CHINA AEROSPACE<0031> - Announcement
CHINA AEROSPACE INTERNATIONAL HOLDINGS LIMITED
(Incorporated in Hong Kong limited liability)
ANNOUNCEMENT
Connected Transactions
It has been brought to the attention of the Board that certain
transactions between members of the Group and members of the CASC Group
which were reported in the 1997 annual report of the Company should have
been disclosed by way of an announcement as connected transactions under
Rules 14.25(1) and 14.26(6)(a) of the Listing Rules as CASC currently
holds approximately 42.8% (50.4% as at 31st December, 1997) of the issued
share capital of the Company and is a substantial shareholder of the
Company.
The Company's failure to comply with the full disclosure requirements for
the connected transactions under the Listing Rules was an oversight and a
breach of the Listing Rules.
The Stock Exchange has advised the Company that it reserves its rights to
take further action as a result of the breach of the Listing Rules by the
Company.
The Transactions
The Board announces that the following transactions reported in the 1997
annual report of the Company between members of the Group and members of
the CASC Group in 1997 should have been disclosed to shareholders by way
of an announcement at the time such transactions were entered in
compliance with the Listing Rules:-
1. Sales to fellow subsidiaries
The transactions concerned the sales of electronic components, namely
integrated circuits and chips, by the Group to Hua Chang, an indirectly
wholly-owned subsidiary of CASC. The aggregate amount of the transactions
was HK$22,380,000 and profits derived from such transactions amounted to
HK$461,000 in 1997.
2. Loans to the Company's fellow subsidiaries and ultimate holding
company
Interest totalling approximately HK$30,311,000 was received in respect of
loans advanced by the Group to fellow subsidiaries and its ultimate
holding company, which in turn were wholly-owned subsidiaries of CASC in
1997 to finance the normal commercial activities of such companies.
Details of the loans are set out below:
Loan Amount Commencement
Borrower(6) Loan Amount(1) in HK$(2) Date(3)
Hua Chang
Electronics Co., Ltd. US$13,134,355(4) 101,791,251 2 Jan 97
Trail Power
International Limited US$5,705,140(5) 44,214,835 2 Jan 97
Iridium China
(Hong Kong) Limited HK$6,500,000 6,500,000 2 Jan 97
China Jiangnan Space
Industry Company Group HK$28,000,000 28,000,000 25 Oct 96
RMB16,000,000 14,814,815 24 Mar 97
RMB35,000,000 32,407,407 24 Mar 97
Whale Profit
International Limited HK$30,000,000 30,000,000 21 Jul 97
Jetcote Investments
Limited US$1,025,496 7,947,594 23 Apr 97
HK$10,800,000 10,800,000 21 Mar 97
Total 276,475,902
Notes:
(1) All loans were unsecured. Interest rates of all loans were
12.5% p.a.
(2) Conversion rates: US$1.00:HK$7.75; HK$100:RMB108
(3) All the loans were for terms of 2 years, save for the Reminbi
loans to China Jiangnan Space Industry Company Group which were for terms
of 20 months.
(4) The loan was reduced to US$12,727,205 (approximately
HK$98,635,839) on 24th April, 1997 when Hua Chang made a partial
repayment.
(5) The loan was reduced to US$5,086,794 (approximately
HK$39,422,654) on 24th April, 1997 when Trail Power made a partial
repayment.
(6) Jetcote Investments Limited is holding approximately 42.85%
interest in the issued share capital of the Company. CASC is the ultimate
holding company of the other borrowers.
As set out in note 15(b) of the Financial Statement in the 1997 annual
report of the Company, all outstanding loans as at 31st December, 1997,
which amounted to approximately HK$276 million, were settled in full on
20th May, 1998. Total interest received amounted to HK$15,793,092 for the
period from 1st January, 1998 to 20th May, 1998. There is, at present, no
loan owed to the Company from the holding company or from fellow
subsidiaries of the Company.
Listing Rule Requirements
1. Sales to fellow subsidiaries
The value of the transactions represented approximately 0.99% of the
audited consolidated net tangible asset of the Company as at 31st
December, 1996, adjusted to include the net proceeds of HK$535 million
raised by the Company from a placing of shares in March, 1997.
Accordingly, the transactions should have been disclosed when they were
entered pursuant to Rule 14.25(1) of the Listing Rules.
However, as trading has been one of the principal activities of the Group,
the transactions were entered in the normal and usual course of business
of the Group. Trading turnover of the Group was substantial and staff
responsible for the transactions did not recognise that the sales were
connected transactions and consequently did not report such matters to
senior management at the time the transactions were entered, as each
subsidiary of the Company had been given autonomy to enter into business
transactions on normal commercial terms and in the ordinary and usual
course of business so as to capitalise on any opportunity such subsidiary
had for the benefit of the Group and ultimately to the shareholders of the
Company.
Hua Chang was required to make a 3% deposit before delivery and the
balance of the consideration payable on an 85-day open account basis. The
terms of the sales were arrived at after arm's length negotiation, which
the directors of the subsidiary concerned considered to be comparable to
similar transactions entered into with independent third parties. The
Directors (including the independent non-executive Directors) consider the
terms of the transaction to be normal commercial terms and are fair and
reasonable so far as shareholders of the Company are concerned.
There were no sales by the Group to Hua Chang or other fellow subsidiaries
of the Company during the period from 1st January, 1998 to the date of
this announcement.
2. Loans to the Company's fellow subsidiaries and ultimate holding
company
The principal amount of the loans ranged from HK$6,500,000 to
US$13,134,355 (approximately HK$101,791,251 at the exchange rate of
HK$7.75:US$1.00), representing approximately 0.30% to 4.49% of the audited
consolidated net tangible asset value of the Company as at 31st December,
1996, adjusted to include the net proceeds of HK$535 million raised by the
Company from a placing of shares of the Company in March, 1997. The
aggregate amount of loans advanced to the fellow subsidiaries and holding
company in 1997 amounted to approximately HK$276,475,901, representing
approximately 12.19% of the audited consolidated net tangible asset value
of the Company as at 31st December, 1996, adjusted to include the net
proceeds of HK$535 million raised by the Company from a placing of shares
in March, 1997.
At the time of granting the loans to the connected persons, the Company
believed that they could rely on the proviso of Rule 14.26(6)(a) of the
Listing Rules, which excludes the granting of financial assistance to
connected persons from the requirement of prior independent shareholders
approval if they were conducted on normal commercial term and in the
ordinary and usual course of business and believed that the loans are
qualified for the exemption and disclosure would only be required to be
made in the annual accounts of the Company.
As a matter of reliance on the exemption of Rule 14.26(6)(a) under which
the Board believed that the loans were governed, no disclosure was made by
way of a paid announcement and no independent shareholders approval was
sought.
The Company was informed by the Listing Division that the loans to the
Company's fellow subsidiaries and holding company did not fall within the
provisions of Rule 14.26(6)(a). The Listing Division informed the Company
that such loans should be subject to independent shareholders approval at
the time when the lendings were made. Furthermore, even if the Company
were exempted from the requirements of shareholders approval under Rule
14.26(6)(a) of the Listing Rules, it would still have a disclosure
requirement which it failed to meet.
Future Compliance
For the reasons set out above, the Board did not realise at the relevant
time that the disclosure procedures and/or approval procedures required
under the Listing Rules for connected transactions in relation to the
sales to fellow subsidiaries and loans to the Company's fellow
subsidiaries and ultimate holding company would need to be complied with.
However, after the finalisation of the annual audit in May 1998,
consultation with its professional advisers in July 1998 and discussion
with the Stock Exchange, the Board realised that the non-compliance with
the disclosure requirements and the approval requirements was an oversight
and a breach of the Listing Rules. The independent non-executive directors
and the auditors of the Company have confirmed prior to the publication of
the 1997 annual accounts of the Company that the sales to the Company's
fellow subsidiaries and the loans were transacted on normal commercial
terms and in the ordinary and usual course of business. Disclosure has
also been made in the 1997 annual accounts of the Company that the
independent non-executive directors had approved and confirmed the above.
The Directors (including the independent non-executive Directors) were of
the opinion that the terms of such transactions were fair and reasonable
so far as the shareholders of the Company are concerned.
The Stock Exchange has informed the Company that it reserves its rights to
take further action as a result of the breach of the Listing Rules by the
Company.
The delay in the announcement of the transactions described in this
announcement was due to the discussion between the Company and the Stock
Exchange as to whether the loans to the Company's fellow subsidiaries and
holding company would fall within the proviso under Rule 14.26(6)(a) and
the collation of information regarding the various loans advanced during
the year 1997 and other financial data to support the Company's view. The
change of internal management structure of the Company in March 1999
resulted in individual members of the Board having taken longer time to
review the transactions and to consider and approve this announcement.
The Board would like to take this opportunity to give their apologies for
the non-compliance with the Listing Rules and has taken the following
measures to ensure that the requirements of the Listing Rules will be
complied with in the future:
(i) commissioning the preparation of
compliance guidance notes for
the directors and employees of the Company and its subsidiaries to ensure
full compliance with, inter alia, the Listing Rules;
(ii) instructing legal advisers to present a seminar to all
directors and all senior management setting out the Stock Exchange's
requirements of the Listing Rules;
(iii) commissioning the preparation of a checklist for notifiable
transactions and the related guidelines under Chapter 14 of the Listing
Rules for senior management responsible for the day-to-day operations of
the Company; and
(iv) appointment of a special committee comprising the Finance
Director and the Company Secretary of the Company which will be charged
with the responsibility of overseeing compliance with the Listing Rules.
It is expected that the compliance guidance notes and checklist will be
available and the seminar will be held within a short period.
General
A circular setting out details of the transactions described above
together with the opinion from an independent financial adviser in
relation to the transactions will be despatched to shareholders as soon as
practicable.
Defined Terms used in this Announcement
"CASC" China Aerospace Corporation;
"CASC Group" CASC and its subsidiaries, excluding the Company and
its subsidiaries;
"Company" China Aerospace International Holdings Limited;
"Board" the Board of Directors of the Company;
"Group" the Company and its subsidiaries;
"Hua Chang" Hua Chang Electronics Company Limited;
"Listing Rules" the Rules Governing the Listing of Securities on
the Stock Exchange; and
"Stock Exchange" The Stock Exchange of Hong Kong Limited.
By order of the Board
China Aerospace International Holdings Limited
Gong Hanbing
Director
Hong Kong, 4th May, 1999
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