes or other financial instruments of the Issueror the Company, and may recommend to their clients that they acquire long and/or short positions in theNotes or other financial instruments of the Issuer or the Company.
In connection with each Tranche of Notes issued under the Programme, the Dealers and/or their respectiveaffiliates, or affiliates of the Issuer or the Company, may act as investors and place orders, receiveallocations and trade Notes for their own account and such orders, allocations and/or trade of the Notesmay be material. Such entities may hold or sell such Notes or purchase further Notes for their own accountin the secondary market or deal in any other securities of the Issuer or the Company, and therefore, theymay offer or sell the Notes or other securities otherwise than in connection with the offering of the relevantTranche of Notes. Accordingly, references herein to the offering of the Notes should be read as includingany offering of the Notes to the Dealers and/or their respective affiliates, or affiliates of the Issuer or theCompany as investors for their own account. Such entities are not expected to disclose such transactionsor the extent of any such investment, otherwise than in accordance with any applicable legal or regulatoryrequirements. If such transactions occur, the trading price and liquidity of the Notes may be impaired.Furthermore, it is possible that a significant proportion of any Tranche or Series of the Notes may beinitially allocated and subsequently held by a limited number of investors. If this is the case, the tradingprice and liquidity of trading in such Notes may be constrained (see “Risk Factors – Risks relating to theMarket Generally – Notes issued under the Programme have no current active trading market and maytrade at a discount to their initial offering price and/or with limited liquidity”). The Issuer, the Companyand the Dealers are under no obligation to disclose the extent of the distribution of the Notes amongstindividual investors otherwise than in accordance with any applicable legal or regulatory requirements.
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In connection with the issue of any Tranche of Notes, the Dealer or Dealer(s) (if any) named as theStabilisation Manager(s) (or any person acting on behalf of any Stabilisation Manager(s)) may, to theextent permitted by applicable laws and directives, over-allot the Notes or effect transactions with a viewto supporting the market price of the Notes at a level higher than that which might otherwise prevail, butin so doing, the Stabilisation Manager(s) or any person acting on behalf of the Stabilisation Manager(s)shall act as principal and not as agent of the Issuer and the Company. However, there is no assurance thatthe Stabilisation Manager(s) or any person acting on behalf of the Stabilisation Manager(s) will undertakestabilisation action. Any stabilisation action may begin on or after the date on which adequate publicdisclosure of the terms of the Notes is made and, if begun, may be ended at any time, but it must end nolater than the earlier of 30 days after the issue date of the relevant Tranche of Notes and 60 days after thedate of the allotment of the relevant Tranche of Notes. Any loss or profit sustained as a consequence ofany such over-allotment or stabilisation shall be for the account of the Stabilisation Manager(s) or, as thecase may be, the Relevant Dealers in the manner agreed between them.
If a jurisdiction requires that the offering be made by a licensed broker or dealer and any dealer or anyaffiliate of the Dealers is a licensed broker or dealer in that jurisdiction, the offering shall be deemed tobe made by such Dealer or affiliate on behalf of the Issuer in such jurisdiction.
United States of America
In respect of Notes offered or sold in reliance on Category 1 as specified in the applicable PricingSupplement, the Notes have not been and will not be registered under the Securities Act. Notes in bearerform having a maturity of more than one year are subject to U.S. tax law requirements. Subject to certainexceptions, Notes may not be offered, sold or, in the case of Bearer Notes, delivered within the UnitedStates or to U.S. persons. Each of the Dealers has represented and agreed, and each further Dealerappointed under the Programme will be required to represent and agree, that it has not offered, sold ordelivered and will not offer, sell or, in the case of Bearer Notes, deliver any Note within the United Statesor to U.S. persons except as permitted by the Dealer Agreement.
In respect of Notes offered or sold in reliance on Category 2 as specified in the applicable PricingSupplement:
(a) the Notes have not been and will not be registered under the Securities Act and may not be offeredor sold within the United States or to, or for the account or benefit of, U.S. persons except in certaintransactions exempt from the registration requirements of the Securities Act. Terms used in thisparagraph have the meanings given to them by Regulation S under the Securities Act.
(b) Notes in bearer form having a maturity of more than one year are subject to U.S. tax lawrequirements and may not be offered, sold or delivered within the United States or its possessionsor to a U.S. person, except in certain transactions permitted by U.S. tax regulations. Terms used inthis paragraph have the meanings given to them by the U.S. Internal Revenue Code of 1986 andregulations thereunder.
(c) each Dealer has represented and agreed, and each further Dealer appointed under the Programme willbe required to represent and agree that, except as permitted by the Dealer Agreement, it has notoffered, sold or, in the case of Bearer Notes, delivered and will not offer, sell or, in the case of BearerNotes, deliver the Notes (i) as part of their distribution at any time or (ii) otherwise until 40 daysafter completion of the distribution of all Notes of the tranche of which such Notes are a part, asdetermined and certified to the Issuing and Paying Agent by each Dealer who has subscribed forNotes of a Tranche (or in the case of a sale of a Tranche of Notes issued to or through more thanone Dealer, each of such Dealers as to the Notes of such Tranche purchased by it or through it or,in the case of a Syndicated Issue, the relevant Lead Manager) within the United States or to, or forthe account or benefit of, U.S. persons, and it will have sent to each dealer to which it sells the Notesduring the distribution compliance period a confirmation or other notice setting forth the restrictionson offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S.persons. Terms used in this paragraph have the meetings given to them by Regulation S.
In addition, until 40 days after the commencement of the offering, an offer or sale of Notes within theUnited States by any dealer (whether or not participating in the offering) may violate the registrationrequirements of the Securities Act.
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Prohibition of Sales to EEA Retail Investors
Unless the Pricing Supplement in respect of any Notes specifies the “Prohibition of Sales to EEA RetailInvestors” as “Not Applicable”, each Dealer has represented and agreed, and each further Dealerappointed under the Programme will be required to represent and agree, that it has not offered, sold orotherwise made available and will not offer, sell or otherwise make available any Notes which are thesubject of the offering contemplated by this Offering Circular as completed by the Pricing Supplement inrelation thereto to any retail investor in the EEA. For the purposes of this provision:
(a) the expression “retail investor” means a person who is one (or more) of the following:
(i) a retail client as defined in point (11) of Article 4(1) of MiFID II; or
(ii) a customer within the meaning of the Insurance Distribution Directive where that customerwould not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II;or
(iii) not a qualified investor as defined in the Prospectus Regulation; and
(b) the expression an “offer” includes the communication in any form and by any means of sufficientinformation on the terms of the offer and the Notes to be offered so as to enable an investor to decideto purchase or subscribe for the Notes.
Public Offer Selling Restriction under the Prospectus Regulation
If the Pricing Supplement in respect of any Notes specifies the “Prohibition of Sales to EEA RetailInvestors” as “Not Applicable”, in relation to each Member State of the EEA (each, a “Relevant State”),each Dealer has represented and agreed, and each further Dealer appointed under the Programme will berequired to represent and agree, that it has not made and will not make an offer of Notes which are thesubject of the offering contemplated by this Offering Circular as completed by the Pricing Supplement inrelation thereto to the public in that Relevant State except that it may make an offer of such Notes to thepublic in that Relevant State:
(a) if the final terms in relation to the Notes specifies that an offer of those Notes may be made otherthan pursuant to Article 1(4) of the Prospectus Regulation in that Relevant State (a “Non-exemptOffer”), following the date of publication of a prospectus in relation to such Notes which has beenapproved by the competent authority in that Relevant State or, where appropriate, approved inanother Relevant State and notified to the competent authority in that Relevant State, provided thatany such prospectus has subsequently been completed by the final terms contemplating suchNon-exempt Offer, in accordance with the Prospectus Regulation in the period beginning and endingon the dates specified in such prospectus or final terms, as applicable and the Issuer has consentedin writing to its use for the purpose of that Non-exempt Offer;
(b) at any time to any legal entity which is a qualified investor as defined in the Prospectus Regulation;
(c) at any time to fewer than 150 natural or legal persons (other than qualified investors as defined inthe Prospectus Regulation), subject to obtaining the prior consent of the Relevant Dealer or Dealersnominated by the Issuer for any such offer; or
(d) at any time in any other circumstances falling within Article 1(4) of the Prospectus Regulation,
provided that no such offer of Notes referred to in (b) to (d) above shall require the Issuer or any Dealerto publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectuspursuant to Article 23 of the Prospectus Regulation.
For the purposes of this provision, the expression an “offer of Notes to the public” in relation to anyNotes in any Relevant State means the communication in any form and by any means of sufficientinformation on the terms of the offer and the Notes to be offered so as to enable an investor to decide topurchase or subscribe for the Notes and the expression “Prospectus Regulation” means Regulation (EU)2017/1129.
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Prohibition of Sales to UK Retail Investors
Unless the Pricing Supplement in respect of any Notes specifies the “Prohibition of Sales to UK RetailInvestors” as “Not Applicable”, each Dealer has represented and agreed, and each further Dealerappointed under the Programme will be required to represent and agree, that it has not offered, sold orotherwise made available and will not offer, sell or otherwise make available any Notes which are thesubject of the offering contemplated by this Offering Circular as completed by the Pricing Supplement inrelation thereto to any retail investor in the UK. For the purposes of this provision:
(a) the expression “retail investor” means a person who is one (or more) of:
(i) a retail client, as defined in point (8) of Article 2 of Regulation (EU) No 2017/565 as it formspart of domestic law by virtue of the EUWA; or
(ii) a customer within the meaning of the provisions of the FSMA and any rules or regulationsmade under the FSMA to implement Directive (EU) 2016/97, where that customer would notqualify as a professional client, as defined in point (8) of Article 2(1) of Regulation (EU) No600/2014 as it forms part of domestic law by virtue of the EUWA; or
(iii) not a qualified investor as defined in Article 2 of the UK Prospectus Regulation, and
(b) the expression “offer” includes the communication in any form and by any means of sufficientinformation on the terms of the offer and the Notes to be offered so as to enable an investor to decideto purchase or subscribe for the Notes.
Public Offer Selling Restriction under the UK Prospectus Regulation
If the Pricing Supplement in respect of any Notes specifies the “Prohibition of Sales to UK RetailInvestors” as “Not Applicable”, each Dealer has represented and agreed, and each further Dealerappointed under the Programme will be required to represent and agree, that it has not made and will notmake an offer of Notes which are the subject of the offering contemplated by this Offering Circular ascompleted by the Pricing Supplement in relation thereto to the public in the United Kingdom except thatit may make an offer of such Notes to the public in the United Kingdom:
(a) if the final terms in relation to the Notes specifies that an offer of those Notes may be made otherthan pursuant to section 86 of the FSMA (a “Public Offer”), following the date of publication of aprospectus in relation to such Notes which either (i) has been approved by the Financial ConductAuthority, or (ii) is to be treated as if it had been approved by the Financial Conduct Authority inaccordance with the transitional provision in Regulation 74 of the Prospectus (Amendment etc.) (EUExit) Regulations 2019, provided that any such prospectus has subsequently been completed by finalterms contemplating such Public Offer, in the period beginning and ending on the dates specified insuch prospectus or final terms, as applicable, and the Issuer has consented in writing to its use forthe purpose of that Public Offer;
(b) at any time to any legal entity which is a qualified investor as defined in Article 2 of the UKProspectus Regulation;
(c) at any time to fewer than 150 natural or legal persons (other than qualified investors as defined inArticle 2 of the UK Prospectus Regulation) in the United Kingdom subject to obtaining the priorconsent of the relevant Dealer or Dealers nominated by the Issuer for any such offer; or
(d) at any time in any other circumstances falling within section 86 of the FSMA,
provided that no such offer of Notes referred to in (b) to (d) above shall require the Issuer or any Dealerto publish a prospectus pursuant to section 85 of the FSMA or supplement a prospectus pursuant to Article23 of the UK Prospectus Regulation.
For the purposes of this provision, the expression an “offer of Notes to the public” in relation to anyNotes means the communication in any form and by any means of sufficient information on the terms ofthe offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe for theNotes and the expression “UK Prospectus Regulation” means the Prospectus Regulation as it forms partof domestic law by virtue of the EUWA.
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United Kingdom
Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will berequired to represent and agree, that:
(a) in relation to any Notes which have a maturity of less than one year, (i) it is a person whose ordinaryactivities involve it in acquiring, holding, managing or disposing of investments (as principal oragent) for the purposes of its business and (ii) it has not offered or sold and will not offer or sell anyNotes other than to persons whose ordinary activities involve them in acquiring, holding, managingor disposing of investments (as principal or as agent) for the purposes of their businesses or who itis reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent)for the purposes of their businesses where the issue of the Notes would otherwise constitute acontravention of Section 19 of the FSMA by the Issuer;
(b) it has only communicated or caused to be communicated and will only communicate or cause to becommunicated an invitation or inducement to engage in investment activity (within the meaning ofSection 21 of the FSMA) received by it in connection with the issue or sale of any Notes incircumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and
(c) it has complied and will comply with all applicable provisions of the FSMA with respect to anythingdone by it in relation to any Notes in, from or otherwise involving the United Kingdom.
Japan
The Notes have not been and will not be registered under the Financial Instruments and Exchange Act ofJapan (Act No. 25 of 1948, as amended, the “Financial Instruments and Exchange Act”). Accordingly,each Dealer has represented and agreed, and each further Dealer appointed under the Programme will berequired to represent and agree, that it has not, directly or indirectly, offered or sold and will not, directlyor indirectly, offer or sell any Notes in Japan or to, or for the benefit of, any resident of Japan (which termas used herein means any person resident in Japan, including any corporation or other entity organisedunder the laws of Japan) or to others for re-offering or re-sale, directly or indirectly, in Japan or to, or forthe benefit of, any resident of Japan except pursuant to an exemption from the registration requirementsof, and otherwise in compliance with, the Financial Instruments and Exchange Act and other relevant lawsand regulations of Japan.
Hong Kong
In relation to each Tranche of Notes to be issued by the Issuer under the Programme, each Dealer hasrepresented and agreed, and each further Dealer appointed under the Programme will be required torepresent and agree, that:
(a) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, anyNotes except for Notes which are a “structured product” as defined in the Securities and FuturesOrdinance (Cap. 571) of Hong Kong (the “SFO”) other than (i) to “professional investors” asdefined in the SFO and any rules made under the SFO; or (ii) in other circumstances which do notresult in the document being a “prospectus” as defined in the Companies (Winding Up andMiscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong (the “C(WUMP)O”) or which do notconstitute an offer to the public within the meaning of the C(WUMP)O; and
(b) it has not issued or had in its possession for the purposes of issue, and will not issue or have in itspossession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement,invitation or document relating to any Notes, which is directed at, or the contents of which are likelyto be accessed or read by, the public of Hong Kong (except if permitted to do so under the securitieslaws of Hong Kong) other than with respect to Notes which are or are intended to be disposed of onlyto persons outside Hong Kong or only to “professional investors” as defined in the SFO and anyrules made under the SFO.
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PRC
Each Dealer has represented, warranted and agreed, and each further Dealer appointed under theProgramme will be required to represent, warrant and agree, that the Notes are not being offered or soldand may not be offered or sold, directly or indirectly, in the People’s Republic of China (for such purposes,not including Hong Kong and Macau or Taiwan), except as permitted by the securities laws of the People’sRepublic of China.
Singapore
Each Dealer has acknowledged, and each further Dealer appointed under the Programme will be requiredto acknowledge, that this Offering Circular has not been and will not be registered as a prospectus withthe Monetary Authority of Singapore. Accordingly, each Dealer has represented and agreed, and eachfurther Dealer appointed under the Programme will be required to represent and agree, that it has notoffered or sold any Notes or caused such Notes to be made the subject of an invitation for subscriptionor purchase and will not offer or sell such Notes or cause such Notes to be made the subject of an invitationfor subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, thisOffering Circular or any other document or material in connection with the offer or sale, or invitation forsubscription or purchase, of such Notes, whether directly or indirectly, to persons in Singapore other than(i) to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289)of Singapore as modified or amended from time to time (the “SFA”)) pursuant to Section 274 of the SFA,(ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA,or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified inSection 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any otherapplicable provision of the SFA.
Where the Notes are subscribed or purchased under Section 275 of the SFA by a relevant person whichis:
(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the solebusiness of which is to hold investments and the entire share capital of which is owned by one ormore individuals, each of whom is an accredited investor; or
(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments andeach beneficiary of the trust is an individual who is an accredited investor,
securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of thatcorporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not betransferred within six months after that corporation or that trust has acquired the Notes pursuant to an offermade under Section 275 of the SFA except:
(a) to an institutional investor or to a relevant person, or to any person arising from an offer referred toin Section 275(1A) or Section 276(4)(i)(B) of the SFA;
(b) where no consideration is or will be given for the transfer;
(c) where the transfer is by operation of law;
(d) as specified in Section 276(7) of the SFA; or
(e) as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities andSecurities-based Derivatives Contracts) Regulations 2018.
Singapore SFA Product Classification: In connection with Section 309B of the SFA and the CMPRegulations 2018, unless otherwise specified before an offer of Notes, the Issuer has determined, andhereby notifies all relevant persons (as defined in Section 309(A)(1) of the SFA), that the Notes are‘prescribed capital markets products’ (as defined in the CMP Regulations 2018) and Excluded InvestmentProducts (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MASNotice FAA-N16: Notice on Recommendations on Investment Products).
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General
With regard to each Tranche, the Relevant Dealer will be required to comply with any additionalrestrictions agreed between the Issuer and the Relevant Dealer and set out in the applicable PricingSupplement or in a supplement to this Offering Circular.
The distribution of this Offering Circular, any Pricing Supplement or any offering material and theoffering, sale or delivery of the Notes is restricted by law in certain jurisdictions. Therefore, persons whomay come into possession of this Offering Circular, any Pricing Supplement or any offering material areadvised to consult with their own legal advisers as to what restrictions may be applicable to them and toobserve such restrictions. This Offering Circular may not be used for the purpose of an offer or invitationin any circumstances in which such offer or invitation is not authorised. No action has been taken or willbe taken in any jurisdiction that would permit a public offering of the Notes, or possession or distributionof this Offering Circular, any Pricing Supplement or any amendment or supplement thereto or any otheroffering or publicity material relating to the Notes, in any country or jurisdiction where action for thatpurpose is required.
Each Dealer has agreed that it shall, to the best of its knowledge, comply with all relevant laws,regulations and directives in each jurisdiction in which it purchases, offers, sells or delivers Notes or hasin its possession or distributes this Offering Circular, any other offering material or any PricingSupplement.
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GENERAL INFORMATION
(1) Clearing Systems: The Notes may be accepted for clearance through Euroclear, Clearstream and theCMU. The appropriate ISIN and common code or CMU Instrument Number in relation to the Notesof each Tranche will be specified in the relevant Pricing Supplement. If the Notes are to be clearedthrough any Alternative Clearing System, the appropriate information will be specified in theapplicable Pricing Supplement.
(2) Authorisations: The Issuer has obtained all necessary consents, approvals and authorisations inconnection with the establishment of the Programme, the issue and performance of the Notesthereunder and the performance of its obligations under the Notes, the Trust Deed, the AgencyAgreement and the Keepwell Deed. The establishment and update of the Programme and the issueof the Notes thereunder was authorised by written resolutions of the board of directors of the Issuerdated 4 March 2019 and 29 June 2021. The Company has obtained all necessary consents, approvalsand authorisations in connection with the execution, delivery and performance of its obligationsunder the Trust Deed and the giving of the Keepwell Deed. The giving of the Keepwell Deed wasauthorised by resolutions of the board of directors of the Company dated 11 May 2018 and 25December 2020. The performance of certain obligations under the Keepwell Deed by the Companymay require governmental or regulatory approvals, permits and filings or corporate authorisationpursuant to applicable laws.
(3) No Material Adverse Change: There has been no material adverse change, or any developmentreasonably likely to involve a material adverse change, in the financial or trading position, prospectsor results of operations of the Issuer, the Company or the Group since 31 December 2020 exceptotherwise disclosed in this Offering Circular.
(4) Proceedings: None of the Issuer, the Company or the Group is involved in any governmental, legalor arbitration proceedings during the 12 months prior to the date of this Offering Circular that theIssuer and the Company believe are material in the context of the Notes or the Keepwell Deed, noris the Issuer or the Company aware that any such proceedings are pending or threatened.
(5) Available Documents: Copies of the following documents will be available for inspection from theIssue Date at the Issuer’s registered office at Room 1405, 14th Floor, Harbour Centre, 25 HarbourRoad, Wanchai, Hong Kong, and copies of the documents listed in (iii)-(v) will be made availablevia email or for inspection following prior request via email or in writing and proof of holding andidentity satisfactory to the Issuing and Paying Agent at the specified office of the Issuing and PayingAgent during usual business hours (being between 9:00 a.m. and 3:00 p.m.), so long as any Note isoutstanding:
(i) the most recently published audited and (if any) reviewed consolidated financial statements ofeach of the Issuer and the Company;
(ii) the Memorandum and Articles of Association of the Issuer and the Articles of Association ofthe Company;
(iii) the Trust Deed (which includes the form of the Global Notes, the definitive Bearer Notes, theCertificates, the Coupons, the Receipts and the Talons);
(iv) the Agency Agreement;
(v) the Keepwell Deed;
(vi) this Offering Circular together with any supplement or amendment thereto; and
(vii) each Pricing Supplement (save that Pricing Supplement relating to a Note which is notpublished will only be available for inspection by a holder of such Note and such holder mustproduce evidence satisfactory to the Issuer and the Issuing and Paying Agent as to its holdingof Notes and identity).
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(6) Financial Statements: The audited consolidated financial statements of the Company for the yearsended 31 December 2019 and 2020, which are included elsewhere in this Offering Circular, havebeen audited by Pan-China. The audited consolidated financial statements of the Issuer for the yearsended 31 December 2019 and 2020, which are included elsewhere in this Offering Circular, havebeen audited by Pan-China HK.
The Company’s consolidated financial statements were prepared and presented in accordance withthe PRC GAAP, and the Issuer’s consolidated financial statements were prepared and presented inaccordance with the HKFRS.
(7) Bearer Notes, Receipts, Coupons and Talons: Each Bearer Note having a maturity of more than oneyear, Receipts, Coupons and Talons will bear the following legend: “Any United States person whoholds this obligation will be subject to limitations under the United States income tax laws,including the limitations provided in Sections 165(j) and 1287(a) of the Internal RevenueCode”.
(8) Listing: Application has been made to the Hong Kong Stock Exchange for the listing of theProgramme during the 12-month period after the date of this Offering Circular on the Hong KongStock Exchange by way of debt issues to Professional Investors only.
(9) LEI: The legal entity identifier of the Issuer is 3003001GY0MK7Y7R9393.
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INDEX TO FINANCIAL INFORMATION
THE COMPANY
Page
The Company’s Audited Consolidated Financial Statements as at and for the Year Ended31 December 2020
II. Preparation basis of the financial statements (I) Preparation basis
The financial statements have been prepared on the basis of going concern.
(II) Assessment of the ability to continue as a going concern
The Company has no events or conditions that may cast significant doubts upon the Company’s
ability to continue as a going concern within the 12 months after the balance sheet date.
III. Statement of compliance with the Accounting Standards for Business Enterprises The financial statements have been prepared in accordance with the requirements of China
Accounting Standards for Business Enterprises (CASBEs), and present truly and completely the
financial position, results of operations and cash flows of the Company.
Please refer to section VII for details on the Company’s subsidiaries. The Company and its
subsidiaries have simultaneously adopted CASBE 22 - Financial Instruments: Recognition and
Measurement, CASBE 23 – Transfer of Financial Assets, CASBE 24 – Hedging, CASBE 37 –
Financial Instrument: Presentation (these four standards are collectively referred to as the revised
21 – Lease (the revised lease standard). Details are as follows:
Company name Adoption of the revised standards
Zhejiang Zheneng Electric Power Co., Ltd. and its subsidiaries, Ningbo Marine Co., Ltd. and its subsidiaries, Zhejiang New Energy Investment Group Co., Ltd. and its subsidiaries, Zhejiang Tiandi Environmental Protection Technology Co., Ltd. and its subsidiaries
The revised financial instrument standards and the revised revenue standard have been adopted, but the revised lease standard has not been adopted.
Zhejiang Energy International Co., Ltd. and its subsidiaries (except Shanghai Puneng Financial Leasing Co., Ltd.)
The revised financial instrument standards, the revised revenue standard and the revised lease standard have been adopted.
The Company and other companies other than aforementioned
The revised financial instrument standards, the revised revenue standard and the revised lease standard have not been adopted.
When the Company prepares consolidated financial statements, it directly consolidates the
financial statements prepared by subsidiaries in accordance with their respective accounting
standards, and no adjustments are made to the financial statements of subsidiaries according to the
Company’s accounting policies.
IV. Significant accounting policies and estimates (I) Accounting period
The accounting year of the Company runs from January 1 to December 31 under the Gregorian
calendar.
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(II) Functional currency
The Company’s functional currency is Renminbi (RMB) Yuan.
(III) Accounting basis and valuation principle
The Company takes the accrual basis as the accounting basis. In the measurement of accounting
elements, the Company generally adopts historical cost; for the measurement of other attributes
such as replacement cost, net realizable value, present value or fair value in accordance with the
provisions of the standards, the company will give special description.
(IV) Business combination
1. Accounting treatment of business combination under common control
Assets and liabilities arising from business combination are measured at carrying amount of the
combined party included in the consolidated financial statements of the ultimate controlling party
at the combination date. Difference between carrying amount of the equity of the combined party
included in the consolidated financial statements of the ultimate controlling party and that of the
combination consideration or total par value of shares issued is adjusted to capital reserve, if the
balance of capital reserve is insufficient to offset, any excess is adjusted to retained earnings.
2. Accounting treatment of business combination not under common control
When combination cost is in excess of the fair value of identifiable net assets obtained from the
acquiree at the purchase date, the excess is recognized as goodwill; otherwise, the fair value of
identifiable assets, liabilities and contingent liabilities, and the measurement of the combination
cost are reviewed, then the difference is recognized in profit or loss.
(V) Compilation method of consolidated financial statements
The parent company brings all its controlled subsidiaries into its consolidation scope. The
consolidated financial statements are compiled by the parent company according to “CASBE 33 -
Consolidated Financial Statements”, based on relevant information and the financial statements of
the parent company and its subsidiaries.
(VI) Classification of joint arrangements and accounting treatment of joint operations
1. Joint arrangements include joint operations and joint ventures.
2. When the Company is a joint operator of a joint operation, it recognizes in relation to its interest
in a joint operation:
(1) its assets, including its share of any assets held jointly;
(2) its liabilities, including its share of any liabilities incurred jointly;
(3) its revenue from the sale of its share of the output arising from the joint operation;
(4) its share of the revenue from the sales of the output by the joint operation; and
(5) its expenses, including its share of any expenses incurred jointly.
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(VII) Recognition criteria of cash and cash equivalents
Cash as presented in cash flow statement refers to cash on hand and deposit on demand for
payment. Cash equivalents refer to short-term, highly liquid investments that can be readily
converted to cash and that are subject to an insignificant risk of changes in value.
(VIII) Foreign currency translation
1. Translation of transactions denominated in foreign currency
Transactions denominated in foreign currency are translated into RMB yuan at the spot exchange
rate at the transaction date at initial recognition. At the balance sheet date, monetary items
denominated in foreign currency are translated at the spot exchange rate at the balance sheet date
with difference, except for those arising from the principal and interest of exclusive borrowings
eligible for capitalization, included in profit or loss; non-cash items carried at historical costs are
translated at the spot exchange rate at the transaction date, with its RMB amount unchanged;
non-cash items carried at fair value in foreign currency are translated at the spot exchange rate at
the date when the fair value was determined, with difference included in profit or loss or other
comprehensive income.
2. Translation of financial statements measured in foreign currency
The assets and liabilities in the balance sheet are translated into RMB at the spot rate at the
balance sheet date; the equity items, other than undistributed profit, are translated at the spot rate
at the transaction date; the revenues and expenses in the income statement are translated into RMB
at spot exchange rate at the transaction date. The difference arising from foreign currency
translation is included in other comprehensive income.
(IX) Financial instruments
1. Applicable to companies that have not yet adopted the revised financial instrument standards
(1) Classification of financial assets and financial liabilities
Financial assets are classified into the following four categories when initially recognized:
financial assets at fair value through profit or loss (including held-for-trading financial assets and
financial assets designated at initial recognition as at fair value through profit or loss),
held-to-maturity investments, loans and receivables, and available-for-sale financial assets.
Financial liabilities are classified into the following two categories when initially recognized:
financial liabilities at fair value through profit or loss (including held-for-trading financial
liabilities and financial liabilities designated at initial recognition as at fair value through profit or
loss), and other financial liabilities.
(2) Recognition criteria, measurement method and derecognition condition of financial assets and
financial liabilities
When the Company becomes a party to a financial instrument, it is recognized as a financial asset
or financial liability. The financial assets and financial liabilities initially recognized by the
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Company are measured at fair value; for the financial assets and liabilities at fair value through
profit or loss, the transaction expenses thereof are directly included in profit or loss; for other
categories of financial assets and financial liabilities, the transaction expenses thereof are included
into the initially recognized amount.
The Company measures its financial assets at fair value subsequent to initial recognition, and does
not deduct the transaction expenses that may occur when it disposes of the said financial asset in
the future. However, those under the following circumstances are excluded: 1) the
held-to-maturity investments, loans and receivables are measured at amortized costs using
effective interest method; 2) the equity instrument investments for which there is no quotation in
the active market and whose fair value cannot be measured reliably, and the derivative financial
assets which are connected with the said equity instrument and must be settled by the delivery of
the said equity instrument are measured at their costs.
The Company measures its financial liabilities at the amortized costs using effective interest
method, with the exception of those under the following circumstances: 1) for the financial
liabilities at fair value through profit or loss, they are measured at fair value, and none of the
transaction expenses may be deducted, which may occur when the financial liabilities are settled
in the future; 2) for the derivative financial liabilities, which are connected to the equity
instrument for which there is no quotation in the active market and whose fair value cannot be
reliably measured, and which must be settled by the delivery of the equity instrument, they are
measured at their costs; 3) for the financial guarantee contracts which are not designated as a
financial liability at fair value through profit or loss, and for the commitments to grant loans which
are not designated as at fair value through profit or loss and which will enjoy an interest rate lower
than that of the market, they are measured subsequent to initial recognition at the higher of the
following two items The amount as determined according to “CASBE 13 - Contingencies”;
the surplus after accumulative amortization as determined according to “CASBE 14 -
Revenues”.
The gains or losses arising from changes in fair value of financial assets or financial liabilities, if
not related to hedging, are measured with the following methods: 1) Gains or losses, arising from
the changes in fair value of financial asset or liability at its fair value through profit or loss, is
included in gains or losses on changes in fair value; interests or cash dividends gained during the
asset-holding period are recognized as investment income; when disposing of the assets,
investment income is recognized at the difference between the actual amount received and the
initial recorded amount, at the same time, gains or losses on changes in fair value are adjusted
accordingly. 2) For available-for-sale financial asset, changes in fair value are recorded as other
comprehensive income during the holding period, interests measured at effective interest method
are recorded as investment income; cash dividends from available-for-sale equity instrument
investment are recognized as investment income at the date of dividend declaration; when
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disposing of the assets, investment income is recognized at the difference between the actual
amount received and the book value deducting the accumulative amount of changes in fair value
originally included in other comprehensive.
Financial assets are derecognized when the contractual rights for collecting the cash flow of the
said financial assets expire or substantially all risks and rewards related to the said financial assets
have been transferred. Only when the underlying present obligations of a financial liability are
relieved totally or partly may the financial liability be derecognized accordingly.
(3) Recognition criteria and measurement method of financial assets transfer
Where the Company has transferred substantially all of the risks and rewards related to the
ownership of the financial asset to the transferee, it derecognizes the financial asset. If it retained
substantially all of the risks and rewards related to the ownership of the financial asset, it
continues recognizing the financial asset, and the consideration received is recognized as a
financial liability. Where the Company does not transfer or retain substantially all of the risks and
rewards related to the ownership of a financial asset, it is dealt with according to the
circumstances as follows respectively: 1) if the Company gives up its control over the financial
asset, it derecognizes the financial asset; 2) if the Company does not give up its control over the
financial asset, according to the extent of its continuing involvement in the transferred financial
asset, it recognizes the related financial asset and recognizes the relevant liability accordingly.
If the transfer of an entire financial asset satisfies the conditions for derecognition, the difference
between the amounts of the following two items are included in profit or loss: 1) the book value of
the transferred financial asset; 2) the sum of consideration received from the transfer, and the
accumulative amount of the changes of the fair value originally included in equity. If the transfer
of financial asset partially satisfies the conditions to derecognition, the entire book value of the
transferred financial asset is, between the portion which is derecognized and the portion which is
not, apportioned according to their respective relative fair value, and the difference between the
amounts of the following two items are included into profit or loss: 1) the book value of the
portion which is derecognized; 2) the sum of consideration of the portion which is derecognized,
and the portion of the accumulative amount of the changes in the fair value originally included in
equity which is corresponding to the portion which is derecognized.
(4) Fair value determination method of financial assets and liabilities
The Company use valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value. The inputs to valuation techniques used to
measure fair value are arranged in the following hierarchy and used accordingly:
1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
that the Company can access at the measurement date.
2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable
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for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for
similar assets or liabilities in active markets; quoted prices for identical or similar assets or
liabilities in markets that are not active; inputs other than quoted prices that are observable for the
asset or liability, for example, interest rates and yield curves observable at commonly quoted
intervals; market-corroborated inputs;
3) Level 3 inputs are unobservable inputs for the asset or liability. Level 3 inputs include interest
rate that is not observable and cannot be corroborated by observable market data at commonly
quoted intervals, historical volatility, future cash flows to be paid to fulfill the disposal obligation
assumed in business combination, and financial forecast developed using the Company’s own
data, etc.
(5) Impairment test and provision for impairment loss of financial assets
1) An impairment test is carried out at the balance sheet date on the financial assets other than
those at fair value through profit or loss, and provisions for impairment loss should be made if
there is objective evidence indicating impairment loss.
2) For held-to-maturity investments, borrowings, and receivables, an impairment test is made on
an individual basis on financial assets of individually significant amount; with regard to the
financial assets of individually insignificant amount, they may be included in a portfolio of
financial assets with similar credit risk features so as to carry out an impairment-related test;
where, upon the impairment test on an individual basis, the financial asset (including those
financial assets of individually significant amount and of individually insignificant amount) is not
impaired, it is included in a portfolio of financial assets with similar credit risk features so as to
conduct further impairment test. Where a financial asset is impaired, the carrying amount of the
said financial asset is written down to the present value of the predicted future cash flow.
3) Available-for-sale financial assets
Objective evidence indicating that available-for-sale debt instrument investments may be
impaired includes:
a. significant financial difficulties in the debtor;
b. breach of contract by the debtor, such as principal or interest past due or default;
c. concessions made to debtors with financial difficulties considering economic and legal factors;
d. it is highly probable that the debtor is going to dissolve or going through other terms of
financial restructuring;
e. owing to significant financial difficulties occurred to the debtor, the debt instrument is
discontinued to trade in active market; or
f. Other circumstances indicating that available-for-sale debt instrument may be impaired.
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Evidence indicating that available-for-sale equity instrument investment may be impaired
includes the fair value of equity instrument investment is suffered from significant or
non-temporary decline and the technical, market, economic, or legal environment in which the
investee operates has significant adverse changes under which the Company may not be able to
recover its investment cost.
The Company performs review on available-for-sale equity instrument investment on an
individual basis at the balance sheet date. For equity instrument investment at fair value, if the
balance sheet date fair value is 50% or above lower than the cost, or the balance sheet date fair
value has been lower than the cost for a consecutive of 12 months or longer, it is determined that
such equity instrument investment is impaired; if the balance sheet date fair value is 20% or above
but not exceeding 50% lower than the cost, or the balance sheet date fair value has been lower
than the cost for a consecutive of 6 months or longer but not exceeding 12 months, the Company
may take other factors such as price volatility into consideration in determining whether such
equity instrument investment is impaired. For equity instrument investment at cost, the Company
considers whether the technical, market, economic, or legal environment in which the investee
operates has significant adverse changes to determine whether such equity instrument is impaired.
When an available-for-sale financial asset at fair value is impaired, the cumulative loss arising
from decline in fair value that has been recognized directly in other comprehensive income is
reclassified to impairment loss. If, after an impairment loss has been recognized on
available-for-sale debt instrument investment, there is objective evidence of a recovery in value of
the financial asset which can be related objectively to an event occurring after the impairment was
recognized, the previously recognized impairment loss is reversed through profit or loss.
Subsequent fair value increase in available-for-sale debt instrument investment whose impairment
loss has been recognized is directly recognized in other comprehensive income.
When an available-for-sale equity instrument at cost is impaired, impairment loss on such equity
instrument investment is recognized at any excess of its carrying amount over the present value of
future cash flows, and such impairment loss is not reversed upon recognition.
(6) Offset of financial assets and financial liabilities
1) Financial assets and financial liabilities are presented separately in the balance sheet and cannot
be offset against each other.
2) The financial assets and financial liabilities that meet the following conditions at the same time
are presented in the balance sheet by the net amount after offset:
The Company has the legal right to offset the confirmed amount, and such legal right is
currently enforceable; and
The Company plans to settle with net amount, or realize the financial assets and liquidate the
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Page 25 of 232
financial liabilities at the same time.
3) The Company does not offset the transferred financial assets and related liabilities for financial
assets that do not meet the conditions for derecognition.
(7) Classification and related treatment of financial liabilities and equity instruments
1) The distinction between financial liabilities and equity instruments:
If the Company cannot unconditionally avoid delivering cash or other financial assets to fulfill
a contractual obligation, the contractual obligation meets the definition of financial liability.
If a financial instrument needs to be settled with or can use the Company’s own equity
instrument, it is necessary to consider whether the Company’s own equity instrument used to settle
the instrument is used as a substitute for cash or other financial assets, or to enable the holder of
the instrument to enjoy the remaining equity in the Company’s assets after deducting all liabilities.
If it is the former, the instrument is the Company’s financial liability; if it is the latter, the
instrument is the Company’s equity instrument.
2) Accounting treatment of financial liabilities and equity instruments
If a financial instrument or its component is a financial liability, relevant interest, dividends,
gains or losses, and gains or losses arising from redemption or refinancing are included in profit
and loss.
If a financial instrument or its components are equity instruments, it is treated as a change in
equity when it is issued (including refinancing), repurchased, sold, or cancelled. The Company
does not recognize changes in the fair value of equity instruments. The Company handles the
distribution of equity instrument holders for profit distribution, and the stock dividends issued do
not affect the total equity. Transaction costs related to equity transactions are deducted from
equity.
2. Applicable to companies that have adopted the revised financial instrument standards
(1) Classification of financial assets and financial liabilities
Financial assets are classified into the following three categories when initially recognized: 1)
financial assets at amortized cost; 2) financial assets at fair value through other comprehensive
income; 3) financial assets at fair value through profit or loss.
Financial liabilities are classified into the following four categories when initially recognized: 1)
financial liabilities at fair value through profit or loss; 2) financial liabilities that arise when a
transfer of a financial asset does not qualify for derecognition or when the continuing involvement
approach applies; 3) financial guarantee contracts not fall within the above categories 1) and 2),
and commitments to provide a loan at a below-market interest rate, which do not fall within the
above category 1) ; 4) financial liabilities at amortized cost.
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(2) Recognition criteria, measurement method and derecognition condition of financial assets and
financial liabilities
1) Recognition criteria and measurement method of financial assets and financial liabilities
When the Company becomes a party to a financial instrument, it is recognized as a financial asset
or financial liability. The financial assets and financial liabilities initially recognized by the
Company are measured at fair value; for the financial assets and liabilities at fair value through
profit or loss, the transaction expenses thereof are directly included in profit or loss; for other
categories of financial assets and financial liabilities, the transaction expenses thereof are included
into the initially recognized amount. However, at initial recognition, for accounts receivable that
do not contain a significant financing component or in circumstances where the Company does
not consider the financing components in contracts within one year, the Company measures at
their transaction price in accordance with “CASBE 14 – Revenues”.
2) Subsequent measurement of financial assets
Financial assets measured at amortized cost
The Company measures its financial assets at the amortized costs using effective interest method.
Gains or losses on financial assets that are measured at amortized cost and are not part of hedging
relationships shall be included into profit or loss when the financial assets are derecognized,
reclassified, through the amortization process or in order to recognize impairment gains or losses.
Debt instrument investments at fair value through other comprehensive income
The Company measures its debt instrument investments at fair value. Interests, impairment gains
or losses, and gains and losses on foreign exchange that calculated using effective interest method
shall be included into profit or loss, while other gains or losses are included into other
comprehensive income. Accumulated gains or losses that initially recognized as other
comprehensive income should be transferred out into profit or loss when the financial assets are
derecognized.
Equity instrument investments at fair value through other comprehensive income
The Company measures its equity instrument investments at fair value. Dividends obtained (other
than those as part of investment cost recovery) shall be included into profit or loss, while other
gains or losses are included into other comprehensive income. Accumulated gains or losses that
initially recognized as other comprehensive income should be transferred out into retained
earnings when the financial assets are derecognized.
Financial assets at fair value through profit or loss
The Company measures its financial assets at fair value. Gains or losses arising from changes in
fair value (including interests and dividends) shall be included into profit or loss, except for
financial assets that are part of hedging relationships.
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3) Subsequent measurement of financial liabilities
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include held-for-trading financial liabilities
(including derivatives that are liabilities) and financial liabilities designated as at fair value
through profit or loss. The Company measures such kind of liabilities at fair value. The amount of
changes in the fair value of the financial liabilities that are attributable to changes in the
Company’s own credit risk shall be included into other comprehensive income, unless such
treatment would create or enlarge accounting mismatches in profit or loss. Other gains or losses
on those financial liabilities (including interests, changes in fair value that are attributable to
reasons other than changes in the Company’s own credit risk) shall be included into profit or loss,
except for financial liabilities that are part of hedging relationships. Accumulated gains or losses
that originally recognized as other comprehensive income should be transferred out into retained
earnings when the financial liabilities are derecognized.
Financial liabilities that arise when a transfer of a financial asset does not qualify for
derecognition or when the continuing involvement approach applies
The Company measures its financial liabilities in accordance with “CASBE 23 – Transfer of
Financial Assets”.
Financial guarantee contracts not fall within the above categories 1) and 2), and commitments
to provide a loan at a below-market interest rate, which do not fall within the above category 1)
The Company measures its financial liabilities at the higher of: a. the amount of loss allowances in
according to impairment requirements of financial instruments; b. the amount initially recognized
less the amount of accumulated amortization recognized in accordance with “CASBE 14 –
Revenues”.
Financial liabilities at amortized cost
The Company measures its financial liabilities at amortized cost using effective interest method.
Gains or losses on financial liabilities that are measured at amortized cost and are not part of
hedging relationships shall be included into profit or loss when the financial liabilities are
derecognized and through the amortization process.
4) Derecognition of financial assets and financial liabilities
Financial assets are derecognized when:
a. the contractual rights to the cash flows from the financial assets expire; or
b. the financial assets have been transferred and the transfer qualifies for derecognition in
accordance with “CASBE 23 – Transfer of Financial Assets”.
Only when the underlying present obligations of a financial liability are relieved totally or
partly may the financial liability be derecognized accordingly.
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(3) Recognition criteria and measurement method of financial assets transfer
Where the Company has transferred substantially all of the risks and rewards related to the
ownership of the financial asset, it derecognizes the financial asset, and any right or liability
arising from such transfer is recognized independently as an asset or a liability. If it retained
substantially all of the risks and rewards related to the ownership of the financial asset, it
continues recognizing the financial asset. Where the Company does not transfer or retain
substantially all of the risks and rewards related to the ownership of a financial asset, it is dealt
with according to the circumstances as follows respectively: 1) if the Company does not retain its
control over the financial asset, it derecognizes the financial asset, and any right or liability arising
from such transfer is recognized independently as an asset or a liability; 2) if the Company retains
its control over the financial asset, according to the extent of its continuing involvement in the
transferred financial asset, it recognizes the related financial asset and recognizes the relevant
liability accordingly.
If the transfer of an entire financial asset satisfies the conditions for derecognition, the difference
between the amounts of the following two items are included in profit or loss: 1) the carrying
amount of the transferred financial asset as of the date of derecognition; 2) the sum of
consideration received from the transfer of the financial asset, and the accumulative amount of the
changes of the fair value originally included in other comprehensive income proportionate to the
transferred financial asset (financial assets transferred refer to debt instrument investments at fair
value through other comprehensive income). If the transfer of financial asset partially satisfies the
conditions to derecognition, the entire carry amount of the transferred financial asset is, between
the portion which is derecognized and the portion which is not, apportioned according to their
respective relative fair value, and the difference between the amounts of the following two items
are included into profit or loss: 1) the carrying amount of the portion which is derecognized; 2) the
sum of consideration of the portion which is derecognized, and the portion of the accumulative
amount of the changes in the fair value originally included in other comprehensive income which
is corresponding to the portion which is derecognized (financial assets transferred refer to debt
instrument investments at fair value through other comprehensive income).
(4) Fair value determination method of financial assets and liabilities
The Company use valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value. The inputs to valuation techniques used to
measure fair value are arranged in the following hierarchy and used accordingly:
1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
that the Company can access at the measurement date.
2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for
similar assets or liabilities in active markets; quoted prices for identical or similar assets or
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liabilities in markets that are not active; inputs other than quoted prices that are observable for the
asset or liability, for example, interest rates and yield curves observable at commonly quoted
intervals; market-corroborated inputs;
3) Level 3 inputs are unobservable inputs for the asset or liability. Level 3 inputs include interest
rate that is not observable and cannot be corroborated by observable market data at commonly
quoted intervals, historical volatility, future cash flows to be paid to fulfill the disposal obligation
assumed in business combination, and financial forecast developed using the Company’s own
data, etc.
(5) Impairment of financial instruments
1) Measurement and accounting treatment
The Company, on the basis of expected credit loss, recognizes loss allowances of financial assets
at amortized cost, debt instrument investments, contract assets or lease receivable at fair value
through other comprehensive income, loan commitments other than financial liabilities at fair
value through profit or loss, financial guarantee contracts not belong to financial liabilities at fair
value through profit or loss or financial liabilities that arise when a transfer of a financial asset
does not qualify for derecognition or when the continuing involvement approach applies.
Expected credit losses refer to the weighted average of credit losses with the respective risks of a
default occurring as the weights. Credit loss refers to the difference between all contractual cash
flows that are due to the Company in accordance with the contract and all the cash flows that the
Company expects to receive (i.e. all cash shortfalls), discounted at the original effective interest
rate. Purchased or originated credit-impaired financial assets are discounted at the credit-adjusted
effective interest rate.
On the balance sheet date, the Company shall only recognize the cumulative changes in the
lifetime expected credit losses since initial recognition as a loss allowance for purchased or
originated credit-impaired financial assets.
For accounts receivable and contract assets resulting from transactions as regulated in “CASBE 14
– Revenues” which do not contain a significant financing component or in circumstances where
the Company does not consider the financing components in contracts within one year, the
Company chooses simplified approach to measure the loss allowance at an amount equal to
lifetime expected credit losses.
For lease receivables, and accounts receivable and contract assets resulting from transactions as
regulated in “CASBE 14 – Revenues” and containing a significant financing component, the
Company chooses simplified approach to measure the loss allowance at an amount equal to
lifetime expected credit losses.
For financial assets other than the above, on each balance sheet date, the Company shall assess
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whether the credit risk on the financial instrument has increased significantly since initial
recognition. The Company shall measure the loss allowance for the financial instrument at an
amount equal to the lifetime expected credit losses if the credit risk on that financial instrument
has increased significantly since initial recognition; otherwise, the Company shall measure the
loss allowance for that financial instrument at an amount equal to 12-month expected credit loss.
Considering reasonable and supportable forward-looking information, the Company compares the
risk of a default occurring on the financial instrument as at the balance sheet date with the risk of a
default occurring on the financial instrument as at the date of initial recognition, so as to assess
whether the credit risk on the financial instrument has increased significantly since initial
recognition.
The Company may assume that the credit risk on a financial instrument has not increased
significantly since initial recognition if the financial instrument is determined to have low credit
risk on the balance sheet date.
The Company shall estimate expected credit risk and measure expected credit losses on an
individual or a collective basis. When the Company adopts the collective basis, financial
instruments are grouped with similar credit risk features.
The Company shall remeasure expected credit loss on each balance sheet date, and increased or
reversed amounts of loss allowance arising therefrom shall be included into profit or loss as
impairment losses or gains. For a financial asset measured at amortized cost, the loss allowance
reduce the carrying amount of such financial asset presented in the balance sheet; for a debt
investment measured at fair value through other comprehensive income, the loss allowance shall
be recognized in other comprehensive income and shall not reduce the carrying amount of such
financial asset.
2) Financial instruments with expected credit risk assessed and expected credit losses measured on
a collective basis
Applicable companies Items Basis for
determination of portfolio
Method for measuring expected credit loss
Zhejiang Zheneng Electric Power Co., Ltd. and its subsidiaries
Other receivables – Portfolio grouped with low risk
Nature of receivables
Based on historical credit loss experience, the current situation and the forecast of future economic conditions, the Company calculates expected credit loss through the preparation of the comparison table of overdue days and lifetime expected credit loss rate.
Other receivables – Portfolio grouped with relatively low risk
Nature of receivables
Other receivables – Portfolio grouped with medium risk
Nature of receivables
Other receivables – Portfolio grouped with high risk
Nature of receivables
Other receivables – Portfolio grouped with balances due from related parties within the consolidation scope of the Company
Nature of receivables
Zhejiang New Energy Investment Group Co., Ltd. and its subsidiaries
Other receivables – Portfolio grouped with current accounts
Nature of receivables Based on historical credit loss experience, the current situation and the forecast of future economic conditions, the Company calculates
Other receivables – Portfolio grouped with security deposit
Nature of receivables
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Applicable companies Items Basis for
determination of portfolio
Method for measuring expected credit loss
Other receivables – Portfolio grouped with petty cash and others
Nature of receivables expected credit loss through exposure at default and lifetime expected credit loss rate.
Ningbo Marine Co., Ltd. and its subsidiaries
Other receivables – Portfolio grouped with ages
Ages Based on historical credit loss experience, the current situation and the forecast of future economic conditions, the Company calculates expected credit loss through exposure at default and 12-month or lifetime expected credit loss rate.
Other receivables – Portfolio grouped with balances due from related parties within the consolidation scope of the Company
Nature of receivables
Zhejiang Tiandi Environmental Protection Technology Co., Ltd. and its subsidiaries
Other receivables – Advance payment receivable, security deposit, deposit, export tax rebate receivable and employee reserve fund, etc. Nature of receivables
Based on historical credit loss experience, the current situation and the forecast of future economic conditions, the Company calculates expected credit loss through exposure at default and 12-month or lifetime expected credit loss rate.
Other receivables – Portfolio grouped with balances due from related parties within the consolidation scope of the Company
Receivables – Bank acceptance Based on historical credit loss experience, the current situation and the forecast of future economic conditions, the Company calculates expected credit loss through exposure at default and lifetime expected credit loss rate.
Receivables – Trade acceptance
Accounts receivable, long-term receivables – Due from state-owned enterprises and government customers
Based on historical credit loss experience, the current situation and the forecast of future economic conditions, the Company calculates expected credit loss through the preparation of the comparison table of overdue days and lifetime expected credit loss rate.
Based on historical credit loss experience, the current situation and the forecast of future economic conditions, the Company calculates expected credit loss through exposure at default and lifetime expected credit loss rate.
Accounts receivable, long-term receivables – Due from non-state-owned enterprises and non-government customers
Accounts receivable, long-term receivables – Due from related parties within the consolidation scope of the Company
Contract assets – Other than outstanding security deposits
Contract assets – Outstanding security deposit
Zheneng Jinjiang Environment Holding Co., Ltd. and its subsidiaries
Other receivables – Jinjiang Environment portfolio
Nature of receivables
Based on historical credit loss experience, the current situation and the forecast of future economic conditions, the Company calculates expected credit loss through the preparation of the comparison table of ages and lifetime expected credit loss rate.
3) Accounts receivable and contract assets with expected credit losses measured on a collective
basis
Specific portfolios and method for measuring expected credit loss
Applicable companies
Items Basis for
determination of portfolio
Method for measuring expected credit loss
Zhejiang Zheneng Electric Power Co., Ltd. and its subsidiaries
Bank acceptance portfolio Type of notes
Based on historical credit loss experience, the current situation and the forecast of future economic conditions, the Company calculates expected credit loss through exposure at default and
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Applicable companies
Items Basis for
determination of portfolio
Method for measuring expected credit loss
lifetime expected credit loss rate. Accounts receivable– Portfolio grouped with low risk
Nature of receivables
Based on historical credit loss experience, the current situation and the forecast of future economic conditions, the Company calculates expected credit loss through the preparation of the comparison table of overdue days and lifetime expected credit loss rate.
Accounts receivable – Portfolio grouped with relatively low risk
Nature of receivables
Accounts receivable – Portfolio grouped with medium risk
Nature of receivables
Accounts receivable – Portfolio grouped with high risk
Nature of receivables
Accounts receivable – Portfolio grouped with balances due from related parties within the consolidation scope of the Company
Nature of receivables
Zhejiang New Energy Investment Group Co., Ltd. and its subsidiaries
Bank acceptance receivable Type of notes Based on historical credit loss experience, the current situation and the forecast of future economic conditions, the Company calculates expected credit loss through exposure at default and lifetime expected credit loss rate.
Trade acceptance receivable Type of notes
Portfolio of electricity bill receivable for hydropower other ways of electricity generation
Nature of receivables
Based on historical credit loss experience, the current situation and the forecast of future economic conditions, the Company calculates expected credit loss through the preparation of the comparison table of ages and lifetime expected credit loss rate.
Portfolio of subsidy receivable for inclusion into the renewable energy catalogue
Nature of receivables
Portfolio of subsidy receivable not included in the renewable energy catalogue
Nature of receivables
Portfolio of electricity bill receivable for other ways of electricity generation and other balances
Nature of receivables
Ningbo Marine Co., Ltd. and its subsidiaries
Bank acceptance receivable Type of notes Based on historical credit loss experience, the current situation and the forecast of future economic conditions, the Company calculates expected credit loss through exposure at default and lifetime expected credit loss rate.
Trade acceptance receivable Type of notes
Accounts receivable – Portfolio grouped with ages
Ages
Based on historical credit loss experience, the current situation and the forecast of future economic conditions, the Company calculates expected credit loss through exposure at default and lifetime expected credit loss rate.
Accounts receivable – Portfolio grouped with balances due from related parties within the consolidation scope of the Company
Balances due from related
parties within the consolidation scope of the Company
Based on historical credit loss experience, the current situation and the forecast of future economic conditions, the Company calculates expected credit loss of this portfolio at 0, through exposure at default and lifetime expected credit loss rate.
Contract assets – Portfolio grouped with ages
Ages
Based on historical credit loss experience, the current situation and the forecast of future economic conditions, the Company calculates expected credit loss through exposure at default and lifetime expected credit loss rate.
Zheneng Jinjiang Environment Holding Co., Ltd. and its subsidiaries
Based on historical credit loss experience, the current situation and the forecast of future economic conditions, the Company calculates expected credit loss through the preparation of the
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Applicable companies
Items Basis for
determination of portfolio
Method for measuring expected credit loss
comparison table of ages and lifetime expected credit loss rate.
Accounts receivable – comparison table of ages and lifetime expected credit loss rate
Ages Expected credit loss rate (%)
Within 1 year (inclusive, the same hereinafter)
0.50
1-2 years 20.00
2-3 years 50.00
Over 3 years 80.00
(6) Offset of financial assets and financial liabilities
Financial assets and financial liabilities are presented separately in the balance sheet and cannot be
offset against each other. The financial assets and financial liabilities that meet the following
conditions at the same time are presented in the balance sheet by the net amount after offset: 1)
The Company has the legal right to offset the confirmed amount, and such legal right is currently
enforceable; and 2) The Company plans to settle with net amount, or realize the financial assets
and liquidate the financial liabilities at the same time.
The Company does not offset the transferred financial assets and related liabilities for financial
assets that do not meet the conditions for derecognition.
(7) Classification and related treatment of financial liabilities and equity instruments
1) The distinction between financial liabilities and equity instruments:
If the Company cannot unconditionally avoid delivering cash or other financial assets to fulfill
a contractual obligation, the contractual obligation meets the definition of financial liability.
If a financial instrument needs to be settled with or can use the Company’s own equity
instrument, it is necessary to consider whether the Company’s own equity instrument used to settle
the instrument is used as a substitute for cash or other financial assets, or to enable the holder of
the instrument to enjoy the remaining equity in the Company’s assets after deducting all liabilities.
If it is the former, the instrument is the Company’s financial liability; if it is the latter, the
instrument is the Company’s equity instrument.
(X) Hedging
1. Applicable to companies that have not yet adopted the revised financial instrument standards
(1) Hedge includes fair value hedge, cash flow hedge and hedge of a net investment in a foreign
operation.
(2) A hedging relationship qualifies for hedge accounting if all of the following conditions are
met: 1) at the inception of the hedge there is formal designation and documentation of the hedging
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relationship (the relationship between the hedging instrument and the hedged item) and the
Company’s risk management objective and strategy for undertaking the hedge; 2) the hedge is
expected to be highly effective in achieving offsetting changes in fair value or cash flows
attributable to the hedged risk, consistently with the originally documented risk management
strategy for that particular hedging relationship; 3) for cash flow hedges, a forecast transaction that
is the subject of the hedge must be highly probable and must present an exposure to variations in
cash flows that could ultimately affect profit or loss; 4) the effectiveness of the hedge can be
reliably measured; and 5) the hedge is assessed on an ongoing basis and determined actually to
have been highly effective throughout the financial reporting periods for which the hedge was
designated.
A hedge is regarded as highly effective only if both of the following conditions are met: 1) at the
inception of the hedge and in subsequent periods, the hedge is expected to be highly effective in
achieving offsetting changes in fair value or cash flows attributable to the hedged risk during the
period for which the hedge is designated; and 2) the actual results of the hedge are within a range
of 80%-125%.
(3) Accounting treatment of fair value hedges
The gain or loss on remeasuring the hedging instrument at fair value (for a derivative hedging
instrument) or the foreign currency component or its carrying amount (for a non-derivative
hedging instrument) are recognized in profit or loss; and the gain or loss on the hedged item
attributable to the hedged risk is to adjust the carrying amount of the hedged item and is
recognized in profit or loss.
2. Applicable to companies that have adopted the revised financial instrument standards
(1) Hedge includes fair value hedge, cash flow hedge and hedge of a net investment in a foreign
operation.
(2) A hedging relationship qualifies for hedge accounting if all of the following conditions are
met: 1) the hedging relationship consists only of eligible hedging instruments and eligible hedged
instruments; 2) at the inception of the hedge there is formal designation and documentation of the
hedging relationship and the Company’s risk management objective and strategy for undertaking
the hedge; 3) the hedging relationship meets all of the following effectiveness requirements: a.
there is an economic relationship between the hedged item and the hedging instruments; b. the
effect of credit risk does not domination the value changes that result from that economic
relationship; and c. the hedge ratio of the hedging relationship is the same as that resulting from
the quantity of the hedged item that the Company actually hedges and the hedging instrument that
the Company actually uses to hedge that quantity of hedged item. However, that designation shall
not reflect an imbalance between the weightings of the hedged item and the hedging instrument.
The Company shall assess whether a hedging relationship meets the hedge effectiveness
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requirements at inception and on an ongoing basis. If a hedging relationship ceases to meet the
hedge effectiveness requirement relating to the hedge ratio but the risk management objective for
that designated hedging relationship remains the same, the hedging relationship shall be
rebalanced.
(3) Hedge accounting of fair value hedge
Gain or loss on the hedging instrument shall be recognized in profit or loss (or other
comprehensive income, if the hedging instrument hedges a non-trading equity instrument (or a
component thereof) for which the Company has elected to present changes in fair value in other
comprehensive income).
The gain or loss on hedged item arising from risk exposure should be recognized in profit or
loss, and adjust the carrying amount of the hedged item which is not measured at fair value. If the
hedged item is a financial asset (or a component thereof) that is measure at fair value through
other comprehensive income in accordance with article XVIII in “CASBE 22 - Financial
Instruments: Recognition and Measurement”, the hedging gain or loss on the hedged item shall be
recognized in profit or loss, with carrying amount unadjusted; if the hedged item is a non-trading
equity instrument (or a component thereof) for which the Company has elected to present changes
in fair value in other comprehensive income, the hedging gain or loss on the hedged item shall be
recognized in profit or loss, with carrying amount unadjusted.
When a hedged item is an unrecognized firm commitment (or a component thereof), the
cumulative change in fair value of the hedged item subsequent to its designation is recognized as
an asset or a liability with a corresponding gain or loss recognized in profit or loss. When a firm
commitment is performed to acquire an asset or assume a liability, the initial carrying amount of
the asset or the liability is adjusted to include the cumulative change in fair value of the hedged
item that was previously recognized.
For a hedged item that is a financial instrument (or a component thereof) measured at amortized
cost, any adjustment on the carrying amount of the hedged item shall be amortized to profit or loss
based on a recalculated effective interest rate at the date that amortization begins. In the case of a
financial asset (or a component thereof) that is a hedged item and that is measure at fair value
through other comprehensive income in accordance with article XVIII in “CASBE 22 - Financial
Instruments: Recognition and Measurement”, amortization applies in the same manner but to the
amount that represents the cumulative gain or loss previously recognized instead of by adjusting
the carrying amount.
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(XI) Receivables (applicable to companies that have not yet adopted the revised financial
instrument standards)
1. Receivables of individually significant amount and with provision made on an individual basis
Judgment basis or amount criteria of individually significant amount
Receivables with age over 3 months, and with single receivable or balance due from single debtor amounting to more than 1 million yuan (inclusive) or accounting for more than 10% (inclusive) of the total book balance of receivables
Provision method for receivables of individually significant amount and with provision made on an individual basis
Provisions are made on the difference between the present value of future cash flows and their carrying amount based on impairment testing on an individual basis.
2. Receivables with provision made on a collective basis using portfolios with similar credit risk
features
(1) Specific portfolios and provision method
Provision method of provision being made on collective basis using portfolios with similar credit risk features: Portfolio grouped with ages Age analysis method
Portfolio grouped with balances due from related parties within the consolidation scope of the Company
No provision is made if there is no indication of impairment based on the test.
Other portfolios
For receivables arising from upfront infrastructure costs included in temporary account, employee petty cash receivables, temporary borrowings to employee for business purposes, no provision is made if there is no indication of impairment based on the test.
(2) Age analysis method
Ages Proportion of provision for accounts receivable (%)
Proportion of provision for other receivables (%)
Within 1 year (inclusive, the same hereinafter)
0.50 0.50
1-2 years 20.00 20.00
2-3 years 50.00 50.00
Over 3 years 80.00 80.00
3. Receivables of individually insignificant amount but with provision made on an individual basis
Reasons for provision made on an individual basis
There is concrete evidence that the Company will fail to collect the receivable based on the agreed terms.
Provision method Provisions are made on the difference between the present value of future cash flows and their carrying amount based on impairment testing on an individual basis.
For other receivables such as bank acceptance receivable, interest receivable and long-term
receivable, etc., provision for bad debts is made at the difference between the present value of
future cash flows and the carrying amount.
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(XII) Inventories
1. Classification of inventories
Inventories include finished goods or goods held for sale in the ordinary course of business, work
in process in the process of production, and materials or supplies etc. to be consumed in the
production process or in the rendering of services.
2. Accounting method for dispatching inventories:
Inventories dispatched from storage are accounted for with weighted average method.
3. Basis for determining net realizable value
At the balance sheet date, inventories are measured at the lower of cost and net realizable value;
provisions for inventory write-down are made on the excess of its cost over the net realizable
value. The net realizable value of inventories held for sale is determined based on the amount of
the estimated selling price less the estimated selling expenses and relevant taxes and surcharges in
the ordinary course of business; the net realizable value of materials to be processed is determined
based on the amount of the estimated selling price less the estimated costs of completion, selling
expenses and relevant taxes and surcharges in the ordinary course of business; at the balance sheet
date, when only part of the same item of inventories have agreed price, their net realizable value is
determined separately and is compared with their costs to set the provision for inventory
write-down to be made or reversed.
4. Inventory system
Perpetual inventory method is adopted.
5. Amortization method of low-value consumables and packages
(1) Low-value consumables
Low-value consumables are amortized with one-off method.
(2) Packages
Packages are amortized with one-off method.
(XIII) Contract costs (applicable to companies that have adopted the revised revenue standard)
Assets related to contract costs including costs of obtaining a contract and costs to fulfil a contract.
The Company recognizes as an asset the incremental costs of obtaining a contract if it expects to
recover those costs. The costs of obtaining a contract shall be included into profit or loss when
incurred if the amortization period of the asset is one year or less.
If the costs incurred in fulfilling a contract are not within the scope of standards related to
inventories, fixed assets or intangible assets, etc., the Company shall recognize the costs to fulfil a
contract as an asset on if all the following criteria are satisfied:
1. The costs relate directly to a contract or to an anticipated contract, including direct labor, direct
materials, manufacturing overhead cost (or similar cost), cost that are explicitly chargeable to the
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customer under the contract, and other costs that are only related to the contract;
2. The costs enhance resources of the Company that will be used in satisfying performance
obligations in the future; and
3. The costs are expected to be recovered.
An asset related to contract costs shall be amortized on a systematic basis that is consistent with
related goods or services, with amortization included into profit or loss.
The Company shall make provision for impairment and recognize an impairment loss to the extent
that the carrying amount of an asset related to contract costs exceeds: a. the remaining amount of
consideration that the Company expects to receive in exchange for the goods or services to which
the asset relates; less b. the costs expected to be incurred. The Company shall recognize a reversal
of an impairment loss previously recognized in profit or loss when the impairment conditions no
longer exist or have improved. The increased carrying amount of the asset shall not exceed the
amount that would have been determined on the reversal date if no provision for impairment had
been made previously.
(XIV) Long-term equity investments
1. Judgment of joint control and significant influence
Joint control is the contractually agreed sharing of control of an arrangement, which exists only
when decisions about the relevant activities require the unanimous consent of the parties sharing
control. Significant influence is the power to participate in the financial and operating policy
decisions of the investee but is not control or joint control of these policies.
2. Determination of investment cost
(1) For business combination under common control, if the consideration of the combining party
is that it makes payment in cash, transfers non-cash assets, assumes its liabilities or issues equity
securities, on the date of combination, it regards the share of the carrying amount of the equity of
the combined party included the consolidated financial statements of the ultimate controlling party
as the initial cost of the investment. The difference between the initial cost of the long-term equity
investments and the carrying value of the combination consideration paid or the par value of
shares issued offsets capital reserve; if the balance of capital reserve is insufficient to offset, any
excess is adjusted to retained earnings.
When long-term equity investments are obtained through business combination under common
control achieved in stages, the Company determines whether it is a “bundled transaction”.
If it is a “bundled transaction”, stages as a whole are considered as one transaction in accounting
treatment. If it is not a “bundled transaction”, investment cost is initially recognized at the share of
the carrying amount of net assets of the combined party included the consolidated financial
statements of the ultimate controlling party. The difference between the acquisition-date
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investment cost of long-term equity investments and the carrying amount of the previously held
long-term equity investments plus the carrying amount of the consideration paid for the newly
acquired equity is adjusted to capital reserve; if the balance of capital reserve is insufficient to
offset, any excess is adjusted to retained earnings.
(2) For business combination not under common control, investment cost is initially recognized at
the acquisition-date fair value of considerations paid.
When long-term equity investments are obtained through business combination not under
common control achieved in stages, the Company determined whether they are stand-alone
financial statements or consolidated financial statements in accounting treatment:
1) In the case of stand-alone financial statements, investment cost is initially recognized at the
carrying amount of the previously held long-term equity investments plus the carrying amount of
the consideration paid for the newly acquired equity.
2) In the case of consolidated financial statements, the Company determines whether it is a
“bundled transaction”.
If it is a “bundled transaction”, stages as a whole are considered as one transaction in accounting
treatment. If it is not a “bundled transaction”, the carrying value of the acquirer’s previously held
equity interest in the acquire is re-measured at the acquisition-date fair value, and the difference
between the fair value and the carrying amount is recognized in investment income; when the
acquirer’s previously held equity interest in the acquire involves other comprehensive income
under equity method, the related other comprehensive income is reclassified as income for the
acquisition period, excluding other comprehensive income arising from changes in net liabilities
or assets from remeasurement of defined benefit plan of the acquiree.
(3) Long-term equity investments obtained through ways other than business combination: the
initial cost of a long-term equity investment obtained by making payment in cash is the purchase
cost which is actually paid; that obtained on the basis of issuing equity securities is the fair value
of the equity securities issued; that obtained through debt restructuring is determined according to
“CASBE 12 - Debt Restructuring”; and that obtained through non-cash assets exchange is
determined according to “CASBE 7 - Non-cash Assets Exchange”.
3. Subsequent measurement and recognition method of gain or loss
For long-term equity investments with control relationship, it is accounted for with cost method;
for long-term equity investments with joint control or significant influence relationship, it is
accounted for with equity method.
4. Disposal of a subsidiary in stages resulting in the Company’s loss of control
(1) Stand-alone financial statements
The difference between the carrying amount of the disposed equity and the consideration obtained
thereof is recognized in profit or loss. If the disposal does not result in the Company’s loss of
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significant influence or joint control, the remained equity is accounted for with equity method;
however, if the disposal results in the Company’s loss of control, joint control, or significant
influence, the remained equity is accounted for according to “CASBE 22 - Financial Instruments:
Recognition and Measurement”.
(2) Consolidated financial statements
1) Disposal of a subsidiary in stages not qualified as “bundled transaction” resulting in the
Company’s loss of control
Before the Company’s loss of control, the difference between the disposal consideration and the
proportionate share of net assets in the disposed subsidiary from purchase date or combination
date to the disposal date is adjusted to capital reserve (capital premium), if the balance of capital
reserve is insufficient to offset, any excess is adjusted to retained earnings.
When the Company loses control, the remained equity is re-measured at the loss-of-control-date
fair value. The aggregated value of disposal consideration and the fair value of the remained
equity, less the share of net assets in the disposed subsidiary held before the disposal from the
purchase date or combination date to the disposal date is recognized in investment income in the
period when the Company loses control over such subsidiary, and meanwhile goodwill is offset
correspondingly. Other comprehensive income related to equity investments in former subsidiary
is reclassified as investment income upon the Company’s loss of control.
2) Disposal of a subsidiary in stages qualified as “bundled transaction” resulting in the Company’s
loss of control
In case of “bundled transaction”, stages as a whole are considered as one transaction resulting in
loss of control in accounting treatment. Before the Company loses control, the difference between
the disposal consideration at each stage and the proportionate share of net assets in the disposed
subsidiary is recognized as other comprehensive income at the consolidated financial statements
and reclassified as profit or loss in the period when the Company loses control over such
subsidiary.
(XV) Investment property
1. Investment property includes land use right of rent-out property and of property held for capital
appreciation and buildings that have been leased out.
2. The initial measurement of investment property is based on its cost, and subsequent
measurement is made using the cost model, the depreciation or amortization method is the same as
that of fixed assets and intangible assets.
(XVI) Fixed assets
1. Recognition principles of fixed assets
Fixed assets are tangible assets held for use in the production or supply of goods or services, for
rental to others, or for administrative purposes, and expected to be used during more than one
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accounting year. Fixed assets are recognized if, and only if, it is probable that future economic
benefits associated with the assets will flow to the Company and the cost of the assets can be
measured reliably.
2. Depreciation method of different categories of fixed assets
Categories Depreciation method
Useful life (years)
Residual value proportion (%)
Annual depreciation
rate (%) Land assets Straight-line
method -- -- --
Buildings and structures
Straight-line method
8-50 0-10 20.00-2.11
Machinery Straight-line method
3-30 0-10 33.33-3.17
Ships and auxiliary equipment
Straight-line method
10-25 4-5 9.60-3.80
Transport facilities Straight-line method
5-10 0-10 20.00-7.92
General equipment Straight-line method
4-40 0-5 33.33-4.75
Other equipment Straight-line method
3-10 0-10 33.33-6.33
3. Recognition and pricing principles of fixed assets rented-in under finance lease
Finance lease is determined when one or a combination of the following conditions are satisfied:
(1) the ownership has been transferred to the lessee when the leasing term is due; (2) the lessee
has the option to purchase the leasing asset at a price that is much lower than its fair value, so it
can be reasonably determined that the lessee will take the option at the very beginning of the
lease; (3) the leasing term accounts for most time of the useful life (ordinarily accounting for 75%
or higher) even if the ownership does not transfer to the lessee; (4) the present value of the
minimum amount of rent that the lessee has to pay at the first day of the lease amounts to 90% or
higher of its fair value at the same date; or the present value of the minimum amount of rent that
the lessor collects at the first day of the lease amounts to 90% or higher of its fair value at the
same date; and/or (5) the leased assets are of such a specialized nature that only the lessee can use
them without major modifications.
Fixed assets rented-in under finance lease are recorded at the lower of fair value and the present
value of the minimum lease payment at the inception of the lease, and are depreciated following
the depreciation policy for self-owned fixed assets.
4. At the balance sheet date, provision for impairment is made at the difference between the
carrying amount and the recoverable amount.
(XVII) Construction in progress
1. Construction in progress is recognized if, and only if, it is probable that future economic
benefits associated with the item will flow to the Company, and the cost of the item can be
measured reliably. Construction in progress is measured at the actual cost incurred to reach its
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designed usable conditions.
2. Construction in progress is transferred into fixed assets at its actual cost when it reaches its
designed usable conditions. When the construction completion cost reaches final estimating and
auditing of the construction in progress was not finished while it reaching the designed usable
conditions, it is transferred to fixed assets using estimated value first, and then adjusted
accordingly when the actual cost is settled, but the accumulated depreciation is not to be adjusted
retrospectively.
(XVIII) Borrowing costs
1. Recognition principle of borrowing costs capitalization
Where the borrowing costs incurred to the Company can be directly attributable to the acquisition
and construction or production of assets eligible for capitalization, it is capitalized and included in
the costs of relevant assets; other borrowing costs are recognized as expenses on the basis of the
actual amount incurred, and are included in profit or loss.
2. Borrowing costs capitalization period
(1) The borrowing costs are not capitalized unless they following requirements are all met: 1) the
asset disbursements have already incurred; 2) the borrowing costs have already incurred; and 3)
the acquisition and construction or production activities which are necessary to prepare the asset
for its intended use or sale have already started.
(2) Suspension of capitalization: where the acquisition and construction or production of a
qualified asset is interrupted abnormally and the interruption period lasts for more than 3 months,
the capitalization of the borrowing costs is suspended; the borrowing costs incurred during such
period are recognized as expenses, and are included in profit or loss, till the acquisition and
construction or production of the asset restarts.
(3) Ceasing of capitalization: when the qualified asset under acquisition and construction or
production is ready for the intended use or sale, the capitalization of the borrowing costs is ceased.
3. Capitalization rate and capitalized amount of borrowing costs
For borrowings exclusively for the acquisition and construction or production of assets eligible for
capitalization, the to-be-capitalized amount of interests is determined in light of the actual interest
expenses incurred (including amortization of premium or discount based on effective interest
method) of the special borrowings at the present period minus the income of interests earned on
the unused borrowings as a deposit in the bank or as a temporary investment; where a general
borrowing is used for the acquisition and construction or production of assets eligible for
capitalization, the Company calculates and determines the to-be-capitalized amount of interests on
the general borrowing by multiplying the weighted average asset disbursement of the part of the
accumulative asset disbursements minus the general borrowing by the capitalization rate of the
general borrowing used.
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(XIX) Right-of-use assets (applicable to companies that have adopted the revised lease standard)
1. Recognition principles of right-of-use asset
Right-of-use asset refers to the asset that represents the Company’s right as lessee to use an
underlying asset for the lease term. The Company recognizes a right-of-use asset at the
commencement date. Right-of-use assets are recognized only when: (a) it is probable that the
economic benefits will flow to the Company; and (b) the cost of the right-of-use asset can be
measured reliably.
2. Initial measurement of the right-of-use asset
The right-of-use asset is measured at cost and the cost shall comprise: (1) the amount of the initial
measurement of the lease liability; (2) any lease payments made at or before the commencement
date, less any lease incentives received; (3) any initial direct costs incurred by the lessee; and (4)
an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset,
restoring the site on which it is located or restoring the underlying asset to the condition required
by the terms and conditions of the lease.
3. Subsequent measurement of the right-of-use asset
(1) After the commencement date, the Company measures the right-of-use asset applying a cost
model.
(2) The Company shall depreciate the right-of-use asset. If it is reasonable to be certain that the
ownership of the underlying asset can be acquired by the end of the lease term, the Company
depreciates the right-of-use asset from the commencement date to the end of the useful life of the
underlying asset. Otherwise, the Company depreciates the right-of-use asset from the
commencement date to the earlier of the end of the useful life of the right-of-use asset or the end
of the lease term. Depreciation method of different categories of right-of-use assets are as follows:
Categories Depreciation method
Useful life (years)
Residual value proportion (%)
Annual depreciation
rate (%) Buildings and structures
Straight-line method
30-50 0 3.33-2.00
Equipment Straight-line method
12-20 0 8.33-5.00
(3) When the Company remeasures the lease liability on the basis of the present value of the lease
payments after changes and adjusts the carrying amount of the right-of-use asset accordingly, if
the carrying amount of the right-of-use asset is reduced to zero and there shall be a further
reduction in the measurement of the lease liability, any remaining amount of the remeasurement
shall be recognized in profit or loss.
(4) Right-of-use asset impairment test method and impairment provision method
At the balance sheet date, provision for impairment is made at the difference between the carrying
amount and the recoverable amount.
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(XX) Intangible assets
1. Intangible asset includes land use right, patent right and non-patented technology etc. The initial
measurement of intangible asset is based on its cost.
2. For intangible assets with finite useful lives, its amortization amount is amortized within its
useful lives systematically and reasonably, if it is unable to determine the expected realization
pattern reliably, intangible assets are amortized by the straight-line method with details as follows:
Items Amortization period (years)
Software 1-10
Land use rights As stipulated on the land use right certificate
Patent rights 5
Non-patent technology 10
Sea area use rights 28
Highway operation rights 25
Embankment use rights 22
Site access road use rights 10-22
Railroad special line use rights 10
Optical fiber use rights 5
Electrical access system use rights 30
Franchise use rights 25
Others 2-5
Intangible assets with indefinite useful life are not amortized, but their useful life is reviewed
annually. For intangible assets with indefinite useful life, the judgment basis for indefinite useful
life is: if it is impossible to foresee the period in which intangible assets bring economic benefits
to the Company, it is regarded as intangible assets with indefinite useful life.
3. For intangible assets with definite useful life, if there are signs on the balance sheet date that an
impairment has occurred, the provision for impairment is made at the difference between the
carrying amount and the recoverable amount. For intangible assets with indefinite useful life and
those not yet reaching the usable conditions, are tested for impairment annually regardless of
impairment signs.
4. Expenditures on the research phase of an internal project are recognized as profit or loss when it
is incurred. An intangible asset arising from the development phase of an internal project is
recognized if the Company can demonstrate all of the following: (1) the technical feasibility of
completing the intangible asset so that it will be available for use or sale; (2) its intention to
complete the intangible asset and use or sell it; (3) how the intangible asset will generate probable
future economic benefits. Among other things, the Company can demonstrate the existence of a
market for the output of the intangible asset or the intangible asset itself or, if it is to be used
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internally, the usefulness of the intangible asset; (4) the availability of adequate technical,
financial and other resources to complete the development and to use or sell the intangible asset;
and (5) its ability to measure reliably the expenditure attributable to the intangible asset during its
development.
Criteria for distinguishing the research phase from the development phase of an internal project to
create an intangible asset: research stage involves activities carried out for planned investigation
and search of new technology and knowledge, which has the characteristics of planning and
exploration; before commercial production or other uses, the application of new technologies and
new knowledge obtained from the research phase to develop new or improved plant and
equipment and produce new or improved materials and products is regarded as development
phase, which has the characteristics of pin-pointing and high probability of concluding results.
(XXI) Long-term prepayments
Long-term prepayments are expenses that have been recognized but with amortization period over
one year (excluding one year). They are recorded with actual cost, and evenly amortized within its
beneficiary period or stipulated period. If items of long-term prepayments fail to be beneficial to
the following accounting periods, residual values of such items are included in profit or loss.
(XXII) Employee benefits
1. Employee benefits include short-term employee benefits, post-employment benefits,
termination benefits and other long-term employee benefits.
2. Short-term employee benefits
The Company recognizes, in the accounting period in which an employee provides service,
short-term employee benefits actually incurred as liabilities, with a corresponding charge to profit
or loss or the cost of a relevant asset.
3. Post-employment benefits
The Company classifies post-employment benefit plans as either defined contribution plans or
defined benefit plans.
(1) The Company recognizes in the accounting period in which an employee provides service the
contribution payable to a defined contribution plan as a liability, with a corresponding charge to
profit or loss or the cost of a relevant asset.
(2) Accounting treatment by the Company for defined benefit plan usually involves the following
steps:
1) In accordance with the projected unit credit method, using unbiased and mutually compatible
actuarial assumptions to estimate related demographic variables and financial variables, measure
the obligations under the defined benefit plan, and determine the periods to which the obligations
are attributed. The Company discounts obligations under the defined benefit plan using the
discount rate to determine the present value of the defined benefit plan obligations and the current
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service cost;
2) When a defined benefit plan has assets, the Company recognizes the deficit or surplus by
deducting the present value of the defined benefit plan obligation from the fair value of defined
benefit plan assets as a net defined benefit plan liability or net defined benefit plan asset. When a
defined benefit plan has a surplus, the Company measures the net defined benefit plan asset at the
lower of the surplus in the defined benefit plan and the asset ceiling;
3) At the end of reporting period, the Company recognizes the following components of employee
benefits cost arising from defined benefit plan: a. service cost; b. net interest on the net defined
benefit plan liability (asset); and c. Changes as a result of remeasurement of the net defined
benefit liability (asset). Item a and item b are recognized in profit or loss or the cost of a relevant
asset. Item c is recognized in other comprehensive income and is not to be reclassified
subsequently to profit or loss. However, the Company may transfer those amounts recognized in
other comprehensive income within equity.
4. Termination benefits
Termination benefits provided to employees are recognized as an employee benefit liability for
termination benefits, with a corresponding charge to profit or loss at the earlier of the following
dates: a. when the Company cannot unilaterally withdraw the offer of termination benefits because
of an employment termination plan or a curtailment proposal; or b. when the Company recognizes
cost or expenses related to a restructuring that involves the payment of termination benefits.
5. Other long-term employee benefits
When other long-term employee benefits provided by the Company to the employees satisfied the
conditions for classifying as a defined contribution plan, those benefits are accounted for in
accordance with the requirements relating to defined contribution plan. The Company recognizes
and measures the net liability or net asset of other long-term employee benefits in accordance with
the requirements relation to defined benefit plan. At the end of the reporting period, the Company
recognizes the components of cost of employee benefits arising from other long-term employee
benefits as the followings: a. service cost; b. net interest on the net liability or net assets of other
long-term employee benefits; and c. changes as a result of remeasurement of the net liability or net
assets of other long-term employee benefits. As a practical expedient, the net total of the aforesaid
amounts are recognized in profit or loss or included in the cost of a relevant asset.
(XXIX) Bonds payable
1. General corporate bonds
Bonds payable that are measured at fair value and whose changes are included in profit or loss
take their fair value as the initially recognized amount, and the related transaction costs are
directly included in profit or loss, and subsequent measurement is based on fair value.
For other types of bonds payable, the sum of their fair value and related transaction costs is
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determined as the initially recognized amount, and the amortized cost is used for subsequent
measurement. The premium or discount is an adjustment to the interest expense during the
duration of the bond payable and is amortized using the effective interest rate method during the
duration of the bond.
2. Convertible corporate bonds
For the convertible corporate bonds issued by the Company, at the initial recognition, the liability
component and equity component included in it are split. The liability component is recognized as
a bond payable, and the equity component is recognized as capital reserve. When splitting the two
components, the initially recognized amount of the liability component is determined at the
present value of future cash flows of the liability component, and the initially recognized amount
of the equity component is determined at the remaining amount of the total issuing price after
deducting the initially recognized mount of the liability component. Transaction costs incurred in
the issuance of convertible corporate bonds are allocated between the liability component and
equity component according to their respective fair values.
(XXIII) Provisions
1. Provisions are recognized when fulfilling the present obligations arising from contingencies
such as providing guarantee for other parties, litigation, products quality guarantee, onerous
contract, etc., may cause the outflow of the economic benefit and such obligations can be reliably
measured.
2. The initial measurement of provisions is based on the best estimated expenditures required in
fulfilling the present obligations, and its carrying amount is reviewed at the balance sheet date.
(XXV) Revenue
1. Applicable to companies that have not yet adopted the revised revenue standard
(1) Sale of goods
Revenue from sale of goods is recognized if, and only if, the following conditions are all satisfied:
a) significant risks and rewards of ownership of the goods is transferred to the buyer; b) the
Company retains neither continuing managerial involvement of ownership nor effective control
over the goods sold; c) the amount of revenue can be measured reliably; d) it is probable that the
economic benefits of the transaction will flow to the Company; and e) the costs of the transaction
incurred and to be incurred can be measured reliably.
(2) Rendering of services
When the outcome of the transaction can be estimated reliably (the amount of revenue can be
measured reliably, it is probable that the economic benefits will flow to the Company, the
percentage of completion of the transaction can be determined reliably, and the costs of the
transaction incurred and to be incurred can be measured reliably), revenue from rendering of
services is recognized using the percentage of completion method, and the stage of completion is
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determined at the proportion of service rendered to the total service. When the outcome of the
transaction cannot be estimated reliably at the balance sheet date, revenue is recognized based on
the amount of the costs incurred and the costs incurred are charged off at the same amount when
the costs incurred are expected to be recoverable; and no revenue is recognized and the costs
incurred are charged off as an expense of the period when the costs incurred are not expected to be
recovered.
(3) Revenue arising from use by others of assets
Revenue arising from use by others of assets is recognized if, and only if, it is probable that
economic benefits associated with the transaction will flow to the Company and the amount of the
revenue can be measured reliably. Interest income is recognized based on the length of time for
which the Company’s cash is used by others and the effective interest rate; and royalties are
recognized according to the period and method of charging as specified in relevant contract or
agreement.
2. Applicable to companies that have adopted the revised revenue standard
(1) Revenue recognition principles
At contract inception, the Company shall assess the contracts and shall identify each performance
obligation in the contracts, and determine whether the performance obligation should be satisfied
over time or at a point in time.
The Company satisfies a performance obligation over time if one of the following criteria is met,
otherwise, the performance obligation is satisfied at a point in time: 1) the customer
simultaneously receives and consumes the benefits provided by the Company’s performance as
the Company performs; 2) the customer can control goods or services as they are created by the
Company’s performance; 3) the Company’s performance does not create goods or services with
an alternative uses and the Company has an enforceable right to payment for performance
completed to date.
For each performance obligation satisfied over time, the Company shall recognize revenue over
time by measuring the progress towards complete satisfaction of that performance obligation. In
the circumstance that the progress cannot be measured reasonably, but the costs incurred in
satisfying the performance obligation are expected to be recovered, the Company shall recognize
revenue only to the extent of the costs incurred until it can reasonably measure the progress. To
determine whether the customer has obtained control of goods, the Company shall consider the
following indicators: 1) the Company has a present right to payment for the goods, i.e., the
customer is presently obliged to pay for the goods; 2) the Company has transferred the legal title
of the goods to the customer, i.e., the customer has legal title to the goods; 3) the Company has
transferred physical possession of the goods, i.e., the customer has physically possessed the goods;
4) the Company has transferred significant risks and rewards of ownership of the goods, i.e., the
customer has obtained significant risks and rewards of ownership of the goods; 5) the customer
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has accepted the goods; (6) other indicators showing the customer has obtained control over the
goods.
(2) Measurement principle
1) Revenue is measured at the amount of the transaction price that is allocated to each
performance obligation. The transaction price is the amount of consideration to which the
Company expects to be entitled in exchange for transferring promised goods or services to a
customer, excluding amounts collected on behalf of third parties and those expected to be
refunded to the customer.
2) If the consideration promised in a contract includes a variable amount, the Company shall
estimate the amount of consideration at expected value or the most likely amount. The Company
shall include in the transaction price the amount of variable consideration only to the extent that it
is high probable that a significant reversal in the amount of cumulative revenue recognized will
not occur when the uncertainty associated with the variable consideration is subsequently
resolved.
3) In the circumstance that the contract contains a significant financing component, the Company
shall determine the transaction price based on the price that a customer would have paid for if the
customer had paid cash for obtaining control over those goods or services. The difference between
the transaction price and the amount of promised consideration is amortized under effective
interest method over contractual period. The effects of a significant financing component shall not
be considered if the Company expects, at the contract inception, that the period between when the
customer obtains control over goods or services and when the customer pays consideration will be
one year or less.
4) For contracts containing two or more performance obligations, the Company shall determine
the stand-alone selling price at contract inception of the distinct good underlying each
performance obligation and allocate the transaction price to each performance obligation on a
relative stand-alone selling price basis.
(3) The specific method of revenue recognition
Company name Category Method of revenue recognition
Zhejiang Zheneng Electric Power Co., Ltd. and its subsidiaries,
Revenue from electricity sales
When power is supplied to a grid company or power purchase customer, revenue is recognized when the customer obtains control of the power.
Revenue from thermal sales
Revenue is recognized when heat is supplied to the heat purchase customer, and the customer obtains control of the heat.
Revenue from sales of fuel and other products
Revenue is recognized when the fuel and other products are transported to the agreed delivery place in accordance with the agreement and/or contract, and the customer confirms the receipt.
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Company name Category Method of revenue recognition
Revenue from rendering of services
[Note 1]
Ningbo Marine Co., Ltd. and its subsidiaries
Revenue from transportation business
Revenue is recognized when transportation services have been completed. For the unfinished voyage at the end of the period, revenue is recognized according to the percentage of completion method, and the percentage of completion is recognized and measured at the proportion of the completed operating days to the estimated total operating days of the voyage.
Revenue from expressway toll
Revenue is recognized when the payment is received or proof of receipt is obtained.
Zhejiang New Energy Investment Group Co., Ltd. and its subsidiaries
Revenue from electricity sales
1) Sales to the power company: revenue is recognized according to the monthly actual grid electricity confirmed by the power company, and the unit price agreed by contract; 2) Sales to end users: revenue is recognized according to the monthly actual grid electricity confirmed by both the seller and the customer, and the unit price agreed by agreement between the Company and the customer.
Revenue from equipment sales
Revenue is recognized when products are delivered in accordance with the contract and receipt confirmed by customer.
Revenue from installation service
Revenue is recognized when installation and commissioning services are provided in accordance with the contract and the commissioning report has been obtained.
Zhejiang Energy International Co., Ltd. and its subsidiaries (except Shanghai Puneng Financial Leasing Co., Ltd.)
Revenue from electricity and steam sales
Revenue is recognized when the product is supplied to the customer, and the customer obtains control of the corresponding product.
Revenue from project technology and management services and energy management contracting (EMC) business
On the balance sheet date, if the result of the service can be reliably estimated, revenue from rendering of service is recognized according to the percentage of completion method.
Revenue from equipment sales revenue
Revenue is recognized when products are delivered in accordance with the contract and receipt confirmed by customer.
Revenue from waste disposal
When the company performs the contract, the customer obtains and consumes the economic benefits brought by the company’s performance, therefore, revenue is recognized over time according to the progress of the contract.
Zhejiang Tiandi Environmental Protection Technology Co., Ltd. and its subsidiaries
[Note 2]
Note 1: Zhejiang Zheneng Electric Power Co., Ltd. and its subsidiaries provide services to
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external parties. Since customers obtain and consume the economic benefits brought by the
company’s performance at the same time as the company performs the contract, revenue is
recognized over time according to the progress of the contract, and the progress is determined in
accordance with the proportion of the cost incurred to the estimated total cost. On the balance
sheet date, the company re-estimates the progress of completed services so that it can reflect
changes in contract performance. When the company recognizes revenue based on the progress of
the completed services, the part that the company has obtained the unconditional right to payment
is recognized as accounts receivable, and the rest is recognized as contract assets. Provision for
bad debts of both accounts receivable and contract assets is based on expected credit loss. If the
payment received or receivable exceeds the completed services, the excess is recognized as
contract liability, and the contract asset and contract liability under the same contract are presented
as a net amount. Contract costs include contract performance costs and contract acquisition costs.
The cost incurred by the company to provide services is recognized as contract performance cost,
and when revenue is recognized, it is carried forward and included in cost of main operations
according to the progress of completed services. The incremental cost incurred by the company
for obtaining the contract is recognized as contract acquisition cost. For contract acquisition cost
with amortization period within one year, it is included in profit or loss when incurred. While for
contract acquisition cost with amortization period over one year, it is amortized and recorded in
profit or loss on the same basis as the revenue recognition under the relevant contract. If the
carrying amount of the contract cost is higher than the remaining consideration expected to be
obtained due to the provision of the labor service minus the estimated cost, the company shall
accrue provision for impairment of the excess part and recognize it as provision for impairment
loss. On the balance sheet date, the company’s contract performance costs are listed as inventories
and other non-current assets based on whether the amortization period at the time of initial
recognition exceeds one year, and the net amount after deducting the relevant provision for
impairment. For contract performance costs with amortization period over one year at the time of
initial recognition, they are listed as other non-current assets after deducting provision for
impairment.
Note 2: The revenue recognition policy of Zhejiang Tiandi Environmental Protection Co., Ltd. and
its subsidiaries (hereinafter referred to as Tiandi Environmental Protection and its subsidiaries) is
as follows:
1) Sale of products Revenue is recognized when Tiandi Environmental Protection and its subsidiaries deliver solid
waste products and catalyst products to the carrier designated by the customer, or transport them
to the agreed delivery place in accordance with the agreement, and the customer confirms the
receipt; revenue from sale of ship desulfurization device is recognized when the device is
delivered to the customer, and installation and debugging are completed in accordance with the
contract and the device is accepted by the customer.
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Tiandi Environmental Protection and its subsidiaries sell some ship desulfurization devices by
installment. If the collection of the sales or agreement price is deferred and has a financing nature,
Tiandi Environmental Protection and its subsidiaries determine the amount of revenue from sales
of goods based on the fair value of the contract or agreement price receivable. The difference
between the contract or agreement price receivable and its fair value is amortized within the
contract or agreement period using the effective interest rate and included in profit or loss; the
obligation to transfer the product to the customer due to the consideration received or receivable
from the customer is presented as contract liability. Tiandi Environmental Protection and its
subsidiaries provide product quality guarantee for the ship desulfurization devices sold, and
recognize the corresponding provisions.
2) Project contracting contracts The project contracting contracts between Tiandi Environmental Protection and its subsidiaries
and customers include general contracting projects, complete system sales, project consulting and
design services, and project construction and installation management services.
General contracting projects
The general contracting project refers to business under which the company was entrusted by the
owner to implement the whole process of contracting for the design, procurement, construction,
and trial operation of the construction project in accordance with the contract. Since the customer
can control the products under construction in the company’s performance process, the company
regards them as performance obligations over time, and recognizes revenue over time based on the
performance progress, unless the performance progress cannot be reasonably determined. The
company determines the progress of the performance of the service provided in accordance with
the input method, which is determined according to the ratio of the accumulated actual contract
costs to the estimated total cost of the contract. When the performance progress cannot be
reasonably determined, if the cost incurred by the company is expected to be compensated,
revenue is recognized according to the amount of the cost incurred until the performance progress
can be reasonably determined. If the contract cost cannot be recovered, it is recognized as cost
immediately when incurred, and no contract revenue shall be recognized. If the estimated total
contract cost is likely to exceed the total contract revenue, an estimated contract loss will be
formed, which is included in provision, and recognized as cost of the current period. Contract
costs include contract performance costs and contract acquisition costs. The cost incurred by the
company in providing services such as project contracting contracts is recognized as contract
performance costs. They are carried forward to cost of main operation when corresponding
revenue is recognized. The company recognizes the incremental cost incurred in obtaining the
project contract as contract acquisition cost. Contract acquisition cost with an amortization period
within one year is included in profit or loss when it occurs; that with an amortization period over
one year is amortized and included in profit or loss on the same basis as the revenue recognized
under the relevant contract. For contract acquisition costs with amortization period over one year
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at the time of initial recognition, they are listed as other non-current assets after deducting
provision for impairment.
Sale of complete set of equipment
Sale of complete set of equipment refers to business under which the company was entrusted by
customers to design and purchase complete set of equipment according to the design requirements.
Revenue is recognized when the customer receives the goods and accepted the on-site inspection.
Project consulting and design
Revenue from rendering of project consulting and design services is recognized when the service
is completed and the company has obtained the right to payment.
Project management services
The company provides customers with management services such as project construction,
installation and overall planning. When the company performs the contract, the customer obtains
and consumes the economic benefits brought by the company’s performance, therefore, revenue is
recognized over time according to the progress of the contract, and the progress is determined in
accordance with the proportion of the cost incurred to the estimated total cost. On the balance
sheet date, the company re-estimates the progress of completed services so that it can reflect
changes in contract performance.
When recognizing revenue from the above-mentioned general contracting projects according to
the performance progress, the part that the company has obtained the unconditional right to
payment is recognized as accounts receivable, and the rest is recognized as contract assets.
Provision for bad debts of both accounts receivable and contract assets is based on expected credit
loss. If the payment received or receivable exceeds the completed services, the excess is
recognized as contract liability, and the contract asset and contract liability under the same
contract are presented as a net amount.
(XXVI) Construction contract (applicable to companies that have not yet adopted the revised
revenue standard)
1. When the outcome of construction contract can be reliably estimated at balance sheet date,
contract revenue and cost are recognized using the percentage of completion method. When the
outcome of construction contract cannot be reliably estimated at balance sheet date, contract
revenue is recognized according to the actual recoverable contract cost if the cost can be
recovered; if not, contract cost is recognized as contract expense when occurring.
2. The outcome of a fixed price contract can be estimated reliably when all of the following
conditions are satisfied: total contract revenues can be measured reliably; it is probable that
economic benefits associated with the contract will flow to the Company; the contract costs
actually incurred can be clearly identified and reliably measured; both the degree of contract
completion and the additional contract costs needed to complete the contract can be measured
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reliably. The outcome of a cost plus contract can be estimated reliably when all of the following
conditions are satisfied: it is probable that economic benefits associated with the contract will flow
to the Company; the contract costs actually incurred can be clearly identified and reliably
measured.
3. Percentage-of-completion method refers to the percentage of accumulated contract costs in
estimated total contract costs.
4. At the balance sheet date, expected excess of total contract costs over total contract revenue is
recognized as an expense of the period. A provision for inventory write-down is made based on
the excess for construction contract under implementation; and estimated liability is recognized
based on the excess for construction contract to be implemented.
(XXVII) Government grants
1. Government grants shall be recognized if, and only if, the following conditions are all met: (1)
the Company will comply with the conditions attaching to the grants; (2) the grants will be
received. Monetary government grants are measured at the amount received or receivable.
Non-monetary government grants are measured at fair value, and can be measured at nominal
amount in the circumstance that fair value can’t be assessed.
2. Government grants related to assets
Government grants related to assets are government grants with which the Company construct or
otherwise acquire long-term assets under requirements of government. In the circumstances that
there is no specific government requirement, the Company shall determine based on the primary
condition to acquire the grants and government grants related to assets are government grants
whose primary condition is to construct or otherwise acquire long-term assets. They offset
carrying amount of relevant assets or recognized as deferred income. If recognized as deferred
income, they are included in profit or loss on a systematic basis over the useful lives of the
relevant assets. Those measured at notional amount is directly included into profit or loss. For
assets sold, transferred, disposed or damaged within the useful lives, balance of unamortized
deferred income is transferred into profit or loss of the year in which the disposal occurred.
3. Government grants related to income
Government grants related to income are government grants other than those related to assets. For
government grants that contain both parts related to assets and parts related to income, in which
those two parts are blurred and thus collectively classified as government grants related to income.
For government grants related to income used for compensating the related future cost, expenses
or losses of the Company are recognized as deferred income and are included in profit or loss or
offset relevant cost during the period in which the relevant cost, expenses or losses are recognized;
for government grants related to income used for compensating the related cost, expenses or losses
incurred to the Company, they are directly included in profit or loss or directly offset relevant cost.
– F-56 –
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4. Government grants related to the ordinary course of business shall be included into other
income or offset relevant cost based on business nature, while those not related to the ordinary
course of business shall be included into non-operating revenue or expenditures.
5. Policy interest subvention
(1) In the circumstance that government appropriates interest subvention to lending bank, who
provides loans for the Company with a policy subsidised interest rate, borrowings are carried at
the amount received, with relevant borrowings cost computed based on the principal and the
policy subsidised interest rate.
(2) In the circumstance that government directly appropriates interest subvention to the Company,
the subsidised interest shall offset relevant borrowing cost.
(XXVIII) Contract assets, contract liabilities (applicable to companies that have adopted the
revised revenue standard)
The Company presents contract assets or contract liabilities in the balance sheet based on the
relationship between its performance obligations and customers’ payments. Contract assets and
contract liabilities under the same contract shall offset each other and be presented on a net basis.
The Company presents an unconditional right to consideration (i.e., only the passage of time is
required before the consideration is due) as a receivable, and presents a right to consideration in
exchange for goods that it has transferred to a customer (which is conditional on something other
than the passage of time) as a contract asset.
The Company presents an obligation to transfer goods to a customer for which the Company has
received consideration (or the amount is due) from the customer as a contract liability.
Other current liabilities 8,193,511,896.61 12,570,377.34 8,206,082,273.95
(2) For changes in contracts occurred prior to January 1, 2020, the Company adopts a simplified
approach to identify the fulfilled and outstanding performance obligations of all contracts based
on the final arrangement, to determine the transaction price, and to allocate transaction price
between the fulfilled and outstanding performance obligations. Adoption of the simplified
approach has no significant impact on the Company’s financial statements:
2. The Company has adopted the “Interpretation of China Accounting Standards for Business
Enterprises No. 13” issued by the Ministry of Finance in 2019 since January 1, 2020, and the
prospective application method is applicable to changes in accounting policies.
– F-64 –
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Ⅵ. Taxes (I) Main taxes and tax rates
Taxes Tax bases Tax rates
Value-added tax (VAT) The taxable revenue from sales of goods or rendering of services
0%, 1%, 2%, 3%, 5%, 6%, 9%, 10%, 13%
Land appreciation tax
The incremental amount arising from the transfer of state-owned land use right and the buildings and structures that are constructed thereon
Prepaid based on the rate stipulated by local tax authorities, and finally settled upon the completion of the project at the progressive tax rate in excess of specific amount
Housing property tax
For housing property levied on the basis of price, housing property tax is levied at the rate of 1.2% of the balance after deducting 30% of the cost; for housing property levied on the basis of rent, housing property tax is levied at the rate of 12% of rent revenue.
1.2%, 12%
Urban maintenance and construction tax
Turnover tax actually paid 7%, 5%, 1%
Education surcharge Turnover tax actually paid 3%
Local Education surcharge Turnover tax actually paid 2%
Environmental protection tax
Calculated and levied at the number of pollution equivalents or emissions of taxable pollutants discharged multiplied by the specific applicable tax amount
Based on specific applicable tax amount
Enterprise income tax Taxable income 25%, 20%, 16.5%, 15%, 0%
Different enterprise income tax rates applicable to different taxpayers:
Taxpayers Income tax rate
BRAZIL JINJINAG ENVIRONMENT HOLDING LIMITED 34%
Waste Tec GmbH 29.45%
Quzhou Zheneng Oil and Gas Development Co., Ltd. 20%
Lishui Zheneng Oil and Gas Development Co., Ltd. 20%
Taizhou Zheneng Oil and Gas Development Co., Ltd. 20%
448 Zhejiang Zheneng Integrated Energy Technology Development Co., Ltd.
122,222.00 100 100 110,000.00 Investment
Note: Type of business refers to 1. Domestic non-financial subsidiary; 2. Domestic financial
subsidiary; 3. Overseas subsidiary; 4. Public subsidiary; 5. Infrastructure construction subsidiary.
(Ⅱ) Reasons of investees in which the parent company owns less than 50% of the voting rights but
still controlled by the parent company.
No. Name of entities Holding
proportion (%)
Voting right proportion
(%)
Registered capital (in ten
thousand yuan)
Investment (in ten
thousand yuan)
Level Reason of being consolidated
1 Zhenneng Energy and Natural Gas Group Co., Ltd.
40.00 40.00 2,500.00 1,000.00 4
The board chairman and the general manager of the company are appointed by Zhejiang Energy City Gas, and the other two shareholders of the company do not participate in the management, and its financial and operational policies are substantially controlled by Zhejiang Energy City Gas, thus it is included in the consolidation scope.
2 Zhejiang Natural Gas Development Co., Ltd.
40.00 40.00 278,031.00 111,212.40 3 The board chairman, general manager and chief financial officer of the company are appointed by Natural Gas
– F-110 –
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No. Name of entities Holding
proportion (%)
Voting right proportion
(%)
Registered capital (in ten
thousand yuan)
Investment (in ten
thousand yuan)
Level Reason of being consolidated
Group, and its financial and operational policies are substantially controlled by Natural Gas Group, thus it is included in the consolidation scope.
3 Yiwu Longhui New Energy Co., Ltd.
40.00 40.00 500.00 102.00 5 Majority voting right in the Board of Directors or similar institutions
4 Zhejiang Zheneng Liuheng LNG Co., Ltd.
46.00 46.00 27,000.00 1,380.00 3 Actual business controlled by Natural Gas Group
5 Quzhou Zheneng Oil and Gas Development Co., Ltd.
50.00 50.00 880.00 440.00 4 Controlled by Natural Gas Group
6 Ningbo Marine Co., Ltd.
44.81 44.81 120,653.42 52,110.82 3 Majority voting right in the Board of Directors or similar institutions
7 Taizhou Lvcheng Real Estate Co., Ltd.
35.00 35.00 10,000.00 3,500.00 4 Majority voting right in the Board of Directors or similar institutions
8 Zhejiang Natural Gas Trading Market Co., Ltd.
35.00 35.00 10,000.00 2,250.00 3 Majority voting right in the Board of Directors or similar institutions
9 Zheneng Jinjiang Environment Holding Co., Ltd.
29.57 29.57 2,500.00 1,000.00 4 Majority voting right in the Board of Directors or similar institutions
(Ⅲ) Reasons for non-control of an investee in which the parent company holds directly or
indirectly through other subsidiaries over 50% (inclusive) of its voting right
No. Name of entities Holding
proportion (%)
Voting right proportion owned (%)
Registered capital (in
ten thousand yuan)
Investment (in ten
thousand yuan)
Level Reason of not being
included in the consolidation scope
1
Zhejiang Provincial Coal Group Transport and Marketing Co., Ltd.
53.13 53.13 160.00 48.90 3 The entity has ceased operation and under liquidation, thus it is not included in the consolidation scope. 2
Zhejiang Provincial Coal Transport & Marketing Company
100.00 100.00 720.00 3
3 Huaizhe Electric Power Co., Ltd.
51.00 51.00 97,755.10 69,818.44 Minority voting right in the Board of Directors
(Ⅵ) Business combination not under common control in the current period
1. Details
Subsidiary name Purchase date
Holding proportion
(%)
Book value of
net assets
Fair value of identifiable net assets
Consideration
Ningbo Juhe New Energy Development Co., Ltd. [Note]
4/29/2020 100.00
(Continued)
Subsidiary name Goodwill Revenue from
the purchase date to year-end
Net profit from the purchase date
to year-end Amount Method
Ningbo Juhe New Energy 6,791,312.81 2,705,649.61
– F-115 –
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Subsidiary name Goodwill Revenue from
the purchase date to year-end
Net profit from the purchase date
to year-end Amount Method
Development Co., Ltd. [Note]
Note: Ninghai Poly Photovoltaic Engineering Co., Ltd., the affiliated company of Ningbo Juhe
New Energy Development Co., Ltd., is also brought into the consolidation scope.
2. The above-mentioned companies take the time point of control transfer as the basis for
determining the purchase date.
Ⅷ. Notes to items of consolidated financial statements Remarks: “Opening balance” in this report refers to balances as at January 1, 2020, while “closing
balance” refers to balances as at December 31, 2019; and “current period” refers to the year of
2020, while “preceding period” refers to the year of 2019. This is also applicable to that of the
parent company.
(I) Notes to items of the consolidated balance sheet
1. Cash and bank balances
(1) Details
Items Closing balance Opening balance
Cash on hand 3,376,554.35 287,680.56
Cash in bank 17,976,947,261.93 15,390,706,934.37
Other cash and bank balances 473,806,935.61 1,282,508,388.83
Total 18,454,130,751.89 16,673,503,003.76
(2) Other remarks
Details of cash and bank balances with restrictions are as follows:
Items Closing balance Opening balance
Central bank statutory deposit reserve 1,993,585,052.62 1,535,945,003.45
Deposit for L/C 11,744,820.00 4,223,725.52
Deposit for L/G 137,477,424.14 168,126,149.41
Housing fund 9,309,340.56 9,327,978.23
Frozen funds due to litigation 3,800,000.00
Deposit for forward exchange settlement 41,000.00
Time deposit 173,752,050.35 102,401,727.92
Deposit for futures 10,977,120.00 1,337,760.00
Other deposits 148,383,162.46 250,309,629.47
Total 2,489,028,970.13 2,071,712,974.00
– F-116 –
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2. Held-for-trading financial assets (applicable to the companies that have adopted the revised
financial instrument standards)
Items Closing balance of fair value
Opening balance of fair value
Financial assets classified as at fair value through profit or loss
Accounts receivables with provision made on a collective basis using other portfolios
Portfolios
Closing balance Opening balance
Book balance Provision proportion
(%)
Provision for bad debts
Book balance
Provision proportion
(%)
Provision for bad debts
Other portfolios 96,798,351.74
Subtotal 96,798,351.74
3) Accounts receivable of individually insignificant amount but with provision made on an
individual basis
Debtors Book balance Provision for bad debts
Ages Provision proportion (%)
Reasons for provision made
Huzhou Construction Thermoelectric Fuel Co., Ltd.
780,775.07 780,775.07 Over 3 years 100.00 Expected to be irrecoverable
Zhejiang Huangyan Chemical Industry Sixth Factory
739,051.99 739,051.99 Over 3 years 100.00 Expected to be irrecoverable
Hangzhou Pengfa Building Material Co., Ltd.
598,564.99 598,564.99 Over 5 years 100.00 Expected to be irrecoverable
Zhejiang South Lake Taihu Concrete
466,025.89 466,025.89 Over 5 years 100.00 Expected to be irrecoverable
– F-120 –
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Debtors Book balance Provision for bad debts
Ages Provision proportion (%)
Reasons for provision made
Products Co., Ltd. Wenling Jianguang Material Company
465,407.21 465,407.21 Over 5 years 100.00 Expected to be irrecoverable
Taizhou Huangyan Yongmu Plastic Mould Factory
437,052.00 437,052.00 Over 3 years 100.00 Expected to be irrecoverable
Shanghai Wusong Construction Machinery Factory Co., Ltd.
436,300.00 436,300.00 Over 5 years 100.00 Expected to be irrecoverable
Zhejiang Yiwu Tianyuan Property Co., Ltd.
400,000.00 400,000.00 Over 3 years 100.00 Expected to be irrecoverable
Huangyan Baile Food Factory
135,637.75 135,637.75 Over 3 years 100.00 Expected to be irrecoverable
Others [Note] 8,207,346.23 8,167,346.23 Over 5 years 100.00 Expected to be irrecoverable
Subtotal 12,666,161.13 12,626,161.13 -- -- --
Note: “Others” refers to the summarization of 251 customers with accounts receivable of
individually insignificant amount but with provision made on an individual basis.
(3) Applicable to the companies that have adopted the revised financial instrument standards
1) Accounts receivable with provision made on an individual basis
Debtors Book balance Provision for bad debts
Provision proportion (%)
Reasons for provision made
Datang Inner Mongolia Duolun Coal Chemical Co., Ltd.
51,853,102.20 43,853,102.20 84.57 The debtor failed to pay the project payment as promised.
PACIFIC INTERNATIONAL LINES (PRIVATE) LIMITED
32,953,818.26 2,406,526.69 7.30 The debtor failed to pay according to the repayment plan.
Jiangsu Xiangsheng Viscose Fiber Co., Ltd.
6,664,546.53 6,664,546.53 100.00 The debtor is in the process of bankruptcy liquidation.
Hangzhou Lianfa Electrification Co., Ltd.
5,527,330.41 5,527,330.41 100.00 The debtor ceased operation due to insolvency.
Zhejiang Zuihong Holding Group Co., Ltd.
304,652.08 304,652.08 100.00 The debtor is bankrupt.
Hefei Cement Research and Design Institute Co., Ltd.
18,200.00 18,200.00 100.00 In the process of lawsuit, expected to be irrecoverable.
Subtotal 97,321,649.48 58,774,357.91
2) Accounts receivable with provision made on a collective basis
Debtors Items Closing balance
Book balance Provision for bad debts
Provision proportion (%)
Zheneng Electric Power
Portfolio grouped with low-risk receivables
5,817,037,806.05 32,043,436.01 0.55
Portfolio grouped with medium-risk receivables
148,526,543.56 25,534,468.42 17.19
Portfolio grouped with high-risk receivables
47,200,133.56 20,029,280.36 42.43
New Energy Group
Portfolio grouped with hydroelectricity and other basic electricity charges
48,356,551.31 240,155.34 0.5
Portfolio grouped with subsidies receivable for included in the renewable energy category
3,261,125,184.83 264,957,938.49 8.12
Portfolio grouped with subsidies receivable for not included in the renewable energy category
307,083,075.55 28,448,843.79 9.26
– F-121 –
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Debtors Items Closing balance
Book balance Provision for bad debts
Provision proportion (%)
Portfolio grouped with other electricity charges and other receivables
4,758,140.71 25,258.71 0.53
Ningbo Marine Portfolio grouped with ages 134,801,929.67 7,171,816.14 5.32
Tiandi Environmental Protection
Portfolio grouped with balances due from state-owned enterprises and government customers/ Portfolio grouped with balances due from non-state-owned enterprises or government customers
137,170,267.50 16,470,426.98 12.01
Jinjiang Environment Holding
Portfolio grouped with balances due from Jinjiang Environment Holding
1,404,198,571.46 24,990,088.35 1.78
Subtotal 11,310,258,204.20 419,911,712.59
3) Accounts receivable with provision made on a collective basis using portfolio grouped with
ages
Ages Closing balance
Book balance Provision for bad debts
Provision proportion (%)
Within 1 year 101,479,845.10 507,399.23 0.50
1-2 years 33,322,084.57 6,664,416.91 20.00
Subtotal 134,801,929.67 7,171,816.14
(4) Age analysis
Ages
Closing balance
Book balance Provision for bad debts Amount % to total
Within 1 year (inclusive) 12,452,960,063.71 80.01 123,977,658.28
1-2 years 1,814,800,184.65 11.66 167,402,879.77
2-3 years 1,032,889,996.49 6.64 178,571,660.56
Over 3 years 262,503,335.63 1.69 130,986,073.62
Subtotal 15,563,153,580.48 100.00 600,938,272.23
(5) Provision collected or reversed
Debtors Amount collected or reversed
Way of collection
Zhejiang Pu’an Energy Co., Ltd. 1,000,000.00 Collected
Zhejiang Zhongqin Energy Co., Ltd. 1,000,000.00 Collected
3) Fixed assets with certificate of titles being unsettled
Owners Items Carrying amount Reasons for unsettlement
Zheneng Electric Power and its subsidiaries
Buildings and structures
651,000,731.95 The certificate of titles is under processing
Natural Gas Group and its subsidiaries
241,627,666.47 The certificate of titles is under processing
Xingyuan Energy-saving and its subsidiaries
189,421,975.79 The certificate of titles is under processing
Tianhong Trading and its subsidiaries
54,831,060.74 The certificate of titles is not processed
New Energy Group and its subsidiaries
13,861,983.72 The certificate of titles is under processing
Asset Management 9,381,620.34
Due to historical reasons, the comprehensive acceptance of the house and the fire acceptance have not been inspected, and the real estate certificate cannot be obtained.
Changguang Group and its subsidiaries
9,137,878.39 The certificate of titles is under processing
Subtotal 1,169,262,917.40
(3) Disposal of fixed assets
Items Closing balance Opening balance Reasons for disposal
Pending assets in the shut-down equipment units
362,518,028.79 103,955,599.42 [Note]
Others 10,291,374.29 2,718,976.64
Subtotal 372,809,403.08 106,674,576.06
Note: Pursuant to minutes of the Zhejiang Provincial People’s Government on the relocation of
Zhenhai Power Plant, 4 sets of 215,000 KW units of Zhejiang Zheneng Zhenhai Power Generation
Co., Ltd. (hereinafter referred to as Zhenhai Power Plant) were shut down and two sets of 660,000
KW ultra-supercritical coal-fired units were to be newly built. Ningbo City supports Zhenhai
Power Plant by land transfer income after the relocation, and grants a three-year electricity
replacement policy after the units are shut down. Pursuant to the documents numbered Zhe Fa Gai
– F-152 –
Page 151 of 232
Neng Yuan [2018] No.611 and Zhe Fa Gai Neng Yuan [2020] No.402 issued by the Zhejiang
Provincial Development and Reform Commission, and deliberated by the board of directors of
Zheneng Electric Power, 3# and 4# units were to be shut down before December 31, 2018, and 5#
and 6# units were to be shut down before December 31, 2020, respectively, and a total of 362.52
million yuan, including the carrying amount of related fixed assets in amount of 359.31 million
yuan and the incurred disposal expenses in amount of 3.21 million yuan, was transferred to
disposal of fixed assets. Zheneng Power estimated that the recoverable amount of the pending
assets of the shutdown group was higher than the carrying amount, and no impairment provision
was made for this part of the assets.
24. Construction in progress
(1) Details
Items Closing balance Opening balance
Construction in progress 22,160,970,869.41 16,587,612,367.22
Construction materials 146,810,769.44 222,873,441.34
Total 22,307,781,638.85 16,810,485,808.56
(2) Construction in progress
1) Details
Projects Closing balance Opening balance
Book balance Provision for impairment
Carrying amount Book balance Provision for impairment
Research on the primary frequency modulation and treatment for AGC control deviation in thermal power plants based on the operation characteristics of South Xinjiang Power Grid
1,511,320.71 1,511,320.71
R&D of diagnosis and evaluation system for thermal power units
2,200,000.00 660,000.00 1,540,000.00
Comprehensive energy demonstration project in Dushan Port, Jiaxing
Refund of handling fees for withholding individual income tax
3,713,583.67 2,794,198.17
Others 2,067,505.11 2,067,505.11
Total 476,642,702.21 333,044,959.14 472,929,118.54
Note: Please refer to section VIII (III) 8 of notes to the financial statements for details on
government grants included into other income.
– F-185 –
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9. Investment income
Items Current period cumulative
Preceding period comparative
Investment income from long-term equity investments under equity method
4,440,327,039.09 3,556,541,813.09
Gains on disposal of long-term equity investments
-39,492,357.61 11,244,931.90
Investment income from financial assets at fair value through profit or loss (applicable to the companies that have not yet adopted the revised financial instrument standards)
8,137,581.34 3,776,278.67
Gains on disposal of financial assets at fair value through profit or loss (applicable to the companies that have not yet adopted the revised financial instrument standards)
24,220,841.89 61,269,079.96
Investment income from available-for-sale financial assets (applicable to the companies that have not yet adopted the revised financial instrument standards)
114,088,513.80 76,059,996.46
Gains on disposal of available-for-sale financial assets
103,801,145.24
Interest income from other debt investments (applicable to the companies that have adopted the revised financial instrument standards)
8,498,496.03 1,012,449.41
Dividend income from other equity instrument investments (applicable to the companies that have adopted the revised financial instrument standards)
274,687,666.92 291,004,407.86
Investment income from entrusted loans 59,145,463.38 18,606,055.03
Debt restructuring income 41,407,240.23
Others -2,144,768.85 57,481.13
Total 5,032,676,861.46 4,019,572,493.51
10. Gains on changes in fair value
Items Current period cumulative
Preceding period comparative
Held-for-trading financial assets (applicable to the companies that have adopted the revised financial instrument standards)
110,541,197.70 20,351,325.00
Financial assets at fair value through profit or loss (applicable to the companies that have not yet adopted the revised financial instrument standards)
-12,083,713.18 99,224,548.32
Derivative financial instruments 8,306.39
Financial liabilities at fair value through profit or loss (applicable to the companies that have not yet adopted the revised financial instrument standards)
-1,523,500.00 -86,425,001.69
Total 96,942,290.91 33,150,871.63
– F-186 –
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11. Credit impairment loss (applicable to the companies that have adopted the revised financial
instrument standards)
Items Current period cumulative
Preceding period comparative
Bad debts -166,822,896.85 -41,376,347.19
Total -166,822,896.85 -41,376,347.19
12. Assets impairment loss
Items Current period cumulative
Preceding period comparative
Bad debts (applicable to the companies that have not yet adopted the revised financial instrument standards)
6,871,821.65 1,833,496.97
Inventory write-down loss -22,258,869.74 -59,666,142.24
Impairment loss of available-for-sale financial assets (applicable to the companies that have not yet adopted the revised financial instrument standards)
-21,610,000.00
Impairment loss of fixed assets -26,608,487.35 -157,216,343.10
Impairment loss of construction in progress
-44,788,441.34
Impairment loss of goodwill -1,465,113.69 -9,807,280.32
Impairment loss of assets as held for sale -399,760.50
Impairment loss of contract assets (applicable to the companies that have adopted the revised financial instrument standards)
-8,065,444.90
Impairment loss of excess VAT paid -51,647,418.95
Impairment loss of loans -23,087,193.97 -612,806.03
Impairment loss of advances paid -33,164,656.88
Impairment loss of other non-current assets
-122,289.41
Total -159,947,413.74 -291,867,516.06
13. Gains on asset disposal
Items Current period cumulative
Preceding period comparative
Amount included in non-recurring profit
or loss Gains on disposal of fixed assets
-10,579,688.52 93,697,311.32 -10,579,688.52
Gains on disposal of intangible assets
85,799,258.29 20,694,282.03 85,799,258.29
Gains on disposal of construction in progress
-169,760.86 3,054,262.79 -169,760.86
Gains on disposal of assets as held for sale
8,957,794.76
Total 75,049,808.91 126,403,650.90 75,049,808.91
– F-187 –
Page 186 of 232
14. Non-operating revenue
Items Current period cumulative
Preceding period comparative
Amount included in non-recurring
profit or loss Gains on damage or retirement of non-current assets
5,510,829.94 538,087.47 5,510,829.94
Government grants not related to the ordinary course of business [Note]
Changes in fair value of available-for-sale financial assets (applicable to the companies that have not yet adopted the revised financial instrument standards)
investments (applicable to the companies that have adopted the revised financial instrument standards) Other comprehensive income to be transferred to profit or loss under equity method
Changes in fair value of other debt investments (applicable to the companies that have adopted the revisedfinancial instrument standards)
-3,419,408.90 -3,419,408.90
Changes in fair value of available-for-sale financial assets (applicable to the companies that have not yet adopted the revised financial instrument standards)
2,090,760.00 Pursuant to the civil ruling numbered [2019] Min 0503 Po 2 IX, shares were to be repaid at 9.50 yuan per share, and the Company received 220,080 shares.
Modification of other debt terms
41,392,215.23 [Note]
Note: Xinjiang Aikang and other 8 photovoltaic companies, which are subsidiaries of Qingneng
Development, owed a total of 430 million yuan to the former shareholder Suzhou Zhongkang
Electric Power Development Co., Ltd. (hereinafter referred to as Suzhou Zhongkang). The
original agreement stipulated that the repayment was to be made in installments. Based on its own
fund needs, Suzhou Zhongkang entered into agreements with nine photovoltaic companies in
August 2020. These nine companies were to repay the borrowings of 430 million yuan at one time,
– F-191 –
Page 190 of 232
and the total compensation for financial costs was 41.39 million yuan.
2. Borrowing costs
(1) The amount of borrowing costs capitalized in the current period is 875,577,848.86 yuan.
(2) The capitalization rate used to calculate and determine the capitalization amount of borrowing
costs in the current period is 3.98% to 5.86%.
3. Translation reserves
Translation reserves included into profit or loss totaled -118,572,954.85yuan.
4. Discontinued operations
(1) Details
Items Current period cumulative
Preceding period comparative
Revenue from discontinued operations 1,886,510.54 65,350,537.66
Less: Expenses of discontinued operations 5,609,501.85 3,786,181.91
Total profit from discontinued operations -3,722,991.31 -1,254,505.79
Less: Income tax of discontinued operations
Net profit of discontinued operations -3,722,991.31 -1,254,505.79
Including: Net profit of discontinued operations attributable to the parent company
-1,898,718.45 -1,254,505.79
Add: Net income from disposal (after tax)
Including: Total profit or loss on disposal
Less: Income tax expenses (or income)
Total net profit of discontinued operations -3,722,991.31 -1,254,505.79
Including: Total net profit of discontinued operations attributable to the parent company
-1,898,718.45 -1,254,505.79
Net cash flows from discontinued operations
-33,852,583.23 5,599,846.99
Including: Net cash flows from operating activities
2,061,097.78 5,599,546.99
Net cash flows from investing activities
342,549.14 300.00
Net cash flows from financing activities
-36,256,230.15
(2) Provision for impairment of discontinued operations
Items Opening balance of accumulated grants received
Increase Closing balance of accumulated grants received
Closing balance of accumulated grants
offset carrying amount Domestic waste incineration power generation project in Kaihua County
1,919,800.00 1,919,800.00
Subtotal 1,919,800.00 1,919,800.00
(Continued)
Items Grants offset
carrying amount presented under
Grants not yet offset carrying
amount presented under
Effects of grants on
current profit before tax
Corresponding depreciation and amortization of assets presented
under
Remarks
Domestic waste incineration power generation project in Kaihua County
Subtotal
2) Government grants related to income and used to compensate future relevant costs, expenses or
losses
Items Opening balance
of deferred income
Increase Amounts carried forward
Closing balance of deferred income
Amounts carried forward
presented under
Remarks
Special subsidies for “Sanming” cultivation
4,200,000.00 200,000.00 4,000,000.00 Other income
R&D and application of high specific energy supercapacitor battery
560,000.00 675,000.00 617,500.00 617,500.00 Other income
R&D and application of intelligent industrial operation and maintenance system - R&D and application of remote intelligent operation and maintenance system for
200,000.00 200,000.00
– F-197 –
Page 196 of 232
Items Opening balance
of deferred income
Increase Amounts carried forward
Closing balance of deferred income
Amounts carried forward
presented under
Remarks
high-end power generation equipment R&D and application of high specific energy supercapacitor batteries - high specific energy supercapacitors based on staggered extension structure and their demonstration applications in energy storage systems
50,000.00 50,000.00
Demonstration study on coal yard unattended in assistant with DCS
400,000.00 400,000.00
Research on energy demand forecast and guiding policies in the new economic development period of Zhejiang Province
30,000.00 30,000.00 Other income
Development and application demonstration of pseudo defense technology for intelligent sensor control equipment
40,000.00 120,000.00 160,000.00 Other income
Zhejiang Nordic (Zheneng) international joint laboratory of low grade energy utilization
260,000.00 130,000.00 130,000.00 Other income
Industrial Internet security authentication and encryption technology research and citation
3) Government grants related to income and used to compensate incurred relevant costs, expenses
or losses
Items Amounts Presented under
Remarks
Special funds for the development of commercial circulation industry
168,854,236.32 Other income
VAT refund upon collection 54,672,755.72 Other income Pursuant to the document numbered Cai Shui [2015] 78
Industry supporting fund 22,780,000.00 Other income Notice on Issuing the Second Batch of Financial Subsidy of 2020
Service industry development supporting fund subsidy of 2019
17,600,000.00 Other income Pursuant to the document numbered Cai Shui [2020] 36
Financial supporting fund 19,900,354.99 Other income
– F-198 –
Page 197 of 232
Items Amounts Presented under
Remarks
The third batch of subsidies for supporting infrastructure construction of affordable housing projects in 2019
13,722,824.37 Other income Pursuant to the document numbered Zhe Fa Gai Tou Zi [2019] 242
Tax refund 9,463,123.54 Other income
Subsidy for stabilizing employment
6,146,555.91 Other income
Zhejiang provincial financial subsidy fund
5,050,000.00 Other income Pursuant to the document numbered Zhe Cai Jian [2020] 6
Subsidy fund of Ningbo Transportation Bureau
3,099,900.00 Other income Pursuant to the document numbered Yong Cai Zheng Fa [2019] 1261
Daxie financial subsidy 2,160,000.00 Other income Pursuant to the document numbered Yong Xie Guan [2018] 9
VAT reduction and exemption 1,836,414.43 Other income
Subsidy from management committee of Xiangbao Cooperation Zone
1,800,000.00 Other income
Pursuant to the Agreement on Deepening Cooperation of Natural Gas Project in Ningbo Xiangbao Cooperation Zone
Special fund for the development of river-sea combined transport of Zhoushan City
1,659,750.00 Other income Pursuant to the document numbered Zhou Gang Kou [2020] 19
Shipping supporting fund 1,261,200.00 Other income Pursuant to the document numbered Zhou Pu Cai Qi [2020] 120
Rent subsidy from Shangcheng
District Finance Bureau 1,250,000.00 Other income
Pursuant to the document numbered Shang Cai [2020] 148
Financial subsidy for rent and fee reduction
1,249,925.00 Other income Pursuant to the document numbered Jiao Fa Gai Chan [2020] 19
Qiantang Smart City Award 1,179,500.00 Other income
Gas boiler renovation subsidy 1,015,000.00 Other income
Financial reward for zero balance account from the Management Committee of Marine Industry Cluster Zone, Zhoushan Islands New Area
1,008,364.00 Other income Pursuant to the document numbered Zhou Chan Ju Wei [2017] 46
Yuhang District 2019 enterprise R&D investment subsidy fund and Hangzhou 2020 technology-based enterprise R&D investment subsidy
817,300.00 Other income Pursuant to the document numbered Yu Ke [2019] 32
– F-199 –
Page 198 of 232
Items Amounts Presented under
Remarks
Policy subsidies from the People’s Government of Meishan Town
787,500.00 Other income
Port charge return payment 577,341.56 Other income
Xixi Sub-district subsidy fund 500,000.00 Other income Pursuant to the document numbered Xi Fa Gai Jing Xin [2019] 41
2019 Yuhang District industry-university-research cooperation project
500,000.00 Other income Pursuant to the document numbered Yu Ke [2019] 32
2019 Zhejiang Science and Technology Award
450,000.00 Other income Pursuant to the document numbered Zhe Zheng Fa [2020] 14
The third batch of provincial special funds for scientific and technological development in 2020 from Zhejiang Provincial Department of Finance, Zhejiang Provincial Department of Science and Technology
450,000.00 Other income Pursuant to the document numbered Zhe Cai Ke Jiao [2020] 4
Hangzhou Zheyuan municipal subsidy
374,831.80 Other income
Zhenhai District producer service industry project investment special award
373,000.00 Other income Pursuant to the document numbered Zhen Qu Shang Wu [2020] 82
2019 special contribution enterprise reward
350,000.00 Other income
Regional Development Office 2019 Enterprise Support Fund
280,000.00 Other income
Deqing County advanced collective subsidy
220,000.00 Other income Pursuant to the document numbered Mo Gao Guan Fa [2020] 2
Longyou new energy provincial renewable resources development special fund subsidy (Huzhen Town People’s Government, Longyou County)
200,000.00 Other income
Enterprise meritorious award from the Government Affairs Center of Jiaojiang District, Taizhou
200,000.00 Other income
Hangzhou high-tech enterprise subsidy
200,000.00 Other income
Social security subsidies for college graduates
123,162.00 Other income Pursuant to the document numbered Yong Ren She Fa [2015] 182
Employment subsidy 123,134.96 Other income
Singapore COVID-19 subsidy in 2020
116,662.40 Other income
– F-200 –
Page 199 of 232
Items Amounts Presented under
Remarks
Pinghu City corporate financial contribution award subsidy in 2020
100,000.00 Other income
Jiayuguan City non-public sector incentives and supporting funds of 2018
100,000.00 Other income
Award for “upgrades and limits” 100,000.00 Other income
(3) Guarantees provided by the Company and its subsidiaries to themselves
1) Mortgage
Guaranteed parties Collateral owners Collateral
Amount of borrowings
guaranteed (Ten thousand)
Guarantee maturity dates Remarks
Zhenhai Gas Thermal Electricity
Zhejiang Branch of the Export-Import Bank of China
Buildings and structures, machinery, transport facilities, land use right
51,850.00 5/10/2020-5/10/2026
(repayment by installments)
Zhenhai Gas Thermal Electricity
Ningbo Branch of Export-Import Bank of China
Buildings and structures, machinery, transport facilities, land use right
51,850.00 5/10/2020-5/10/2026
(repayment by installments)
Zheneng Electric Power
Ningxia Hui Autonomous Region Branch of China Development Bank
Machinery 110,400.00 6/30/2037
Guangsha Zhoushan
China Development Bank, Daishan Branch of Industrial and Commercial Bank of China, Hangzhou West Lake Branch of Industrial and Commercial Bank of China
Land use right, sea use right, construction in progress
142,700.00 5/22/2028
Longquan Yanzhangxi
China Construction Bank Corporation Longquan Branch
Yanzhangxi first class integral power station 800.00 4/1/2021
Longchuan Hydropower
Suichang Branch of China Construction Bank Co., Ltd.
Houses, machinery, and land of Longchuan Company
4,460.00 3/18/2027
Songyang Anmin
Agricultural Bank of China Songyang County Branch
Total assets of hydropower plant 1,800.00 10/28/2025
New Energy Group
Zhejiang Branch of China Development Bank
Fixed assets of Chint Ningxia Zhongwei Yingshuiqiao 20MWp Power Station
9,270.04 3/2/2029
New Energy Group
Zhejiang Branch of China Development Bank
All assets of the 50MWp photovoltaic grid-connected power plant project in Dunhuang, Gansu
39,327.99 4/16/2031
New Energy Group
Zhejiang Branch of China Development Bank
Fixed assets of 100MWp grid-connected photovoltaic power station in Gaoyazitan, Gaotai County, Gansu
16,800.00 10/28/2025
New Energy Group
Hangzhou Zhijiang Branch of Industrial and Commercial Bank of China Ltd
Fixed assets of 100MWp grid-connected photovoltaic power station in Gaoyazitan, Gaotai County, Gansu
23,450.99 10/28/2025
New Energy Group
Zhejiang Branch of The Export-Import Bank of China
All assets of Minqin Hongshagang 50MWP photovoltaic grid-connected power station project
19,620.00 10/27/2027
New Energy Group
Hangzhou Zhijiang Branch of Industrial and Commercial Bank of China Ltd
All assets of Chint Gansu Heqingtan 100MWP grid-connected photovoltaic power plant project
28,338.06 6/18/2029
New Energy Group
Zhejiang Branch of The Export-Import Bank of China
All assets of Chint Gansu Heqingtan 100MWP grid-connected photovoltaic power plant project
20,535.97 6/29/2029
Ruixu Zhejiang Branch of China Fixed assets of Aksu 12,000.00 3/18/2028
– F-206 –
Page 205 of 232
Guaranteed parties Collateral owners Collateral Amount of
borrowings Guarantee maturity
dates Remarks
Investment Development Bank Keping 20MW photovoltaic grid-connected power generation project
Ruixu Investment
Zhejiang Branch of China Development Bank
All collateral assets under the 20MW grid-connected photovoltaic power generation (phase II) project in Wulan, Qinghai
12,000.00 3/18/2028
Tekesi Solar Energy
Suzhou Branch of China Development Bank
Power generation equipment, project land and ground buildings, photovoltaic grid-connected inverters and other fixed assets
7,200.00 3/26/2025
Xinjiang Aikang
Suzhou Branch of China Development Bank
Land and ground buildings on Aikang Bozhou Jinghe phase I 20MW photovoltaic power plant project
2,300.00 4/24/2023
Xinjiang Aikang
Suzhou Branch of China Development Bank
Fixed assets on Aikang Bozhou Jinghe phase II 20MW photovoltaic power plant project
1,800.00 4/16/2022
Xinjiang Aikang
Suzhou Branch of China Development Bank
Fixed assets on Aikang Bozhou Jinghe phase III 30MW photovoltaic power plant project
8,000.00 9/23/2025
Xinjiang Aikang
Suzhou Branch of China Development Bank
Fixed assets on Aikang Bozhou Jinghe phase IV 20MW photovoltaic power plant project
6,000.00 10/28/2025
Juyang Energy Suzhou Branch of China Development Bank
Assets on Aikang Qitai Farm 30 megawatt photovoltaic power station phase II project
7,200.00 11/23/2025
Juyang Energy Suzhou Branch of China Development Bank
Assets on Aikang Qitai Farm 30 megawatt photovoltaic power station phase I project
7,500.00 4/9/2025
Bozhou New Energy
Jiangsu Branch of Export-Import Bank of China
Machinery of photovoltaic project phase I, phase II, phase III, phase IV
59,340.00 9/21/2026
Lvneng (Hangzhou)
Bank of Shanghai Co., Ltd. Hangzhou Branch
Real estate on the 12th floor of Lvneng Jinjiang Building
20,000.00 3/6/2021
Lianyungang chenxing
Bank of Jiangsu Lianyungang Longhai Sub-branch
Land and real estate mortgage 3,800.00 9/14/2021
Kunming Xinxingze
China Construction Bank Kunming Jianshe Road Branch
Fixed assets 48,250.00 12/31/2031
Tianjin Sunrise Standard Chartered Bank Tianjin Branch Equipment and land lease 4,536.00 1/1/2022
Yinchuan zhongke
Bank of Ningxia Zhongshan Branch Fixed assets 3,500.00 3/29/2022
Zibo Lvneng Bank of China Zibo Zichuan Sub-branch
Zibo Lvneng Land use rights 8,700.00 8/1/2023
Gaomi Lilang Minsheng Bank Hangzhou Branch Equipment 13,750.00 2/28/2026
Songyuan Xinxiang
Bank of Communications Songyuan Branch Fixed assets 18,029.87 6/28/2026
Tangshang Jiasheng
Bank of Communications Tangshan Fengrun Fixed assets 17,010.00 12/31/2027
– F-207 –
Page 206 of 232
Guaranteed parties Collateral owners Collateral Amount of
borrowings Guarantee maturity
dates Remarks
Sub-branch
Tangshang Jiasheng
Bank of Communications Tangshan Fengrun Sub-branch
Fixed assets 6,523.57 9/10/2027
Zhuji Bafang Industrial and Commercial Bank of China Co., Ltd. Zhuji Sub-branch
Real estate, equipment, land use rights 28,850.00 12/25/2029
Linzhou Jiasheng
Bank of China Limited Anyang Branch Land use rights 16,000.00 12/21/2032
Shijiazhuang Jiasheng
China Construction Bank Shijiazhuang Branch Real estate 62,300.00 11/12/2031
Laoting Jinhuan
Hebei Bank Leting Sub-branch Laoting Jinhuan Land 17,479.03 8/31/2032
Zhejiang Energy Group Finance Limited Liability Company
91.00 91.00 306,544,524.38
Zhejiang Guoxin Holding Group Co., Ltd.
100.00 100.00
Zhejiang Energy International Co., Ltd.
60.00 60.00
Zhejiang Provincial New Energy Investment Group Co., Ltd.
76.92 76.92
Zhejiang Energy and Natural Gas Group Co., Ltd.
100.00 100.00 307,632,997.16
Zhejiang Zheneng Asset Management Co., Ltd.
100.00 100.00
Zhejiang Tianhong Material Trade Co., Ltd.
100.00 100.00 28,929,900.67
Zhejiang Changguang (Group) Co., Ltd.
100.00 100.00
Zhejiang Energy Group Xinjiang Zhundong Coal Industry Co., Ltd.
100.00 100.00
Ningbo Marine Group Co., Ltd.
51.00 51.00 3,060,000.00
Zhejiang Coal Cleaning Technology Research and Development Center
100.00 100.00
Yili Xintian Coal Chemical Co., Ltd.
55.00 55.00
– F-231 –
Page 230 of 232
Investees Holding
proportion (%)
Voting right proportion
(%)
Closing balance of
provision for impairment
Provision for impairment
made in currentperiod
Cash dividend
Zhejiang Zheneng Technology Research Institute Co., Ltd.
100.00 100.00 21,373,424.05
Zhejiang Zheneng Port Operation Management Co., Ltd.
85.00 85.00 15,477,197.83
Zhejiang Energy Group Xinjiang Zhundong Energy Chemical Co., Ltd.
100.00 100.00
Zhejiang Energy Capital Holding Co., Ltd.
100.00 100.00 70,000,000.00
Hangzhou Meiyuan Hotel Management Co., Ltd.
Zhejiang Petroleum Co., Ltd. 60.00 60.00
Zhejiang Zheneng Enterprise Management Training Service Co., Ltd.
100.00 100.00
Zhejiang Energy Group Hami Energy Co., Ltd.
100.00 100.00
Ningbo Marine Co., Ltd. 12.82 12.82 9,284,174.52
Zhejiang Zheneng Natural Gas Pipeline Co., Ltd.
100.00 100.00
Joint ventures
Including:
CNNC Zheneng Energy Co., Ltd.
50.00 50.00
Zhejiang Energy Greentown Football Club Co., Ltd.
50.00 50.00
Zhejiang Refined Oil Trading Co., Ltd.
50.00 50.00
Associates 201,882,660.48
Including:
Tongmei Zheneng Majialiang Coal Industry Co., Ltd.
40.00 40.00
Jiangxi Ganzhe Energy Co., Ltd.
49.00 49.00
China Zheshang Bank Co., Ltd.
3.96 3.96 201,882,660.48
Zheshang Property and Casualty Insurance Company Limited
20.00 20.00
Zhejiang Zheneng Ningbo Natural Gas Technology Development Co., Ltd
40.00 40.00
Yili Xinwen Mining Coal Industry Co., Ltd.
45.00 45.00
(II) Notes to items of the parent company income statement
1. Operating revenue/Operating cost
Items Current period cumulative Preceding period comparative
Revenue Cost Revenue Cost
Other operations 5,005,044.95 5,666,888.13
Lease 4,995,610.99 5,629,152.28
– F-232 –
Page 231 of 232
Items Current period cumulative Preceding period comparative
Revenue Cost Revenue Cost
Others 9,433.96 37,735.85
Total 5,005,044.95 5,666,888.13
2. Investment income
Items Current period cumulative
Preceding period comparative
Investment income from long-term equity investments under equity method
530,741,210.00 495,927,150.64
Investment income from long-term equity investments under cost method
2,789,332,046.40 2,874,964,979.36
Gains on disposal of long-term equity investments
-18,628,453.36 622,922,076.90
Investment income from available-for-sale financial assets (applicable to the companies that have not yet adopted the revised financial instrument standards)
2,857,980.00
Gains on disposal of available-for-sale financial assets (applicable to the companies that have not yet adopted the revised financial instrument standards)
3,156,204.00
Gains on entrusted loans 637,943,091.72 573,652,363.65
Call loans interest 7,906,859.70
Total 3,942,544,098.76 4,578,231,410.25
(Ⅲ) Supplement information to the parent company cash flow statement
Supplement information Current period cumulative
Preceding period comparative
(1) Reconciliation of net profit to cash flow from operating activities:
—— ——
Net profit 2,084,820,671.67 3,220,069,885.95
Add: Assets impairment losses 122,366.41
Credit impairment losses (applicable to the companies that have adopted the revised financial instrument standards)
Depreciation of fixed assets, oil and gas assets, productive biological assets
36,639,783.99 35,892,893.02
Depreciation of right-of-use assets (applicable to the companies that have adopted the revised lease standard)
Amortization of intangible assets 22,337,944.13 20,176,891.53
Amortization of long-term prepayments 5,386,577.73
Losses on disposal of fixed assets, intangible assets and other long-term assets (Less: gains)
-347,318.75 -62,835.61
Fixed assets retirement loss (Less: gains) 4,318.41
