VERY SUBSTANTIAL ACQUISITION and CONNECTED TRANSACTIONS Independent Financial Adviser to the Independent Board Committee
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BOWNE OF SINGAPORE 10/17/1999 02:21 NO MARKS NEXT PCN: 004.00.00.00 -- Page/graphics valid (06/22/2000 00:09) U97646 003.00.00.00 85 IMPORTANT If you are in doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in China Telecom (Hong Kong) Limited, you should at once hand this circular together with the accompanying form of proxy to the purchaser or other transferee or to the bank, stockbroker or other agent through whom the sale was eÅected for transmission to the purchaser or transferee. The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. This Shareholders' Circular is for the sole purpose of the Extraordinary General Meeting of the Company and is not an oÅer to sell or a solicitation of an oÅer to buy any securities. Registration Statements relating to the Company's ordinary shares and debt securities have been Ñled with the United States Securities and Exchange Commission but have not become eÅective. Any sale of these securities in the United States will be made only after such registration statements have become eÅective and by means of prospectuses relating to such securities. (Incorporated in Hong Kong with limited liability under the Companies Ordinance) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTIONS Independent Financial Adviser to the Independent Board Committee Financial Advisers to China Telecom (Hong Kong) Limited China International Capital Goldman Sachs (Asia) L.L.C. Corporation (Hong Kong) CICC Limited A letter from the Independent Board Committee of China Telecom (Hong Kong) Limited is set out on page 26 of this circular. A letter from Schroders Asia Limited containing its advice to the Independent Board Committee is set out on pages 27 to 50 of this circular. A notice dated October 16, 1999 convening an Extraordinary General Meeting of the Company to be held in the Conference Room, 8th Floor, Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong, on November 11, 1999 at 11:00 a.m., is set out at the end of this circular. Whether or not you are able to attend the meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as practicable and in any event at least 36 hours before the time appointed for holding the meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or at any adjourned meeting should you so wish. October 16, 1999 BOWNE OF SINGAPORE 10/16/1999 00:06 NO MARKS NEXT PCN: 005.00.00.00 -- Page is valid, no graphics U97646 004.00.00.00 58 CONTENTS Page DeÑnitionsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 Letter from the Chairman ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 1. Introduction ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 2. The Acquisition ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7 3. Financing of the Acquisition ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9 4. Conditions of the Acquisition AgreementÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12 5. Reasons for and BeneÑts of the Acquisition ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12 6. Prospective Financial Information ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16 7. Relationship with China Mobile and the China Telecom SystemÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16 8. Connected TransactionsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17 9. Extraordinary General MeetingÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 25 10. Recommendation of the Independent Board CommitteeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 25 11. Additional InformationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 25 Letter from the Independent Board CommitteeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 26 Letter from Schroders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 27 Appendix I Ì The Telecommunications Industry in China ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ I-1 Appendix II Ì Further Information on the Target Companies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ II-1 Appendix III Ì Accountants' Report ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ III-1 Appendix IV Ì Additional Financial Information of the Target Group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ IV-1 Appendix V Ì Financial Information of the Group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ V-1 Appendix VI Ì Financial Information of the Combined GroupÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ VI-1 Appendix VII Ì ProÑt ForecastÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ VII-1 Appendix VIII Ì Property Valuation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ VIII-1 Appendix IX Ì Additional Information to Shareholders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ IX-1 Appendix X Ì General Information ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ X-1 Notice of the Extraordinary General Meeting i BOWNE OF SINGAPORE 10/15/1999 11:59 NO MARKS NEXT PCN: 006.00.00.00 -- Page is valid, no graphics U97646 005.00.00.00 42 DEFINITIONS In this circular, unless the context otherwise requires, the following expressions have the following meanings: ""Acquisition'' the proposed acquisition by the Company of the entire issued capital of Fujian Mobile BVI, Henan Mobile BVI and Hainan Mobile BVI pursuant to the Acquisition Agreement, as further described in this circular ""Acquisition Agreement'' the conditional sale and purchase agreement dated Octo- ber 4, 1999 made between the Company, CTBVI and CTHKG relating to the Acquisition ""ADSs'' American depositary shares ""Associates'' as deÑned in the Listing Rules ""Board'' the board of directors of the Company ""CDMA'' Code Division Multiple Access technology, which is a contin- uous digital transmission technology that accommodates higher throughput by using various coding sequences to mix and separate voice and data signals for wireless communications ""China Mobile'' China Mobile Communications Corporation, a state-owned company established in the PRC and controlled by the MII ""CICC'' China International Capital Corporation (Hong Kong) Lim- ited, a registered investment adviser and Ñnancial adviser to the Company in respect of the Acquisition ""Chesterton Petty'' Chesterton Petty Limited, a chartered surveyor and indepen- dent property valuer to the Company ""Combined Group'' the Company, its existing subsidiaries and the Target Companies ""Companies Ordinance'' the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) ""Company'' or ""CTHK'' China Telecom (Hong Kong) Limited, a company incorpo- rated in Hong Kong whose shares are listed on the Stock Exchange and whose ADSs are listed on the New York Stock Exchange ""Completion'' completion of the Acquisition pursuant to the Acquisition Agreement ""Connected Transactions'' the transactions entered into between China Mobile, certain of its subsidiaries, the DGT, the relevant PTAs and the Target Companies or the Company or its subsidiaries, as set out in the section headed ""Letter from the Chairman'' under the paragraph headed ""Connected Transactions'' ""Consideration Shares'' the new Shares proposed to be allotted and issued to CTBVI as part of the total purchase price of the Acquisition ""CSRC'' China Securities Regulatory Commission 1 BOWNE OF SINGAPORE 10/15/1999 15:32 NO MARKS NEXT PCN: 007.00.00.00 -- Page is valid, no graphics U97646 006.00.00.00 56 DEFINITIONS ""CTBVI'' China Telecom Hong Kong (BVI) Limited, a company indi- rectly controlled by the MII and the immediate controlling shareholder of the Company ""CTHKG'' China Telecom (Hong Kong) Group Limited, a company indirectly controlled by the MII and an indirect controlling shareholder of the Company ""DCS 1800'' Digital Cellular System for 1800 MHz, a European digital cellular standard based on GSM technology that operates in the 1800 MHz frequency band (also referred to as PCN) ""Debt OÅering'' the proposed global oÅering of U.S. dollar denominated notes of the Company, as described in the section headed ""Letter from the Chairman'' under the paragraph headed ""The Proposed Debt OÅering'' ""DGT'' The Directorate General of Telecommunications, a state- owned enterprise under the control of the MII ""Directors'' the directors of the Company ""EBITDA'' earnings before interest income, interest expense, non-oper- ating income/expenses, income tax, depreciation and amor- tisation and provision for diminution in value of Ñxed assets ""Equity OÅering'' the proposed global oÅering of Shares and American deposi- tary shares of the Company, as described in the section headed ""Letter from the Chairman'' under the paragraph headed ""The Proposed Equity OÅering'' ""Extraordinary General Meeting'' the extraordinary general meeting of the Company convened for November 11, 1999, notice of which is set out at the end of this circular, or any adjournment thereof ""Fujian Mobile'' Fujian Mobile Communication Company Limited, a company established on September 7, 1999 under the laws of the PRC and which is wholly-owned by Fujian Mobile BVI ""Fujian Mobile BVI'' Fujian Mobile (BVI) Limited, a company incorporated on September 1, 1999 in the British Virgin Islands ""Goldman Sachs'' Goldman Sachs