2018 DNAF Financial Bond II Prospectus
Statement by the Issuer To develop the financing channels, to optimize the structure of assets and liabilities, and to supply the medium-to-long term capital, Dongfeng Nissan Auto Finance Co., Ltd. (hereinafter referred to as "DNAF") will issue 2018 DNAF Financial Bond II (hereinafter referred to as "This Bond") in the national inter-bank bond market on October 18, 2018 with the approval from the Shanghai Office of the China Banking Regulatory Commission on the Issuance of Financial Bond by Dongfeng Nissan Auto Finance Co., Ltd. (ref. 沪银监复 [2018] No. 433) and the Decision from the People's Bank of China to Grant Administrative Permission (ref. 银市场许准予字 [2018] No. 177). This Bond shall be issued to the members of the national inter-bank bond market. Investors shall read this Prospectus along with relevant information disclosure documents and make independent investment judgments before subscribing This Bond. The approval of the Competent Authorities on the Issuance of This Bond does not constitute an appraisal on the investment value of This Bond or a judgment on the investment risk of This Bond. This Prospectus is prepared according to the Administration Measures of Auto Finance Companies (ref. 银监会令 [2008] No.1), Administrative Measures for the Issue of Financial Bonds in the national inter-bank bond market (ref. 人 民 银 行 令 [2005] No.1), Announcement No. 8 [2014] of the People's Bank of China and the China Banking Regulatory Commission—Announcement on Amending the Measures for the Administration of Auto Loans, the Measures of the CBRC for Administrative Licensing Issues Concerning Non-banking Financial Institutions (ref. 中国银监会令[2015] No. 6), other relative laws, regulations and regulatory documents, the approval of the Shanghai Office of the CBRC and the PBOC on the Issuance of This Bond, considering the actual situation of the Issuer. This Prospectus aims to provide investors with the basic information of the Issuer, and relative materials of the issuance and subscription of This Bond. The Issuer confirms that the Prospectus contains no falsehoods, misleading statements or major omissions. Except for the Issuer and the Lead Underwriters, the Issuer has not entrusted or authorized any other people or entities to provide explanation on the unlisted information or the information in this Prospectus. The Investors having any questions about this Prospectus should consult its own securities agent, lawyer, professional accountant or any other adviser. This Bond is not and will never be registered based on the Securities Act of 1933 of the United States (modified version, the "Securities Act"). This Bond shall not be issued or sold within the territory of the United States, except that any waiver(s) has been obtained or the Securities Act is not applicable. This Bond is issued outside the territory of the United States according to Reg S of the United States. For offshore investors participating in the subscription of This Bond through the "Northbound Trading" of the "Bond Connect", the specific arrangements concerning registration, depository, settlement, remittance and conversion of funds shall follow the laws, regulations and rules such as the Interim Measures for the Connection and Cooperation between the Mainland and the Hong Kong Bond Market issued by the PBOC and other relevant provisions of any competent party. Offshore Investors participating in This Bond through the "Northbound Trading" of the "Bond Connect" shall conform to the requirements of PBOC in respect of the scope of eligible overseas investors and the scope of tradable and investable bonds types.
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The distribution of this Prospectus and any other certain documents relating to This Bond, the issuance, undertaking and delivery of This Bond should follow restrictive provisions of the laws in the relevant jurisdictions. Therefore, it is suggested that the holders of this Prospectus and any other certain documents relating to This Bond consult with their legal advisers on the scope of the restrictive provisions to be abided and it is suggested that the holders mentioned above follow such rules. This Prospectus shall not be used as an offer or invitation without authorization. Certain sections of the Prospectus, Issuance Announcement and certain documents relating to This Bond published by the Issuer are in both English and Chinese. To the extent there are any inconsistencies between the English and Chinese versions of this Prospectus or any such document, the Chinese version shall prevail.
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Introduction of This Bond 1. General Clause Issuer: Dongfeng Nissan Auto Finance Co., Ltd. Name of This Bond: 2018 Dongfeng Nissan Auto Finance Co., Ltd. Financial Bond II Character of This Bond: This Bond is the ordinary liability without guarantee of the Issuer being repaid in the same order with the unsecured and non-subordinated ordinary liabilities in existence or in the future. Form of This Bond Registered bond, which is in custody by China Central Depository & Clearing Co., Ltd. Term and Type of This This Bond is a fixed rate bond with a 3-year issuance Bond term Total Amount RMB 3,000,000,000 Par value / Issuance price RMB 100 Guarantee of This Bond None Issuance Method The Lead Underwriters will comprise an Underwriting Syndicate to issue This Bond through Book Building and centralized placement sales in the national inter-bank bond market Place for Book Building The dedicated book building place is located at China Merchants Securities Co., Ltd. (address: 7/F, North Tower, Financial Street Center, No. 9A Financial Street, Xicheng District, Beijing) Coupon Rate The coupon rate of This Bond is annual interest rate determined through Book Building and remains unchanged during its duration Issuance Scope and Object This Bond will be publicly offered in the national interbank bond market (unless otherwise prohibited under national laws and regulations). For Offshore Investors participating in this series of financial bonds through the "Northbound Trading" of the "Bond Connect", the specific arrangements concerning registration, depository, settlement, remittance and conversion of funds shall follow competent laws, regulations and rules such as the Interim Measures for the Connection and Cooperation between the Mainland and the Hong Kong Bond Market issued by PBOC and other relevant provisions of any competent party First Date of October 18, 2018 Issuance/Book Building Date
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Issuance Term From October 18, 2018 to October 22, 2018 Subscription Cutoff Date October 22, 2018 Settlement Date October 22, 2018 Interest Payment Date October 22 in each year within the duration of This Bond, which would be extended to the first Business Day thereafter if such day is a Legal Holiday or Festival, and extra interests will not be calculated during the extension Listing Transaction and circulation in the national interbank bond market according to Announcement No. 9 [2015] of the PBOC after issuance Payment Date i.e. maturity date, the Payment Date of This Bond is October 22, 2021 which would be extended to the first Business Day thereafter if such day is a legal holiday or festival, and extra interests will not be calculated during the extension Payment Measure of During the duration of This Bond, 2 Business Days Interests and Principal before the Interest Payment Date and 5 Business Days before the last Interest Payment Date (also the Payment Date), the Issuer shall publish the "Interest Payment Report" or "Payment Report" on the media required by the Competent Authorities according to relevant regulations. CCDC and HKMA-CMU will provide service for the interest and principal payment in accordance with the applicable laws, regulations and normative documents Rating Rated by CCXI, the credit rating of the Issuer is AAA with a stable outlook and the credit rating of This Bond is AAA Payment Fee No payment fee for This Bond Custodian CCDC will provide service for the registration, depository and settlement of This Bond. HKMA-CMU will provide service for the registration, depository and settlement for the Offshore Investors who open accounts in HKMA-CMU Use of Proceeds Repayment of financial loans, supplement of working capitals and other purposes complying with the requirements by national laws, regulations and public policies, in order to support business development of the Issuer and optimize the structures of assets and liabilities of the Issuer
2. Parties in this issuance 2.1 Issuer
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Name: Dongfeng Nissan Auto Finance Co., Ltd. Registered Address: No. 500 Fushan Road, Pilot Free Trade District, Shanghai, China Post Code: 200122 Legal Representative: Yang Qiao Contacts: Yumi Tanaka, Nicole Qiu, Amanda Lv, Alex Shen Tel: 021-38576000 Fax: 021-50589730
2.2 Lead Underwriter Name: China Merchants Securities Co., Ltd. Registered Address: 38-45/F, Jiangsu Building, Yitian Road, Futian District, Shenzhen, Guangdong, China Post Code: 518026 Legal Representative: Da Huo Contacts: Dong Yang, Yueyu Shang, Huimin Zhou, Huachao Liu Tel: 010-60840883 Fax: 010-57601990 Lead Underwriter Name: Industrial and Commercial Bank of China Limited Registered Address: No. 55 Fu Xing Men Nei Avenue, Xicheng District, Beijing, China Post Code: 100140 Legal Representative: Huiman Yi Contacts: Qianhui Zhou, Zetong Chen Tel: 010-66104147, 010-66108040 Fax: 010-66107567
Lead Underwriter Name: Bank of China Limited Registered Address: No. 1 Fu Xing Men Nei Avenue Post Code: 100818 Legal Representative: Siqing Chen Contacts: Jing Zhou Tel: 010-66592433 Fax: 010-66591706
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2.3 Rating Agency Name: China Chengxin International Credit Rating Co. Ltd. Registered Address: 60101, Building 1, No.2 Nanzhugan Lane, Dongcheng District, Beijing Post Code: 100010 Legal Representative: Yan Yan Contacts: Xiaokun Zhang, Qiuran Wang Tel: 010-66428877 Fax: 010-66426100
2.4 Legal Counsel Name: King &Wood Mallesons Registered Address: 40/F, Building A of Beijing Fortune Center, No. 7 Dong San Huan Road, Zhangyang District, Beijing Post Code: 100020 Person in Charge: Ling Wang Contacts: Zhe Hu, Fushen Chen, Chen Liu, Yijun Zhou Tel: 021-24126000 Fax: 021-24126350 2.5 Accounting Name: Ernst & Young Hua Ming LLP Shanghai Branch Registered Address: 50/F, Shanghai World Financial Center, No. 100 Century Avenue, Pilot Free Trade District,, Shanghai Post Code: 200120 Partner in Charge: Shunjie Bi Contacts: Haifeng Jiang Tel: 021-22288888 Fax: 021-22280000
2.6 Registry/Custody/Clearing Agency Name: China Central Depositary & Clearing Co., Ltd. Registered Address: 5/F Tongtai Building B, No. 33 Finance Avenue, Xicheng District, Beijing Post Code: 100033 Legal Representative: Ruqing Shui Contacts: Lingzhi Sun
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Tel: 010-88087970 Fax: 010-88086356
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Table of Contents
CHAPTER 1 DEFINITION ...... 9 CHAPTER 2 SUMMARY OF THE PROSPECTUS ...... 12 CHAPTER 3 THE PAYMENT ORDER OF THIS BOND AND RISK DISCLOSURE ...... 17 CHAPTER 4 DETAILS OF THIS BOND ...... 19 CHAPTER 5 INFORMATION OF THE ISSUER ...... 24 CHAPTER 6 ANALYSIS ON THE FINANCIAL CONDITION OF THE ISSUER ...... 49 CHAPTER 7 USE OF PROCEEDS OF THIS BOND AND HISTORICAL ISSUANCE OF BONDS ...... 75 CHAPTER 8 BOARD OF DIRECTORS AND SENIOR MANAGEMENT OF THE ISSUER ...... 79 CHAPTER 9 UNDERWRITING AND ISSUANCE METHOD OF THIS BOND ...... 84 CHAPTER 10 ANALYSIS ON TAXATION...... 85 CHAPTER 11 RATING OF THE THIS BOND ...... 87 CHAPTER 12 GUARANTEE OF THIS BOND ...... 89 CHAPTER 13 LEGAL OPINIONS ...... 90 CHAPTER 14 RELATIVE INSTITUTIONS DURING THIS ISSUANCE ...... 91 CHAPTER 15 INFORMATION FOR DISCLOSURE ...... 96
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Chapter 1 Definition Capitalized terms used in this Prospectus have the following meanings unless otherwise interpreted according to the content: Accounting Principles means the Enterprise Accounting Standards No. 39 - for Enterprises Measurement of Fair Value, the Accounting Standards for Enterprises No. 40 - Joint Venture Arrangements, the Enterprise Accounting Standards No. 41 - Disclosure of Interests in Other Entities and the revised Accounting Standards for Business Enterprises No. 2 - Long-term Equity Investments, the Enterprise Accounting Standards No. 9 - Employee Compensation, the Enterprise Accounting Standards No. 30 - Presentation of Financial Statements, the Accounting Standards for Business Enterprises No. 33 - Consolidated Financial Statements Newly published by the Ministry of Finance in 2014, meanwhile the Enterprise Accounting Standards No. 37 - Presentation of Financial Instruments revised by the Ministry of Finance in 2014 applies to the financial statement of 2014. Bond Connect means a new mutual market access scheme allowing investors from China and overseas to trade in each other's bond markets through connection between the related Mainland and Hong Kong financial infrastructure institutions. Northbound Trading means a new mutual market access scheme allowing offshore investors (referred to as "Offshore Investors" in this Prospectus) from Hong Kong and other regions to invest in the national interbank bond market through mutual access arrangements in respect of trading, custody and settlement. Book Building means the process that the Issuer and the Lead Underwriters come into an agreement and authorize the Issuer and the Bookrunner to decide the coupon rate range of This Bond along with the Bookrunner recording the subscription order, and the Issuer and Bookrunner formulating the issuance scale and coupon rate of This Bond. Bookrunner means China Merchants Securities Co., Ltd. Business Day means any day on which commercial banks in Shanghai are open for business except Legal Holiday or Festival CBIRC means China Banking and Insurance Regulatory Commission CBRC formally known as China Banking Regulatory Commission, which has been merged with China Insurance Regulatory Commission as CBIRC CCDC means China Central Depository & Clearing Co., Ltd. CCXI China Chengxin International Credit Rating Co. Ltd.
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Financial Bond means the financial bond which was deliberated and adopted by the Board of Directors of the Issuer on May 23, 2018, approved by relevant regulatory authority and originated with an aggregate principal amount up to RMB 5 Billion in the national inter-bank bond market Lead Underwriters means China Merchants Securities Co., Ltd., Industrial and Commercial Bank of China Limited and/or Bank of China Limited, collectively, the "Lead Underwriters" and each a "Lead Underwriter" Legal Holiday or Festival means legally designated holiday or festival of PRC or the governments except the legally designated holidays and festivals of Hong Kong SAR, Macao SAR and Taiwan province) Investors mean institutional investors who are qualified to participate in the national interbank bond market according to the Measures for Administration except the investors forbidden by the national laws or regulations to purchase the bond Issuance Announcement means the announcement prepared by the Issuer according to PRC Laws for the purpose of issuing 2018 DNAF Financial Bond II Issuance Documents means all the documents, materials and any other information for the purpose of issuing This Bond, as the same may have been or may be modified and supplemented from time to time, including but not limited to the Issuance Announcement and this Prospectus Issuance of This Bond means the issuance of 2018 DNAF Financial Bond II Issuer/Company means Dongfeng Nissan Auto Finance Co., Ltd. PBOC means People's Bank of China Prospectus means this 2018 DNAF Financial Bond II Prospectus prepared by the Issuer to disclose relevant information about Financial Bond to the Investors Relevant Competent means the authorities, from whom the approvals shall be Authorities obtained for Issuance of Financial Bond, including but not limited to the CBRC and the PBOC Term and Type of This This Bond is a fixed rate bond with a term up to 3 years Bond the Announcement means the Announcement No. 8 [2014] of the People's Bank of China and the China Banking and Insurance Regulatory Commission the Measures for means the Measures for the Administration of the Issuance of Administration Financial Bonds in the national inter-bank bond market (Order of the People's Bank of China No. 1 [2005])
10 2018 DNAF Financial Bond II Prospectus the Measures for means the Amendments to the Measures of China Banking Implementation and Insurance Regulatory Commission for the Implementation of Administrative Licensing Matters Concerning Non-bank Financial Institutions (Order of China Banking and Insurance Regulatory Commission No. 6 [2005]) This Bond: means 2018 DNAF Financial Bond II which is the first issuance in installments under the Financial Bond. Underwriting Agreement means the Underwriting Agreement for 2018 DNAF Financial Bond entered into among Dongfeng Nissan Auto Finance Co., Ltd. (as "Issuer") and China Merchants Securities Co., Ltd., Industrial and Commercial Bank of China Limited and Bank of China Limited (as "Lead Underwriters" and on behalf of the "Underwriting Syndicate") signed by the Issuer and the Lead Underwriters for the purpose of the Issuance of Financial Bond Underwriting Syndicate means the underwriting group organized by the Lead Underwriters for the Issuance of This Bond consisting of the Lead Underwriters and any other underwriter members. Underwriting Syndicate means the Underwriting Syndicate Agreement for 2018 Agreement DNAF Financial Bond entered into by the underwriting syndicate members for the purpose of the Issuance of the Financial Bond Yuan means RMB yuan unless otherwise stated
Any difference in the mantissa between parts of total number and direct summation stated in the Prospectus is occurred by round off method.
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Chapter 2 Summary of the Prospectus The summary in this chapter only provides brief notice of the full text. The Investors shall read the full content of this Prospectus before making a judgment on investment. 2.1 Basic Information of the Issuer 2.1.1 Information of the Issuer
Chinese Name: 东风日产汽车金融有限公司
English Name: Dongfeng Nissan Auto Finance Co., Ltd.
Date of Establishment: October 26, 2007
Legal Representative: Yang Qiao
No. 500 Fushan Road, Pilot Free Trade District, Registered Address: Shanghai, China
Post Code: 200122
Telephone: 021-38576000
Fax: 021-50589730
Official Website: www.df-nissanfc.com
Date of Initial Registration: October 26, 2007
Site of Initial Registration: Shanghai Administration of Industrial and Commence
Date of Latest Modification of July 5, 2016 Registration:
Site of Latest Modification of Shanghai Administration of Industrial and Commence Registration:
Unified Social Credit Code of 91310000717881191L Enterprise Legal Persons:
2.1.2 Introduction of the Issuer Approved by the CBRC, the Issuer, a sino-foreign joint venture, was established in October 26, 2007 and located in Shanghai, the shareholders along with the shareholding ratio are, Nissan Motor Co., Ltd. ("NML"), 65.00% and Dongfeng Motor Group Co., Ltd. ("DFG"), 35.00%. In July 2008, May 2011 and December 2012, approved respectively by administrative
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permissions from the CBRC Shanghai office (ref. 沪银监复 [2008] No.481), (ref. 沪银监 复 [2011] No.350) and from the CBRC (ref. 银监复 [2012] No.780), the Company has increased its registered capital for three times and the registered capital has been reached to RMB 1,529,412,000 Yuan. Until now, the shareholders along with the shareholding ratio of the Issuer are, DFG, 35.00%, NML, 29.75%, Nissan (China) Investment Co., Ltd. ("NCIC"), 21.25% and Dongfeng Motor Co., Ltd. ("DFL"), 14.00%. 2.1.3 The Business Scope of the Issuer The main business scope of the Issuer includes, (1) taking fixed deposit with a term of over three months (inclusive) from overseas shareholder and its solely-owned subsidiaries in China and domestic shareholder; (2) taking loan deposit from dealers and auto rental deposit from lessees; (3) issuing financial bonds after approval; (4) interbank lending and borrowing; (5) borrowing from financial institutions; (6) providing auto loan business; (7) providing loans to auto dealers for the purpose of procurement of automobiles and operating facilities (including loans for the construction of show rooms, purchase of spare parts and maintenance equipment, etc.); (8) providing auto financial leasing (exclusive of lease back after sales ); (9) selling or repurchasing receivables of auto loan and auto financial lease to or from financial institutions; (10) selling and handling residual value of leased autos; (11) engaging in consultancy and agency services related to auto purchase financing activities; and (12) engaging in equity investment related to auto finance business after approval. 2.2 Summary of the Issuer's Historical Financial Condition The key Statistic of the Issuer's audited consolidated balance sheet for the last three years and the unaudited consolidated balance sheet for the period ended 30 June 2018is as follows: Unit: RMB
ITEM December 31, 2015 December 31, 2016 December 31, 2017 June 30, 2018 Total Assets 25,051,928,417 33,787,647,559 42,939,619,372 44,322,584,269 Total Liabilities 21,203,209,546 28,988,697,772 36,939,990,904 37,696,893,674 Equity 3,848,718,871 4,798,949,787 5,999,628,468 6,625,690,595 Due to and placements from banks and other 13,680,000,000 15,970,000,000 15,280,000,000 12,330,000,000 financial institutions Loans 23,261,574,976 31,232,530,393 39,148,803,979 41,612,419,133
The key Statistic of the Issuer's audited consolidated income statements of the last three years
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and for the period from January to June of 2018 is as follows: Unit: RMB
ITEM 2015 2016 2017 January – June 2018 Net Operating Income 1,330,301,013 1,695,768,017 1,947,976,355 1,193,555,526 Operating Profit 896,566,730 1,240,385,442 1,588,157,670 979,974,616 Profit before Tax 915,776,799 1,276,356,119 1,588,084,965 980,009,756 Net Profit 672,682,150 950,230,916 1,200,678,681 732,686,377
The key Statistic of the Issuer's audited consolidated cash flow statements of the last three years and for the period from January to June of 2018 is as follows: Unit: RMB
January – June ITEM 2015 2016 2017 2018 Net cash outflows from (391,405,617) (2,952,836,000) (4,714,708,168) (2,672,905,769) operating activities Net Cash outflows from (9,913,821) (32,116,992) (14,847,081) (2,930,129) investing activities Net Cash flows from financing 442,964,506 3,314,877,006 5,737,717,659 1,429,053,783 contributions Net (Decrease)/increase in cash 41,645,068 329,924,014 1,008,162,410 (1,246,782,115) and cash equivalents
2.3 General Information on Issuance of This Bond Note: information below is only the brief description of the terms and conditions of the Issuance of This Bond, the details of which will be presented in Chapter 4 details of This Bond in this Prospectus. Name of This Bond: 2018 Dongfeng Nissan Auto Finance Co., Ltd. Financial Bond II Issuer: Dongfeng Nissan Auto Finance Co., Ltd. Issuance Scale of This Bond RMB 3,000,000,000 Term and Type of This This Bond is a fixed rate bond with an issuance term up to 3 Bond years Par value RMB 100 Coupon Rate The coupon rate of This Bond is annual interest rate determined through Book Building and remains unchanged during its duration First Date of Issuance/Book October 18, 2018 Building Date Issuance Term From October 18, 2018 to October 22, 2018 Settlement Date October 22, 2018 Subscription Cutoff Date October 22, 2018 Payment Method Interests of This Bond will be paid once a year on the
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Interest Payment Date and the principals will be paid at one time on the Payment Date. Payment of the interests and principals of This Bond will be operated by the Custodian Interest Payment Date October 22 in each year within the duration of This Bond, which would be extended to the first Business Day thereafter if such day is a Legal Holiday or Festival, and extra interests will not be calculated during the extension Payment Date i.e. maturity date, the Payment Date of This Bond is October 22, 2021 which would be extended to the first Business Day thereafter if such day is a legal holiday or festival, and extra interests will not be calculated during the extension Payment Measure of During the duration of This Bond, 2 Business Days before Interests and Principal each Interest Payment Date and 5 Business Days before the last Interest Payment Date (also the Payment Date), the Issuer shall publish the "Interest Payment Report" or "Payment Report" on the media required by the Competent Authorities according to relevant regulations. CCDC and HKMA-CMU will provide service for the interest and principal payment in accordance with the applicable laws, regulations and normative documents Issuance Price RMB 100 Issuance Method The Lead Underwriters will comprise an Underwriting Syndicate to issue This Bond through Book Building and centralized placement sales in the national inter-bank bond market Place for Book Building The dedicated book building place is located at China Merchants Securities Co., Ltd. (address: 7/F, North Tower, Financial Street Center, No. 9A Financial Street, Xicheng District, Beijing) Form of This Bond Real-name and registered bonds Transaction of This Bond After the Issuance of This Bond, completing the establishment of the debtor-creditor relationship and the registration of the bonds, the Issuer shall assist the Interbank Funding Center to operate the transaction and circulation of This Bond in national inter-bank bond market (ref. 人民银 行令 [2015] No.9) Rating Rated by CCXI, the credit rating of the Issuer is AAA with a stable outlook and the credit rating of This Bond is AAA Repayment Order This Bond is the ordinary liability without guarantee of the Issuer being repaid in the same order with the unsecured and non-subordinated ordinary liabilities in existence or in the future. Guarantee of This Bond None
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Issuance Scope and Object This Bond will be publicly offered in the national interbank bond market (unless otherwise prohibited under national laws and regulations). For Offshore Investors participating in this series of financial bonds through the "Northbound Trading" of the "Bond Connect", the specific arrangements concerning registration, depository, settlement, remittance and conversion of funds shall follow competent laws, regulations and rules such as the Interim Measures for the Connection and Cooperation between the Mainland and the Hong Kong Bond Market issued by PBOC and other relevant provisions of any competent party Custodian CCDC will provide service for the registration, depository and settlement of This Bond. The Central Moneymarkets Unit of Hong Kong Monetary Authority (HKMA-CMU) will provide service for the registration, depository and settlement for the Offshore Investors who open accounts in HKMA-CMU. Payment Fee None Use of Proceeds The proceeds of This Bond will be used for the repayment of financial loans, supplement of working capitals and other purposes complying with the requirements by national laws, regulations and public policies, in order to support business development of the Issuer and optimize the structures of assets and liabilities of the Issuer Reminder on Taxation According to national laws and regulations, the Investors Obligation shall be responsible for the taxation on investing This Bond Subscription Covenants by The Investors subscribing This Bond covenants that, (1) the the Investors Investors subscribing This Bond have acknowledged and taken each risk of This Bond into consideration; (2) the Investors accept all the rules regarding to the rights and obligations disclosed in this Prospectus and the Issuance Announcement and agree to be bound to such rules; (3) after issuing This Bond, it is possible for the Issuer to issue another financial bond, the payment order of which is in the same order as This Bond approved by Relevant Competent Authorities if necessary according to its business operation with no need to obtain consent from the Investors of This Bond in advance
2.4 Use of Proceeds The proceeds from the offering of This Bond will be used as repayment of financial loans, supplement of working capitals and other purposes complying with the requirements by national laws, regulations and public policies, in order to support business development of the Issuer and optimize the structures of assets and liabilities of the Issuer.
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Chapter 3 the Payment Order of This Bond and Risk Disclosure 3.1 The Payment Order of This Bond This Bond is the ordinary liability without guarantee of the Issuer being repaid in the same order with the unsecured and non-subordinated ordinary liabilities in existence or in the future. According to the Company Law of PRC and other relevant regulations, after the costs for bankruptcy proceedings and community liabilities are repaid in priority and unpaid wages, social insurance premiums, legal compensations and defaulted tax fees are paid by the insolvent assets, The Financial Bond stands the same sequence with any other debt of the Company. 3.2 Risk Disclosure When appraising and subscribing This Bond, the Investors shall take the following risks into consideration as well as other materials provided in this Prospectus: 3.2.1 Interest Rate Risk There is uncertainty with respect to the fluctuation of market interest rate which is affected by the overall operational status of the national economy, national macro economy, financial policies and the international environment. As This Bond has a long duration and the interest is calculated on fixed interest rate basis, the profit may be decreased correspondingly with the possibility for the market interest rate to rise. Measures: This Bond will be issued by book building, and the coupon rate will be finally determined by the market. After the Issuance of This Bond, completing the establishment of the debtor-creditor relationship and the registration of the bonds, the Issuer shall assist the Interbank Funding Center to operate the transaction and circulation of This Bond in national inter-bank bond market (ref. 人民银行令 [2015] No.9). 3.2.2 Redemption Risk The credit risk resulted from default may occur under This Bond if the Issuer has been affected by natural environment, economic situation, national policies and its own management, which leads to a deterioration of the business benefit and an inadequate liquidity during its operation management. Measures: As a legal person, the Issuer has well-designed corporate structure, transparent finance, good management, steady operation, good liquidity and has no debt default records during its operation. With years' efforts, the Issuer has stepped into the path where its quality, profitability, speed and structure develop with coordination. The Issuer will further strengthen its management, business and operation profitability to ensure the scheduled redemption. 3.2.3 Liquidity Risk After the trading and circulation of This Bond in the national inter-bank bond market, there may be some liquidity risk in terms when it becomes impossible to find a counterparty to transfer such bond to. Measures: With the development of the bond market and sound regulations on the bond trading and circulation, the liquidity risk may be decreased in the future. 3.2.4 Policy Risk The change in national monetary policy and macro-control means may have direct influence
17 2018 DNAF Financial Bond II Prospectus on the Issuer's business activities. If the Issuer's operation could not promptly adjust with the changing tendency of monetary policy, the operation and management efficiency of the Issuer will be affected uncertainly. Measures: The Issuer will positively track and take researches on the background factors of the changes in monetary policy, in order to understand the regularity of economic policy and financial monetary policy and to reasonably adjust the funding plan and the asset-liability structure. Besides, the Issuer will improve the prediction of the tendency of interest rate market, and flexibly adjust the liquidity reserve and funding structure based on the market condition. Moreover, the Issuer will strengthen the cost management and risk control of funding operations, in order to relieve the negative influence of the change in monetary policy on the Issuer's operation.
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Chapter 4 Details of This Bond 1. Name of This Bond 2018 DNAF Financial Bond II 2. Issuer of This Bond Dongfeng Nissan Auto Finance Co., Ltd. 3. Term and Type of This Bond This Bond is a fixed rate bond with an issuance term up to 3 years. 4. Issuance Amount of This Bond RMB 3,000,000,000 5. Character of This Bond This Bond is the ordinary liability without guarantee of the Issuer being repaid in the same order with the unsecured and non-subordinated ordinary liabilities in existence or in the future. 6. Par value of This Bond The par value of This Bond is RMB 100, which means the principal of the bond per unit is RMB 100. 7. Issuance Price This Bond will be issued with face value and the issuance price is RMB 100 per hundred. 8. Lead Underwriters The Lead Underwriters of the Issuance of This Bond are China Merchants Securities Co., Ltd., Industrial and Commercial Bank of China Limited and Bank of China Limited. 9. Issuance Method The Lead Underwriters will comprise an Underwriting Syndicate to issue This Bond through Book Building and centralized placement sales in the national inter-bank bond market. 10. Place for Book Building The dedicated book building place is located at China Merchants Securities Co., Ltd. (address: 7/F, North Tower, Financial Street Center, No. 9A Financial Street, Xicheng District, Beijing). 11. Coupon Rate The coupon rate of This Bond is annual interest rate determined through Book Building and remains unchanged during its duration. 12. First Date of Issuance / Book Building Date The first date of the Issuance of This Bond is October 18, 2018, which is also the Book Building date. 13. Issuance Term
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The issuance term of This Bond is from October 18, 2018 to October 22, 2018. 14. Settlement Date Settlement Date of This Bond is October 22, 2018. 15. Subscription Cutoff Date Subscription Cutoff Date of This Bond is October 22, 2018. 16. Payment Date The Payment Date of This Bond is October 22, 2021, which would be extended to the first Business Day thereafter if such day is a legal holiday or festival, and extra interests will not be calculated during the extension 17. Interest Payment Date The Interest Payment Date of This Bond is October 22 in each year within the duration of This Bond, which would be extended to the first Business Day thereafter if such day is a Legal Holiday or Festival, and extra interests will not be calculated during the extension 18. Maturity Date The maturity date of This Bond is payment date. 19. Payment Method Interests of This Bond will be paid once a year on the Interest Payment Date and the principals will be paid at one time on the Payment Date. Payment of the interests and principals of This Bond will be operated by the Custodian. 20. Payment Measure of Interests and Principal During the duration of This Bond, 2 Business Days before the Interest Payment Date and 5 Business Days before the last Interest Payment Date (also the Payment Date), the Issuer shall publish the "Interest Payment Report" or "Payment Report" on the media required by the Competent Authorities according to relevant regulations. CCDC and HKMA-CMU will provide service for the interest and principal payment in accordance with the applicable laws, regulations and normative documents. 21. Payment Fee There is no Payment Fee of This Bond. 22. Issuance Scope and Object This Bond will be publicly offered in the national interbank bond market (unless otherwise prohibited under national laws and regulations). For Offshore Investors participating in this series of financial bonds through the "Northbound Trading" of the "Bond Connect", the specific arrangements concerning registration, depository, settlement, remittance and conversion of funds shall follow competent laws, regulations and rules such as the Interim Measures for the Connection and Cooperation between the Mainland and the Hong Kong Bond Market issued by PBOC and other relevant provisions of any competent party. 23. Minimum Subscription Amount
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The minimum subscription amount of This Bond is 10 million, and the subscription amount should be integer multiple of 10 million. 24. Form of This Bond This Bond is real-name and registered bond that will be in custody by CCDC. 25. Transaction of This Bond After the Issuance of This Bond, completing the establishment of the debtor-creditor relationship and the registration of the bonds, the Issuer shall assist the Interbank Funding Center to operate the transaction and circulation of This Bond in national inter-bank bond market according to Announcement No. 9 [2015] of the PBOC. 26. Rating of This Bond Rated by CCXI, the credit rating of the Issuer is AAA with a stable outlook and the credit rating of This Bond is AAA. 27. Repayment Order This Bond is the ordinary liability without guarantee of the Issuer being repaid in the same order with the unsecured and non-subordinated ordinary liabilities in existence or in the future. According to the Company Law of PRC and other relevant regulations, after the costs for bankruptcy proceedings and community liabilities are repaid in priority and unpaid wages, social insurance premiums, legal compensations and defaulted tax fees are paid by the insolvent assets, This Bond stands the same sequence with any other debt of the Company. 28. Guarantee of This Bond This Bond has no guarantee. 29. Subscription and Custodian of This Bond (1) The Lead Underwriters will comprise an Underwriting Syndicate to issue This Bond through Book Building and centralized placement sales in the national inter-bank bond market; (2) CCDC will provide service for the registration, depository and settlement of This Bond. HKMA-CMU will provide service for the registration, depository and settlement for the Offshore Investors who open accounts in HKMA-CMU; (3) The institutional Investors subscribing This Bond shall open A or B escrow account in the CCDC, or C escrow account in the CCDC through the settlement agent in the national inter-bank bond market, or open a Class C depository account through a bond settlement agent in the national interbank bond market, or open a nominee bond account or proprietary bond account with HKMA-CMU; (4) The syndicate members could distribute This Bond to other Investors during the duration of This Bond; (5) The Investors dealing with the subscription, registration and custody of its subscribed bond have no need to pay any extra fees. Custody and registration shall be addressed on the basis of the relevant regulations of the custodian of the bond; (6) Any regulations regarding to the subscription and custody of the bond conflicts with
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the valid, amended or enacted laws, regulations and policies of the CCDC, the valid, amended or enacted laws, regulations and policies of the CCDC will prevail. 30. Underwriting of This Bond This Bond will be issued by the Underwriting Syndicate comprised by the Lead Underwriters. 31. Custodian CCDC will provide service for the registration, depository and settlement of This Bond. HKMA-CMU will provide service for the registration, depository and settlement for the Offshore Investors who open accounts in HKMA-CMU. 32. Use of Proceeds The proceeds from the offering of This Bond will be used as repayment of financial loans, supplement of working capitals and other purposes complying with the requirements by national laws, regulations and public policies, in order to support business development of the Issuer and optimize the structures of assets and liabilities of the Issuer. 33. Reminder on Taxation Obligation According to national laws and regulations, the Investors shall be responsible for the taxation on investing This Bond. 34. Representation and Warranty by the Issuer The Issuer represents and warrants to the investors as follows: (1) The Issuer is an auto finance company established under PRC Laws having qualifications to operate the business set in its financial license within China and having power, authorization and legal rights to own its assets and to conduct its current business; (2) The Issuer has the rights to issue the financial bond regulated in this Prospectus and has already performed all necessary actions regarding to the approval of the Issuance of This Bond; (3) Once this Prospectus is published to the public after being approved by the Competent Authorities, it could be treated as an offer given by the Issuer to the Investors in the inter-bank bong market; (4) The Issuance of This Bond, performance of obligations under This Bond and exercising its rights by the Issuer will not violate or conflict with any laws, regulations or any judgment, order, rule, authorization, agreement or obligation applicable to the Issuer, or the Issuer has already obtained approval or valid waiver from the Competent Authorities that are legally valid according to PRC Laws and are enforceable through judicial approach; (5) The Issuer has already submitted, registered or filed the reports, resolutions, declarations or any other documents required by relevant departments in appropriate method; (6) The latest financial statements are prepared according to applicable PRC laws, regulations and the Accounting Principles for Enterprises, which reflects the
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financial situations at the end of the report period and the performance during the report period completely, truly and fairly in all adverse aspects; (7) The Prospectus, Issuance Announcement, audited financial statements and any other information and materials are genuine and accurate in all adverse aspects provided by the Issuer for the purposes of the Issuance of This Bond to the Investors; (8) The Issuer represents and warranties to the Investors that, the representations and warranties (1) - (7) above are genuine and accurate as for the existing facts and situations at the time of the Issuance of This Bond. 35. Subscription Covenants by the Investors The Investors subscribing This Bond covenants that, (1) the Investors subscribing This Bond have acknowledged and taken each risk of This Bond into consideration; (2) the Investors accept all the rules regarding to the rights and obligations disclosed in this Prospectus and the Issuance Announcement and agree to be bound to such rules; (3) after issuing This Bond, it is possible for the Issuer to issue other financial bonds, the payment order of which is in the same order as This Bond approved by relevant author1ization if necessary according to its business operation with no need to obtain consent from the Investors of This Bond in advance. 36. Arrangement for Information Disclosure of This Bond (1) The Issuer shall ensure the genuineness, exactness, completeness and timeliness of the disclosed information related to This Bond according to the requirements by the Competent Authorities mainly through the annual report and disclosure on the important matters; (2) Regular reports: during the existence of This Bond, the Issuer shall, no later than April 30 of each year, disclose its annual report to the Investors. An annual report shall cover the information about the business operations of the Issuer in the previous year, the financial statements audited by a certified public accountant, as well as the important lawsuits it is involved in; (3) Follow-up tracking rating report: during the existence of This Bond, the Issuer shall, no later than July 31 of each year, disclose the follow-up tracking rating report to the Investors; (4) Disclosure on the important matters: the Issuer shall disclose the details timely to the competent departments and regulators when important events happens that would have an effect on the performance of the debt by the Issuer and disclose to the Investors in accordance with the method required by such departments; (5) The Issuer shall ensure the genuineness, exactness, completeness and timeliness of the disclosed information on the basis of the requirements from competent departments, regulatory institutions and the inter-bank bond market regarding to the Issuance of This Bond.
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Chapter 5 Information of the Issuer 5.1 Basic Information of the Issuer 5.1.1 Description of the Issuer
Chinese Name: 东风日产汽车金融有限公司
English Name: Dongfeng Nissan Auto Finance Co., Ltd.
Date of Establishment: October 26, 2007
Legal Representative: Yang Qiao
No. 500 Fushan Road, Pilot Free Trade District, Registered Address: Shanghai, China
Post Code: 200122
Telephone: 021-38576000
Fax: 021-50589730
Official Website: www.df-nissanfc.com
Date of Initial Registration: October 26, 2007
Site of Initial Registration: Shanghai Administration of Industrial and Commence
Date of Latest Modification of July 5, 2016 Registration:
Site of Latest Modification of Shanghai Administration of Industrial and Commence Registration:
Unified Social Credit Code of 91310000717881191L Enterprise Legal Persons:
5.1.2 Historical Evolution of the Issuer Approved by the Letter of CBRC on Approval of the Open of Dongfeng Nissan Auto Finance Co., Ltd. (ref. 银监函 [2007] No.432) on October 11, 2007 and registered by the State Administration for Industry and Commerce of Shanghai, the Issuer was established in October 26, 2007 with the registered address at Shanghai and the registered capital of 500 million, of which NML contributed RMB 325 million in cash and DFG contributed RMB 175 million in cash, holding 65% and 35% shares of the Company respectively. According to the Board Resolution by Written Consent of Directors ([BOD-01-W-01] No. 01/2), NML and DFG contributed RMB 200 million together and the Company increased the current registered capital from RMB 500 million to RMB 700 million. The shareholding 24 2018 DNAF Financial Bond II Prospectus proportion maintained unchanged after such increase of registered capital, which was approved by the CBRC Shanghai office issuing the Approval on the Increase of Registered Capital and Amendment of the Articles of Association by Dongfeng Nissan Auto Finance Co., Ltd. (ref. 沪银监复 [2008] No.481) on July 14, 2008. The Issuer obtained the updated business license from the State Administration for Industry and Commerce of Shanghai on August 13, 2008 as for this increase of registered capital. According to the Board Resolution by Written Consent of Directors ([BOD-01-W-19] No. 01/2), NCIC, as the wholly-owned subsidiary of the original shareholder NML, contributing RMB 325 million in cash, DFL contributing RMB 175 million in cash, the Company increased the current registered capital from RMB 700 million to RMB 1,200 million. NML, DFG and NCIC hold 37.92%, 35.00% and 27.08% shares of the Company respectively after such increase of registered capital, which was approved by the CBRC Shanghai office issuing the Approval on the Increase of Registered Capital, change of the shareholder structure and Amendment of the Articles of Association by Dongfeng Nissan Auto Finance Co., Ltd. (ref. 沪银监复 [2011] No.350) on May 30, 2011. The Issuer obtained the updated business license from the State Administration for Industry and Commerce of Shanghai on June 22, 2011 as for this increase of registered capital. According to the Board Resolution by Written Consent of Directors ([BOD-02-W-26] No. 01/02), DFG and DFL contributed together and the Company increased the current registered capital from RMB 1,200 million to RMB 1,529,412.000 with the shareholding proportion is NML, 29.75%, DFG, 35.00%, NCIC, 21.25% and DFL, 14.00%. Such registered capital increase was approved by the CBRC issuing the Approval by CBRC on the Increase of Registered Capital, change of the shareholder structure and so on by Dongfeng Nissan Auto Finance Co., Ltd. (ref. 银监复 [2012] No.780) on December 27, 2012. The Issuer obtained the updated business license from the State Administration for Industry and Commerce of Shanghai on February 20, 2013 as for this increase of registered capital. As the execution date of the Prospectus, the registered capital of the Company is RMB 1,529,412.000. 5.1.3 Business Scope of the Issuer The main business scope of the Issuer includes, (1) taking fixed deposit with a term of over three months (inclusive) from overseas shareholder and its solely-owned subsidiaries in China and domestic shareholder; (2) taking loan deposit from dealers and auto rental deposit from lessees; (3) issuing financial bonds after approval; (4) interbank lending and borrowing; (5) borrowing from financial institutions; (6) providing auto loan business; (7) providing loans to auto dealers for the purpose of procurement of automobiles and operating facilities (including loans for the construction of show rooms, purchase of spare parts and maintenance equipment, etc.); (8) providing auto financial leasing (exclusive of lease back after sales); (9) selling or repurchasing receivables of auto loan and auto financial lease to or from financial institutions;
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(10) selling and handling residual value of leased autos; (11) engaging in consultancy and agency services related to auto purchase financing activities; and (12) engaging in equity investment related to auto finance business after approval. 5.2 Operation Conditions of the Issuer 5.2.1 Description of the Operation 1. General Operation Condition Duration of domestic auto finance companies is very short, just as Auto Finance Industry which owns a really short history in China. As one of the auto finance companies operated earlier in China, the Issuer was established on October 26, 2007 and has a history of 10 years. The Issuer has optimized different kinds of resource allocations, strengthened the expansion of business and innovation, and made efforts to realize the harmonious development among its quality, profitability, speed and structure pursuant to national macro adjustment policies and the requirements of supervisory departments. The Issuer has a rapid growth in each business and achieved profit since 2010. Till now, the Issuer has been solidly profitable for 8 years. The general operation condition of the Issuer is as follows: (1) Steady Growth of the Assets The total amount of assets of the Issuer reached RMB 25,052 million, RMB 33,788 million, RMB 42,940 million and RMB 44,323 million, respectively, with the amount of loans extended of RMB 23,262 million, RMB 31,233 million, RMB 39,149 million and RMB 41,612 million as of December 31, 2015, December 31, 2016, December 31, 2017 and June 30, 2018. As of December 31, 2015, December 31, 2016, December 31, 2017 and June 30, 2018, the year-on-year asset growth rates were 23.95%, 34.87%, 27.09% and 23.11%, respectively, with the amount of loans extended increased by 29.11%, 34.27%, 25.35% and 25.39%, respectively. Both the amount of assets and the amount of loans kept a stable growth. (2) Increasing profitability In 2015, 2016, 2017 and the period from January to June 2018, the net profit of the Issuer reached RMB 673 million, RMB 950 million, RMB 1,201 million and RMB 733 million, respectively; the profitability kept increasing year by year. The net interest income of the Issuer in 2015 was RMB 1,311 million, 19.66% more than that of 2014, which equaled to a growth of RMB 215 million. The net interest income of the Issuer in 2016 was RMB 1,668 million, an increase of 27.31% over the previous year. The net interest income of the Issuer in 2017 was RMB 1,915 million, an increase of 14.76% over the previous year. The net interest income of the Issuer for the period from January to June 2018 was RMB 1,071 million, an increase of 12.95% over the previous year. (3) Good Asset Quality The Issuer consistently pays attention to the management of the asset quality. The Issuer has established and strengthened the risk management system, keeping close track of the loan quality and controlled the non-performing ratio when expanding its loans and business. As of end of 2015, 2016, 2017 and June 2018, the non-performing ratio of the Issuer was 0.10%, 0.07%, 0.18% and 0.12%, respectively. (4) Expanding Business Coverage
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Since the establishment of the Issuer, the business coverage has expanded increasingly with the development of its business. As of June 30, 2018, the retail finance service covered 393 cities together with 1,637 cooperative auto dealers and 1,745,980 autos with loan balance before deduction of loan loss reserve (including deferred income) reaching RMB 37,166 million; furthermore, the inventory finance service (dealer loan) covered 191 cities together with 519 cooperative dealers and RMB 6,082 million loan balances. The audited financial management data and financial index of the Issuer in recent three years are as follows: Unit: RMB or %
Account 2015 2016 2017 January to June 2018
Net Operating Income 1,330,301,013 1,695,768,017 1,947,976,355 1,193,555,526
Net Profit 672,682,150 950,230,916 1,200,678,681 732,686,377
Total Assets 25,051,928,417 33,787,647,559 42,939,619,372 44,322,584,269
Net Asset 3,848,718,871 4,798,949,787 5,999,628,468 6,625,690,595
Due from and placements with banks 1,094,865,979 1,427,669,187 2,404,129,784 1,174,230,125 and other financial institutions
Due to and placements from banks and other 13,680,000,000 15,970,000,000 15,280,000,000 12,330,000,000 financial institutions
Loans 23,261,574,976 31,232,530,393 39,148,803,979 41,612,419,133
Returns on Total 2.97 3.23 3.13 3.36 Asset
Returns on Net Asset 19.15 21.98 22.24 23.21
Non-performing Ratio 0.10 0.07 0.18 0.12
Liquidity Ratio 644.63 491.38 558.43 539.76
Capital Adequacy 19.62 17.93 17.39 18.92 Ratio
Note: the liquidity ratio = liquid asset due within a month / liquid liabilities due within a month*100%; the returns on total assets = net profit / the average amount of asset between the beginning and end of a year*100%. The annualized returns on total assets for the period from January to June 2018 = net profit*2 / the average amount of asset between the beginning of a year and end of June*100%; the returns on net asset = net profit / the average amount of net asset between the beginning and the end of a year *100%. The annualized returns on net assets for the period from January to June 2018 = net profit*2 / the average amount of net asset between the beginning of a year and the end of June*100%; the capital adequacy ratios for the past three years and the first quarter of 2018 shall be calculated in accordance with the new Administrative Measures for the Capital of Commercial Banks (for Trial Implementation).
5.2.2 Description of Business Development The Issuer has retail financial services (loans for individual consumers and institutions) and inventory financial business (loans for auto dealers), of which, the borrowers of retail financial services are the auto consumers who purchase the vehicles produced or imported by Dongfeng Nissan Co., Ltd. (Dongfeng Nissan), Nissan China Investment Co., Ltd. (Nissan China), Dongfeng Infiniti Co., Ltd. (Dongfeng Infiniti), Dongfeng Venucia Co., Ltd. (Dongfeng Venucia), Zhengzhou Nissan Co., Ltd. (Zhengzhou Nissan) and Dongfeng Renault 27 2018 DNAF Financial Bond II Prospectus
Co., Ltd. (Dongfeng Renault) through authorized dealer, and such vehicles currently include Nissan, Infiniti, Venucia, Zhengzhou Nissan, and Renault brands. The borrowers of inventory financial business are authorized dealers of Dongfeng Nissan, Nissan China, Dongfeng Infiniti, Dongfeng Venucia, Zhengzhou Nissan and Dongfeng Renault. 1. Retail financial services Retail business is the main business of the Issuer, which mainly include individual consumer retail loan business and institutional loan business. All loans granted shall be secured with the vehicle purchased by the borrower as collateral. According to three different repayment methods, equal monthly principal payments, equal monthly installments (principal and interest) and balloon loans (small monthly installments and a large principal payment at maturity). As of June 30, 2018, the Issuer's retail auto loan business covered 393 cities and there were 1,637 dealers that adopted the Issuer's retail auto loan finance products, including 772 Dongfeng Nissan dealers, 113 Dongfeng Infiniti dealers, 251 Dongfeng Venucia dealers, 208 Zhengzhou Nissan dealers, 195 Dongfeng Renault dealers, 86 dealers of other brands, and 12 second-hand vehicle centers. The balance of the retail loans before deduction of loan loss reserve (including deferred income) was 37,166 million, of which 868,596 contracts were for retail auto loans with the balance of 37,133 million, 662 contracts were for institutional retail auto loans with the balance of 31,626.3 thousand and 26contracts were for dealer retail loans with the balance of 1,406.7 thousand. Compared with banks' auto loan services, the Issuer's competitive advantage in retail finance business lies in higher approval efficiency and closer relationship with the manufacturers. In terms of approval process, the Issuer's efficiency is significantly higher than the banks. Given its close relationship with the manufacturers, the Issuer is able to receive sale and subvention information at the earliest time. As a joint venture between NML and DFG, the Issuer is listed by DFL as the preferred service provider for its retail auto loan business. 2. Inventory financial business (procurement loans for auto dealers) As of June 30, 2018, the Issuer has done procurement loan business with 519 dealers. Tenor of the procurement loan does not exceed one year. As a risk control measure, the procurement loan is secured by auto qualification certificate, inventory vehicles, deposit paid by the borrowing dealer, and a warrant provided by a natural or legal person. As of June 30, 2018, there were a total of 519 dealers using credit provided by the Issuer, and the credit approved totaled RMB 8.835 billion. Currently, the dealers locate in 191 cities including Beijing, Shanghai, Tianjin, Chongqing, etc. The balance of loans towards the dealers was 6.082 billion. 5.3 The Risk Management of the Issuer 5.3.1 Description of Risk Management 1. Risk Management Organization System The Issuer pays great attention to the construction of risk management system when developing its credit business, and has built a top-to-bottom risk management system that works together with the supervision of external audit, and participated by multiple departments following an organizational, systematic and safe principle. Board of Directors (hereinafter referred to as "BOD") is the highest authority of the Issuer
28 2018 DNAF Financial Bond II Prospectus and is responsible for the decision-making and supervision of significant matters, and decides the establishment of the functional departments. BOD has regular board meetings in accordance with the AOA, engaging in company management decisions. The Issuer has five special committees in place to discuss the key issues. The management committee has the power to decide the operation strategy, significant or affiliated transactions, risk and compliance matters, significant contracts reviewing, approval and authorization matters, significant human resources and administrating matters, information technology matters, business continuity plans and the formulation, revision or abolishment of general rules and regulations. The assets and liabilities management committee shall discuss and decide on the management of corporate assets and liabilities, capital management, capital management, income status management, liquidity risk and interest rate risk management, and major financial and accounting matters. The commercial credit committee shall discuss and determine the credit decisions regarding the company's inventory finance business and retail finance business that needs to be discussed and decided by the commercial credit committee according to the company's credit policies. The credit risk management committee shall formulate the credit risk policies, supervise the risks, solve the risk problems, and determine writing off bad debts and other policies. The financial products committee is responsible for decision-making of financial new products, adjustment of settlement interest rates and related market activities. In the daily business operation, each related party of the Issuer shall notify and report its existing risk, managing and controlling methods, and results incurred through relevant committees. Risk Management department will organize annual overall operational risk audit and summarize as risk assessment report based on relevant reports submitted by each department, and then report to Credit Risk Management Committee on a monthly or irregular basis. For the risk control work, after measurement is defined by risk, the key risk indicators and rules should be established for standardized management of risks. Those indicators should be transparent to Risk Management department, Operation department and company Senior Management. The Risk Management department shall discuss with each department and take responsible of establishing risk indicator, which shall be deployed to each department after approved by the company Senior Management. With the development of the Issuer's business and the change of surrounding environment of the Issuer, the risk indicator shall be reviewed at least once a year, and must be deployed after approved by Credit Risk Management Committee. The Risk Management department shall also take responsible of monitoring and appraising the performance of each department. The Board shall review the risk assessment report submitted by Senior Management periodically and take the ultimate responsibility of monitoring the effectiveness of operational risk management. The obligations of the Risk Management Department: ◼ Monitor and control the various types of risks potentially arising from business operation process. ◼ Identify, measure, monitor and manage credit related risks. ◼ Establish comprehensive risk management framework, develop and improve risk management policy timely, and submit to credit risk management committee for review and approval. ◼ Review both floor plan and retail finance related operational rules and procedure to ensure operation risks are under control. ◼ Check five-category classification report, and submit to senior management for review
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and approval. ◼ Provide various types of risk related analysis report to keep it timely updated to the top management. ◼ Provide timely feedback, guidance and instructions to both floor plan and retail finance to makes sure that risk is under control. The obligations of the Internal Audit Department: ◼ Prepare annual audit plan, and conduct or lead audit missions in order to facilitate business activities in a risk controlled environment. ◼ Access accuracy and reliability of accounting record and financial statement, the adequacy and effectiveness of operation, risk, and compliance controls of the corporation operations. ◼ Recommend improvements to strengthen the overall control environment, based on findings from audits and risk assessments. ◼ Access healthiness and effectiveness of internal control. ◼ Monitor status of information system planning and designing, developing, operation, management and maintenance. ◼ Monitor status of risk-related capital assessment system. ◼ Prepare and submit internal audit report to the Board and local government authorities as required by regulations. ◼ Perform special audits on an ad hoc basis as required by regulations, and/or authorization from the board. ◼ Monitor implementation status. The obligations of the Legal and Compliance Department (1) Compliance ◼ Ensure the operation running in compliance with related external and/or internal rules and regulations, and to prevent against compliance risks. ◼ Take responsibilities for coordinating establishment and improvement of internal control policies and mechanisms of the Company. ◼ Understand and monitor the promulgation & implementation status of the business-related laws and regulations, and their implementation status within the Company. ◼ Provide consultancy and recommendations on issues related to compliance during business operation process. ◼ Be responsible for coordinating with and reporting to the related government authorities including CBIRC. ◼ Take a role of the financial securer in line with related laws and regulations to report any major accident which might create operation risks to CBIRC and/or its local offices on a timely basis.
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◼ Be responsible for other jobs that the compliance department shall take charge of according to related rules and regulations. (2) Legal ◼ Provide consultation and recommendations over the legal issues during business operation process for the purpose of legal risk control. ◼ Develop department related policies/rules and provide legal review on other departments' rules and policies, as well as contracts/agreements. ◼ Take legal actions in case the Issuer meets difficulty in (Floor Plan) collection. ◼ Take part in the legal procedure of arbitration or litigation on the Issuer's behalf. ◼ Be responsible for other legal related job. Meanwhile, the Issuer is under external audit from shareholders and accounting firms, including DFG, NML and Ernst & Young Hua Ming LLP. Shanghai Branch. Besides, the Issuer shall be supervised and examined regularly or irregularly by external supervision institutions such as PBOC and CBIRC, which constitutes a suitable and strict risk management system combined by both the internal control and external supervision. 2. Formulate Risk Management Rules and Policies The Issuer has made detailed risk management policies for all main business departments in accordance with the requirements of supervision institutions and internal rules, which stipulate the basic content, procedure and method of risk management of business, describe the risk management responsibilities of relevant departments and positions, specify the aim of risk management to supervise and control its risk, minimize the losses and realize steady development with safety, adequate liquidity and profitability during its operation. Main policies includes Comprehensive Risk Control Policy, Credit Risk Guidance on Retail Finance Business, Credit Risk Guidance on Floor Plan Finance Business, Individual Scorecard Policy, Corporate Scorecard Policy, Five-category Classification for asset, Field visit policy on retail business, Rules for individual Information inquiry, Write off policy, Collection policy on retail business, high risk dealer policy, Operational risk control policy, important business outsourcing policy, Credit risk policy on Group client, Credit Risk Guidance of Institution Loan, Credit Risk Guidance of Used Loan and so on. With the further development of business, the Issuer will improve its current risk management policies in accordance with the actual conditions, and make corresponding policies and rules for new business. With respect to the risk classification management, the Issuer has made five-category classification and loss provision calculation, which stipulates the aim, requirement, scope and procedure of classification, responsibilities of various departments, five-category classification standards for dealers and retail clients, and the allowance for assets. The factors influencing the classification towards the dealers includes the operating performance, the financial review, inventory audit result, timeliness of the repayment, negative comment revealed on PBOC credit report and internal dealer monitoring report. According to their degree of risk, loans are divided into Normal, Attention, Sub-standard, Dubious, and Loss, with the later three categories collectively called Non-performing Loan. The standards of five-category classification for the retail loans are as follows: ◼ Normal Loan: no overdue;
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◼ Attention Loan: overdue for 1 to 60 days; ◼ Sub-standard loan: overdue for 61 to 90 days; ◼ Dubious loan: overdue for 91 to 120 days; ◼ Loss loan: overdue for more than 121 days. The standards of five-category classification for the dealer loans are as follows: ◼ Normal loan: no overdue; ◼ Attention Loan: overdue for 1 to 90 days; ◼ Sub-standard loan: overdue for 91 to 120 days; ◼ Dubious loan: overdue for 121 to 180 days; ◼ Loss loan: overdue for more than 181 days (including 181 days). 3. Quantitative Appraisal and Assessment on Risk, and Adjustment of Risk Strategy The BOD and the senior management of the Issuer have realized the change in the current credit risk environment. Along with economic growth, the risk in auto loans has increased, especially inventory auto loans for dealers. The Issuer shall carry out quantitative appraisal and assessment towards risk, and adjusts the risk strategies if necessary. At the frequently-held meetings of the commercial credit committee, the credit risk management committee and the management committee, relevant business departments are required to report the risk conditions, and all the departments are required to pay attention to and support the risk management. Besides, DFG and NML are promptly informed of the business risk status of the Company through above meetings. With respect to work, the Issuer keeps close contact with factories and copes with the risk together with the dealers. Except for the daily risk information sharing mechanism and regular information sharing session, when cooperated with high-risk dealers, the Issuer will positively discuss with the functional departments of the factories through meetings, calls or emails and work together to construct a healthy dealer network with high quality regarding to such high-risk dealers. 4. Main Supervision Index on Risk
End of Standar End of End of End of Index Formula June d Value 2015 2016 2017 2018 Net capital/Total risk weighted Capital adequacy ratio assets after calibration and the ≥10.1% 19.62% 17.93% 17.39% 18.92% application of capital bottom line Net tier one capital/Total risk Tier one capital weighted assets after calibration ≥8.1% 18.94% 17.40% 17.22% 18.24% adequacy ratio and the application of capital bottom line
Core tier one capital Core tier one net capital/Total ≥7.1% 18.94% 17.40% 17.22% 18.24% adequacy ratio risk weighted assets after calibration and the application of
32 2018 DNAF Financial Bond II Prospectus
End of Standar End of End of End of Index Formula June d Value 2015 2016 2017 2018
capital bottom line
Proportion of credit to Credit balance/Net capital ≤15% 1.70% 1.56% 3.71% 1.59% a single borrower
Proportion of credit to a single group Credit balance/Net capital ≤50% 4.53% 2.29% 4.54% 3.00% customers
Proportion of fixed Fixed balance assets/ Net capital ≤40% 0.71% 0.73% 0.70% 0.62% assets for personal use
Liquidity ratio Liquid assets/liquid liabilities ≥100% 644.63% 491.38% 558.43% 539.76%
Provision Coverage Actual Provision for Loan ≥150% 703.08% 743.08% 186.38% 600.15% Ratio Loss/Non-performing Loan
Proportion of credit to Credit to a single shareholder a single shareholder and its affiliate/Capital ≤100% 20.82% 3.06% 17.98% 5.19% and its affiliate Contribution of the Shareholder
Note 1: The standard values of the above "Capital Adequacy Ratio", "Tier one capital adequacy ratio" and "Core tier one capital adequacy ratio" are following the requirement of the transitional period in 2018. The standard values for the three items were 9.3%, 7.3% and 6.3% in 2015, 9.7%, 7.7% and 6.7% in 2016, 10.1%, 8.1%, 7.1% in 2017. From 2015 to the end of June 2018, every Supervision index complied with the requirement of the supervision institutions. 5.3.2 Main Risks The risks faced by the Company mainly include credit risk, market risk, liquidity risk and operation risk. 1. Credit Risk Credit risk refers to the loss of credit assets of the Issuer, which results from the change or loss of the credit clients' financial status or the defaults of such clients. (1) Credit risk of loan business The business scope of auto finance companies is relatively concentrated while the loan transaction is the main business. As of end of June 2018, the total asset of the Issuer was RMB 44,323 million, of which the amount of issued loans was RMB 41,612 million occupying 93.89% of the total assets. The quality of the loans has a critical effect on the operation income even the sustainable development of the Company. If the Issuer fails to collect the principal and interest in full because of the default of the borrower or the guarantor, the Issuer may suffer certain losses. Statistics of Loan Portfolio Unit: RMB or percentage
December 31, 2015 December 31, 2016 December 31, 2017 June 30, 2018 Project Amount Ratio Amount Ratio Amount Ratio Amount Ratio
33 2018 DNAF Financial Bond II Prospectus
December 31, 2015 December 31, 2016 December 31, 2017 June 30, 2018 Project Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Loans 23,261,574,976 100.00 31,232,530,393 100.00 39,148,803,979 100.00 41,612,419,133 100.00 Short Term Loan and Medium-to-Lon 5,607,484,118 23.94 5,848,283,636 18.62 6,224,673,767 15.84 7,441,469,511 17.75 g Term Loan due within One Year Medium-to-Lon 17,814,710,901 76.06 25,561,832,446 81.38 33,061,693,066 84.16 34,472,411,687 82.25 g Term Loan Minus: provisions for 160,620,043 177,585,689 137,562,854 301,462,065 loan losses Short term loans include all dealer loans along with retail auto loans and institution loans within one year (inclusive), while the medium to long term loans consist of retail auto loans and institution loans with a term longer than one year. (2) Quality of Loans Five-category classification for loans for the past three years and the period from January to June 2018 of the Issuer is as follows: Unit: RMB or percentage December 31, 2015 December 31, 2016 December 31, 2017 June 30, 2018 Project Loan Ratio Loan Ratio Loan Ratio Loan Ratio Normal 23,280,557,644 97.02 31,566,516,720 97.43 39,870,114,799 98.08 42,728,179,883 98.80 Attention 693,209,953 2.89 809,591,189 2.50 707,931,105 1.74 469,330,646 1.09 Sub-standard 10,933,493 0.05 5,479,310 0.02 5,138,230 0.01 4,990,361 0.01 Dubious 10,836,567 0.05 6,720,031 0.02 17,240,732 0.04 4,766,217 0.01 Loss 1,075,153 0.00 11,699,163 0.04 51,427,065 0.13 40,474,920 0.09 Total Amount 23,996,612,810 100.00 32,400,006,412 100.00 40,651,851,930 100.00 43,247,742,028 100.00 Non-Perform 22,845,213 0.10 23,898,504 0.07 73,806,026.917 0.18 50,231,499 0.12 ing Note: every project above is the balance before loss provision calculation (deferred income included) and it is caused by rounding off if any difference between the sum and the equivalent of the addends added together. Thanks to years of excellent operating experience, sound risk management practices and close cooperation with manufacturers, the Issuer's non-performing loan ratio has been maintained at a relatively low level and the quality of the corporate loans relatively high. The Issuer's non-performing loan ratio as of end of 2015, 2016, 2017 and June 2018 was 0.10%, 0.07%, 0.18% and 0.12%, respectively. As of end of 2017, the Issuer's overall non-performing loan ratio was 0.18%, of which retail financial non-performing loan balance was RMB 10.7462 million, non-performing loan ratio was 0.03%; inventory financial non-performing loan balance was RMB 63.0598 million, non-performing loans ratio was 1.30%. The increase in the Issuer's overall non-performing rate at the end of 2017 was mainly due to the fact that certain dealers in inventory finance could not repay the loans in a timely manner due to tight cash flow. According to the risk policy, the Issuer has incorporated the aforementioned dealers' loans into non-performing loans and increased the risk provisions accordingly after careful consideration. The Company has made efforts to reduce the aforementioned inventory financial risk exposures and consolidate the comprehensive monitoring of dealer risks by strengthening
34 2018 DNAF Financial Bond II Prospectus cooperation with manufacturers, on-site supervision and other means. As of 30 June 2018, the Company's overall non-performing loan ratio was 0.12%, 0.06% less than that as of the end of 2017. With respect to non-performing inventories loans, the balance was 40.4749 million, RMB 22.8549 million less than that as of the end of 2017, and the non-performing loan ratio was 0.67%, 0.63% less than that as of the end of 2017. With respect to non-performing loans for retail finance, the balance was RMB 9.7566 million, RMB 0.9896 million less than that as of the end of 2017, and the non-performing loan ratio was 0.03%, which was consistently lower than the industry average. Whether in the loan of five-category classifications or provision of loan reserve requirements, the Issuer has a strict loan risk control and maintains a cautious attitude. For the provision for retail loan loss, the Issuer calculates the proportion of the provision for each category of the loans in accordance with the loan quality migration model on a monthly basis and the monthly provision is made based on the classification accordingly. The Issuer's provision for inventory dealer loan loss is made according to the Guideline on Provision for Loan losses issued by the PBOC. With respect to different types of loans, by adopting both individual and consolidated assessment in value testing, the Company estimates whether cashflow from the portfolio is expected to decrease in the future, so as to confirm whether loan loss provision is required. Generally speaking, all the provisions are fully charged to ensure the asset quality, and the Company has prevented the credit risk in the business effectively. As a subsidiary industry of finance industry, the auto finance industry has the closest relationship with the auto industry, which means the development of the auto finance industry would be affected by the auto industry. As the auto industry has stepped into a popularization stage, the auto credit business has transferred from tier-one and tier-two cities to tier-four and tier-five cities and the Company monitors closely the corresponding risks in order to seek progress while ensuring stability. (3) Measures for Credit Risk In order to control the credit risk, the risk management department is in charge of formulating credit policies, examining credit procedures, unifying the credit mechanism, authorizing management and ensuring the execution made by the operation department. The risk management department is also responsible for monitoring the execution result of the credit policies and procedures, and for reporting the result to the credit risk management committee. It shall give advice on the revision of credit policies and credit procedures to the credit risk management committee pursuant to monitoring result and the change of the market. Once approved by the credit risk management committee, the decision shall be strictly executed by relative departments. The Issuer also established the commercial credit committee to control risks. With respect to the case needed to be discussed, relevant departments shall be responsible for such reports and shall give advice to the commercial credit committee who will make the final decision. Besides, in order to strengthen the internal risk management, with respect to post-loan management, the Issuer applies the method of five-category classification in internal control, and has made a guidance of internal five-category classification in accordance with the CBIRC Guidance for the Risk-based Loan Categorization. The Issuer regularly classifies the credit loans into the class of normal loan, attention loan, sub-standard loan, dubious loan and loss loan, which strengthen the ability of internal control of credit. 2. Market Risk Market risk is defined that the Issuer may cause losses in the value of holding position of assets and liabilities due to financial market situation changes; including interest rate risk,
35 2018 DNAF Financial Bond II Prospectus residual value risk, exchange rate risk, etc. The market risk towards the Issuer is mainly the interest risk, includes: (1) Repricing Risk (term mismatching risk): It comes from the differences of the duration (as for the fixed interest rate) and the repricing arrangement (as for the floating interest rate) between the assets and liabilities businesses, the asymmetry of which results in the change on the profits or the commercial value of the Issuer following the variation of the interest rate. (2) Yield Curve Risk (change risk on the structure of the interest term): the asymmetry of the repricing could also reflect the yield curve and form, which means the non-parallel movement of the yield curve will have an adverse effect on the profits and internal commercial value of the Issuer and result in the yield curve risk. (3) Basis Risk: although the characters on repricing of the assets and debts activities are the same when the income and outcome of the interests are calculated on the basis of different basic rate, the variation on the spreads between its cash flow and profits may have an adverse effect on the profits and internal commercial value of the Issuer. Fluctuation of interest rates is an external factor hard to control. At the moment, under the guidance of assets & liabilities management committee, the finance & accounting department of the Issuer is responsible for managing and controlling of the interest rate risk. The finance & accounting department reports to the assets & liabilities management committee the portion (ratio & amount) of interest rate sensitive assets (short-term (within 1 year) assets & floating interest rate base assets) and interest rate sensitive liabilities (short-term (within 1 year) liabilities & floating interest rate base liabilities), and calculate the gap between the interest rate sensitive assets and the interest rate sensitive liabilities. The assets & liabilities management committee then makes decisions for well controlling of the interest rate risk, considering both the business of the Issuer and market situation reasonably. Furthermore, the finance & accounting department shall carefully monitor the accounting information and operational status. In case of finding any possibility of violating rules or policies, the finance & accounting department shall report to the vice president of finance, and shall study the countermeasures to be submitted to assets & liabilities management committee on a regular basis, for assets & liabilities management committee to make decision. Meanwhile, the finance & accounting department shall regularly propose to assets & liabilities management committee on change of current policy based on the business development and risk control status, which can be implemented upon approval according to inner policy and requirements 3. Liquidity Risk Liquidity risk means that the Issuer is not able to make payment of loans, interest and/or expenses due to liquidity of funds, or company may face funding difficulty due to its credit status. The formulae to calculate the liquidity ratio is, liquidity ratio = sum of liquidity assets/sum of liquidity liabilities, of which, liquidity assets refers to the assets that can be collected in one month mainly including bank deposit, and the loans that can be recollected in one month; while liquidity liabilities refers to the liabilities that shall be paid in one month mainly including the interest and other fees that will be due in one month. The liquidity ratios of the Company for the latest three years and the end of June 2018 are as follows:
Account December 31, 2015 December 31, 2016 December 31, 2017 June 30, 2018 Liquidity Ratio 644.63% 491.38% 558.43% 539.76%
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With reference to the requirement of the liquidity ratio of commercial banks made by the CBRC and the average standard of auto finance industry, the liquidity ratio should not be lower than 100%; therefore, the liquidity ratio of the Issuer for the latest three years and the end of June 2018 were in compliance with the supervisory requirement. The assets & liabilities management committee takes the lead of the management of the liquidity level regarding the assets & liabilities, paying attention to the maturity mismatching, controlling the interest risk. The asset liabilities management committee has already approved the Company to actively top up the medium to long term funds through financial bonds or securitization and to broaden the channels towards short term funds taking advantage of the inter-bank market. 4. Operational risk Operational risk, also called internal control risk can be caused by internal and/or external sources relating to fraud, employment policy and workplace safety, business interruptions and system failures, damage to physical assets, execution and service delivery, clients, products and business practices. The risks and losses can occur in all aspects of our businesses, and support functions across all legal entities. The impact of losses can be severe at times and have a resultant impact on reputation. It is therefore important for us as an organization to ensure that our Operational risk management framework is solid, well embedded and allows us to identify, manage and measure and reduce/mitigate Operational risks in a timely manner. As for the management towards the operational risk, the Issuer tries its best to decline the operational risk and reduce the losses through division of obligations taking the different departments into consideration. ◼ Risk Department takes the leading role in operational risk management and be responsible to setup and conduct the operational risk management framework within the Issuer. According to the Guideline from CBRC, the detailed responsibility of Risk Department includes: (1) Guiding and assisting businesses and supporting departments to work on the right way; assessing and managing the risks relating to the specific policies they own. Each department must customize policies and procedures appropriately to facilitate risk management, consistent with their risk profile. (2) Ensuring policies and procedures are effectively implemented. (3) When necessary, providing consultation for establishing, maintaining and reviewing risk control for businesses and supporting departments. ◼ All other departments (front, middle and back office units) shall have the direct responsibility of the operational risk management and must: (1) Operate within operational risk policies and procedures. Each department implements the policies in its own domain. Each department develops and applies risk control tools. (Key control standard, key control self-assessment and key risk indicators.) (2) Establish and maintain appropriate operational risk controls and monitoring standards/indicators appropriate to their own activities and risk profile (3) Ensure that managers are responsible for the identification, reporting (of losses and risks), control and mitigation of risks in their area of activity.
37 2018 DNAF Financial Bond II Prospectus
(4) Ensure that significant operational risks identified are reported / escalated in accordance with policies and procedures. ◼ Department heads must ensure that they: (1) Review and understand the significant operational risks inherent in and impacting on their areas, through regular discussions/reviews (of losses and risks) and ensure the compliance with the Policy, Rule, Standard and Guideline regarding to the business and operation risk. (2) Assess the relationship between the department strategy and other field or plan. Escalate material risk to higher level. (3) Review operational losses and ensure timely reporting and reconciliation. (4) Ensuring that all significant issues rose in operational risk report, also in Internal Audit and regulatory reviews are resolved within agreed timescales. ◼ The Credit Risk Management Committee and Management Committee are key forums to effectively discharge the risk oversight and management responsibilities. The role of Risk Management Committee in term of operational risk control is: (1) To approve the operational risk procedure and standards and relevant subsequent changes as an essential part of operational risk procedures. (2) To discuss via senior management participation and make decision on existing and potential operational risks. (3) To ensure that operational risks identified within businesses are assessed, reviewed and reported accordingly through the operational risk reporting process. (4) To review significant operational losses and perform trend analysis as well as root cause analysis to determine potential mitigation actions. ◼ The Internal Audit is responsible for monitoring, reporting risks for all operational risks, including: (1) Review/evaluate the operational risk management policy, procedure and operation. (2) Review/evaluate implementation and adherence to operational risk procedure as part of its audit activities periodically. (3) Report the operational risk assessment to the Board. ◼ Legal and Compliance Department, Information System Department and Human Resource Department shall: (1) Manage own operational risk; (2) Support other department using own expertise to enhance the operational risk management capability in term of human resource, professional knowledge or technique. 5.4 Industry Conditions and the Industry Position
38 2018 DNAF Financial Bond II Prospectus
5.4.1 Industry Conditions1 1. Basic Situation Along with the development of national economy, affected by the increase of the residents' income increase and the upgrade of the consumption structure, the demand towards the autos keeps a bridled status among the customers and the auto production and sales have been grinding higher in recent years. Besides, the government has introduced a series of policies and programs on promoting auto consumption including the revitalization programs of auto industry and tax relief policy on low-emission vehicles purchase, which effectively provoke the national market of automobile consumption and makes the quantity of automobile production and sales stay in a steady and high growth. China has become the world's largest automaker and seller. On May 22, 2018, the Ministry of Finance of the People's Republic of China issued an announcement on the Tariff Commission of the State Council on Reducing Import Tariffs for Automobiles and Parts. The announcement pointed out that since July 1, 2018, the import tariffs on complete vehicles and parts have been reduced. The complete vehicle tax rate of 135 tax numbers with a tax rate of 25% and 4 tax numbers with a tax rate of 20% has been reduced to 15%, and the auto parts tax rate of 79 tax numbers with tax rates of 8%, 10%, 15%, 20%, and 25%, respectively, have been reduced to 6%. Reform and opening-up will be further expanded and supply-side structural reform will be promoted so as to facilitate transformation and upgrading of the automobile industry, to meet the consumer demand and to promote the vigorous development of domestic automobile industry. As a large scale financial industry relying on and boosting the development of auto industry, the auto finance service could become the booster within the development of the auto industry. As a dispensable chain of auto industry, auto finance plays an increasingly important role in auto sales. Global automobile groups own their auto finance companies respectively, and the auto loans have become major profit source within such groups. According to the international experience, the auto finance companies contributed profits to their parent company occupying 30% to 50% of the total profit. The auto credit business is relatively new in China. The auto finance companies start later and have difficulty on capital resource and profit ability comparing with that of developed country. Before 2004, the auto loans were operated by commercial banks and insurance companies, and the commercial banks played a critical role on such business. But the auto finance companies have accelerated the development recently. Since the first auto finance company was established in 2004, the whole industry has developed well and the institutions number and business scale have also increased steadily, which results in the development of auto sales and auto industry. As of end of June 2018, the CBRC has approved the establishment of 25 auto finance companies. The overall financial status of auto finance companies has improved in 2007 and the business of such companies has also taken shape. As of December 2007, the auto finance industry generated its situation from deficit to profit of 16.47 million, of which the total assets of 8 operating auto finance companies reached RMB 28,498 million including RMB 25,515 million loan balance, RMB 22,822 million liabilities and RMB 5,676 million equity. As of end of 2017, the total assets of 25 auto finance companies reached RMB 744,729 million, the loan scale exceeded RMB 668,829 million, and the net profit exceeded RMB 14,721 million.
1 The information and statistics in this section are derived from various public and private resources. The Issuer has not verified such information and statistics.
39 2018 DNAF Financial Bond II Prospectus
The domestic auto finance industry takes great development with the improvement of leading indicators, assets scale and profit levels under the circumstance of the gathering strength of the auto finance industry. Taking the Issuer for example, as of June 30, 2018, its retail finance service has covered 393 cities together with 1,637 cooperative auto dealers and 1,745,980 autos with loan balance before deduction of loan loss reserve (including deferred income) reaching RMB 37,166 million. Furthermore, the inventory finance service (dealer loan) has covered 191 cities together with 519 cooperative dealers with loan balance reaching RMB 6,082 million. The domestic auto finance market is young and still has a broad growth space. According to the data disclosed by the China Association of Automobile Manufactures, the auto finance market capacity may reach RMB 525,000 million by 2025. The auto consumption will increase over 3 million annually if the auto loan utilization ratio reaches 30%. Predictably the auto finance industry will play a significant role in future auto consumption. Auto finance industry will push the further development of the auto industry. Auto finance will reduce the burden of purchasing an automobile, stimulate the consumption temptation and motivate more people to buy automobiles. From the macro perspective, the auto finance penetration is less than 50% in China, which has a huge gap with the developed countries, the auto finance industry still has an enormous developing space; from the micro perspective, as main customers of the auto consumption, the post-80s generation are accustomed to the credit consumption, and the auto finance will be accepted accordingly. With China's focus on and support for the automotive industry and the automobile consumer credit business, the People's Bank of China and the China Banking Regulatory Commission jointly issued the "Guiding Opinions on Increasing Financial Support for New Consumption Sectors" in 2016 and increased financial support for new consumer priority areas. The Guiding Opinions allow financial institutions that conduct retail auto loan business to have discretion on the down payment ratio of new energy vehicles and used car loans, subject to the compliance of a 15% and 30% minimum down payment requirement, respectively. It is believed that the Guiding Opinions will stimulate auto loan permeability. The auto finance penetration will reach 50% in the next five years and will contribute an average of 2% additional increase to auto sales annually. 2. Industry Development Trends As the professional auto finance service institutions, auto finance companies will have a lot of opportunities and enjoy a broad prospect in its business development following the development of auto industry and the auto credit market. The market capacity may reach RMB 525,000 million by 2025 pursuant to data analysis of the China Association of Automobile Manufactures. (1) the sustained growth of macro-economy will promote the auto consumption demand directly, which will create business development conditions for the auto finance companies. The key factor of the auto demand, especially the passenger car, is the growth of the amount of persons with consumption ability, which is consistent with the GDP growth speed. As one of the world's largest auto market, the auto demand and consumption in China will grow continually with the sustainable, steady and rapid growth of the macro-economy. At the moment, the annual quantity of new cars sold stands at a stable line of more than 20 million and the quantity is likely to reach 30 million. (2) the change of consumption propensity creates great business opportunities for auto finance companies
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As the improvement of urbanization level and income level, auto has become an important part in people's life and the auto consumption shall also become a trend for common people and enter into the family. The credit consumption shall also be accepted as the new consumption guide and habit. (3) the support of macro-policy shall bring opportunity for auto finance companies With the steady development of the national economy, auto industry has become a pillar industry of the national economy. The middle and long-term auto demands shall also increase with the rising residents' income. From the long term perspective, the auto industry will keep a steady growth. The government has promulgated a series of positive policies on boosting domestic demand, adjusting structure and promoting transformation, including the Measures for Administration of Automobile Sales issued in April 2017 which encourages the development of a shared, economical and socialized automobile sales and after-sales service network, the acceleration of the construction of an integrated automobile sales and after-sales service network in urban and rural areas, helping stimulate the purchasing potential of China's vast number of small-and-medium-sized towns and rural consumer markets which will fuel the growth of the Chinese auto industry. (4) Laws and Regulations have provided guideline for compliant, healthy and positive development of the auto finance companies The promulgated Administrative Measures for Auto Finance Companies in 2008 expanded the business scope and opened up more convenient finance channels. The first securitization trust product of the auto finance company was issued with the approval grant by the CBRC, which has boosted the development of the whole auto finance industry. The Announcement of the People's Bank of China and the China Baking Regulatory Commission (2009) No.14 regulated that the auto finance companies could change the situation relying on the commercial banks and capital by issuing financial bonds and raising fund through active liabilities, ease the problem of term structure mismatch in the assets-liability management and improve the balance-sheet capacity, risk tolerance and business initiative. The new Announcement in 2014 regulated new conditions and documents required for issuing financial bonds, relented the supervision on the issuance of financial bond, which is another huge interest to the auto finance companies. The CBRC published the guiding opinions with regards to auto financial industry on March 2016 as follows: (a) decrease the ratio of down payment for the second-hand cars from 50% to 30%; (b) decrease the ratio of down payment for new energy vehicles from 20% to 15%; (c) develop additional products, such as vehicle insurance, extension of guarantee, vehicle maintenance and charging station for electric cars provided to the customers together with auto loans. In October, 2017, CBRC and PBOC jointly revised Measures for the Administration of Auto Loans, adding new energy vehicles, and further clarifying the ratio of down payment for the second-hand cars and new energy vehicles mentioned above, as well as perfecting the rules regarding loan underwriting, collateral, etc. The new Measures for the Administration of Auto Loans were effective on January 1, 2018. Such regulations would promote the development of auto financial companies to a large extent. (5) Grasping accurately the consumer group and consumption pattern offers opportunities for auto finance companies In 2016, with the development of golden decade, the development of previous market was slowing down or even stopped, and the post-80s and post-90s generation were becoming the new main customers, the auto industry has transferred the business from the manufacturers' thought of scale increment towards servicers' thought of serving existing customers with
41 2018 DNAF Financial Bond II Prospectus
China's economic transition. The 2017 production and sales data continued to grow on the high base in 2016, and the overall economic performance of the industry is in good condition. With the continuous improvement of living standards of the masses, the rigid demand for automobiles remains strong and the car ownership continues to maintain a rapid growth trend. At the same time, the auto industry needs the further development with urbanizations, and the tier-three cities, tier-four cities and the newly-built cities have low auto ownership which will be increased with the improvement of infrastructure construction. The auto finance companies could cooperate with the auto dealers to adjust the financial service products and models, and create new products for the younger generations under the industrial development trend. The cooperative dealers in the tier-three, tier-four and tier-five cities could also exploit market potential of the consumer groups for the automakers. 5.4.2 Industry Position of the Issuer The Issuer keeps a rapid development with its huge scale of capital fund and assets, profitability and the excellent regulatory indicators in China. The business of the Issuer sustained a stable increase during recent years with the increase rate standing at a line of 20% or higher. At the same time, the Issuer kept an eye on the quality of loans and the control of the cost during operation, which resulted in the lower non-performing rate and leading position regarding to the return on assets and working efficiency per capita among the auto financial industry. Unit: RMB
2015 / December 2016 / December 2017 / December January to June
31, 2015 31, 2016 31, 2017 2018 / June 30, 2018 Loans 23,261,574,976 31,232,530,393 39,148,803,979 41,612,419,133 Growth Rate of 29.11% 34.27% 25.35% 25.39% Loans Operating Profits 896,566,730 1,240,385,442 1,588,157,670 979,974,616 Non-performing 0.10% 0.07% 0.18% 0.12% Loan Rate Note: the Growth Rate of Loans is the year-on-year growth rate of loan assets over the previous year. Besides, the shareholders NML and DFG have accumulated mature and advanced experiences and risk management ability in auto financing service from their years' development. As the affiliated company of car manufacturers of the same brand, the Issuer is able to monitor the selling condition of the dealers together and manage the risk of the dealers by mobilizing resources of manufacturers, through sharing information. 5.4.3 Major Advantages of the Issuer 1. Leading Industry Position and Market Advantage The Issuer takes leadership both in absolute value and speed of the auto retail finance and it had also owned 869.3 thousand contracts on such transaction as of June 30, 2018. In terms of non-performing loan rate, the Issuer kept a low rate at 0.10%, 0.07%, 0.18% and 0.12% for the past three years and the first quarter of 2018 on account of its advanced and effective risk management, which implied the Issuer is always seeking a sustained development. As of June 30, 2018, the retail finance service covered 393 cities together with 1,637 cooperative auto dealers; furthermore, the inventory finance service (dealer loan) covered 191 cities together with 519 cooperative dealers. To support and promote retail auto sales, and boost profitability of the after-sales service, the
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Issuer has focused its core business on providing retail finance products and service for end-customers, and authorizing the dealers engaging in inventory finance service. The Major Advantages of the Issuer include: - Consistent between brand and image - One-stop finance service - Varied and personalized finance products and service - Leading efficiency on approval and issuing loans - Professional onsite support from customer managers - Effective business flow management system - Prioritized business support from original equipment manufacturer 2. Active Support to the Business Development of the Company from Shareholders The issuer is a joint venture company established by NML and DFG. NML and DFG are working closely to improve the auto sales of relevant brands of Dongfeng Nissan in China, and expand its target customer group to post-80s and post-90s generation. Furthermore, the Issuer infiltrates its auto finance service to tier-three, tier-four and even tier-five cities. The shareholders increased the Issuer's registered capital in 2008, 2011 and 2013 reinforcing the capital strength of the Issuer. Meanwhile the shareholders provide strong support to satisfy the funding demand of the Issuer through shareholder deposits. 3. Strict Risk Management System The Issuer applies qualitative appraisal and quantitative analysis on its risk management and pays its main attention to credit risk, liquidity risk, market risk and operational risk. In terms of credit risk, according to the Administrative Measures for Auto Finance Companies, the Measures for Administration and Guidelines for the Internal Control of Commercial Banks, and other laws and rules, the Issuer has formulated a series of policies and guidelines to regulate credit policy, overall management, limits of examination and approval authority, credit products, valuation, security, risk supervision, assets classification and loss management pursuant to NML's experience obtained from long-term overseas auto financial business, setting the principle of company's credit business. In terms of liquidity risk, the Issuer follows the principle combining stability and liquidity for management, strengths fund position management, applies cash flow prediction, perfects interest rate transmission mechanism, deepens term management to monitor and manage liquidity management of assets and liabilities, builds and maintains its reasonable debt structure and match the maturities of its assets with liabilities. In terms of market risk, the interest rate risk is the most crucial one. Against such background, the BOD, assets & liabilities management committee and senior management team set up their own risk consciousness and build the sound risk management system gradually. Finance and Accounting Department monitors the market risk closely and reports to vice president of finance and assets & liabilities management committee regularly, convenes assets & liabilities management committee meetings regularly and monitors the interest rate risk comprehensively through weekly funding meetings and monthly reports. In terms of operational risk, the Issuer formulated the Operational Risk Control Policy of
43 2018 DNAF Financial Bond II Prospectus
DNAF and built a vertical management system. Each department has set up its own risk management process that includes risk identification, risk measurement, risk supervision and risk controlling to make it accurate and effective. Each department has its own unified procedure (including cross check and double check), and arranges training and lecture for its staffs to reduce the mistakes. The risk profiles should be recorded and set as caution to prevent the similar mistakes. The risk management department applies indirect management to supervise the whole operational risk, and organizes the risk assessment to urge relevant departments to launch emergency procedures. 4. Successful Sino-foreign Joint Venture Experience As a joint venture company, combining NML's advanced international auto finance management experience and DFG's deep understanding of Chinese market, the Issuer devotes to developing appropriate auto financial products for Chinese market. The Cooperation of NML and DFG covers the entire industry chain including auto production, auto sales, after-sale service and popularization of auto finance products. With the shareholders' support, the Issuer endeavors to build deep ingrained brand image, provides varied and personalized finance products and service, and improve its management to keep its market reputation and improve its leadership in the Industry. 5.5 Corporate Governance Structure of the Issuer 5.5.1 Corporate Governance of the Issuer The Issuer constantly enhances the independent operation and interaction of the BOD, supervisors and senior management in order to improve the corporate governance. 1. Basic Systems of Corporate Governance The Issuer has set up a basic system of corporate governance taking the "Articles of Association of Dongfeng Nissan Auto Finance Co., Ltd." (hereinafter referred to as "AOA") as basic, and treating the BOD as core, which is suitable for the Issuer who has fewer shareholders and clear main business, and provides an effective institutional guarantee for the Issuer's governance structure. 2. Directors and the BOD The BOD is the highest authority of the Issuer consisting of seven directors. The BOD shall follow the laws, regulations and the requirement of AOA on decision-making procedures, authorization procedures and voting procedures. The Issuer would call and convene the board meeting in accordance with relevant provisions of the AOA, while all the directors attended shall consider every proposal seriously, exercise the right and fulfill the corresponding obligation in due diligence, which forms an effective decision-making and supervisory mechanism. The BOD is wholly and finally responsible for the Issuer's management, operation and policy. The following decisions shall be made only after being unanimously agreed by all the BOD members (presented in person or by proxy) presenting at the duly convened BDD meeting: amendment to the AOA; suspension, dissolution or liquidation of the Issuer; increase or reduction of the registered capital of the Issuer; and merger with other legal entities or division of the Issuer. 3. Supervisors According to the AOA, the Issuer has two supervisors, of which one is appointed by NML
44 2018 DNAF Financial Bond II Prospectus and the other is appointed by DFG. The supervisors shall attend the duly convened meetings and perform the duties of supervision and inspection in due diligence conferred by laws, regulations and AOA. 4. Senior Management According to the AOA, the Issuer has a president and two vice presidents, among which the president is nominated by NML and appointed by the BOD, while the vice presidents are appointed by the BOD. The president and the vice presidents shall perform obligations in due diligence according the AOA. The president is responsible for daily business and management within the scope authorized by the BOD, while the vice presidents are obliged to assist the president in such work and the president has the final decision in case of disputes. 5.5.2 Decision-making System of the Issuer The BOD is the highest authority of the Issuer, and the management policy of the Issuer is that the president, as the chief executive officer, is responsible for all the Issuer's business operations daily decision-making under the supervision of the BOD. The BOD, supervisors and internal management institutions operate independently, and the Issuer has the independent and complete management ability in its personnel, assets, finance, structure and business. The Issuer has established effective performance appraisal indicators in compliance management, risk management and business performance to ensure the orderly development of the company's business. 5.5.3 Organizational Structure of the Issuer As the execution date of this Prospectus, the Issuer has the following departments: Sales Department, Marketing Department, Customer Relationship Management Department, Business Development Department, Retail Finance Department, Floor Plan Department, Information System Department, Finance and Accounting Department, Risk Management Department, Legal and Compliance Department, Corporate Planning Department, Human Resources Department, General Management Department and Internal Audit department. Organization chart of the Issuer is as follows:
Board of Directors
General Manager
Vice-general Manager Vice-general Manager
Sales Marketing Customer Relationship Retail Finance Floor Plan Information System Business Development Finance and Accounting Risk Management Legal and Compliance Corporate Planning Human Resources General Management Internal Audit Department Department Management Department Department Department Department Department Department Department Department Department Department Department Department 5.6 Capital Structure of the Issuer
45 2018 DNAF Financial Bond II Prospectus
From 2015 to 2017, the capital structure and capital adequacy ratio of the Issuer are as follows: Unit: RMB 10 thousand
ITEM December 31, 2015 December 31, 2016 December 31, 2017 June 30, 2018 1. Core Tier One Net Capital 383,912.03 478,977.75 599,039.90 661,717.92 2. Tier One Net Capital 383,912.03 478,977.75 599,039.90 661,717.92 3. Net Capital 397,664.93 493,474.24 605,247.12 686,514.90 4. Credit Risk Weighted 1,848,492.24 2,540,034.57 3,168,752.07 3,627,690.03 Assets 4.1Risk Weighted Assets in 1,848,492.24 2,540,034.57 3,168,752.07 3,627,690.03 Balance Sheet Include: Risk Weighted Assets in Balance Sheet (the weighted 1,848,492.24 2,540,034.57 3,168,752.07 3,627,690.03 method and internal rating method uncovered) 5. Operation Risk Weighted 178,458.98 212,778.88 310,877.84 310,877.84 Assets 6. Total Risk Weighted Assets 2,026,951.22 2,752,813.45 3,479,629.90 3,627,690.03 before Calibration 7. Total Risk Weighted Assets after the Calibration and 2,026,951.22 2,752,813.45 3,479,629.90 3,627,690.03 Application of Capital Bottom Line 8. Core Tier One Capital 18.94% 17.40% 17.22% 18.24% Adequacy Ratio 9. Tier One Capital Adequacy 18.94% 17.40% 17.22% 18.24% Ratio 10. Capital Adequacy Ratio 19.62% 17.93% 17.39% 18.92% Note: Capital Adequacy Ratio, Tier One Capital Adequacy Ratio and Core Tier One Capital Adequacy Ratio for the last three years and the first quarter of 2018 are calculated pursuant to the provisions of Implementation of the Administrative Measures on the Capital of Commercial Banks (for Trial Implementation); Capital Adequacy Ratio=Net Capital/Total risk weighted assets after calibration and the application of capital bottom line *100%); Tier One Capital Adequacy Ratio= Tier One Net Capital / Total risk weighted assets after calibration and the application of capital bottom line; Core Tier One Capital Adequacy Ratio=Core Tier One Net Capital / Total risk weighted assets after calibration and the application of capital bottom line; Core Tier One Net Capital=Equity-Net Intangible Assets; Tier One Net Capital=Core Tier One Net Capital; Net Capital=Tier One Capital + Tier Two Capital (Excess Loan Loss Provision); Credit Risk weighted Assets= Risk weighted Assets in Balance Sheet+ Risk weighted Assets off Balance Sheet + Risk weighted Assets of the Counterparty Credit Risk Exposure; Risk weighted Assets in Balance Sheet= Subtotal Risk weighted Assets in Balance Sheet+ Excess Loan Loss Provision included in Tier Two Capital 5.7 Investment Relationships with Parent Companies, Subsidiaries and Other Investors 5.7.1 Equity Structure of the Issuer As of June 30, 2018, the Equity Structure of the Issuer is as follows：
Shareholder Contribution (RMB) Proportion DFG 535,294,000 35.00% NML 455,000,000 29.75% NCIC 325,000,000 21.25% DFL 214,118,000 14.00% Total 1,529,412,000 100.00% 5.7.2 Shareholders The shareholders along with the shareholding ratio of the Issuer are, DFG, 35.00%, NML,
46 2018 DNAF Financial Bond II Prospectus
29.75%, NCIC, 21.25% and DFL, 14.00%. 1. Dongfeng Motor Group Co., Ltd. The parent company of DFG is Dongfeng Motor Corporation who was formerly known as the Second Automotive Works and established in September 1969. DFG issued the H shares overseas in December 6, 2005 and completed an over-allotment on December 13, 2005, which resulted in the expansion of the equity to RMB 8,616,120,000, including RMB 5,760,388,000 domestic shares (approximately 66.86%) and RMB 2,855,732,000 H shares (approximately 33.14%). As at December 31, 2017, DFG has 21 subsidiaries, joint ventures and other companies in which the DFG has direct equity interests and 2 branches. DFG is primarily engaged in the manufacture and sale of commercial vehicles, passenger vehicles and auto engines and parts, vehicle manufacturing equipment business, finance businesses as well as other automotive related businesses. In 2017, DFG commanded a market share of approximately 11.4% in terms of the total sales volume of domestic commercial and passenger vehicle manufacturers in the PRC, according to the statistics published by the China Association of Automobile Manufacturers. 2. Nissan Motor Co., Ltd. NML was established in Yokohama, Japan in 1933. NML now has more than 20 local manufactory facilities all around the world and its sales network has covered more than 160 countries and areas. NML has employed more than 130,000 employees until March2017 and sold more than 5.77 million autos around the world in 2017. NML owns three branches, Nissan, Infiniti and Datsun. Nissan devotes to optimize research on products and to develop leading innovative technology. NML enjoys excellent brand reputation in many countries and areas, and is also known as an auto brand manufacturing innovative auto models and providing excellent service. On account of its advanced design and high quality, Infiniti wins high affirmation around the world including America, Canada, Russia, Middle East and Korea. 3. Nissan China Investment Co., Ltd. As a wholly owned subsidiary of NML, NCIC was established in Beijing in February 2004 and manages the investment in China with its parent company. NCIC is responsible for the public relationship, brand management and intellectual property of NML in China. NCIC also play an important role in global operation, purchase and exportation of competitive auto parts for NML in China. Besides, NCIC takes part in market research, including research on auto design tendency within China. 4. Dongfeng Motor Co., Ltd. DFL was established on June 9, 2003 and went into formal operation on July 1 the same year, which is the joint venture built by Dongfeng Motor Corporation and NML holding 50% shares respectively. DFL is a joint venture who owns all series passenger vehicles and light commercial vehicles, of which the registered capital is RMB 16.7 billion. The productions of DFL include commercial vehicle, passenger vehicle, auto parts and auto equipment. The cooperation scope
47 2018 DNAF Financial Bond II Prospectus of the shareholders includes research on product development, production and marketing. NML also provide its experience in each link of the value chains including product planning, purchase, logistic, quality control, brand management, market development, sales network and finance service. 5.7.3 Equity Investment of the Issuer The Issuer has not made any equity investment until now.
48 2018 DNAF Financial Bond II Prospectus
Chapter 6 Analysis on the Financial Condition of the Issuer 6.1 Summary on the Financial Statements and Notes of the Issuer for the Last Three Years and the First Quarter of 2018 6.1.1 2015-2017 and January to June 2018 Financial Statements Ernst & Young Hua Ming LLP Shanghai Branch, engaged by the Issuer, has issued independent auditors' reports Ernst & Young Hua Ming (2016) Shen Zi Audit No. 60684590_B01, Ernst & Young Hua Ming (2017) Shen Zi No. 60684590_B01 and Ernst & Young Hua Ming (2018) Shen Zi Audit No. 60684590_B01, according to the Issuer's financial condition on December 31, 2015, December 31, 2016 and December 31, 2017 and the operating results and cash flows of the year of 2015, 2016 and 2017, which evidenced that the Issuer's financial statements were prepared in accordance with the Accounting Principles for Enterprises and Accounting Principles for Financial Enterprises, fairly reflected the Issuer's financial condition on December 31, 2015, December 31, 2016 and December 31, 2017 and the operating results and cash flows of the year of 2015, 2016 and 2017. The Issuer's financial statements for January to June 2018 were unaudited. Consolidated Balance Sheet of the Issuer
as of end of 2015, 2016, 2017 and June 2018 Unit: RMB
December 31, 2015 December 31, 2016 December 31, 2017 June 30, 2018 ASSETS Cash and Balances with 489,192,873 587,827,114 772,967,272 922,921,437 the Central Bank Due from and Placements with Banks and other 1,094,865,979 1,427,669,187 2,404,129,784 1,174,230,125 Financial Institutions Interest Receivable 89,960,609 161,467,013 136,932,105 141,977,906 Loans 23,261,574,976 31,232,530,393 39,148,803,979 41,612,419,133 Net Value of Fixed Assets 13,212,407 18,416,613 21,295,782 18,590,017 Net Value of Intangible 9,598,568 9,172,246 9,229,461 8,511,412 Assets Construction in Process - - 132,075 132,075 Deferred Tax Assets 8,605,069 258,331,224 365,575,590 348,317,320 Other Assets 84,917,936 92,233,769 80,553,324 95,484,843 TOTAL ASSETS 25,051,928,417 33,787,647,559 42,939,619,372 44,322,584,269 LIABILITIES Short-term Saving 5,700,000,000 7,400,000,000 8,400,000,000 9,400,000,000 Deposits Due to and Placements from Banks and other 13,680,000,000 15,970,000,000 15,280,000,000 12,330,000,000 Financial Situations Guarantee Deposits 594,296,961 794,081,520 2,298,311,158 3,497,778,986 Payroll Payable 21,779,234 29,453,258 32,551,921 20,891,843 Tax Payable 170,836,358 402,926,279 377,885,217 82,452,047 Interests Payable 100,681,674 76,881,818 215,660,957 297,707,339 Accounts Payable 90,450 - - 32,983,852
49 2018 DNAF Financial Bond II Prospectus
December 31, 2015 December 31, 2016 December 31, 2017 June 30, 2018 Bonds Payable 892,976,400 4,274,775,200 10,277,021,998 12,012,572,506 Other Liabilities 42,548,469 40,579,697 58,559,653 22,507,101 Total Liabilities 21,203,209,546 28,988,697,772 36,939,990,904 37,696,893,674 EQUITY Paid-in Capital 1,529,412,000 1,529,412,000 1,529,412,000 1,529,412,000 Capital Reserve 170,152,000 170,152,000 170,152,000 170,152,000 Surplus Reserve 214,915,487 309,938,579 430,006,447 430,006,447 General Reserve 240,303,992 355,604,838 475,312,810 475,312,810 Retained Earnings 1,693,935,392 2,433,842,370 3,394,745,211 4,020,807,338 TOTAL EQUITY 3,848,718,871 4,798,949,787 5,999,628,468 6,625,690,595 TOTAL EQUITY AND 25,051,928,417 33,787,647,559 42,939,619,372 44,322,584,269 LIABILITIES Note 1: The data of 2015, 2016 and 2017 is extracted from the audit reports of each year. The data of June 30, 2018 is extracted from the unaudited reports. Note 2: In the 2015 audit report, the long-term deferred expenses has been taken into the "other assets" item, while in the 2016 and 2017 audit reports, the long-term deferred expenses has been taken as an independent item. In order to maintain the data consistency, the "other Assets" in the above table includes long-term deferred expenses of 2016, 2017 and June 30, 2018. Consolidated Income Statement of the Issuer For the Financial Years of 2015, 2016 and 2017 and the Period from January to June 2018 Unit: RMB
January to June 2015 2016 2017 2018 OPERATING INCOME Interest Income 2,011,478,888 2,409,467,956 3,014,084,866 1,797,994,620 Interest Expense (700,971,120) (741,015,351) (1,099,309,399) (727,123,113) Net Interest Income 1,310,507,768 1,668,452,605 1,914,775,467 1,070,871,508 Fee and Commission 38,291,848 50,008,268 68,969,821 40,233,343 Income Fee and Commission (19,086,393) (22,980,801) (36,065,545) (29,107,872) Expense Net Fee and Commission 19,205,455 27,027,467 32,904,276 11,125,471 Income Other Gains 111,100,000 Other Income 587,790 287,945 296,612 458,547 1,330,301,013 1,695,768,017 1,947,976,355 1,193,555,526 OPERATING COST Tax and Surcharges (113,902,986) (83,868,482) (37,540,354) (14,550,820) General and (237,489,880) (296,053,534) (337,724,849) (168,043,125) Administrative Expenses Provision for Loan (82,060,309) (75,264,904) 15,695,914 (30,823,776) Losses Other Expense (281,108) (195,655) (249,396) (163,189) (433,734,283) (455,382,575) (359,818,685) (213,580,910)
50 2018 DNAF Financial Bond II Prospectus
January to June 2015 2016 2017 2018 OPERATING 896,566,730 1,240,385,442 1,588,157,670 979,974,616 PROFITS/(LOSS) Non-operating Income 19,256,996 41,491,254 226,381 35,140 Non-operating Expense (46,927) (5,520,577) (299,086) - PROFITS/(LOSS) 915,776,799 1,276,356,119 1,588,084,965 980,009,756 BEFORE TAX Less: Income Tax (243,094,649) (326,125,203) (387,406,284) (247,323,379) NET PROFIT/LOSS 672,682,150 950,230,916 1,200,678,681 732,686,377 OTHER COMPREHENSIVE - - - INCOME TOTAL COMPREHENSIVE 672,682,150 950,230,916 1,200,678,681 732,686,377 INCOME Notes: The data of 2015, 2016 and 2017 is extracted from the audit reports of each year. The data of June 30, 2018 is extracted from the unaudited reports. Consolidated Cash Flow Statement of the Issuer For the Years of 2015, 2016 and 2017 and the Period from January to June 2018 Unit: RMB
January to June 2015 2016 2017 2018 CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Placements from Banks 3,580,000,000 2,290,000,000 - and other Financial Institutions (Net) Guarantee Deposit 132,719,897 201,184,559 1,504,429,643 1,198,762,473 Received Decrease in Due from 390,548,517 - - the Central Banks (Net) Interest Received and Commission Income 2,237,872,751 1,712,887,385 2,006,638,479 1,106,071,448 Received Deposits increase (net) - 1,700,000,000 1,000,000,000 1,000,000,000 Cash Received from other Operating 4,024,040 41,710,624 515,148 140,621,853 Activities Subtotal of Cash 6,345,165,205 5,945,782,568 4,511,583,270 3,445,455,774 Inflows Cash Paid for Placements to Banks - - 690,000,000 2,950,000,000 and other Financial Institutions (Net) Paid Deposits reserves - 101,513,435 153,438,345 159,882,457 to PBOC (Net) Net Increase in Loans 5,442,725,560 7,244,677,717 6,592,369,646 1,823,934,086 Interest Paid and 735,005,037 705,127,980 768,368,158 375,299,771 Commission Fee Paid
51 2018 DNAF Financial Bond II Prospectus
Cash Paid to and on 86,830,060 114,305,903 144,696,785 99,909,792 Behalf of Employees Cash Paid for Taxes 331,641,943 567,713,280 740,666,363 605,010,865 Cash Paid for other 140,368,222 165,280,253 136,752,141 104,324,572 Operating Activities Subtotal of Cash 6,736,570,822 8,898,618,568 9,226,291,438 6,118,361,543 Outflows Net Cash Flows from (391,405,617) (2,952,836,000) (4,714,708,168) (2,672,905,769) Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES Cash Received from Disposal of Fixed - 120,612 208,187 - Assets Sub-total of Cash - 120,612 208,187 - Flows Cash Paid for Acquisition of Fixed Assets Intangible 9,913,821 32,237,604 15,055,268 2,930,129 Assets and other Long-term Assets Subtotal of Cash 9,913,821 32,237,604 15,055,268 2,930,129 Outflows Net Cash Flows from (9,913,821) (32,116,992) (14,847,081) (2,930,129) Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Cash Received from 1,324,000,000 6,036,000,000 12,349,162,405 5,755,878,501 Issuing Bonds Subtotal of Cash 1,324,000,000 6,036,000,000 12,349,162,405 5,755,878,501 Inflows Cash Paid out for 855,898,000 2,654,201,200 6,385,913,662 4,150,918,602 Liabilities2 Cash Paid out for 25,137,494 66,921,794 225,531,084 175,906,116 Bonds Interests Subtotal of Cash 881,035,494 2,721,122,994 6,611,444,746 4,326,824,718 Outflows Net Cash Flows from 442,964,506 3,314,877,006 5,737,717,659 1,429,053,783 Financing Activities EFFECT OF CHANGES IN - - - - EXCHANGE RATE ON CASH NET (DECREASE)/INCREA 41,645,068 329,924,014 1,008,162,410 (1,246,782,115) SE IN CASH AND CASH EQUIVALENTS Add: Opening Cash and 1,070,341,512 1,111,986,580 1,441,910,594 2,450,073,004 Cash Equivalents Balance CLOSING CASH AND CASH EQUIVALENTS 1,111,986,580 1,441,910,594 2,450,073,004 1,203,290,889 BALANCE Note 1: The data of 2015, 2016 and 2017 is abstracted from the audit reports of each year. Note 2: In the 2015 and 2016 audit reports, other cash payable in relation to financing activities has been taken into the "Cash Paid out for Liabilities" item, while in the 2017 audit report, other cash payable in relation to
52 2018 DNAF Financial Bond II Prospectus financing activities has been taken as an independent item. In order to maintain the data consistency, the "Cash Paid out for Liabilities" in the above table includes long-term deferred expenses of 2017. 6.1.2 Summary of the Notes for Financial Statement (1) Preparation basis of financial statement Financial statements are prepared in accordance with the Accounting Principles for Enterprises. The financial statements are presented on a going concern basis. The Company's accounts have been prepared on an accrual basis using the historical cost as the basis of measurement. Assets are recorded at cost when they are acquired. Subsequently, if the assets are impaired, impairment provisions are made in accordance with Accounting Standards for Business Enterprises. (2) Significant accounting policies and estimates (a) Accounting year The accounting year of the Company is from 1 January to 31 December. (b) Reporting currency The Company's reporting and presentation currency is Renminbi ("RMB"). Unless otherwise stated, the unit of the currency is Yuan. (c) Consolidated financial statements The consolidation scope of consolidated financial statements shall be determined on the basis of control. Subsidiaries refer to the entities under the control of a parent company (including the parts that can be divided from enterprises and investees as well as the structured entities controlled by the company). The financial statements of the subsidiaries for the purpose of preparing the consolidated financial statements use the same accounting policies and standards consistent with that used by the company. All assets, liabilities, equities, income, expenses and cash flows resulting from intercompany transactions and intercompany balances within the Group are eliminated on consolidation in full. Where the current losses borne by the minority shareholders of a subsidiary exceed the share owned by the minority shareholders in the owners' equity of the subsidiary at the beginning of the period, the balance shall offset the minority equity. Where the company prepares a consolidated financial statements due to increase in subsidiaries and businesses arising from business combination not under common control or other means, it shall incorporate the incomes, expenses and profits of the subsidiary and business incurred from the date of purchase to the end of the reporting period into the consolidated income statement, and continue to be consolidated until the date that such control ceases. When preparing consolidated financial statements, it shall adjust the financial statements of the subsidiary company on the basis of the fair values of the identifiable assets, liabilities and contingent liabilities determined on the acquisition date. Where the company prepares a consolidated financial statements due to increase in subsidiaries and businesses arising from business combination under common control within the reporting period, it shall incorporate the results of its operations and its cash flows
53 2018 DNAF Financial Bond II Prospectus incurred from the beginning of the period of business combination to the end of the accounting period into the consolidated financial statements and adjust the relevant items of comparative statements at the same time, as if the reporting entity after the business combination has existed as of the time the final controller takes the control. The company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control described in the accounting policy for subsidiaries. The changes in the Company's ownership interest in a subsidiary that do not result in the change of control are accounted for as equity transactions, whereby the carrying amounts of the minority interests shall be adjusted to reflect the changes in their interests in the subsidiary. Any difference between the amount by which the minority interest adjusted and the fair value of the consideration paid or received shall be recognized directly in equity. (d) Cash and Cash equivalents Cash represent cash balance of the company and any deposit ready to repay; Cash equivalents represent short-term, highly liquid investments which are readily convertible into known amounts of cash, and which are subject to an insignificant risk of changes in value. Cash equivalents include cash and deposits with banks maturing in less than three months (deposits with restrictions excluded). (e) Foreign currency transactions Transactions in currencies other than the reporting currency are translated into the reporting currency. Transactions in foreign currency are initially recorded using the functional currency rates ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the balance sheet date. All differences are taken to profit or loss with exception for those arising from foreign currency borrowings in relation to acquisition or construction of fixed assets, which are capitalized. Non-monetary items those are measured in terms of historical cost in foreign currencies are translated using the exchange rates at the date of the initial transactions. Non-monetary items measured at fair value in foreign currencies are translated using the exchange rates at the date when fair value is determined; the exchange differences are taken to profit or loss or other comprehensive income according to the nature of non-monetary items Cash flows in foreign currency are translated at the functional currency rates on the date that the cash flows occur. The change in the exchange rate on cash is separately presented as an adjustment item in the cash flow statement. (f) Financial Instrument A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Recognition and derecognition The Company recognizes a financial asset or a financial liability on its balance sheet, when the Company becomes a party to the contractual provision of the instrument. A financial asset (or a part of financial assets or a part of a set of financial assets) is
54 2018 DNAF Financial Bond II Prospectus derecognized and written-off from its account and balance sheet when one of the following conditions is met: (i) the rights to receive cash flows from the asset have expired; or (ii) the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a "pass through" arrangement and either: the Company has transferred its rights to receive cash flows from the assets, and (a) the Company has transferred substantially all the risks and rewards of the assets, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. If the obligation relating to a financial liability has been discharged or cancelled or has expired, the financial liability is derecognized. If the existing financial liability is replaced by the same creditor, with another financial liability that has terms with an almost completely different nature, or if almost all the terms of the existing liability are substantially revised, such replacement or revision is accounted for as the derecognition of the original liability and the recognition of a new liability, and the difference thus resulted is recognized in the income statement of the current period. Trading and selling financial assets in a regular manner will be confirmed and terminated upon the Transaction Date. Conventional financial assets transaction means the collection or delivery of financial assets within the time limit prescribed by the regulations or practices in accordance with the terms of the contract. The Transaction Date means the date on which the issuer promises to buy or sell the financial asset. Classification and measurement of financial assets Financial assets are, on initial recognition, classified into the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. Financial assets are measured at fair value on initial recognition. In case of financial assets at fair value through profit or loss, relevant transaction costs are directly charged to the profit and loss of the current period; transaction costs relating to financial assets of other categories are included in the amount initially recognized. Subsequent measurement of financial assets depends on its classification: Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. A financial asset is classified as held for trading if one of the following criteria is met: the financial asset is acquired for the purpose of selling in a short term; the financial asset is a part of a portfolio of identifiable financial instruments that are collectively managed, and there is objective evidence indicating that the enterprise recently manages this portfolio for the purpose of short-term profits; the financial asset is a derivative financial instrument. However, derivative instruments designated as effective hedges, derivative instruments belonging to financial guarantee contract, and derivative instruments linked to equity investments, which are not in an active market, their fair value cannot be measured reliably and the settlement is based on the delivery of the equity investments, are excluded. For such
55 2018 DNAF Financial Bond II Prospectus kind of financial assets, fair values are adopted for subsequent measurement, all the realized and unrealized profit and loss are charged to the current period Dividend and interest income relevant to financial assets at fair value through profit or loss are charged to profit and loss of the current period. Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets which carry fixed or determinable payments and fixed maturities and which the Company has the positive intention and ability to hold to maturity. After initial measurement, held-to-maturity investments are subsequently carried at amortized cost using the effective interest method. Gains and losses are recognized in income statement when the investments are derecognized or impaired, as well as through the amortization process. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, loans and receivables are subsequently carried at amortized cost using the effective interest method. Gains and losses are recognized in the income statement when the loans and receivables are derecognized or impaired, as well as through the amortization process. Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial measurement, available-for-sale financial assets are measured at fair value. The premium/discount is amortized using effective interest method and recognized as interest income or expense. A gain or loss arising from a change in the fair value of an available-for-sale financial asset is recognized in a separate component of capital reserve, except for impairment losses and foreign exchange gains and losses resulted from monetary financial assets, until the financial asset is derecognized or determined to be impaired, at which time the cumulative gain or loss previously recognized in capital reserve shall be removed from capital reserve and recognized in the income statement. Interests and dividends relating to an available-for-sale financial asset are recognized in the income statement for the period they relate to. Classification and measurement of financial liabilities The financial liabilities are, on initial recognition, classified as financial liabilities at fair value through profit or loss and other financial liabilities. For financial liabilities at fair value through profit or loss, relevant transaction costs are directly recognized in the income statement of the current period, and transaction costs relating to other financial liabilities are included in the initially subsequent measurement of financial liabilities depends on their classification: Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and those designated as at fair value through profit or loss. A financial liability is classified as held for trading if one of the following criteria is met: 1) the financial liability is assumed for the purpose of repurchasing in a short term; 2) the financial liability is a part of a portfolio of identifiable financial instruments that are collectively managed, and there is objective evidence indicating that the enterprise recently manages this portfolio for the
56 2018 DNAF Financial Bond II Prospectus purpose of short-term profits; 3) the financial liability is a derivative financial instrument. However, derivative instruments designated as effective hedges, derivative instruments belonging to financial guarantee contract, and derivative instruments linked to equity investments, which are not in an active market, their fair value cannot be measured reliably and the settlement is based on the delivery of the equity investments, are excluded. For such kind of financial liabilities, fair value is adopted for subsequent measurement. All the realized or unrealized gains or losses on these financial liabilities are recognized in the income statement of the current period. Other financial liabilities After initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. Fair value of financial instruments If there is an active market for a financial asset or financial liability, the Company determines the fair value by using the quoted prices. If no active market exists for a financial instrument, the Company establishes fair value by using a valuation technique. Valuation techniques include using recent arm's length market transactions between knowledgeable, willing party reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. Impairment of financial assets The Company assesses the carrying amount of a financial asset as at the balance sheet date; if there is objective evidence that the financial asset is impaired the Company makes provision for the impairment loss. Impairment event is event occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset which can be reliably estimated. Financial assets carried at amortized cost When the financial assets carried at amortized cost are impaired, the carrying amount of the financial asset shall be reduced to the present value of the estimated future cash flow (excluding future credit losses that have not been incurred). The amount of reduction is recognized as an impairment loss in the income statement. Present value of estimated future cash flow is discounted at the financial asset's original effective interest rate and includes the value of any related collateral. If a financial asset is individually significant, the Company assesses the asset individually for impairment, and recognizes the amount of impairment in the income statement if there is objective evidence of impairment. For a financial asset that is not individually significant, the Company can include the asset in a group of financial assets with similar credit risk characteristics and collectively assess them for impairment. For financial assets that are not impaired upon individual tests (including financial assets that are individually significant or insignificant), impairment tests should be conducted on them again by including them in the group of financial assets. Assets for which an impairment loss is individually recognized will not be included in a collective assessment of impairment. If, subsequent to the recognition of an impairment loss on a financial asset carried at amortized cost, 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 and recognized in the income statement.
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However, the reversal shall not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed. Available-for-sale financial assets When there is objective evidence that the asset is impaired, the cumulative loss from declines in fair value that had been recognized in capital reserve are removed from equity and recognized in the income statement. The amount of the cumulative loss that is removed from capital reserves and recognized in the income statement (net of any principal repayment and amortization) and current fair value, less any impairment loss on that financial asset previously recognized in the income statement. Impairment losses recognized in the income statement for an available-for-sale equity instrument shall not be reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be related objectively to an event occurring after the impairment was recognized in the income statement, the previously recognized impairment loss shall be reversed with the amount of the reversal recognized in the income statement Financial assets carried at cost If objective evidence shows that the financial assets carried at cost are impaired, the difference between the present value discounted at the prevailing rate of return of similar financial assets and the book value of the financial asset are provided as a provision. The impairment loss recognized cannot be reversed. Transfer of financial assets If the Company transfers substantially all the risks and rewards of ownership of the financial asset, the Company derecognizes the financial asset; and if the Company retains substantially all the risks and rewards of the financial asset, the Company does not derecognize the financial asset. If the Company neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, the Company determines whether it has retained control of the financial asset. In this case: (i) if the Company has not retained control, it derecognizes the financial asset and recognize separately as assets or liabilities any rights and obligations created not retained in the transfer; (ii) if the Company has retained control, it continues to recognize the financial asset to the extent of its continuing involvement in the transferred financial asset and recognizes an associated liability. (g) Fixed Assets Fixed assets are recognized when the economic benefits related to fixed assets is likely to flow into the Company and the cost of fixed assets can be reliably measured. Expenditure incurred after the asset has been put into operation is capitalized as an additional cost of the asset and parts being replaced are derecognized when criteria's are met. Otherwise, such expenditure is normally charged to the income statement in the period in which it is incurred. Fixed assets are initially stated at cost. The cost of an asset comprises its purchase price, related taxes and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Depreciation is calculated using the straight-line method. The respective estimated useful
58 2018 DNAF Financial Bond II Prospectus lives of fixed assets are as follows: Category Useful life Estimated residual value Annual depreciation rate Office or electronic equipment 5 years 10% 10% Vehicles 5 years 10% 10% Residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end. (h) Intangible Assets An intangible asset is initially measured at cost. An intangible asset with a finite useful life is amortized using the straight-line method over its useful life when the asset is available for use. An intangible asset with an indefinite useful life is not amortized. For an intangible asset, with a definite useful life, the company reassesses the useful life of the asset in each accounting period and adjusts if necessary. (i) Long-term deferred Expenses Long-term deferred expense is amortized using the straight-line method. The amortization period is as follows: The amortization period of improvement expenses for commercial leased fixed assets shall be determined by the term of the leasing period or five years, whichever is shorter. The amortization period of other long-term expenses to be amortized shall be determined by the term of the contracts/agreements or the benefit period, whichever is shorter. (j) Impairment of assets The Company determines the impairment of assets other than financial assets and deferred tax, using the following methods: The Company assesses at the balance sheet date whether there is any indication that an asset may be impaired. If any indication exists that an asset may be impaired, the Company estimates the recoverable amount of the asset and performs impairment tests. The recoverable amount of an asset is the higher of its fair value less costs to sell and the present value of the future cash flow expected to be derived from the asset. The Company estimates the recoverable amount on an individual basis. If it is not possible to estimate the recoverable amount of the individual asset, the Company determines the recoverable amount of the asset group to which the asset belongs. Identification of an asset group is based on whether major cash flows generated by the asset group are largely independent of the cash flows from other assets or asset groups. When the recoverable amount of an asset or asset group is less than its carrying amount, the carrying amount is reduced to the recoverable amount. The impairment of asset is provided for and the impairment loss is recognized in the income statement for the current period. Once the above impairment loss is recognized, it cannot be reversed in subsequent periods. (k) Accrued liability An obligation related to a contingency is recognized as accrued liability when all of the following conditions are satisfied: (i) the obligation is a present obligation of the Company;
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(ii) it is probable that an outflow of economic benefits will be required to settle the obligation; and (iii) the amount of the obligation can be measured reliably The accrued liability is initially measured at the best estimate of the expenditure required to settle the related present obligation. Factors pertaining to a contingency such as the risks, uncertainties and time value of money are taken into account as a whole in reaching the best estimate. The Company reviews the carrying amount of a provision at the balance sheet date. When there is clear evidence that the carrying amount of a provision does not reflect the current best estimate, the carrying amount is adjusted to the current best estimate. (l) Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured the following specific recognition criteria must be met before revenue is recognized: Interest income and interest expense Interest income and an interest expense are recognized by using the effective interest rate method. The effective interest rate method involves applying the rate that discounts the estimated future cash inflows or outflows through the expected life of the financial instrument to the net carrying amount of the financial asset or the financial liability. The calculation takes into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses. Fee and commission income Fee and commission income is recognized when service has been provided and the amount can be reliably measured. (m) Leases A finance lease is a lease that transfers in substance all the risks and rewards incident to ownership of an asset. An operating lease is a lease other than a finance lease. As the operating lessee Lease payments under an operating lease are recognized by a lessee on a straight-line basis over the lease term (or other more reasonable and systematic method) and charged to the income statement or asset costs for the current period. Contingent rentals are charged to the income statements for the period when it actual occurs (n) Government Grants Government grants are recognized where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. Where the Company receives monetary grants, the asset and the grant are recorded at the amount received or receivable, Where the Company receives non-monetary grants, the asset and the grant are recorded at fair value, while the fair value cannot be reliably obtained, the grants are recorded at nominal amounts .When the grant relates to an expense item, it is recognized as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, it is recognized as deferred income and released to income in equal amounts over the expected useful life of the related asset. If the
60 2018 DNAF Financial Bond II Prospectus grants are recorded at nominal amount, it is recognized into income directly. (o) Employee benefits Employee benefits are all forms of consideration given and other relevant expenditure incurred by the Company in exchange for service rendered by employees. During the accounting period that the employees render service to the Company, the employee benefits payable is recognized as a liability. When the termination benefits fall due more than 1 year after the balance sheet date, if the discounted value is material, it is reflected in present value. The employees of the Company participate in social insurance, such as pension insurance and unemployment insurance. The relevant expenditure is recognized, when incurred, in the costs of relevant assets or the profit and loss for the current period. (p) Income Tax Income tax is inclusive of current tax and deferred tax, which charge to the income statements of current period as profit or loss both. Current tax provision is calculated based on the applicable income tax rate and the accounting results for the year after adjusting for items which are non-assessable or disallowed in accordance with the relevant tax laws. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except: (i) where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and (ii) in respect of taxable temporary differences associated with investments in subsidiaries and associates where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except: (i) where the deferred tax asset relating to the deductible temporary differences arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and (ii) in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to 61 2018 DNAF Financial Bond II Prospectus the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. If the company owns the legal right to settle current income tax asset and current income tax liability as net value and deferred income tax and the corresponding taxable entity are related to the corresponding Tax Bureau, the deferred income tax asset and deferred income tax liability can be presented as net value after offsetting. (q) Significant accounting judgments and estimates The preparation of Company's financial statements requires directors to make judgements, estimates and assumptions that affect the reported amounts disclosure of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amounts of assets or liabilities affected in future. Judgment In the process of applying the Company's accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the financial statements, mainly includes revenue recognition and classification of leases and classification of financial Instruments. Scope of Consolidation - merger of special purpose vehicles The issuer needs to set up a special purpose subject for a particular business. The issuer has taken into account the following factors, to determine the control of the special purpose of the main body, and its inclusion in the consolidated financial statements of the scope of consolidation: (i) the establishment of a special purpose entity, directly or indirectly, for the purpose of financing, selling goods or providing specific services such as labor services; (ii) the decision of the Company to control or obtain control of the subject or its assets; (iii) the Company has the power to obtain the majority of the interests of the Special Purpose Vehicle through the Articles of Association, contracts, agreements and so on; (iv) the Company has undertaken most of the risks of the Special Purpose Vehicle through the Articles of Association, contracts, agreements, etc. Estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below: Impairment losses of loans and advances The Company determines periodically whether there is any objective evidence that impairment losses on loans and advances have occurred. If any such evidence exists, the Company assesses the amount of impairment losses. The amount of impairment losses is measured as the difference between the carrying amount and the present value of estimated
62 2018 DNAF Financial Bond II Prospectus future cash flows. Assessing the amount of impairment losses requires significant judgment on whether the objective evidence for impairment exists and also significant estimates when determining the present value of the expected future cash flows. Deferred income tax assets Deferred tax assets are recognized for all temporary non-deductible provisions to the extent that it is probable that taxable profit will be available against which the temporary non-deductible provision can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies. (3) Tax The major categories of taxes applicable to the Company and the respective tax rates are as follows: (a) Corporate income tax In accordance with the relevant tax laws in the PRC, the Company is subject to a corporate income tax rate of 25% on its taxable income. (b) Business tax In accordance with the relevant tax laws in the PRC, by April 30, 2016, the Company is subject to a business tax of 5% on its revenue exclude the interest income from financial institutions. (c) Added-value tax From May 1, 2016, the output tax shall be calculated as 6% of the taxable incomes and the Issuer would pay the added-value tax the amount equal to balance net of the current income tax deductible. (d) City maintenance and construction tax The Company is subject to a city maintenance and construction tax of 7% on its Business tax or added-value tax actual payment. (e) Education Surtax 3% of the actual Business Tax or VAT payment made by the Issuer. (f) Local Education Surtax 2% of the actual Business Tax or VAT payment made by the Issuer. 6.2 Description of severe Litigation of the Issuer Issuer has never involved in any litigation or arbitration with significant impact on operating activities since its establishment. 6.3 Analysis on the Financial Condition of the Issuer 6.3.1 Trends analysis on the main profit and loss items 1. Analysis on the income and changeable constitution tendency Analysis on the Issuer's Operating Income
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for 2015 to 2017 and the Period from January to June 2018 Unit: RMB or %
2015 2016 2017 January – June 2018 ITEM Amount Ratio Amount Ratio Amount Ratio Amount Ratio Net Interest Income 1,310,507,768 98.51 1,668,452,605 98.39 1,914,775,467 98.30 1,070,871,508 89.72 Net Fee and 19,205,455 1.44 27,027,467 1.59 32,904,276 1.69 11,125,471 0.93 Commission Income Other Gain and other 587,790 0.04 287,945 0.02 296,612 0.02 111,558,547 9.35 Income Total Operating 1,330,301,013 100.00 1,695,768,017 100.00 1,947,976,355 100.00 1,193,555,526 100.00 Income
Under rapid development of both the China's economic and the environment of the domestic auto industry, the Issuer has seized the opportunity to expand its operation scale and carry out the business, which made its operating income continue growing. The operating income reached RMB 1,330 million, RMB 1,696 million, RMB 1,948 million and RMB 1,194 million for 2015, 2016 and 2017 and the period of January to June 2018, respectively, representing a year-on-year increase of 18.91%, 27.47%, 14.87% and 23.90%, respectively. The net interest income is the Issuer's main income source. The annual net interest income of the Issuer were RMB 1,311 million, RMB 1,668 million, RMB 1,915 million and RMB 1,071 million, respectively. The growth of net interest income is mainly due to the increase in loans extended by the Issuer resulting from its business growth. Balance of the loans extended as of end of 2016 increased by RMB 7,971 million compared with that at the end of 2015, and balance of the loans extended as of end of 2017 increased by RMB 7,916 million compared with that at the end of 2016, and balance of the loans extended as of June 30, 2018 increased by RMB 8,427 million over the same period in 2017. In addition, due to the change in external funding environment since December 2016, the Issuer's cost of funds increased a bit, leading to the growth rate of net interest income of 2017 lower than that of 2016. From January to June 2018, the external market financing interest rate further increased, and the Company's interest expense growth rate increased slightly, resulting in a slight decrease in the net interest income growth rate. In response to this situation, the Company is exploring more funding sources to have liquidity at reasonable cost. In terms of other gain and other income, the Company received fiscal support of 111 million in February 2018, making the year-on-year growth rate of operating income from January to June 2018 higher than the year-on-year growth rate of net interest income. 2. Analysis on trend of expenditure and composition change Analysis on the Issuer's Expenses for 2015 to 2017 and the Period from January to June 2018 Unit: RMB or %
ITEM 2015 2016 2017 January – June 2018 Amount Ratio Amount Ratio Amount Ratio Amount Ratio Tax and 113,902,986 26.26 83,868,482 18.42 37,540,354 10.43 14,550,820 6.81 Surcharges General and Administrative 237,489,880 54.75 296,053,534 65.01 337,724,849 93.86 168,043,125 78.68 Expenses
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Provision for 82,060,309 18.92 75,264,904 16.53 -15,695,914 -4.36 30,823,776 14.43 Loan Losses Other Expenses 281,108 0.06 195,655 0.04 249,396 0.07 163,189 0.08 Total Operating 433,734,283 100.00 455,382,575 100.00 359,818,685 100.00 213,580,910 100.00 Cost
For the year of 2015, 2016 and 2017 and the period from January to June 2018, the annual operating cost of the Issuer were RMB 434 million, RMB 455 million, RMB 360 million and RMB 214 million, respectively. Compared with 2015, the year-on-year growth rate of the Issuer's operating cost in 2016 was 4.99%, driven by these three main factors 1) the increasing general administrative expense brought by business expansion, 2) decreasing loss provision arising from improving retail asset quality and 3) the decreasing business tax from change in tax policy. Compared with 2016, the year-on-year growth rate of the Issuer's operating cost in 2017 was decreased by 20.99%, driven by these three factors 1) the decreasing loss provision arising from improving retail asset quality, 2) increasing general administrative expense along with the business expansion, and 3) decreasing business tax from change in tax policy. From January to June 2018, compared with that for the same period in 2017, the Issuer's year-on-year operating expenses increased by 66.72%. The main reasons for this increase were: (1) increase in asset impairment losses due to application of new loan loss provision calculation model which increase the provision for loan losses; (2) business and management fees that increase with the growth of business scale. The above factors have combined to affect the year-on-year increase in operating expenses. Overall, with the increase in assets as well as the improvement of the Issuer's internal management and office automation, the ratio of operating cost against the operating income have been effectively controlled. 3. Analysis on profit formation and change trend Analysis on the Issuer's Profit for 2015 to 2017 and the Period from January to June 2018 Unit: RMB
January – June ITEM 2015 2016 2017 2018 Operating Profit 896,566,730 1,240,385,442 1,588,157,670 979,974,616 Net Profit 672,682,150 950,230,916 1,200,678,681 732,686,377
Benefited from the fact that the growth speed of income exceeds that of costs, the Issuer's operating profits increased from RMB 897 million in 2015 to RMB 1,240 million in 2016 and to RMB 1,588 million in 2017, with an annual growth rate of 38.35% and 28.04%, respectively. Accordingly, net profit also increased from RMB 673 million in 2015 to RMB 950 million in 2016 and to RMB 1,201 million in 2017, with a year-on-year increase of 41.26% and 26.36%, respectively. The operating profit and net profit for the period from January to June 2018 increased by RMB 980 million and RMB 733 million, respectively, a year-on-year increased by 17.33% and 16.56%, respectively. For 2017 and the period from January to June 2018, the Company's operating profit and net profit growth slowed down simultaneously,
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mainly due to changes in the external financing environment which resulted in rising funding costs. 6.3.2 Analysis on change trend in the structure of assets and liabilities 1. Analysis on overall condition of assets Analysis on the Issuer's Assets as of End of 2015 to 2017 and End of June 2018 Unit: RMB, %
December 31, 2015 December 31, 2016 December 31, 2017 June 30, 2018 ITEM Amount Ratio Amount Ratio Amount Ratio Amount Ratio Cash and balances with 489,192,873 1.95 587,827,114 1.74 772,967,272 1.80 922,921,437 2.08 the central bank Due from and placements with banks 1,094,865,979 4.37 1,427,669,187 4.23 2,404,129,784 5.60 1,174,230,125 2.65 and other financial institutions Interest 89,960,609 0.36 161,467,013 0.48 136,932,105 0.32 141,977,906 0.32 receivable Loans 23,261,574,976 92.85 31,232,530,393 92.44 39,148,803,979 91.17 41,612,419,133 93.89 Net value of 13,212,407 0.05 18,416,613 0.05 21,295,782 0.05 18,590,017 0.04 fixed assets Net value of intangible 9,598,568 0.04 9,172,246 0.03 9,229,461 0.02 8,511,412 0.02 assets Construction - - - - 132,075 0.00 132,075 0.00 in Progress Deferred tax 8,605,069 0.03 258,331,224 0.76 365,575,590 0.85 348,317,320 0.79 assets Other assets 1 84,917,936 0.34 92,233,769 0.27 80,553,324 0.19 95,484,843 0.22 TOTAL 25,051,928,417 100.00 33,787,647,559 100.00 42,939,619,372 100.00 44,322,584,269 100.00 ASSETS Note: Other Assets as of end of 2016, 2017 and June 30, 2018 includes long-term amortization expense. From 2015 to June 30, 2018, the scale of the Issuer's assets has maintained a growth momentum with its business development. As of end of 2015, the Issuer's total assets reached RMB 25,052 million in 2015 and increased to RMB 33,788 million in 2016, with the yearly growth rate of 34.87%. As of end of 2017, the Issuer's total assets increased to RMB 42,940 million, a year-on-year increase of 27.09%. As of June 30, 2018, the Issuer's total assets increased to RMB 44,323 million, a year-on-year increase of 23.11% over 2017. Among the total assets, loans accounted for a high percentage, which were 92.85%, 92.44%, 91.17% and 93.89%, respectively, as of end of 2015, 2016, 2017 and June 2018, respectively. Classified by the contract period, short term loans include all dealer loans, retail auto loans and institution loans within one year (inclusive), of which the total amount were RMB 5,607 million, RMB 5,848 million, RMB 6,225 million and RMB 7,441 million, respectively, as of end of 2015, 2016, 2017 and June 2018. While the medium to long term loans are consist of retail auto loans and institution loans with tenor longer than one year, of which the total
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amount were RMB 17,815 million, RMB 25,562 million, RMB 33,062 million and RMB 34,472 million, respectively, at the end of 2015, 2016, 2017 and June 2018. 2. Analysis on overall liabilities Analysis on the Issuer's Liabilities as of End of 2015 to 2017 and End of June 2018 Unit: RMB, %
ITEM December 31, 2015 December 31, 2016 December 31,, 2017 June 30, 2018 Amount Ratio Amount Ratio Amount Ratio Amount Ratio Saving 5,700,000,000 26.88 7,400,000,000 25.53 8,400,000,000 22.74 9,400,000,000 24.94 deposits Due to and placements from banks 13,680,000,000 64.52 15,970,000,000 55.09 15,280,000,000 41.36 12,330,000,000 32.71 and other financial institutions guarantee 594,296,961 2.80 794,081,520 2.74 2,298,311,158 6.22 3,497,778,986 9.28 deposits Payroll 21,779,234 0.10 29,453,258 0.10 32,551,921 0.09 20,891,843 0.06 payable Tax payable 170,836,358 0.81 402,926,279 1.39 377,885,217 1.02 82,452,047 0.22 Interest 100,681,674 0.47 76,881,818 0.27 215,660,957 0.58 297,707,339 0.79 payable Accounts 90,450 0.00 - - - - 32,983,852 0.09 payable Bonds 892,976,400 4.21 4,274,775,200 14.75 10,277,021,998 27.82 12,012,572,506 31.87 payable Other 42,548,469 0.20 40,579,697 0.14 58,559,653 0.16 22,507,101 0.06 liabilities TOTAL LIABILITI 21,203,209,546 100.00 28,988,697,772 100.00 36,939,990,904 100.00 37,696,893,674 100.00 ES
Due to the rapid development of auto loan business of the Issuer since 2015, business expansions enhance the corresponding funds demand, and the Issuer's liabilities also showed an upward trend. The total amount of the Issuer's liabilities reached RMB 21,203 million in 2015 and 28,989 million in 2016, with a yearly increase rate of 36.67%, which matched with the asset growth rate. The total amount of the Issuer's liabilities reached RMB 36,940 million in 2017, with a yearly increase rate of 27.43%, presenting a similar trend with the growth of assets. As of end of June 2018, the Issuer's total liabilities were RMB 37,697 million, a year-on-year increase by 23.29% over 2017. The Issuer's main financing sources are shareholder deposits, issuance of asset-backed securities and financial bonds and bank borrowing. With the shareholders' support, the Issuer's saving deposits maintained steady growth from 2015 to end of June 2018. The Issuer had RMB 8.4 billion deposit balance in 2016, with an increase of RMB 2.7 billion than that in 2015. The deposit balance for the period ended on June 30, 2018 was RMB 9.4 billion, increased by RMB 1 billion over 2017. The amount of the Issuer's bonds payable raised steadily, accounting for 4.21%, 14.75%,
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27.82% and 31.87%, respectively, of the total liabilities as of end of 2015, 2016, 2017 and June 2018. At the end of 2016, the amount of bonds payable increased by RMB3.382 billion compared with that at the end of 2015, which was resulting from the issuance of VINZ 2016-1 and VINZ 2016-2 Asset-Backed Securities whose total issuance size were RMB 3 billion and RMB 4 billion, respectively. Bonds payable increased RMB 6.002 billion at the end of 2017 over the end of 2016. It was mainly resulting from the issuance of VINZ 2017-1, VINZ 2017-2 and VINZ 2017-3 Asset-Backed Securities and 2017 DNAF Financial Bond I, 2017 DNAF Financial Bond II and 2017 DNAF Financial Bond III. The bonds payable as of end of June 2018 increased to RMB 1,736 million, which was mainly due to the Issuer's issuance of 2018 DNAF Financial Bond I and VINZ 2018-1 Asset-Backed Securities. In relation to bank borrowings, the Issuer's total liabilities as of end of 2015, 2016, 2017 and June 2018 were 64.52%, 55.09%, 41.36% and 32.71%, respectively. The total balance of loans extended by banks and other financial institutions increased by RMB 2,290 million for 2016 over 2015. The total balance of loans extended by banks and other financial institutions for 2017 decreased by RMB 690 million over 2016. The total balance of loans extended by banks and other financial institutions for the period ended on June 30, 2018 decreased by RMB 2,950 million over 2017. 3. Analysis on changes of paid-in capitals Since the establishment in 2007, the Issuer has carried out increase of registered capital for three times. By the signing date of this Prospectus, the Issuer's registered capital and paid-in capital are RMB 1,529,412,000, details of which are as follows: On August 6, 2008, DFG and NML contributed RMB 130 million and RMB 70 million in cash, and both the total registered capital and paid-in capital reached RMB 700 million. The above-mentioned capital increase has been evidenced by capital verification report (ref. 大信 沪验字 [2008] No.019) from Daxin Certified Public Accountants. On June 10, 2011, DFG and NCIC contributed RMB 175 million and RMB 325 million in cash, and both the total registered capital and paid-in capital reached RMB 1,200 million. The above-mentioned capital increase has been evidenced by capital verification report (ref. 德师 报(验)字(11)No.0047) from Deloitte Touche Tohmatsu Certified Public Accountants Ltd. On January 10, 2013, DFG and DFL contributed RMB 115,294,000 and RMB 214,118,000 in cash, and both the total registered capital and paid-in capital reached RMB 1,529,412,000. The above-mentioned capital increase has been evidenced by capital verification report ((ref. 安永华明 (2013)验字 No.60684590_B01) from Ernst & Young Hua Ming LLP Shanghai Branch. With the increased capitals, the Issuer's capital strength has been further enhanced, which provides a stable source to fund for a sustainable long-term development of its business. But such increases shall not completely cover the growth of raising fund demand, and the Issuer still needs to actively explore other financing channels in order to develop its business sustainably and healthily. 6.3.3 Analysis on Supervision Index
Standard End of June Index Formula End of 2015 End of 2016 End of 2017 Value 1 2018
Capital Net capital/Total risk ≥10.15% 19.62% 17.93% 17.39% 18.92% adequacy ratio weighted assets after
68 2018 DNAF Financial Bond II Prospectus
Standard End of June Index Formula End of 2015 End of 2016 End of 2017 Value 1 2018
calibration and the application of capital bottom line
Net tier one capital/Total Tier one risk weighted assets after capital calibration and the ≥8.15% 18.94% 17.40% 17.22% 18.24% adequacy ratio application of capital bottom line
Core tier one net capital/Total risk Core tier one weighted assets after capital ≥7.15% 18.94% 17.40% 17.22% 18.24% calibration and the adequacy ratio application of capital bottom line
Proportion of credit to a Credit balance/Net ≤15% 1.70% 1.56% 3.71% 1.59% single capital borrower
Proportion of credit to a Credit balance/Net ≤50% 4.53% 2.29% 4.54% 3.00% single group capital customers
Proportion of fixed assets Fixed balance assets/ Net ≤40% 0.71% 0.73% 0.70% 0.62% for personal capital use
Liquid assets/liquid Liquidity ratio ≥100% 644.63% 491.38% 558.43% 539.76% liabilities
Actual Provision for Provision Loan Coverage ≥150% 703.08% 743.08% 186.38% 600.15% Loss/Non-performing Ratio Loan
Proportion of Credit to a single credit to a shareholder and its single affiliate/Capital ≤100% 20.82% 3.06% 17.98% 5.19% shareholder Contribution of the and its Shareholder affiliate
Note: The standard values of the above "Capital Adequacy Ratio", "Tier one capital adequacy ratio" and "Core tier one capital adequacy ratio" are following the requirement of the transitional period in 2018. The standard values for the three items were 9.3%, 7.3% and 6.3% for 2015, 9.7%, 7.7%, and 6.7% for 2016, and 10.1%, 8.1% and 7.1% for 2017. As shown in the table above, every supervision index of the Issuer's indicators is in compliance with regulatory requirements. First of all, the Issuer's capital adequacy ratios were 19.62%, 17.93%, 17.39% and 18.92%, respectively, for the last three years and the first quarter of 2018, which were all higher than the regulatory requirement. At the same time, the tier one capital adequacy ratio and the core tier one capital adequacy ratio were also higher than the regulatory requirements, providing
69 2018 DNAF Financial Bond II Prospectus security for the development of the Issuer's business. Secondly, the low concentration of loans contributed to diversification and prevention of risks. As of end of the latest three years, both the proportion of credit to a single borrower and to a single group of customers met the regulatory requirements, credit risks could be effectively dispersed and concentration of credit risk had been controlled at a good level. The Issuer's liquidity indicators as of end of the last three years were all higher than the standard value of regulatory requirements, indicating that the company's liquidity risk could be well controlled and short-term solvency of the Issuer had a certain degree of protection. The balance of the loan loss reserve accrued by the Issuer was reversed in 2017 due to the improvement in the quality of retail loans, and the provision coverage ratio decreased. In the first half of 2018, due to application of the new loan loss provision calculation model, the Issuer increased the provision for loan losses, which led to an increase in the provision coverage ratio. In general, the Issuer's reserved loan loss provision had a sufficient coverage over the non-performing loan, the balance of which was higher than the regulatory requirements of the standard value as of end of the last three years. 6.3.4 The quality of loans and provision for losses The quality of loans and provision for losses as of End of 2015 to 2017 and End of June 2018 Unit: RMB
December 31, 2015 December 31, 2016 December 31, 2017 June 30, 2018 TOTAL LOANS 23,996,612,810 32,400,006,412 40,651,851,930 43,247,742,028 Normal 23,280,557,644 31,566,516,720 39,870,114,799 42,728,179,883 Attention 693,209,953 809,591,189 707,931,105 469,330,646 Sub-standard 10,933,493 5,479,310 5,138,230 4,990,361 Dubious 10,836,567 6,720,031 17,240,732 4,766,217 Loss 1,075,153 11,699,163 51,427,065 40,474,920 Non-performing 73,806,027 22,845,213 23,898,504 50,231,499 Loans Non-Performing 0.10% 0.07% 0.18% 0.12% Ratio Provision for loan 160,620,043 177,585,689 137,562,854 301,462,065 losses Provision Coverage 703.08% 743.08% 186.38% 600.15% Ratio Note: Every index in the form above is the balance before provision of losses (deferred income included). If there is difference in arrears between the total number and the number calculated by addition of each number, it is resulted from rounding. In the latest three years, with the significant development of the Issuer's business, the scale of loans increased gradually and the total amount of non-performing loans increased slightly. Based on the data as of end of the latest three years, although the total amount of non-performing loans has increased, non-performing ratio remained at a low level that were 0.10%, 0.07%, 0.18% and 0.12%, respectively, as of end of 2015, 2016, 2017 and June 2018, which were far below the industry average and the loan quality is high. The Issuer learns from its excellent operation experience, maintains a prudent loan approval policy, and strengthens cooperation with the manufacturers and on-site supervision in order to achieve a comprehensive monitoring of dealer risk.
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Whether in the five-category classifications of loans or provision of loan losses, the Issuer has a strict loan risk control and maintains a cautious attitude. For the provision for retail loan loss, the Issuer calculates the proportion of the provision for each level of the loans in accordance with the loan quality migration model on a monthly basis based on the five-category classification, and the monthly provision is made accordingly. The provision for inventory dealer loan loss is made according to the Guideline on Provision for Loan losses issued by the PBOC. With respect to different types of loans, by adopting both individual and combination assessment in value testing, the Company estimates whether cashflow from the portfolio is expected to decrease in the future, so as to confirm whether loan loss provision is required. Therefore, the Issuer's loan loss reserve balance has a strong coverage rate for the latter three types of loans, and has strong risk resilience. 6.3.5 Analysis on cash flows Analysis on Cash Flows of the Issuer for 2015 to 2017 and End of June 2018 Unit: RMB, %
January to June ITEM 2015 2016 2017 2018 Net cashflows from (391,405,617) (2,952,836,000) (4,714,708,168) (2,672,905,769) operating activities Net cashflows from (9,913,821) (32,116,992) (14,847,081) (2,930,129) investing activities Net cashflows from 442,964,506 3,314,877,006 5,737,717,659 1,429,053,783 financing contributions Net increase / (decrease) in 41,645,068 329,924,014 1,008,162,410 (1,246,782,115) cash and cash equivalents Cashflows of the Issuer for the last three years and the first quarter of 2018 from operating activities showed net outflows resulting from that the Issuer's business had been growing steadily and loans to customers also increased year by year as well as payment of interest, fees and commissions. Cashflows of the Issuer for the last three years and the first quarter of 2018 from investment activities showed net outflows. Because the Issuer spent much on fixed assets, intangible assets for the previous three years and the first quarter of 2018, outflows showed more than inflows. The amount of net cash flow for 2015, 2016, 2017 and the period from January to June 2018 were RMB 443 million, RMB 3,315 million, RMB 5,738 million and RMB 1,429 million, respectively, which were mainly resulted from the issuance of bonds. The cash flow of the Issuer has a rapid yearly growth in 2016 and 2017 with VINZ 2016-1 and VINZ 2016-2 Retail Auto Loan Asset-Backed Securities issued in an aggregate principal amount of RMB 7 billion in 2016, and 2017 DNAF Financial Bond I, 2017 DNAF Financial Bond II, VINZ 2017-1, VINZ 2017-2 and VINZ 2017-3 Retail Auto Loan Asset-Backed Securities issued in an aggregate principal amount of 14 billion in 2017. The Issuer issued 2018 DNAF Financial Bond I and VINZ 2018-1 Asset-Backed Securities during the period from January to June 2018, with the total issuance amount of RMB 6.5 billion. With the industry's growth and the sustained and healthy development of the Issuer, the Issuer will obtain more cash inflows from interest income, loan recovery and others along with the enhancing ability to obtain cash flow from operating activities. At the same time, by developing new, stable funding channels (such as asset-backed securities and financial bonds)
71 2018 DNAF Financial Bond II Prospectus to obtain more long-term, stable and diversified funds, bringing more net cash inflows to the Issuer. 6.3.6 Major financial advantages 1. Strong Profitability The strong development of the Issuer's business and the effective control of costs led to the continuous growth in operating profit that increased from RMB 897 million in 2015 to RMB 1,240 million in 2016 with the annual growth rate of 38.35%. In 2017, the operating profit of the Issuer reached RMB 1,588 million, 28.04% higher than that of 2016. For the period from January to June 2-18, the Issuer's operating profit was RMB 980 million, a year-on-year increase of 17.33% over 2017. Accordingly, the net profit also increased from RMB 673 million in 2015 to RMB 950 million in 2016 with the annual growth rate of 41.26%, while the net profit reached RMB 1,201 million in 2017 with the annual growth rate of 26.36%. the net profit for the period from January to June 2018 was RMB 733 million, a year-on-year increase of 16.56% over 2017. The main reason for the slowdown in operating profit and net profit growth of the Issuer in the past three years and the first quarter of 2018 was the change in external market conditions and the increase in funding costs. In terms of total return on assets, the total return on assets2 of the Issuer for the past three years and the period from January to June 2018 were 2.97%, 3.23%, 3.13% and 3.36%, respectively, maintaining the leading level in the auto finance industry. 2. High Quality of Loans The Issuer's non-performing loans ratio remained at a lower level both in the absolute amount and the ration among the total loans. Loans granted to auto dealers are all secured short-term loans. Meanwhile the medium to long term loans regarding retail customers are also mortgage loans. Taking the five-category classification as reference, the Issuer's total amount of loans at the end of June 2018 was RMB 43,247,742,028 with the ratio of non-performing loans 0.12%. 3. High Liquidity and Security As of end of 2015, 2016, 2017 and June 2018, the Issuer's liquidity ratio had always been in compliance with regulatory requirements, higher than the standard value of 100%. The liquidity ratio of the Issuer was 644.63%, 491.38%, 558.43% and 539.76%, respectively, ensuring the stable development of the Company. Moreover, the loan concentration level was relatively low; both the credit to a single customer and credit to a single group of customer complied with the regulatory requirements, which avoided credit risks from high concentration. 6.4 Changes in the financial structure after the Issuance of the Financial Bond As of June 30, 2018, the Issuer's liabilities assets ratio was 85.05%. Regarding the Issuance of This Bond, the Issuer intended to increase liabilities of RMB 5 billion. The financial structure of the Issuer shall be changed on the basis of assumptions below: 1. The base date of financial data simulation shall be June 30, 2018;
2 Returns on total assets = net profit / the average amount of asset between the beginning and end of a year*100%. The annualized returns on total assets for the period from January to as of end of June 2018 = net profit*2/the average amount of asset between the beginning of a year and end of June*100%.
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2. Supposing the issuance amount of RMB [5] billion of This Bond would be issued in full; 3. Supposing the issuance and clearance of the Financial Bond would be finished on June 30, 2018; 4. The Analog Value 1 is calculated under the circumstance where all the Proceeds of the Financial Bond would have been used to the 0% risk-weighted assets, while the Analog Value 2 is calculated under the circumstance where all the Proceeds of the Financial Bond would have been used to the 100% risk-weighted assets, which means in other situation, the analog capital adequacy ratio calculated after the issuance of the Financial Bond shall be ranged between Analog Value 1 and Analog Value 2. The Issuer recommends each reader of this Prospectus reviewing the table below shall take the historical finance statements of the Issuer as reference: Unit: RMB
Actual Amount After Issuance After Issuance Item on June 30, 2018 (Analog Value 1) (Analog Value 2) Total liabilities 3,769,689.37 4,269,689.37 4,269,689.37 Total assets 4,432,258.43 4,932,258.43 4,932,258.43 Asset liability ratio (%) 85.05 86.57 86.57 Net assets 686,514.90 686,514.90 686,514.90 Core tier one net capital 661,717.92 661,717.92 661,717.92 Risk-weighted assets and market risk 3,627,690.03 3,627,690.03 4,127,690.03 capital adjustment Core tier one capital adequacy ratio 18.24 18.24 16.03 (%) Capital adequacy ratio (%) 18.92 18.92 16.63 . From the static perspective, calculating the issued bond into total liabilities on June 30, 2018, the asset liability ratio of the Issuer would increase from 85.05% to 86.57%, with a 1.02 per cent change rate, the capital adequacy ratio would range from 16.63% to 18.92% and the core tier one capital adequacy ratio would range from 16.03% to 18.24% after the Issuance of This Bond, of which each data above is higher than the regulatory standard value. As financial institutions, auto finance companies could obtain funding through bank loans, issuance of asset-backed securities and financial bonds and absorbing shareholders deposits and other means so as to support auto finance business. The assets liability ratio of the financial institutions is usually higher than that of the general industrial and commercial enterprises. Therefore, issuance of This Bond has a limited impact on the Issuer's assets liabilities ratio. At the same time, the Issuer shall continue to adjust according to the business environment and development objectives as well as strategies. Therefore, dynamic analysis shows that the structure of the Issuer's assets and liabilities will not change significantly after the Issuance of This Bond. Being the active liabilities method, not only does Issuance of financial bonds contribute to funds for the development of the business, but also provides the rights for the Company to adjust its capital structure in order to make it flexible to match the assets with the liabilities and to amend the liabilities structure between the long term loans and short term loans.
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Chapter 7 Use of Proceeds of This Bond and Historical Issuance of Bonds The proceeds of The Financial Bond will be used as repayment of financial loans, supplement of working capitals and other purposes complying with the requirements by national laws, regulations and public policies, in order to support business development of the Issuer and optimize the structures of assets and liabilities of the Issuer. 7.1 Purposes of Proceeds of This Bond 7.1.1 Supplement of Working Capitals in Order to Support Business Development of the Issuer The Issuer will continue to be in a rapid development period in the next few years. As an auto finance company, shareholders deposit, issuance of asset-backed securities and financial bonds, and bank borrowings are the main capital sources. As of 30 June 2018, the Issuer has issued eight asset-backed securities and three financial bonds. The bonds payable accounts for 31.87% of the total liabilities. The asset-backed securities could not match with the Issuer's medium and long term loans as they have short weighted average terms and fast amortisation schedules. This Financial Bond has a three-year tenor, the fund raised therefrom will be used to match the medium and long term loans, to supply working capitals and to provide funding support for the business development of the Issuer. 7.1.2 Repayment of Loans Borrowed from Banks in Order to Optimize the Structures of Assets and Liabilities As of June 30, 2018, the outstanding balance of funding was mainly short-term, i.e. in one year or less, which occupied 65.34%. Medium and long term funding, i.e. longer than one year, occupied 34.66%. The detailed structure is listed below: Term Structure of Funding of the Issuer as of End of June 2018
Unit: RMB 100 million Within one year or less Above one year Total Deposit 70.00 24.00 94.00 Bank Loans 98.50 24.80 123.30 Bonds Payable - ABS1 51.96 13.27 65.22 Bonds Payable – Financial - 54.90 54.90 Bond Total 220.46 116.97 337.43 Proportion 65.34% 34.66% 100.00% Note 1: The term structure of "Bonds Payable - ABS" is predicted based on the cash flow forecast in the trustee report for June 2018 of each ABS transactions; 2. The numbers under "Bonds Payable – Financial Bonds" were balance amounts calculated based on the actual interest rates and the amortized costs. As of June 30, 2018, the Issuer's total amount of the loans before deduction of loss provision (including deferred income) was RMB 43,248 million, among which, the total amount of retail finance loans for individuals and institutions was RMB 37,166 million. As the repayment method for more than 90% of the individual loans and institutional loans are equal amount of principal and interest or equal amount of principal, the principal and the interests are paid by month and the outstanding principals will be collected month by month before the maturity date of the loan contract, the actual tenor of the loans would be shorter than the term of the loan contracts.
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Term Structure of Loan Assets of the Issuer as of End of June 2018 Unit: RMB 100 million
Within one year or Above one year Total less Dealer Loans 60.82 - 60.82 Individual and Institutional 71.17 300.49 371.66 Loans Total 131.99 300.49 432.48 Proportion 30.52% 69.48% 100.00% Note: the data above is calculated based on the repayment schedule of the outstanding principal amount of each loan. Compared with this, among all the liabilities, the short-term funding occupied 65.34% of the total funding. The Issuer's had asset-liability term mismatch in a certain degree. Simulating based on the funding structure of the Issuer as of June 30, 2018, and assuming other liability balance remaining unchanged, after the issuance of this 5 billion Bond, the financial bonds payable will be around RMB 10,490 billion and the proportion of the funding above one year will be more than 40%. The details are listed below. The issuance of This Bond will attract medium-to-long term funds to further satisfy the Company's demand for medium-to-long term funds and optimize the liability structure of the Company, which will help lower the Company's liquidity risk. Term Structure of Funding of the Issuer After this Issuance Unit: RMB 100 million
Within one year or less Above one year Total Deposit 70.00 24.00 94.00 Bank Loans 98.50 24.80 123.30 Bonds Payable - ABS1 51.96 13.27 65.22 Bonds Payable – Financial - 104.90 104.90 Bond Total 220.46 166.97 387.43 Proportion 56.90% 43.10% 100.00% Besides, as an auto finance company, the single fund source has severely limited the Issuer's ability of funding. According to the Announcement in 2014, the Measures for Implementation and the Measures for Administration in 2015, the auto finance companies could issue financial bonds to solve the fund source problems during the business development under the premise of clearly ascertaining its position and the main business, which broadens the ways to raise funds for the Issuer from legal perspective. The issuance of financial bonds could expand the funding channels, optimize the structures of assets and liabilities and smooth the fluctuation of the fund demands through active liabilities. 7.2 Historical Issuance of Bonds Until the signing date of this Prospectus, the information of the historical bonds issuance is as 76 2018 DNAF Financial Bond II Prospectus follows: 7.2.1 VINZ 2014-1 Retail Auto Loan Asset-Backed Securities The Issuer originated the VINZ 2014-1 Retail Auto Loan Asset-Backed Securities with the aggregate principal amount up to RMB 799,999,927 on June 6, 2014, including Senior Notes of RMB 716 million and subordinated notes of RMB 83,999,927 solely owned by the Issuer. The CCDC had paid the principals and interests timely in full to all the senior notes holders for 23 times during the duration. The Notes has come to an end successfully with the transition of the residual trust assets finished by the trustee and the Issuer on April 2016. 7.2.2 VINZ 2015-1 Retail Auto Loan Asset-Backed Securities The Issuer originated the VINZ 2015-1 Retail Auto Loan Asset-Backed Securities ("Notes") with the aggregate principal amount of RMB 1,499,993,052.12 on August 11, 2015, including senior notes of RMB 1,324,000,000 and subordinated notes of RMB 175,993,052.12 solely owned by the Issuer. During the operation of such Notes, CCDC has timely paid the holders of the Notes for 20 times with the interest and principal in full. The remaining assets have been transferred between the Issuer and the trustee in April 2017. 7.2.3 VINZ 2016-1 Retail Auto Loan Asset-Backed Securities The Issuer originated the VINZ 2016-1 Retail Auto Loan Asset-Backed Securities with the aggregate principal amount of RMB 2,999,990,685 on June 2, 2016, including senior class A1 notes of RMB 1,000 million, senior class A2 notes of RMB 1,580 million and subordinated notes of RMB 419,990,685 solely owned by the Issuer. The notes still have not been distributed at the end of June 2016. During the operation of such Notes, CCDC has timely paid the holders of the Notes for 19 times with the interest and principal in full. The remaining assets have been transferred between the Issuer and the trustee in February 2018. 7.2.4 VINZ 2016-2 Retail Auto Loan Asset-Backed Securities The Issuer originated the VINZ 2016-2 Retail Auto Loan Asset-Backed Securities with the aggregate principal amount of RMB 3,999,994,600 on October 13, 2016, including senior class A1 notes of RMB 1,000 million, senior class A2 notes of RMB 2,456 million and subordinated notes of RMB 543,994,600 solely owned by the Issuer. During the operation of these asset-backed securities, CCDC has paid the holders of the asset-backed securities for 22 times with the interest and principal of the senior class in full and on time. The remaining trust assets have been transferred between the Issuer and the trustee with these asset-backed securities trust ended smoothly in August 2018. 7.2.5 2017 DNAF Financial Bond I With a three-year issuance term and RMB 2 billion issuance amount, the 2017 DNAF Financial Bond I has been issued successfully by the Issuer through Book Building and centralized placement sales in the national inter-bank bond market on February 20, 2017. 7.2.6 VINZ 2017-1 Retail Auto Loan Asset-Backed Securities The Issuer originated the VINZ 2017-1 Retail Auto Loan Asset-Backed Securities with the aggregate principal amount of RMB 3,999,998,641.89 on May 4, 2017, including senior class A1 notes of RMB 1,000 million, senior class A2 notes of RMB 2,400 million and subordinated notes of RMB 599,998,641.19 solely owned by the Issuer. 7.2.7 VINZ 2017-2 Retail Auto Loan Asset-Backed Securities
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The Issuer originated the VINZ 2017-2 Retail Auto Loan Asset-Backed Securities with the aggregate principal amount of RMB 2,999,998,399.88 on August 3, 2017, including senior notes of RMB 2,520 million and subordinated notes of RMB 479,998,399.88 solely owned by the Issuer. 7.2.8 2017 DNAF Financial Bond II With a three-year issuance term and RMB 1.5 billion issuance amount, the 2017 DNAF Financial Bond II has been issued successfully by the Issuer through Book Building and centralized placement sales in the national inter-bank bond market on August 23, 2017. 7.2.9 VINZ 2017-3 Retail Auto Loan Asset-Backed Securities The Issuer issued the VINZ 2017-3 Retail Auto Loan Asset-Backed Securities with the aggregate principal amount of RMB 3,499,999,996.49 on October 12, 2017, including senior class A1 notes of RMB 1,000 million, senior class A2 notes of RMB 1,952 million and subordinated notes of RMB 547,999,996.49 solely owned by the Issuer. 7.2.10 VINZ 2018-1 Retail Auto Loan Asset-Backed Securities The Issuer issued the VINZ 2018-1 Retail Auto Loan Asset-Backed Securities with the aggregate principal amount of RMB 4,499,990,195.06 on March 8, 2018, including senior class A1 notes of RMB 1,000 million, senior class A2 notes of RMB 2,766 million and subordinated notes of RMB 733,990,195.06 solely owned by the Issuer. 7.2.11 2018 DNAF Financial Bond I With a three-year issuance term and RMB 2 billion issuance amount, the 2018 DNAF Financial Bond I have been issued successfully by the Issuer through Book Building and centralized placement sales in the national inter-bank bond market on April 12, 2018. 7.2.12 VINZ 2018-2 Retail Auto Loan Asset-Backed Securities The Issuer issued the VINZ 2018-2 Retail Auto Loan Asset-Backed Securities with the aggregate principal amount of RMB 4,412,090,000.00 on 19 July, 2018, including senior class A1 notes of RMB 1,200,000,000, senior class A2 notes of RMB 2,445,000,000.00, senior class B notes of RMB 180,000,000 and subordinated notes of RMB 587,090,000.00. The subordinated notes are retained by the Issuer. 7.2.13 VINZ 2018-3 Retail Auto Loan Asset-Backed Securities The Issuer issued the VINZ 2018-3 Retail Auto Loan Asset-Backed Securities with the aggregate principal amount of RMB 4,415,000,000 on 6 September, 2018, including senior class A1 notes of RMB 1,200,000,000, senior class A2 notes of RMB 2,535,000,000, senior class B notes of RMB 180,000,000 and subordinated notes of RMB 500,000,000. The subordinated notes are retained by the Issuer.
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Chapter 8 Board of Directors and Senior Management of the Issuer 8.1 CV of the Directors, Supervisors and Senior Management3 8.1.1 Directors As of the signing date of this Prospectus, 5 directors serve on the Issuer's board, including Name Title Yang Qiao Chairman Takashi Nishibayashi Director George Leondis Director Rakesh Kochhar Director Guolin Gao Director CV of directors Yang Qiao Yang Qiao is the chairman of DNAF, chairman of Dongfeng Auto Financing Co., Ltd., chairman of Dongfeng Peugeot Citroen Auto Finance Co., Ltd, assistant to the president of Dongfeng Motor Corporation and vice president of DFG. Yang Qiao acted as accountant and section chief of finance and accounting department in the Second Automotive Works from 1982 to 1994, assistant to the GM of finance and accounting department and vice GM of finance and accounting department in Dongfeng Motor Corporation from 1994 to 1999, vice GM of planning finance departmentaxt in Dongfeng Motor Corporation from 1999 to 2003, chief GM of finance and accounting head office in DFL from 2003 to 2015, director of Dongfeng Financing Co., Ltd. from 2005 to 2015, GM of finance and accounting department of DFG and Dongfeng Motor Corporation from 2008 to 2016. Takashi Nishibayashi Takashi Nishibayashi is director of DNAF, vice president and GM of China Department in NML, director and president of NCIC. Takashi Nishibayashi joined NML from 1979, and worked as Manager of Asia and Oceania Department, Senior Manager of China Department, GM of GOM China Division and GM of China Department. Since 2011, Takashi Nishibayashi acted as vice president and GM of China Department in NML, director and president of NCIC. George Leondis George Leondis is the director and president of Dongfeng Nissan Auto Finance Co., Ltd. George Leondis has 10 years' experience with PWC in audit and corporate finance in UK and Australia. He joined Nissan in 2004 as Group Financial Controller for Nissan Motor Company Australia from 2004 to 2007. He assumed the role of Executive Director with Nissan Financial Services Australia from 2007 to 2010. George moved to Nissan's Global HQ and served as General Manager Global Corporate Strategy from 2010 to 2013. George
3 Dongfeng Nissan Auto Finance Co., Ltd former vice chairman Mr. Joseph George Peter and former director and vice president Mr. Fengguo Chen has left the positions before the signing date of this Prospectus. CBRC Shanghai office has approved Mr. Hua Li’s appointment as vice president in the Letter of CBRC Shanghai Office on Appointment Approval of Li Hua (ref. 沪银监复 [2018] No. 382) issued on July 23, 2018. The Issuer will announce the new vice chairman and the new director promptly after regulator’s approvals.
79 2018 DNAF Financial Bond II Prospectus worked as Vice President, Finance and executive board member for Infiniti Motors Co. located in Hong Kong since 2013 to 2017. George Leondis was appointed director and general manager of Dongfeng Nissan Auto Finance Co., Ltd. since August 2017. Rakesh Kochhar Rakesh Kochhar is director of DNAF and senior vice president of NML. Rakesh Kochhar worked in treasury department in GE Capital Transportation Finance Ltd. from 1988 to 1997, and acted as GM of treasury department, GM of finance department, GM of capital market and GM of financial risk management department in Delphi Corporation from 1997 to 2004. Then, Rakesh Kochhar worked as GM of treasury department in Nissan North America, GM of treasury department in NML and vice president in NML in succession from 2006 to 2015. Rakesh Kochhar has been the senior vice president in NML since 2015. Guolin Gao Guolin Gao is the director of DNAF and the general manager of finance and accounting department of Dongfeng Motor Corporation. Guolin Gao worked in Dongfeng Motor Corporation from 1988 to 1994; and acted as assistant to GM of accounting department in Zhuhai Hengtong Group Co., Ltd. from 1996 to 1998, GM of investment department in Shenzhen Dongfeng Real Estate Co., Ltd. from 1998 to 2000, and GM of finance department, Fengshen Automobile Co., Ltd. from 2000 to 2003. From June 2003 till now, Guolin Gao has been successively vice GM of planning department of DFL, GM of finance department of Dongfeng Nissan Passenger Vehicle Company, assistant to chief GM of finance and accounting head office of DFL, chief GM of finance and accounting head office of Dongfeng Nissan Passenger Vehicle Company, and vice president of Dongfeng Motor Co., Ltd. Dongfeng Venucia Motor Company. 8.1.2 Supervisors As of the signing date of this Prospectus, two supervisors serve on supervision committee. Name Title Hermann Hauser Supervisor Yaoliang Yin Supervisor CV of Supervisors Hermann Hauser Hermann Hauser is the supervisor of Dongfeng Nissan Auto Financing Co., Ltd and Division General Manager Global Sales Finance at Nissan Motor Co., Ltd. Hermann Hauser worked in Braun Maschinenvertrieb GmbH, Wepro GmbH, Tupaj-Technik-Vertrieb GmbH and Ford Bank from 1987 to 2000 successively. Hermann Hauser acted as administrator of risk department in Daimler Financial Services AG, Germany & Korea, and GM of Africa/Asia Pacific financial service risk management department in Daimler South East Asia Pte. Ltd , Singapore from 2000 to 2004, vice president of risk management and credit operation in Mercedes-Benz Auto Finance Ltd. and president of Mercedes-Benz Leasing Co., Ltd. from 2004 to 2013. Hermann Hauser has been the director and president of DNAF from 2013 to 2017. Yaoliang Yin Yaoliang Yin is the supervisor of Dongfeng Nissan Auto Financing Co., Ltd and the deputy general manager of finance and accounting department of Dongfeng Motor Corporation. Yaoliang Yin acted as accountant of Dongfeng Motor Industry Finance Company, assistant 80 2018 DNAF Financial Bond II Prospectus accountant and deputy manager of Dongfeng South Business Unit, assistant accountant of Dongfeng Industry Company, accountant and deputy manager of Dongfeng Motor Company finance and accounting department, accountant and manager of Dongfeng Truck Company finance and accounting department, senior accountant and chief of Dongfeng Motor Company planning finance department, manager of DFG finance and accounting department asset management division, and vice president of Dongfeng Nissan Auto Financing Co., Ltd. in succession from 1987 to 2015. 8.1.3 Senior Management As of the signing date of this Prospectus, two managers serve as the Issuer's management Name Title George Leondis President Hua Li Vice President Yumi Tanaka Vice President, CFO CV of Senior Managers George Leondis Please refer to the section above on CV of directors. Hua Li Hua Li is vice president of DNAF. Hua Li served as the marketing department manager in Shenzhen Zijin Fulcrum Technology Co. Ltd. From 2003 to 2018, Hua Li had been working in Dongfeng Nissan Passenger Vehicle Company, undertaking various positions successively, including dealer management supervisor in the sales planning unit under the sales department, operational supervisor and division chief in the vehicle business unit, auto financial division chief in the sales department (horizontal business unit), and lastly, president office's chief. Since July 2018, Hua Li has worked as the vice president of DNAF till now. Yumi Tanaka Yumi Tanaka is vice president and CFO of DNAF. Yumi Tanaka worked in UBS Investment Bank from 2001 to 2003 in charge of business relating to investment bank, and worked in treasury team of finance department in NML, acted as manager of finance department in Nissan Europe SAS and deputy general manager of treasury team of finance department in NML successively from 2003 to 2015. Since April 2015, Yumi Tanaka has been worked as vice president and CFO of DNAF till now. 8.2 Change of Directors, Supervisors and Senior Management of the Issuer Since Establishment 8.2.1 Change of Directors Pursuant to the Letter of CBRC on Approval of the Open of Dongfeng Nissan Auto Finance Co., Ltd. (ref. 银监函 [2007] No.432) on October 11, 2007, Zhangmin Liu, Tagawa Joji, Ishii Katsumi, Yaoliang Yin, Hashimoto Yasuaki were approved to be the company's initial directors, among whom Zhangmin Liu was president of the board and Tagawa Joji was the vice president. Pursuant to the Letter of CBRC Shanghai Office on Appointment Approval of Joseph George Peter (ref. 沪银监复 [2010] No.461) on June 10, 2010, Joseph George Peter was approved to be the vice president. Pursuant to the Letter of CBRC Shanghai Office on Appointment Approval of Fushou Zhu 81 2018 DNAF Financial Bond II Prospectus
(ref. 沪银监复 [2010] No.869) on November 26, 2010, Fushou Zhu was approved to be the president. Pursuant to the Letter of CBRC Shanghai Office on Appointment Approval of Takashi Nishibayashi (ref. 沪银监复 [2011] No.472) on July 11, 2011, Takashi Nishibayashi was approved to be director. Pursuant to the Letter of CBRC Shanghai Office on Appointment Approval of Hermann Hauser (ref. 沪银监复 [2013] No.93) on February 25, 2013, Hermann Hauser was approved to be director. Pursuant to the Letter of CBRC Shanghai Office on Appointment Approval of Guolin Gao (ref. 沪银监复 [2013] No.227) and the Letter of CBRC Shanghai Office on Appointment Approval of Rakesh Kochhar (ref. 沪银监复 [2013] No.228) on April 24, 2013, Guolin Gao and Rakesh Kochhar were approved to be directors Pursuant to the Letter of CBRC Shanghai Office on Appointment Approval of Qiang Zhou (ref. 沪银监复 [2013] No.366) on June 18, 2013, Qiang Zhou was approved to be president. Pursuant to the Letter of CBRC Shanghai Office on Appointment Approval of Fengguo Chen (ref. 沪银监复 [2015] No.388) on June 26, 2015, Fengguo Chen was approved to be director. Pursuant to the Letter of CBRC Shanghai Office on Appointment Approval of Yang Qiao (ref. 沪银监复 [2016] No.181) on May 16, 2016, Yang Qiao was approved to be president. Pursuant to the Letter of CBRC Shanghai Office on Appointment Approval of George Leondis (ref. 沪银监复 [2017] No.356) on August 8, 2017, George Leondis was approved to be director. 8.2.2 Change of Supervisors Upon establishment of the Company in 2007, NML and DFG jointly appointed Mr. Chitoshi Yokota and Li Chen as supervisors of the Company. Upon Chitoshi Yokota's resignation on October 25, 2010, NML, as the Company's shareholder appointed Dominique Edmond Pierre SIGNORA as supervisor of the Company. On November 22, 2012, the Company's shareholder DFG issued a Letter (ref. 东风集人函 [2012] No.38) appointing Jiahong Xiong one of the supervisors of the Company and relieving Li Chen of his supervisor duties. Upon Dominique Edmond Pierre SIGNORA's resignation on December 1, 2012, NML appointed Seiji Kiyohara as supervisor. Upon Seiji Kiyohara's resignation on August 30, 2013, NML appointed Hidetoshi Yokota as supervisor. Upon Hidetoshi Yokota's resignation on September 22, 2014, NML appointed Kazuhiko Kazama as supervisor. Upon Kazuhiko Kazama's resignation on October 1, 2017, NML appointed Hermann Hauser as supervisor. On October 27, 2017, the Company's shareholder DFG issued a Letter (ref. 东风集人函 [2017] No.76) appointing Yaoliang Yin one of the supervisors of the Company and relieving
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Jiahong Xiong of his supervisor duties. 8.2.3 Change of Senior Management Pursuant to the Letter of CBRC on Approval of the Open of Dongfeng Nissan Auto Finance Co., Ltd. (ref. 银监函 [2007] No.432) on October 11, 2007, Ishii Katsumi was appointed as the Company's president, Tsukubai Nakanishi and Yaoliang Yin as the vice presidents. Pursuant to the Letter of CBRC Shanghai Office on Appointment Approval of Ishi Kenjiro (ref. 沪银监复 [2010] No.273) on April 5, 2010, Ishi Kenjiro was appointed as vice president. Pursuant to the Letter of CBRC Shanghai Office on Appointment Approval of Hermann Hauser (ref. 沪银监复 [2013] No.93) on February 26, 2013, Hermann Hauser was appointed as president. Pursuant to the Letter of CBRC Shanghai Office on Appointment Approval of Tanaka Yumi (ref. 沪银监复 [2015] No.195) on March 30, 2015, Tanaka Yumi was appointed as vice president. Pursuant to the Letter of CBRC Shanghai Office on Appointment Approval of Fengguo Chen (ref. 沪银监复 [2015] No.388) on June 30, 2015, Fengguo Chen was appointed as vice president. Pursuant to the Letter of CBRC Shanghai Office on Appointment Approval of George Leondis (ref. 沪银监复 [2017] No.356) on August 8, 2017, George Leondis was appointed as president. Pursuant to the Letter of CBRC Shanghai Office on Appointment Approval of Hua Li (ref. 沪银监复 [2018] No. 382) on July 23, 2018, Hua Li was appointed as vice president.
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Chapter 9 Underwriting and Issuance Method of This Bond 9.1 Underwriting of This Bond This Bond will be issued by the Underwriting Syndicate comprised by the Lead Underwriters. 9.2 Issuance Method of This Bond The Lead Underwriters will comprise an Underwriting Syndicate to issue This Bond through Book Building and centralized placement sales in the national inter-bank bond market. This Bond is not and will never be registered based on the Securities Act of 1933 of the United States (modified version, the "Securities Act"). This Bond shall not be issued or sold within the territory of the United States, or to, or for the account or benefit of U.S. persons except that any waiver(s) has been obtained or the Securities Act is not applicable. The words and terms in the previous sentence have the same meanings with those in Reg S of the United States. The Issuance of This Bond shall never be issued or sold within the territory of the United States or to, or for the account or benefit of U.S. persons by any underwriters as part of its initial distribution at any time, except that the sale or delivery occurs 40 days after the Subscription Cutoff Date. 9.3 Subscription Measure of This Bond 1. This Bond will be issued through Book Building and centralized placement sales. The detailed measures and requirements for the Investors to participated in the Booking Building and sales of This Bond will be regulated in the Measures for the Subscription and Distribution of 2018 DNAF Financial Bond II published by the Bookrunner; 2. The members of the national inter-bank bond market subscribing This Bond shall provide its business license with official seal or other copy of document evidencing its legal entity, copy of evidence with its official seal, ID card of the authorized person and letter of attorney, or perform according to relevant rules if otherwise regulated by the laws and regulations; 3. The minimum subscription amount of This Bond is 10 million, and the subscription amount should be integer multiple of 10 million; 4. This Bond is real-name and registered bond that will be in custody by CCDC; 5. After the Issuance of This Bond, the Lead Underwriter will send the distribution instruction to CCDC and CCDC will deal with the registration and custody of the bond subscribed by the Investors according to such instruction; 6. The Investors dealing with the subscription, registration and custody of its subscribed bond have no need to pay any extra fees. Custody and registration shall be addressed on the basis of the relevant regulations of the custodian of the bond; 7. Any regulations regarding to the subscription and custody of the bond conflicts with the valid, amended or enacted laws, regulations and policies of CCDC, the valid, amended or enacted laws, regulations and policies of CCDC will prevail.
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Chapter 10 Analysis on Taxation The holders of This Bond must comply with laws and regulations regarding to taxation in China. The following analysis is based on such laws, regulations and administrative rules issued by the State Administration currently in effect. In case of any change of laws or regulations on taxation, the amended rules shall apply to the tax matters as for the following analysis. The following statements do not constitute legal or tax advice to the Investors, nor do they provide opinions with respect to tax consequences. In case an investor intends to purchase This Bond, and if such investor is subject to special taxation rules, the Issuer advises the Investor to seek consultation with respect to tax obligations from professional consultants. 10.1 Value-added Tax According to the Notice on Implementing the Pilot Program of Replacing Business Tax with Value-Added Tax in an All-round Manner (ref. 财税[2016] No. 36) promulgated by the Ministry of Finance and State Administration of Taxation, the Finance Industry would be involved in the pilot program of Replacing Business Tax with Value-Added Tax from May 1, 2016. The bond transfer shall be levied Value-Added Tax in accordance with the financial products transfer, and base of such tax equals to the selling price net of purchase price. The purchase price shall be calculated with the weighted average method or moving weighted average method, once selected, the calculation method cannot be changed within 36 months. Negative difference after offsetting may be transferred into the next tax payment period (Value-Added Tax shall be levied quarterly) for offsetting the sales amount from the bond transfer, and if there is still a negative difference at the end of the year, it shall not be transferred into the next fiscal year. According to Supplementary Circular on Value-added Tax Policies on Interbank Transactions of Financial Institutions promulgated by Ministry of Finance and State Administration of Taxation (ref. 财税[2016] No. 70), Value-Added Tax on interest income from financial bonds could be exempted on account that it belongs to interest income from transactions between financial institutions. Financial bond refers to the negotiable instruments issued by a legal-person financial institution established within the territory of the PRC in the national inter-bank bond market for the purpose of guaranteeing the payment of the principal plus interest as agreed to between the parties concerned. Non-financial institutional investors should pay VAT for the bond interest income received by reference to VAT levied on loan services. 10.2 Corporate Income Tax Pursuant to the Enterprise Income Tax Law of People's Republic of China effective on January 1, 2008, the Regulation on the Implementation of the Enterprise Income Tax Law of the People's Republic of China, and other relevant laws and regulations, enterprise income tax shall be imposed upon enterprise Investors on the interest proceeds resulting from the investment of bonds. Interests generated in the current period shall be treated as income in the current period and shall be subject to taxation after taking the profits and losses of the current period into account. The enterprise income tax rate is normally 25%. Pursuant to the Enterprise Income Tax Law of People's Republic of China, the Individual Income Tax Law of the People's Republic of China, and other relevant laws and regulations, income tax shall also be imposed upon Offshore Investors on the interest proceeds and investment proceeds resulting from the investment of financial bonds.
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10.3 Stamp Tax Pursuant to the Provisional Rules of the People's Republic of China on Stamp Duty and its implementation rules, stamp tax is payable upon the documents evidencing transfer of property under sales and purchases, inheritance, bequeathing of gift, exchange, partition of property in China. However, the Provisional Rules on Stamp Tax does not make a mandatory requirement of stamp tax upon transactions of financial bonds in the inter-bank bond market. Therefore, as of the date specified on the front of this Prospectus, when written documents are executed evidencing the sale, bequeath or inheritance of financial bonds, stamp tax is not necessary. However, the Issuer is not able to foresee if any stamp tax would be imposed by the legislation on transactions involving financial bonds in the future, nor is it capable of predicting the level of applicable rate.
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Chapter 11 Rating of the This Bond CCXI has been engaged by the Issuer to assign ratings on this financial bonds. After necessary rating and evaluating procedures, the credit rating of the Issuer is AAA and the credit rating of This Bond is AAA assessed by CCXI. 11.1 Rating Opinions Rated by CCXI, the credit rating of the Issuer is AAA with a stable outlook and the credit rating of the Financial Bond II is AAA, which is comprehensively based on the assessment of macro-economy, industry environment, financial strength of the Company and the terms and conditions of this Financial Bond, and reflect the bright development, strong support from the shareholders, increased capital strength, competitive channel advantage, mature management, operation experience, good profitability and impressive assets of the Issuer with appearance of the immature auto finance market, risks arising from single business and the challenge in the operation of the Company including the intensive competitive environment, the risk management requirements against the expansion of the business scale, and the liquidity pressure on account of the mismatch between assets and liabilities. As a joint venture established by the powerful shareholders NML and DFG, the Issuer plays a significant role in the auto sales of passenger cars produced by such shareholders. The Shareholders also give support in the aspects of business operation, risk management, fund resource and fund supplement. In the opinion of CCXI, the shareholders have strong willingness and abilities to support the Issuer whenever needed, and such factor has been treated as a rating consideration accordingly. 11.1.1 Credit Advantages With the transformation of domestic economy and low penetration of autos, the auto market has an enormous potential and bright development prospect; The Issuer shall obtain strong support in capital supplement, business operation, risk management and other aspects from its shareholders. Recently, the shareholders of the Company will further provide strong support in supplement of capitals, laying a solid foundation for the business development in the future; Sustainable business growth based on good brand reputation and broad sales network jointly established by Dongfeng Motor Co., Ltd (50/50 JV between DFG and Nissan Motor Co., Ltd); Competitive advantage in serving car dealers and individual customers with sophisticated auto finance management expertise and rich operation experience; Strong funding capability with diversified funding sources and good OPEX control, and the leading position in terms of profitability within the industry for continuous years; Moreover, benefited from the business model advantage and strict management and control of risks, the Issuer holds good assets quality and adequate provision coverage ratio. 11.1.2 Credit Challenge The concept purchasing a car under loan is being formed, while the domestic auto finance market is still immature with more and more intensive competitions in the market, which results in a severe operating environment; The business and income structure are comparatively single, and the competitive advantages
87 2018 DNAF Financial Bond II Prospectus of the Company still need to be strengthened; Higher requirements on the ability of risk control are proposed when the business scale of the Company grows rapidly; The term mismatch of assets and liabilities brings the challenge in management on liquidity. 11.2 Follow-up Rating Arrangements CCXI shall conduct regular or irregular follow-up rating within the duration of this Financial Bond regarding to both the Issuer and this Financial Bond and publish the regular follow-up rating report on July 31 in every year. CCXI shall keep track of risk degrees of the Financial Bond within its duration, and pay attention to the quarter reports, annual reports and other relevant information of the Issuer. The Issuer shall also notice CCXI any significant events that would have an adverse effect on the rating results of the Issuer and provide such materials timely. CCXI shall take onsite inspection or telephone interview on such matters and carry out timely analysis on whether it is necessary to adjust the rating results and publish it on its own website.
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Chapter 12 Guarantee of This Bond This Bond has no guarantee.
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Chapter 13 Legal Opinions KWM is of the opinion that the Issuer is a non-banking financial institution duly incorporated and legally existing who has legal qualifications and capacity to issue financial bonds. The issuance of This Financial Bond has obtained necessary internal approval and authorizations through board resolution and complies with the Measures for Administration of Financial Bonds, the Announcement and other relative laws and regulations. The Issuer has not obtained the approval from the CBIRC and the permission from the PBOC for the issuance of this Financial Bond. The Issuer shall also complete the reporting procedures with the CBIRC and the PBOC after issuance of this Financial Bond.
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Chapter 14 Relative Institutions during this Issuance 14.1 Parties of this issuance Issuer Dongfeng Nissan Auto Finance Co., Ltd. Office Address: No. 500 Fushan Road, Pilot Free Trade District, Shanghai, China Legal Representative: Yang Qiao Contacts: Yumi Tanaka, Nicole Qiu, Amanda Lv, Alex Shen Tel: 021-38576000 Fax: 021-50589730 Post Code: 200122
Lead Underwriter China Merchants Securities Co., Ltd. Office Address: 38-45/F, Jiangsu Building, Yitian Road, Futian District, Shenzhen, Guangdong, China Legal Representative: Da Huo Contacts: Dong Yang, Yueyu Shang, Huimin Zhou, Huachao Liu Tel: 010-60840883 Fax: 010-57601990 Post Code: 100033
Lead Underwriter Industrial and Commercial Bank of China Limited Office Address: No. 55 Fu Xing Men Nei Avenue, Xicheng District, Beijing, China Legal Representative: Huiman Yi Contacts: Qianhui Zhou, Zetong Chen Tel: 010-66104147, 010-66108040 Fax: 010-66107567 Post Code: 100140
Lead Underwriter Bank of China Limited Office Address: No. 1 Fuxingmennei Avenue, Xicheng District, Beijing Legal Representative: Siqing Chen Contacts: Jing Zhou
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Tel: 010-66592433 Fax: 010-66591706 Post Code: 100818
Legal Counsel King &Wood Mallesons, Shanghai Office Office Address: 17/F, One ICC, Shanghai International Commence Center, 999 Middle Huai Hai Road, Xuhui District, Shanghai Person in Charge: Ling Wang Contacts: Eddie Hu, Chen Fushen, Chen Liu, Erica Zhou Tel: 021-24126000 Fax: 021-24126350 Post Code: 200031
Accounting Ernst & Young Hua Ming LLP Shanghai Branch Office Address: 50/F, Shanghai World Financial Center, No.100 Century Avenue, Pilot Free Trade District, Shanghai Partner in Charge: Shunjie Bi Contacts: Haifeng Jiang Tel: 021-22288888 Fax: 021-22280000 Post Code: 200120
Rating Agency China Chengxin International Credit Rating Co. Ltd. Office Address: 60101, Building 1, No.2 South Pole Hu Tong, Dongcheng District, Beijing Legal Representative: Yan Yan Contacts: Xiaokun Zhang, Qiuran Wang Tel: 010-66428877 Fax: 010-66426100 Post Code: 100010
Custodian China Central Depositary & Clearing Co., Ltd.
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Office Address: 5/F Tong Tai Building Zone B, No. 33 Finance Avenue, Xicheng District, Beijing Legal Representative: Ruqing Shui Contacts: Lingzhi Sun Tel: 010-88087970 Fax: 010-88086356 Post Code: 100032
14.2 Underwriting Syndicate Members and Contacts (in no particular order) Lead China Merchants Securities Co., Ltd. Underwriter Office Address: 38-45/F, Jiangsu Building, Yitian Road, Futian District, Shenzhen, Guangdong, China Legal Representative: Da Huo Contacts: Dong Yang, Yueyu Shang, Huimin Zhou, Huachao Liu Tel: 010-60840883 Fax: 010-57601990 Post Code: 100033
Lead Industrial and Commercial Bank of China Limited Underwriter Office Address: No. 55 Fu Xing Men Nei Avenue, Xicheng District, Beijing, China Legal Representative: Huiman Yi Contacts: Qianhui Zhou, Zetong Chen Tel: 010-66104147, 010-66108040 Fax: 010-66107567 Post Code: 100140
Lead Bank of China Limited Underwriter Office Address: No. 1 Fuxingmennei Avenue, Xicheng District, Beijing Legal Representative: Siqing Chen Contacts: Jing Zhou
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Tel: 010-66592433 Fax: 010-66591706 Post Code: 100818
Other Mizuho Bank (China), Ltd. Underwriting Syndicate Office Address: 21/F, 22/F, 23/F, Shanghai IFC, No. 100, Member Century Avenue, China (Shanghai) Pilot Free Trade Zone Legal Representative: Kazufumi Takeda Contacts: Ruiqi Duan Tel: 021-38558335 Fax: 021-68776001 Postal Code: 200120
MUFG Bank (China), Ltd. Office Address: 22/F, AZIA Building, No. 1233, Lujiazui Ring Road, China (Shanghai) Pilot Free Trade Zone Legal Representative: Munehisa Oku Contacts: Shile Chen, Ying Zheng Tel: 021-6888-1666 ex.4284 / 4264 Fax: 021-6888-1665 / 1667 Postal Code: 200120
J.P. Morgan Chase Bank (China) Co., Ltd. Office Address: 19/F, Winland Financial Center, No. 7, Financial Street, Xicheng District, Beijing Legal Representative: Yi Li Contacts: Yue Cui Tel: 010-59318060 Fax: 010-59318010 Postal Code: 100033
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Bank of Ningbo Co., Ltd. Office Address: 19/F, 21st Century Building, No. 210, Century Avenue, Pudong New District, Shanghai Legal Representative: Huayu Lu Contacts: Panjie Zhang Tel: 021-23262680, 15210608274 Fax: 021-63586853 Postal Code: 200120
China Merchants Bank Co., Ltd. Office Address: No. 7088, Shennan Avenue, Futian District, Shenzhen Legal Representative: Jianhong Li Contacts: Zhihuan Bie Tel: 021-20625867 Fax: 021-58421192 Postal Code: 200127
Shenwan Hongyuan Securities Co., Ltd. Office Address: No. 19, Taipingqiao Street, Xicheng District, Beijing Legal Representative: Mei Li Contacts: Xin Zhou Tel: 010-88013586 Fax: 010-88013964 Postal Code: 100033
By the signature date of this Prospectus, there is no direct or indirect significant relationship in equity between the Issuer and the Lead underwriters, the Rating Agency, the Legal Counsel or the Accounting.
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Chapter 15 Information for Disclosure 15.1 Documents for Disclosure (1) Approval from the Shanghai Office of the CBRC on the Issuance of Financial Bond by Dongfeng Nissan Auto Finance Co., Ltd. (ref. 沪银保监复[2018] No. 433) and the Decision from the People's Bank of China to Grant Administrative Permission (ref. 银市场许准予字[2018] No. 177). (2) Audited financial statements and financial reports for 2015 to 2017 and unaudited financial statements for January to June 2018 of Dongfeng Nissan Auto Finance Co., Ltd. (3) 2018 DNAF Financial Bond II Prospectus (4) 2018 DNAF Financial Bond II Offering Announcement (5) Rating Report of The Financial Bond and follow-up arrangements (6) Legal Opinion with respect to This Bond 15.2 Address Issuer Dongfeng Nissan Auto Finance Co., Ltd. Office Address: No. 500 Fushan Road, Pilot Free Trade District, Shanghai, China Post Code: 200122 Contacts: Yumi Tanaka, Nicole Qiu, Amanda Lv, Alex Shen Tel: 021-38576000 Fax: 021-50589730
Investors have access to the full text of this Prospectus and the foregoing documents for reference at the abovementioned address on Business Days throughout the issuance period of This Bond. In addition, Investors may take a view of the 2018 DNAF Financial Bond II Offering Announcement and the 2018 DNAF Financial Bond II Prospectus on the following websites: www.chinamoney.com.cn www.chinabond.com.cn Should there be any questions about this Prospectus or the above disclosed documents, Investors may seek consultation from securities agents, lawyers, professional accountants, and other consultants.
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