IMPORTANT NOTICE NOT FOR DISTRIBUTION IN THE UNITED STATES
IMPORTANT: You must read the following disclaimer before continuing. The following disclaimer applies to the preliminary offering circular (the “Preliminary Offering Circular”) attached to this e-mail. You are therefore advised to read this disclaimer carefully before reading, accessing or making any other use of the Preliminary Offering Circular. In accessing the Preliminary Offering Circular, you agree to be bound by the following terms and conditions, including any modifications to them from time to time, each time you receive any information as a result of such access. You acknowledge that the access to the Preliminary Offering Circular is intended for use by you only and you agree you will not forward or otherwise provide access to any other person.
NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO.
THE BONDS AND THE GUARANTEE HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION AND THE BONDS AND THE GUARANTEE MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES, EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS. THIS OFFERING IS MADE SOLELY IN OFFSHORE TRANSACTIONS PURSUANT TO REGULATION S UNDER THE SECURITIES ACT.
THE PRELIMINARY OFFERING CIRCULAR MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER AND, IN PARTICULAR, MAY NOT BE FORWARDED TO ANY ADDRESS IN THE UNITED STATES. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS.
Confirmation of Your Representation: You have accessed the attached document on the basis that you have confirmed to SPIC 2016 US dollar Bond Company Limited ( 2016 ) (the “Issuer”), State Power Investment Corporation (the “Guarantor”) and The Hongkong and Shanghai Banking Corporation Limited, Australia and New Zealand Banking Group Limited, Credit Suisse (Hong Kong) Limited, ICBC International Securities Limited, J.P. Morgan Securities plc, Merrill Lynch International, BOCI Asia Limited and CCB International Capital Limited (together, the “Joint Lead Managers”, and each a “Joint Lead Manager”) that: (1) you and any customers you represent are not in the United States, (2) the electronic mail address that you gave us and to which this e-mail has been delivered is not located in the United States, and (3) you consent to delivery of this document by electronic transmission. To the extent you purchase the securities described in the attached document, you will be doing so in an offshore transaction as defined in regulations under the Securities Act in compliance with Regulation S thereunder.
The Preliminary Offering Circular has been made available to you in electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of transmission and consequently neither the Issuer, the Guarantor, the Joint Lead Managers nor any of their affiliates, directors, officers, employees, representatives, agents and each person who controls any of them accepts any liability or responsibility whatsoever in respect of any such alteration or change to the Preliminary Offering Circular distributed to you in electronic format or any difference between the Preliminary Offering Circular distributed to you in electronic format and the hard copy version.
Restrictions: Nothing in this electronic transmission constitutes, and may not be used in connection with, an offer or an invitation by or on behalf of any of the Issuer, the Guarantor or the Joint Lead Managers to subscribe or purchase any of the securities described therein, in any place where offers or solicitations are not permitted by law and access has been limited so that it shall not constitute in the United States or elsewhere directed selling efforts (within the meaning of Regulation S under the Securities Act). If a jurisdiction requires that the offering be made by a licensed broker or dealer and any Joint Lead Manager or any affiliate of a Joint Lead Manager is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by that Joint Lead Manager or such affiliate on behalf of the Issuer and the Guarantor in such jurisdiction. Any securities to be issued in respect thereof will not be registered under the Securities Act and may not be offered or sold in the United States unless registered under the Securities Act or pursuant to an exemption from such registration. Access has been limited so that it shall not constitute a general solicitation in the United States or elsewhere. If you have gained access to this transmission contrary to the foregoing restrictions, you will be unable to purchase any of the securities described therein.
You are reminded that you have accessed the Preliminary Offering Circular on the basis that you are a person into whose possession the Preliminary Offering Circular may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located.
The materials relating to the offering do not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by laws.
Actions that you may not take: If you receive the Preliminary Offering Circular by e-mail, you should not reply by e-mail to the Preliminary Offering Circular, and you may not purchase any securities by doing so. Any reply e-mail communications, including those you generate by using the “Reply” function on your e-mail software, will be ignored or rejected.
You are responsible for protecting against viruses and other destructive items. Your use of this e-mail is at your own risk and it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature. The information contained in this Preliminary Offering Circular is subject to completion and amendment in the final offering circular. This Preliminary Offering Circular is not an offer to sell securities nor is it soliciting an offer to buy securities in any jurisdiction where such offer or sale is not permitted. 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Euroclear rwti the within or y sudb the by issued ) to,i the in ption, yliability ny aipassu pari n future and ”. n (being ine exchange no is antor ) The ”). nterest ythe by )and ”) . ment. lpay ll been tion ber in y o e IMPORTANT NOTICE
THIS OFFERING CIRCULAR DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE THE OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS OFFERING CIRCULAR NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUER, THE GUARANTOR OR ANY OF THEIR RESPECTIVE SUBSIDIARIES OR THAT THE INFORMATION SET FORTH IN THIS OFFERING CIRCULAR IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
Hong Kong Exchanges and Clearing Limited and the Hong Kong Stock Exchange take no responsibility for the contents of this Offering Circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Offering Circular. This Offering Circular includes particulars given in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited for the purpose of giving information with regard to the Issuer, the Guarantor and the Guarantor’s subsidiaries taken as a whole (collectively, the “Group”). The Issuer and the Guarantor accepts full responsibility for the accuracy of the information contained in this Offering Circular and confirms, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading. Investors are advised to read and understand the contents of the Offering Circular before investing. If in doubt, investors should consult their advisers.
Each of the Issuer and the Guarantor accepts full responsibility for the accuracy of the information contained in this Offering Circular and confirms, having made all reasonable enquiries, that (i) this Offering Circular contains all material information with respect to the Issuer, the Guarantor and the Group and the Bonds and the Guarantee (including all information which, according to the particular nature of the Issuer, the Guarantor, the Group, the Bonds and the Guarantee, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the Issuer, the Guarantor and the Group and of the rights attaching to the Bonds and the Guarantee), (ii) this Offering Circular does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements herein, in the light of the circumstances under which they were made, not misleading, (iii) the statements of fact contained in this Offering Circular relating to the Issuer, the Guarantor, the Group, the Bonds and the Guarantee are in every material respect true and accurate and not misleading, (iv) the statements of intention, opinion, belief or expectation contained in this Offering Circular are, honestly and reasonably made or held and (v) all reasonable enquiries have been made to ascertain such facts and to verify the accuracy of all such statements. This Offering Circular has been prepared by the Issuer and the Guarantor solely for use in connection with the proposed offering of the Bonds and giving of the Guarantee described in this Offering Circular. The distribution of this Offering Circular, the offering of the Bonds and the giving of the Guarantee in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular comes are required by the Issuer, the Guarantor and The Hongkong and Shanghai Banking Corporation Limited, Australia and New Zealand Banking Group Limited, Credit Suisse (Hong Kong) Limited, ICBC International Securities Limited, J.P. Morgan Securities plc, Merrill Lynch International, BOCI Asia Limited and CCB International Capital Limited (together, the “Joint Lead Managers”) to inform themselves about and to observe any such restrictions. No action is being taken to permit a public offering of the Bonds and giving of the Guarantee or the distribution of this document in any jurisdiction where action would be required for such purposes. There are restrictions on the offer and sale of the Bonds and the Guarantor giving the Guarantee, and the circulation of documents relating thereto, in certain jurisdictions and to persons connected therewith. For a description of certain further restrictions on offers, sales and resales of the Bonds and distribution of this Offering Circular, see “Subscription and Sale”.
No person has been authorised to give any information or to make any representation not contained in or not consistent with this Offering Circular or any information supplied by the Issuer and the Guarantor or such other information as is in the public domain and, if given or made, such information or representation should not be relied upon as having been authorised by the Issuer, the Guarantor or the Joint Lead Managers. Neither the delivery of this Offering Circular nor any offering, sale or delivery made in connection with the issue of the Bonds shall, under any circumstances, constitute a representation that there has been no change or development reasonably likely to involve a change in the affairs of the Issuer, the Guarantor or any of them since the date hereof or create any implication that the information contained herein is correct as at any date subsequent to the date hereof.
i None of the Joint Lead Managers, the Trustee (as defined in “Terms and Conditions of the Bonds”) or the Agents (as defined in “Terms and Conditions of the Bonds”) has separately verified the information contained in this Offering Circular. None of the Joint Lead Managers, the Trustee or the Agents, or any director, officer, employee, agent, adviser, representative or affiliate of any such person, makes any representation, warranty or undertaking, express or implied, or accepts any responsibility or liability, with respect to the accuracy or completeness of any of the information contained in this Offering Circular or any information supplied in connection with the Bonds and the Guarantee. Each person receiving this Offering Circular acknowledges that such person has not relied on the Joint Lead Managers, the Trustee or the Agents or any of their respective directors, officers, employees, agents, advisers, representatives or affiliates in connection with its investigation of the accuracy of such information or its investment decision, and each such person must rely on its own examination of the Issuer and the Guarantor and the merit and risks involved in investing in the Bonds. See “Risk Factors” for a discussion of certain factors to be considered in connection with an investment in the Bonds. To the fullest extent permitted by law, none of the Joint Lead Managers, the Trustee or the Agents, or any director, officer, employee, agent, representative or affiliate of any such person, accepts any responsibility for the contents of this Offering Circular or for any other statement made or purported to be made by a Joint Lead Manager, the Trustee or an Agent, or any director, officer, employee, agent, adviser, representative or affiliate of any such person or on its behalf, in connection with the Issuer, the Guarantor, the Group, the issue and offering of the Bonds or the giving of the Guarantee. Each of the Joint Lead Managers, the Trustee and the Agents and the directors, officers, employees, agents, advisers, representatives and affiliates of such persons accordingly disclaims all and any liability whether arising in tort or contract or otherwise which it might otherwise have in respect of this Offering Circular or any such statement. None of the Joint Lead Managers, the Trustee or the Agents, or any director, officer, employee, agent, representative or affiliate of any such person, undertakes to review the financial condition or affairs of the Issuer or the Guarantor during the life of the arrangements contemplated by this Offering Circular nor to advise any investor or potential investor in the Bonds of any information coming to the attention of the Joint Lead Managers, the Trustee or the Agents, or any director, officer, employee, agent, representative or affiliate of any such person. This Offering Circular may not be used for the purpose of an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. This Offering Circular does not constitute an offer or an invitation to subscribe for or to purchase any Bonds, is not intended to provide the basis of any credit or other evaluation, and should not be considered as a recommendation by the Issuer, the Guarantor, the Joint Lead Managers, the Trustee, the Agents, or any director, officer, employee, agent, representative or affiliate of any such person, that any recipient of this Offering Circular should subscribe for or purchase any Bonds. Each recipient of this Offering Circular shall be taken to have made its own investigation and appraisal of the condition (financial or otherwise) of the Issuer and the Guarantor with its own tax, legal and business advisers as it deems necessary. Except as otherwise indicated in this Offering Circular, all non-Group specific statistics and data relating to the industry or to the economic development of certain regions within the People’s Republic of China have been extracted or derived from publicly available information and industry publications. Such information has not been independently verified by the Issuer, the Guarantor, the Joint Lead Managers, the Trustee or the Agents or by their respective directors, officers, employees, agents, advisers, representatives and affiliates, and none of the Issuer, the Guarantor, the Joint Lead Managers, the Trustee, the Agents or their respective directors, officers, employees, agents, advisers, representatives and affiliates makes any representation as to the correctness, accuracy or completeness of that information. In addition, third-party information providers who contributed to the publicly available information and industry publications may have obtained information from market participants and such information may not have been independently verified. IN CONNECTION WITH THE ISSUE OF THE BONDS, ANY OF THE JOINT LEAD MANAGERS APPOINTED OR ACTING AS STABILISING MANAGER (OR PERSONS ACTING ON BEHALF OF ANY OF THEM) (THE “STABILISING MANAGER”) MAY OVER-ALLOT BONDS OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE BONDS AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT THE STABILISING MANAGER (OR PERSONS ACTING ON BEHALF OF A STABILISING MANAGER) WILL UNDERTAKE STABILISATION ACTION. ANY STABILISATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE BONDS IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME AND MUST BE BROUGHT TO AN END AFTER A LIMITED PERIOD. ANY STABILISATION ACTION OR OVER-ALLOTMENT MUST BE CONDUCTED BY THE STABILISING MANAGER (OR PERSONS ACTING ON BEHALF OF THE STABILISING MANAGER) IN ACCORDANCE WITH ALL APPLICABLE LAWS AND RULES.
ii This Offering Circular is provided solely for the purpose of enabling the recipient to consider purchasing the Bonds. The investors or prospective investors should read this Offering Circular carefully before making a decision regarding whether or not to purchase the Bonds. This Offering Circular cannot be used for any other purpose and any information in this Offering Circular cannot be disclosed to any other person. This Offering Circular is personal to each prospective investor and does not constitute an offer to any other person or to the public generally to purchase or otherwise acquire the Bonds.
This Offering Circular summarises certain material documents and other information, and the Issuer, the Guarantor, the Joint Lead Managers refer the recipient of this Offering Circular to them for a more complete understanding of what is contained in this Offering Circular. In making an investment decision, the prospective investor must rely on its own judgment and examination of the Issuer and the Guarantor and the Terms and Conditions of the Bonds, including the merits and risks involved. See “Risk Factors” for a discussion of certain factors to be considered in connection with an investment in the Bonds. None of the Issuer, the Guarantor, the Joint Lead Managers, the Trustee or the Agents or any of their respective directors, officers, employees, agents, advisers, representatives or affiliates are making any representations regarding the legality of an investment in the Bonds under any law or regulation. The recipient of this Offering Circular should not consider any information in this Offering Circular to be legal, business or tax advice. Any investor or prospective investor should consult his/her/its own attorney, business adviser and tax adviser for legal, business and tax advice regarding an investment in the Bonds.
Warning
The contents of this Offering Circular have not been reviewed by any regulatory authority in the People’s Republic of China, Hong Kong or elsewhere. Investors are advised to exercise caution in relation to the offer. If any investor is in any doubt about any of the contents of this document, that investor should obtain independent professional advice.
PRESENTATION OF FINANCIAL INFORMATION
This Offering Circular contains the audited consolidated financial information of the Guarantor as at and for the years ended 31 December 2014 and 2015, the unaudited and unreviewed consolidated financial information of the Guarantor as at and for the nine months ended 30 September 2015 and 2016 and the audited consolidated financial information of China Power Investment Corporation (“CPI”) as at and for the years ended 31 December 2013 and 2014.
The audited consolidated financial information of the Guarantor as at and for the years ended 31 December 2014 and 2015 is derived from the Guarantor’s consolidated financial statements for the year ended 31 December 2015 (the “Guarantor’s Consolidated Audited Financial Statements”), which have been audited by Ruihua Certified Public Accountants (“Ruihua”). The unaudited and unreviewed consolidated financial information of the Guarantor as at and for the nine months ended 30 September 2015 and 2016 is derived from the Guarantor’s financial statements as at and for the nine months ended 30 September 2016 (the “Guarantor’s Consolidated Third Quarter Financials”, and together with the Guarantor’s Consolidated Audited Financial Statements, the “Guarantor’s Consolidated Financial Statements”). The audited consolidated financial information of CPI as at and for the year ended 31 December 2013 and 2014 is derived from CPI’s financial statements as at and for the year ended 31 December 2014 (“CPI’s Consolidated Audited Financial Statements”), which have been audited by Ruihua. The Guarantor’s Consolidated Financial Statements and CPI’s Consolidated Audited Financial Statements were prepared and presented in accordance with the Accounting Standards for Business Enterprises in China (“PRC GAAP”). The Guarantor has not prepared its financial statements or consolidated financial statements, as the case may be, in accordance with International Financial Reporting Standards (“IFRS”). As advised by Ruihua, there are no material differences between PRC GAAP and the IFRS with respect to the determination of the Group’s financial position.
This Offering Circular contains financial information of the Group prior to and post the merger between CPI and State Nuclear Power Technology Corporation (“SNPTC”), whereby SNPTC was consolidated into CPI and became a subsidiary of CPI (the “Merger”). As CPI and SNPTC were under the common control of SASAC, the Merger was considered as a common control combination. Accordingly, the financial information of the Group as at and for the year ended 31 December 2015 was prepared on a post-Merger basis and the financial information of the Group as at and for the year ended 31 December 2014 was restated as if the Merger had been completed on 1 January 2014. CPI is the surviving entity of the Merger and therefore the predecessor of the
iii Guarantor. As a pre-Merger entity, CPI’s financial statements are not comparable to the financial information of the Group as at and for the years ended 31 December 2014 and 2015. Potential investors are advised not to use the financial information of CPI to evaluate the Group’s financial condition and results of operations. For more details, please see “Risk Factors — Risks Relating to the Group’s Business and the PRC Power Industry — This Offering Circular contains financial information of the Group prior to and post the Merger. The interim financial information of the Guarantor contained in this Offering Circular have not been reviewed or audited”.
The Guarantor’s Consolidated Third Quarter Financials have not been reviewed or audited by Ruihua or any other person. Consequently, the Guarantor’s Consolidated Third Quarter Financials should not be relied upon by investors to provide the same quality of information associated with information that has been subject to an audit or review. None of the Joint Lead Managers or any of their respective affiliates, directors, officers, employees, agents, representatives or advisers makes any representation or warranty, express or implied, regarding the accuracy or sufficiency of such consolidated financial statements for an assessment of, and potential investors must exercise caution when using such data to evaluate, the Group’s financial condition and results of operations. The Guarantor’s Consolidated Third Quarter Financials should not be taken as an indication of the expected financial condition or results of operations of the Group for the full financial year ending 31 December 2016. See “Risk Factors — Risks Relating to the Group’s Business and the PRC Power Industry — This Offering Circular contains financial information of the Group prior to and post the Merger. The interim financial information of the Guarantor contained in this Offering Circular have not been reviewed or audited.”.
Each of the Guarantor’s Consolidated Financial Statements and CPI’s Consolidated Audited Financial Statements have been prepared in Chinese only and English translations of which (collectively, the “Financial Statements Translation”) have been prepared and included in this Offering Circular for reference only. None of the Joint Lead Managers or their respective affiliates, directors, employees and advisers has independently verified or checked the accuracy of the Financial Statements Translation and can give no assurance that the information contained in the Financial Statements Translation is accurate, truthful or complete.
CERTAIN TERMS AND CONVENTIONS
This Offering Circular has been prepared using a number of conventions, which investors should consider when reading the information contained herein. Unless indicated otherwise, in this Offering Circular all references to (i) the “Issuer” are to SPIC 2016 US dollar Bond Company Limited ( 2016 ), (ii) the “Guarantor” are to State Power Investment Corporation and (iii) the “Group” are to the Guarantor and its direct and indirect subsidiaries, taken as a whole, unless the context otherwise indicates.
Unless otherwise specified or the context otherwise requires, references to “Hong Kong” are to the Hong Kong Special Administrative Region of the People’s Republic of China, to the “PRC”or“China” are to the People’s Republic of China, for the purpose of this Offering Circular only, excluding Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan, to the “U.S.” or “United States” are to the United States of America, to “CNY”, “Renminbi”or“RMB” are to the lawful currency of the PRC, and to “U.S.$”or “U.S. dollars” are to the lawful currency of the United States of America.
Unless otherwise stated in this Offering Circular, all translations from Renminbi into U.S. dollars were made at the rate of CNY6.7987 to U.S.$1.00, the noon buying rate in New York City for cable transfers payable in Renminbi on 10 November 2016. All such translations in this Offering Circular are provided solely for investors’ convenience and no representation is made that the amounts referred to herein have been, could have been or could be converted into U.S. dollars or Renminbi, or vice versa, at any particular rate or at all. For further information relating to the exchange rates, see “Exchange Rate Information”.
Any discrepancies in the tables included herein between the listed amounts and the totals thereof are due to rounding.
iv FORWARD-LOOKING STATEMENTS
This Offering Circular contains forward-looking statements. The forward-looking statements contain information regarding, among other things, the Group’s future operations, performance, financial condition, expansion plans and business strategy. These forward-looking statements are based on the Group’s current expectations and projections about future events. Although the Group believes that these expectations and projections are reasonable, such forward-looking statements are inherently subject to risks, uncertainties and assumptions, including, among other things: • general economic and political conditions in the PRC and globally; • risks associated with business activities in the PRC, including but not limited to the PRC regulatory environment, and in particular, PRC regulation of the power industry as well as environmental regulation and employee safety and labour protection regulations; • risks associated with the power generation sector in the PRC; • the Group’s business strategy and plan of operation; • fluctuations in interest rates and the availability of credit; • operational hazards customary to the power generation industry including but not limited to equipment failures, natural disasters, environmental or industrial accidents, construction delays, labour disputes and other business interruptions; • supplier issues including but not limited to variations in price, available quantity or delivery of coal; • various business opportunities that the Group may pursue; and • those other risks identified in the “Risk Factors” section of this Offering Circular.
The words “believe”, “expect”, “anticipate”, “estimate”, “intend”, “plan”, “seek” and similar words identify forward-looking statements. However, these words are not the exclusive means of identifying forward-looking statements. All statements regarding expected financial condition and results of operations, business plans and prospects are forward-looking statements. These forward-looking statements include but are not limited to statements as to the business strategy, revenue and profitability, planned projects and other matters as they relate to the Issuer or the Guarantor discussed in this Offering Circular regarding matters that are not historical fact. Although the Group believes that the expectations reflected in the forward-looking statements are reasonable, the Group can give no assurance that such expectations will prove correct. The Group undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. In light of the foregoing and the risks, uncertainties and assumptions in “Risk Factors” and elsewhere in this Offering Circular, the forward-looking statements in this Offering Circular are not and should not be construed as assurances of future performance and the Issuer’s and the Guarantor’s actual results could differ materially from those anticipated in those forward-looking statements.
v DEFINITIONS AND GLOSSARY OF TECHNICAL TERMS
13th Five-Year Plan The Thirteenth Five-Year Plan Guidelines for National Economic and Social Development of the PRC ( ).
CDM The Clean Development Mechanism, an arrangement under the Kyoto Protocol allowing industrialised countries to invest in projects that reduce greenhouse gas emissions in developing countries in order to earn emission credits.
CSRC China Securities Regulatory Commission ( ). demand For an integrated power system, the amount of power demanded by customers of energy at any point of time. dispatch The schedule of production for all the generating units on a power system, generally varied at short notice to match power production requirements. excess output The amount by which the total output of a power plant in a particular year exceeds its planned output for such year. gross power generation For a specified period, the total amount of electricity produced by a power plant in that period, including auxiliary electricity and electricity generated during the construction and testing period.
GW Unit of energy, gigawatt. 1 GW = 1,000 MW
GWh Unit of energy, gigawatt-hour. 1 GWh = 1 million KWh. GWh is typically used as a measure for the annual energy production of large power plants.
IFRS The International Financial Reporting Standards, which include standards and interpretations promulgated by the International Accounting Standards Board (IASB), and the International Accounting Standards (IAS) and interpretations issued by the International Accounting Standards Committee (IASC). installed capacity The manufacturers’ rated power output of a generating unit or a power plant, usually denominated in MW.
KW Unit of energy, kilowatt. 1 KW = 1,000 watts
KWh Unit of energy, kilowatt-hour. The standard unit of energy used in the electric power industry. One kilowatt-hour is the amount of energy that would be produced by a power generator producing one thousand watts for one hour.
MW Unit of energy, megawatt. 1 MW = 1,000 KW. The capacity of a power project is generally expressed in MW. on-grid tariff The price of electricity per KWh for which a power project can sell the electricity it generates to the power grid companies. On-grid tariff in China includes (1) benchmark or approved on-grid tariff; (2) tariff premiums to compensate the costs of transmission lines that power companies construct and own (if applicable); and/or (3) discretionary tariff subsidies granted by the local government (if applicable).
vi planned output The actual amount of power sold by a power plant in accordance with annually determined target gross power generation level in a particular year, which equals total output less excess output and output subject to competitive bidding. power generation Electricity generated by power plants (generating units) during the reporting period, or ‘‘power generation’’. It refers to the consumed generated electricity produced by generating units with power energy being processed and transferred, or the product of actual consumed electricity generated by generating units and actual operation hours of generating units.
PRC Government The government of the PRC, including all governmental subdivisions (including provincial, municipal and other regional or local government entities). renewable energy sources Sustainable sources that are regenerative or, for all practical purposes, cannot be depleted, such as wind, water or sunlight.
SASAC State-owned Assets Supervision and Administration Commission of the State Council of the PRC ( ).
SPIC or Company State Power Investment Corporation. standard coal Coal with an energy content of 7,000 Kcal/kg.
State Council State Council of the PRC ( ).
vii TABLE OF CONTENTS
Clause Page SUMMARY ...... 1 THE OFFERING ...... 4 SUMMARY CONSOLIDATED FINANCIAL INFORMATION ...... 7 RISK FACTORS ...... 18 TERMS AND CONDITIONS OF THE BONDS ...... 40 SUMMARY OF PROVISIONS RELATING TO THE BONDS IN GLOBAL FORM ...... 55 USE OF PROCEEDS ...... 57 CAPITALISATION AND INDEBTEDNESS ...... 58 DESCRIPTION OF THE ISSUER ...... 59 DESCRIPTION OF THE GROUP ...... 60 DIRECTORS AND SENIOR MANAGEMENT ...... 79 EXCHANGE RATE INFORMATION ...... 82 PRC REGULATIONS ...... 83 TAXATION ...... 89 SUBSCRIPTION AND SALE ...... 92 GENERAL INFORMATION ...... 96 INDEX TO FINANCIAL STATEMENTS ...... F-1
viii SUMMARY
The summary below is only intended to provide a limited overview of information described in more detail elsewhere in this Offering Circular. As it is a summary, it does not contain all of the information that may be important to investors and terms defined elsewhere in this Offering Circular shall have the same meanings when used in this summary. Prospective investors should therefore read this Offering Circular in its entirety.
OVERVIEW As a large integrated energy conglomerate, the Group is one of the top five power generation groups in China (being China Huaneng Group Corporation, China Datang Corporation, China Huadian Corporation, China Guodian Corporation and the Group, collectively the “top five power groups”) and is the only one with qualifications to hold, develop, construct and operate nuclear power plants. The Group has diversified power assets across thermal power, nuclear power, hydropower, wind power, PV power and other non-nuclear clean energies. Apart from power generation business, the Group also has ancillary businesses such as heating, coal and aluminium which integrate with power generation business synergistically. The Group designs, develops, manages and operates power plants, and sells the electricity generated by its power plants to local grid companies. As at 31 December 2013, 2014 and 2015, the Group’s total installed power capacity was 89.7 GW, 97.7 GW and 107.4 GW, respectively.
The Group is formed pursuant to the Merger. CPI was established in 2002 through the reorganisation of the former State Power Corporation of China under the reform of China’s power system. CPI is one of the five state- owned power generation companies in China and is one of the three major operators of nuclear power investment projects, with strong assets and qualification and resources of operating nuclear power projects. SNPTC was established in 2007. It is the key entity to implement China’s self-developed third generation nuclear power technology and the leading unit of executing major nuclear science and technology projects in China, with strong research and development capabilities in both nuclear and related conventional power areas.
In May 2015, SNPTC merged into CPI with the approval from the State Council and was renamed as State Power Investment Corporation (“SPIC”). The Merger integrates the advantages of operation and technology innovation, realising resources optimisation across the upstream and downstream industry chain, and promoting automation and industrialisation development of the third generation nuclear power technology. The Merger aims to create a global company through effectively consolidating the operations and resources of CPI and SNPTC, so as to promote China’s “Going Global” strategy in respect of nuclear power and to expand the Group’s presence in global nuclear power market. The Group intends to introduce the third generation of nuclear power technology and focus on the development of nuclear power, new and renewable energy, and set examples for traditional Chinese power companies to transform from coal-dominated power generation business structure into a low- carbon power generation business structure.
As at 31 December 2015, the Group had registered capital of RMB45 billion and total assets of RMB773.8 billion. For the three years ended 31 December 2013, 2014 and 2015, the Group recorded revenue of RMB191.1 billion, RMB193.2 billion and RMB192.4 billion, respectively, and net profit of RMB7.5 billion, RMB6.2 billion and RMB8.5 billion, respectively.
The Group primarily engages in the power generation business and has diversified power assets across thermal power, nuclear power, hydropower, wind power, PV power and other non-nuclear clean energies. The Group also engages in ancillary business such as heating, coal, aluminium and other ancillary business. The Group’s core business segment contributed to the majority of the total revenue of the Group for each of the three years ended 31 December 2013, 2014 and 2015.
COMPETITIVE STRENGTHS The Group believes that its leading position in the power industry is underpinned by the following principal strengths: • Strong shareholder and government support, undertaking national strategic mission • Steady industry leadership and comprehensive diversified power structure advantages
1 • Strong integrated synergies along the industrial chain, which significantly increases operating efficiency • Prominent nuclear power technology leader in China with core competitive advantages throughout the whole nuclear power industry chain • Industry leading energy sci-tech innovation capacity to maintain its innovation-based leadership • Extensive financing channels and low-cost financing capability • Efficient modern management system, sound risk control, and safe and reliable production and operation • Experienced, professional and motivated management team supported by highly skilled professional talent team
BUSINESS STRATEGIES The Group aims to become an innovative international integrated energy conglomerate and modernized state owned enterprise with outstanding core competitiveness, especially in the respects of nuclear power and green energy development. The Group’s strategies include: • Continue to strengthen the Group’s leading position in the PRC power sector • Continue to strengthen the development of clean energy power business • Accelerate the pace of developing nuclear power business • Accelerate the pace of developing overseas markets • Continue to invest in research and development and technology innovation
RECENT DEVELOPMENTS Proposed Transfer of Nuclear Power Assets and Businesses to China Power New Energy Development Company Limited (“CP New Energy”) by SNPTC On 30 December 2015, the Guarantor entered into a Memorandum of Understanding (“MOU”) with CP New Energy, a subsidiary owned as to 28.07% by the Guarantor as at 31 December 2015, pursuant to which the Guarantor agrees to transfer all nuclear power assets and businesses of SNPTC to CP New Energy and the Guarantor will issue new shares and/or pay cash to SNPTC as consideration (the “Possible Transaction”). Subject to the approvals and consents by the relevant governmental departments and/or regulatory authorities and other reasonable factors, CP New Energy intends to issue shares to SNPTC and/or China Power New Energy Limited (an indirect wholly owned subsidiary of the Guarantor) at not less than HK$0.57 per share. As at the date of this Offering Circular, the discussion and negotiation between the Guarantor and CP New Energy in respect of the Possible Transaction remain ongoing; and save for the MOU, no formal or legally binding agreement has been entered into between the Guarantor and CP New Energy in respect of the Possible Transaction.
Proposed Acquisition of China Power Investment Henan Power Corporation (“Henan Power”) by China Power International Development Limited (“CPI Development”) In January 2016, the Guarantor and CPI Development entered into a non-legally binding letter of intent, pursuant to which CPI Development proposed to acquire 100% equity interest in Henan Power from the Guarantor. Henan Power is principally engaged in the operation, production, investment and management of power and heat generation. As at 31 December 2015, Henan Power had a consolidated total installed capacity of approximately 5,600MW (not including the installed capacity of its associates), of which approximately 4,600MW was from coal-fired power. As at the date of this Offering Circular, this proposed acquisition has not been completed.
Proposed Private Placement of A Shares by Jilin Electric Power Co., Ltd. (“Jilin Electric Power”) In March 2016, Jilin Electric Power proposed to issue up to 686.93 million A shares at the issue price of RMB5.59 per share or above in a private placement to no more than ten specific investors for an aggregate cash consideration of up to RMB3,839.93 million (the “Proposed Private Placement”). On 16 May 2016, the Proposed Private Placement was approved by the extraordinary general meeting of Jilin Electric Power. On 9 September
2 2016, the Proposed Private Placement was approved by the China Securities Regulatory Commission, which is effective for six months from the date of approval. As at the date of this Offering Circular, the Proposed Private Placement has not been completed.
Propose Acquisition of K-Electric Limited (“K-Electric”) by Shanghai Electric Power Co., Ltd. (“Shanghai Electric Power”) In October 2016, Shanghai Electric Power entered into a sale and purchase agreement with KES Power Limited (“KES”), pursuant to which Shanghai Electric Power agrees to purchase and KES agrees to sell 18,335,542,678 shares in K-Electric, representing a 66.40% equity interest in K-Electric, for an aggregate cash consideration of U.S.$1,770 million with a discretionary premium of up to U.S.$27 million. K-Electric is principally engaged in generation, transmission and distribution of electricity to Karachi and nearby towns and is listed on the Pakistan Stock Exchange. Shanghai Electric Power is currently applying for a waiver from general mandatory offer triggered by this proposed acquisition from the Securities and Exchange Commission of Pakistan. As at the date of this Offering Circular, this proposed acquisition is still subject to the approval of shareholders of Shanghai Electric Power.
Propose Acquisition of SPIC Jiangsu Electric Power Co., Ltd. (“Jiangsu Electric Power”) by Shanghai Electric Power In October 2016, Shanghai Electric Power proposed to acquire 100% equity interest in Jiangsu Electric Power from the Guarantor to be settled by a combination of cash consideration and issue of consideration shares by Shanghai Electric Power. Shanghai Electric Power also proposed to issue further shares to finance this proposed acquisition. Jiangsu Electric Power is a wholly-owned subsidiary of the Guarantor and is principally engaged in onshore and offshore wind power generation, PV power generation, coal-fired power generation and harbour logistics. As at the date of this Offering Circular, parties are still negotiating the acquisition plan and conducting preliminary due diligence and evaluation work.
Financial Results as at and for the Nine Months ended 30 September 2016 of the Group The Group has published its third quarterly financial results for the third quarter ended 30 September 2016, financial information in which was prepared according to PRC GAAP. The report is available on the website of the www.chinabond.cn. The key information from the third quarterly financial results have been included in the “Summary Consolidated Financial Information” section.
3 THE OFFERING
The following summary contains some basic information about the Bonds. Some of the terms described below are subject to important limitations and exceptions. Words and expressions defined in “Terms and Conditions of the Bonds” shall have the same meanings in this summary. For a more complete description of the terms and conditions of the Bonds, see “Terms and Conditions of the Bonds”.
Issuer SPIC 2016 US dollar Bond Company Limited ( 2016 ).
Guarantor State Power Investment Corporation.
Issue U.S.$[Š][Š] per cent. Guaranteed Bonds due [Š].
Guarantee The Guarantor has unconditionally and irrevocably guaranteed the due payment of all sums expressed to be payable by the Issuer under the Trust Deed and the Bonds. Its obligations in that respect are contained in the Deed of Guarantee.
Issue Price [Š] per cent.
Form, Specified Denomination and The Bonds will be issued in registered form in the specified Title denomination of U.S.$200,000 and integral multiples of U.S.$1,000 in excess thereof.
Interest The Bonds will bear interest on their outstanding principal amount from and including [Š] 2016 at the rate of [Š] per cent. per annum, payable semi-annually in arrear in equal instalments on [Š] and [Š]in each year (each an “Interest Payment Date”) commencing on [Š] 2017.
Issue Date [Š] 2016.
Maturity Date [Š].
Use of Proceeds The net proceeds from the offering of the Bonds will be used for refinancing of existing indebtedness of the Group and other general corporate purposes. See “Use of Proceeds”.
Status of the Bonds The Bonds constitute direct, unsubordinated, unconditional and (subject to Condition 4(a) of the Terms and Conditions of the Bonds) unsecured obligations of the Issuer and shall at all times rank pari passu and without any preference among themselves. The payment obligations of the Issuer under the Bonds shall, save for such exceptions as may be provided by applicable legislation and subject to Condition 4(a) of the Terms and Conditions of the Bonds, at all times rank at least equally with all the Issuer’s other present and future unsecured and unsubordinated obligations.
Status of the Guarantee The obligations of the Guarantor under the Guarantee shall, save for such exceptions as may be provided by applicable legislation and subject to Condition 4(a) of the Terms and Conditions of the Bonds, at all times rank at least equally with all its other present and future unsecured and unsubordinated obligations.
Negative Pledge The Bonds will contain a negative pledge provision as further described in Condition 4(a) of the Terms and Conditions of the Bonds.
4 Events of Default Upon the occurrence of certain events as described in Condition 9 of the Terms and Conditions of the Bonds, the Trustee at its discretion may, and if so requested in writing by holders of at least 25 per cent. in principal amount of the Bonds then outstanding or if so directed by an Extraordinary Resolution (as defined in the Trust Deed) shall (provided in any such case that the Trustee shall have been indemnified and/or secured and/or pre-funded to its satisfaction), give notice to the Issuer and the Guarantor that the Bonds are, and they shall immediately become, due and payable at their principal amount together (if applicable) with any accrued and unpaid interest.
Taxation All payments of principal, premium (if any) and interest by or on behalf of the Issuer or the Guarantor in respect of the Bonds or under the Guarantee shall be made free and clear of, and without withholding or deduction for, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within the British Virgin Islands or the PRC or any authority therein or thereof having power to tax, unless such withholding or deduction is required by law.
Where such withholding or deduction is required to be made by the Issuer or, as the case may be, the Guarantor by or within the PRC at the aggregate rate applicable as at [Š] 2016 (the “Applicable Rate”) the Issuer or, as the case may be, the Guarantor will increase the amounts paid by it to the extent required, so that the net amount received by Bondholders equals the amounts which would otherwise have been receivable by them had no such withholding or deduction been required.
If (i) the Issuer is required to make a deduction or withholding by or within the British Virgin Islands, or (ii) the Issuer or, as the case may be, the Guarantor is required to make a deduction or withholding by or within the PRC in excess of the Applicable Rate, then the Issuer or, as the case may be, the Guarantor shall pay such additional amounts (“Additional Tax Amounts”) as will result in receipt by the Bondholders of such amounts as would have been received by them had no such withholding or deduction been required, except that no Additional Tax Amounts shall be payable in respect of any Bond in the circumstances set out in Condition 8 of the Terms and Conditions of the Bonds.
Final Redemption Unless previously redeemed, or purchased and cancelled, the Bonds will be redeemed at their principal amount on [Š].
Redemption for Taxation Reasons The Bonds may be redeemed at the option of the Issuer in whole, but not in part, at any time, on giving not less than 30 nor more than 60 days’ notice to the Bondholders (which notice shall be irrevocable), at their principal amount together with interest accrued up to but excluding the date fixed for redemption, at any time in the event of certain changes affecting taxes of the British Virgin Islands or the PRC, as further described in “Terms and Conditions of the Bonds — Redemption and Purchase — Redemption for Taxation Reasons”.
Redemption for Relevant Events At any time following the occurrence of a Change of Control, a No Registration Event or a No Filing Event (each a “Relevant Event”), the holder of any Bond will have the right, at such holder’s option, to require the Issuer to redeem all but not some only of that holder’s Bonds on the Put Settlement Date at 101 per cent. (in the case of a redemption for a Change of Control) or 100 per cent. (in the case of
5 a redemption for a No Registration Event or a No Filing Event) of their principal amount, together with accrued interest up to but excluding such Put Settlement Date. See “Terms and Conditions of the Bonds — Redemption and Purchase — Redemption for Relevant Events”.
Further Issues The Issuer may from time to time without the consent of the Bondholders create and issue further securities having the same terms and conditions as the Bonds in all respects (or in all respects except for the issue date and the first payment of interest on them and such necessary modification to Conditions 4(b), 4(c) and 6(c) of the Terms and Conditions of the Bonds) and so that such further issue shall be consolidated and form a single series with the outstanding securities of any series (including the Bonds). References in the Terms and Conditions of the Bonds to the Bonds will include (unless the context requires otherwise) any other securities issued pursuant to Condition 15 of the Terms and Conditions of the Bonds and forming a single series with the Bonds.
Clearing Systems The Bonds will be represented by beneficial interests in a Global Certificate in registered form, which will be registered in the name of a nominee for, and shall be deposited with, a common depository for Euroclear and Clearstream, Luxembourg. Beneficial interests in the Global Certificate will be shown on and transfers thereof will be effected only through records maintained by Euroclear and Clearstream, Luxembourg. Except in the limited circumstances described in the Global Certificate, owners of interests in Bonds represented by the Global Certificate will not be entitled to receive definitive Certificates in respect of their individual holdings of Bonds. The Bonds are not issuable in bearer form.
Governing Law and Jurisdiction English law. Exclusive jurisdiction of the Hong Kong courts.
Trustee Citicorp International Limited.
Principal Paying Agent, Registrar and Citibank, N.A., London Branch. Transfer Agent
Listing Application will be made to the Hong Kong Stock Exchange for the listing of, and permission to deal in, the Bonds by way of debt issues to Professional Investors only.
Ratings The Bonds are expected to be rated “A2” and “A” by Moody’s and Fitch, respectively. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision, qualification, suspension, reduction or withdrawal at any time by the assigning rating agency. Prospective investors should evaluate each rating independently of any other rating of the Bonds or other securities of the Issuer or the Guarantor.
ISIN [Š].
Common Code [Š].
6 SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary audited consolidated financial information of the Guarantor as at and for the years ended 31 December 2014 and 2015, as set out below, has been derived from the Guarantor’s Consolidated Audited Financial Statements, which have been audited by Ruihua. The summary unaudited and unreviewed consolidated financial information of the Guarantor as at and for the nine months ended 30 September 2015 and 2016, as set out below, has been derived from the Guarantor’s Consolidated Third Quarter Financials. The summary audited consolidated financial information of CPI as at and for the year ended 31 December 2013, as set out below, has been derived from CPI’s Consolidated Audited Financial Statements, which have been audited by Ruihua. The Guarantor’s Consolidated Financial Statements and CPI’s Consolidated Audited Financial Statements were prepared and presented in accordance with PRC GAAP. Each of the Guarantor’s Consolidated Financial Statements and CPI’s Consolidated Audited Financial Statements have been prepared in Chinese only and the Financial Statements Translation has been prepared and included in this Offering Circular for reference only. None of the Joint Lead Managers or their respective affiliates, directors, employees and advisers has independently verified or checked the accuracy of the Financial Statements Translation and can give no assurance that the information contained in the Financial Statements Translation is accurate, truthful or complete.
This Offering Circular contains financial information of the Group prior to and post the Merger. As CPI and SNPTC were under the common control of SASAC, the Merger was considered as a common control combination. Accordingly , the financial information of the Group as at and for the year ended 31 December 2015 was prepared on a post-Merger basis and the financial information of the Group as at and for the year ended 31 December 2014 was restated as if the Merger had been completed on 1 January 2014. CPI is the surviving entity of the Merger and therefore the predecessor of the Guarantor. As a pre-Merger entity, CPI’s financial statements are not comparable to the financial information of the Group as at and for the years ended 31 December 2014 and 2015. Potential investors are advised not to use the financial information of CPI to evaluate the Group’s financial condition and results of operations. For more details, please see “Risk Factors — Risks Relating to the Group’s Business and the PRC Power Industry — This Offering Circular contains financial information of the Group prior to and post the Merger. The interim financial information of the Guarantor contained in this Offering Circular have not been reviewed or audited”.
The Guarantor’s Consolidated Third Quarter Financials are condensed consolidated financial information of the Group and there are no notes to the consolidated financial information contained therein. The Guarantor’s Consolidated Third Quarter Financials have not been reviewed or audited by Ruihua or any other person and consequently should not be relied upon by investors to provide the same quality of information associated with information that has been subject to an audit or review. None of the Joint Lead Managers or any of their respective affiliates, directors, officers, employees, agents, representatives or advisers makes any representation or warranty, express or implied, regarding the accuracy or sufficiency of such consolidated financial statements for an assessment of, and potential investors must exercise caution when using such data to evaluate, the Group’s financial condition and results of operations. The Guarantor’s Consolidated Third Quarter Financials should not be taken as an indication of the expected financial condition or results of operations of the Group for the full financial year ending 31 December 2016. See “Risk Factors — Risks Relating to the Group’s Business and the PRC Power Industry — This Offering Circular contains financial information of the Group prior to and post the Merger. The interim financial information of the Guarantor contained in this Offering Circular have not been reviewed or audited.”
Prospective investors should read the summary consolidated financial information below in conjunction with CPI’s audited consolidated financial statements and the Guarantor’s audited consolidated financial statements and the related notes and unreviewed and unaudited consolidated interim financials included elsewhere in this Offering Circular. Historical results are not necessarily indicative of results that may be achieved in any future period.
The following table set forth the Guarantor’s selected financial information as at the dates and for the periods indicated.
7 CONSOLIDATED BALANCE SHEET OF CPI (presented and prepared in accordance with PRC GAAP)
As at 31 December 2013 2014 (RMB in (RMB in millions) millions) (audited) (audited) Current assets: Current funds ...... 18,716.9 17,483.1 ΔLendings to banks and other financial institutions ...... 100.0 — Financial assets measured at fair value through profit or loss ...... 431.5 472.9 Notes receivable ...... 5,180.7 4,440.5 Accounts receivable ...... 18,898.5 23,989.1 Prepayments ...... 7,588.4 11,642.8 Interests receivable ...... 4.8 44.4 Dividends receivable ...... 154.6 310.8 Other receivables ...... 4,156.1 5,224.9 ΔRedemptory monetary capital for sale ...... 50.0 — Inventories ...... 20,398.4 21,343.6 Including: Raw material ...... 7,040.6 7,287.5 Merchandise (Finished goods) ...... 4,484.6 3,742.9 Non-current assets classified as held-for-sale ...... — 138.7 Non-current assets maturing within one year ...... — 0.9 Other current assets ...... 2,079.5 1,398.5 Total current assets ...... 77,759.4 86,490.2 Non-current assets: ΔLoans and payments on behalf ...... 1,675.2 1,296.8 Available-for-sale financial assets ...... 7,781.5 8,432.8 Held-to-maturity investments...... 200.0 871.2 Long-term receivables ...... 331.3 538.8 Long-term equity investments ...... 28,398.8 27,790.2 Investment properties ...... 648.5 1,994.0 Fixed assets original cost ...... 486,447.6 550,548.3 Less: Accumulated depreciation...... 138,462.1 158,874.1 Fixed assets — net value ...... 347,985.5 391,674.3 Less: Fixed assets impairment provision ...... 2,137.7 2,360.5 Fixed assets — net book value ...... 345,847.8 389,313.7 Construction in progress ...... 119,155.5 123,221.5 Construction supplies ...... 5,156.9 7,369.2 Disposal of fixed assets ...... 347.2 1,077.7 Intangible assets ...... 17,816.2 18,029.2 Research and development costs ...... 33.8 53.2 Goodwill ...... 7,274.9 7,238.5 Long-term deferred expenses ...... 779.7 1,040.1 Deferred tax assets ...... 1,182.0 1,239.1 Other non-current assets ...... 2,441.1 4,392.3 Total non-current assets ...... 539,070.4 593,898.1 Total assets ...... 616,829.8 680,388.3
8 CONSOLIDATED BALANCE SHEET OF CPI (presented and prepared in accordance with PRC GAAP)
As at 31 December 2013 2014 (RMB in (RMB in millions) millions) (audited) (audited) Current liabilities: Short-term borrowings ...... 71,310.3 67,115.9 ΔSavings absorption and due to placements with banks and other financial institutions ...... 1,043.4 291.2 ΔBorrowings from banks and other financial institutions ...... 2,000.0 1,000.0 Financial liabilities measured at fair value through profit or loss ...... — 15.6 Financial derivative liabilities ...... 43.7 89.7 Notes payable ...... 9,420.4 11,197.7 Accounts payable ...... 34,569.8 42,154.6 Advance from customers ...... 4,945.2 6,496.1 Employee compensation ...... 1,716.8 952.7 Including: Accrued payroll ...... 1,179.1 327.7 Welfare benefits payable ...... 26.0 5.6 Including: Staff and workers’ bonus and welfare ...... 12.5 5.4 Taxes and surcharges payable ...... -4,440.3 -5,615.9 Including: Taxes payable ...... -5,501.0 -6,739.1 Interests payable ...... 2,939.1 3,850.9 Dividends payable ...... 320.8 469.0 Other payables ...... 12,532.3 13,059.3 Non-current liabilities maturing within one year ...... 27,341.4 55,255.4 Other current liabilities ...... 43,529.0 46,502.6 Total current liabilities ...... 207,271.8 242,834.7 Non-current liabilities: Long-term borrowings ...... 232,114.6 238,009.0 Bonds payable ...... 66,131.7 73,542.2 Long-term payables ...... 10,193.5 12,303.6 Long-term employee benefits payable ...... 0.7 — Special payable ...... 521.1 771.8 Provisions ...... 129.2 246.5 Deferred revenue ...... 3,544.8 4,506.6 Deferred taxes liabilities ...... 583.4 673.5 Other non-current liabilities ...... 588.4 38.3 Total non-current liabilities ...... 313,807.5 330,091.6 Total liabilities ...... 521,079.3 572,926.3 Owners’ (Owner’s)/Shareholders’ equity: Paid-in capital (share in capital) ...... 12,000.0 22,346.3 National capital ...... 12,000.0 22,346.3 Pain-in capital—net book value ...... 12,000.0 22,346.3 Capital reserves ...... 26,784.0 17,878.4 Other comprehensive income ...... -598.1 200.0 Including: Translation differences arising from translation of financial statements dominated in foreign currencies ...... -187.4 -100.3 Special reserves ...... 144.5 245.6 Retained earnings ...... 2,847.3 3,768.5 Total owner’s equity attributable to the parent company ...... 41,177.8 44,438.8 Non-controlling interest ...... 54,572.7 63,023.2 Total owner’s equity ...... 95,750.5 107,462.0 Total liabilities & owner’s equity ...... 616,829.8 680,388.3
Note: Items with Δ are for financial entities only.
9 CONSOLIDATED INCOME STATEMENT OF CPI (presented and prepared in accordance with PRC GAAP)
For the year ended 31 December 2013 2014 (RMB in (RMB in millions) millions) (audited) (audited) Overall revenue ...... 191,103.1 182,284.8 Including: Operating income ...... 190,221.8 181,126.8 ΔCommissions income ...... 881.3 1,158.0 Overall costs ...... 186,853.6 176,286.3 Including: Operating costs ...... 158,337.3 143,705.1 ΔCommissions expense ...... 6.5 5.5 Business tax and surcharge ...... 1,828.4 1,953.3 Selling expenses ...... 1,380.6 1,357.7 Administrative expenses ...... 3,674.2 4,634.6 Including: Research and development ...... 36.4 61.3 Financial expenses ...... 19,971.5 22,686.7 Including: Interest expense ...... 20,492.1 22,777.7 Interest income ...... 296.9 257.1 Gain or loss on foreign exchange transactions (less exchange gain) ...... -326.9 -67.2 Impairment loss on assets ...... 1,655.1 1,943.5 Plus: Gain or loss from changes in fair values (loss expressed with “-”) ...... -35.8 -67.1 Investment income (loss expressed with “-”) ...... 4,084.5 2,384.1 Including: Investment income from joint ventures and associates (loss expressed with “-”) ...... 3,684.1 1,942.8 ΔGains from foreign exchange (loss expressed with “-”) ...... -0.9 -1.9 Profit from operating ...... 8,297.3 8,313.5 Plus: Non-operating profit ...... 3,828.0 2,514.0 Including: Gains from disposal of non-current assets ...... 862.1 782.0 Government grant income ...... 1,932.8 1,449.6 Gains from debt restructuring ...... 740.5 35.5 Less: Non-operating expenses ...... 1,021.5 801.0 Including: Losses from disposal of non-current assets ...... 518.4 528.8 Profit before tax (loss expressed with “-”) ...... 11,103.8 10,026.6 Less: Income tax expenses ...... 3,605.4 4,245.2 Net profit (loss expressed with “-”) ...... 7,498.4 5,781.3 Net profit attributable to parent company ...... 2,887.2 1,441.8 Non-controlling interest ...... 4,611.2 4,339.6 Other comprehensive income, net of income tax effect ...... 145.3 1,277.4 Other comprehensive income that cannot be reclassified into the profit and loss ...... -0.4 -0.9 Including: Share in other comprehensive income that cannot be classified into profit and loss under equity method ...... -0.4 -0.9 Other comprehensive income that will be reclassified into the profit and loss ...... 145.7 1,278.3 Including: Share in other comprehensive income that cannot be classified into profit and loss under equity method ...... 1.1 0.2 Changes in fair value through profit and loss of available-for-sale financial assets ...... 168.9 1,202.5 Effective part of profit and loss on cash-flow hedge ...... -5.8 10.8 Translation differences arising on translation of financial statements dominated in foreign currencies ...... -18.5 64.8 Total comprehensive income ...... 7,643.6 7,058.7 Comprehensive income attributable to parent company ...... 2,946.3 2,239.9 Comprehensive income attributable to non-controlling interest ...... 4,697.4 4,818.8
Note: Items with Δ are for financial entities only.
10 CONSOLIDATED CASH FLOW STATEMENT OF CPI (presented and prepared in accordance with PRC GAAP)
For the year ended 31 December 2013 2014 (RMB in (RMB in millions) millions) (audited) (audited) Cash flows arising from operating activities: Cash and cash equivalents ...... 192,876.6 187,706.4 ΔNet increase of savings absorption and due to placements with banks and other financial institutions ...... -43.8 2,930.9 ΔNet increase borrowings from other financial institutions ...... -2,078.5 -1,000.0 ΔCash receipts from interests and commissions ...... 1,429.8 1,460.3 Receipts of tax refunds ...... 574.6 650.7 Other cash receipts relating to operating activities ...... 10,749.3 14,162.2 Subtotal of cash inflows ...... 203,508.1 205,910.5 Cash payments for goods purchased and service received ...... 124,379.0 116,550.8 ΔNet increase of loans and payments on behalf ...... -2,047.4 -2,853.6 ΔNet increase of deposit in central bank and other banks ...... -44.0 357.5 ΔCash payments for dividends and commissions ...... 26.1 29.4 Cash paid to employee and on behalf of employees ...... 15,860.4 19,140.0 Payments of all types of taxes ...... 17,918.0 19,589.0 Other cash payments relating to operating activities ...... 14,599.4 11,062.4 Subtotal of cash outflows ...... 170,691.5 163,875.5 Net cash flows from operating activities ...... 32,816.7 42,035.0 Cash flows arising from investing activities: Cash receipts from disposals or withdraw of investments ...... 13,793.9 17,601.9 Cash receipts from investment income ...... 1,787.4 2,227.9 Net cash receipts from disposal of fixed assets, intangible assets and other long-term assets ...... 797.5 349.3 Net cash receipts from disposal of subsidiaries and other business units ...... 373.2 7.6 Other cash receipts relating to investing activities ...... 954.5 801.3 Subtotal of cash inflows ...... 17,706.4 20,988.0 Cash payments to acquire and construct fixed assets, intangible assets and other long-term assets ..... 52,504.3 54,080.5 Cash payments to acquire investment ...... 17,169.7 3,635.5 Net cash payments for acquisition of subsidiaries and other business units ...... 1,542.9 1,287.9 Other cash payments relating to investing activities ...... 1,224.1 766.5 Subtotal of cash outflows ...... 72,441.0 59,770.5 Net cash flows from investing activities ...... -54,734.6 -38,782.5 Cash flows from financing activities: Cash receipts from investors making investment in the enterprise ...... 6,586.1 7,893.6 Including: Cash receipts from minorities making investment in subsidiaries ...... 2,954.3 6,501.3 Cash receipts from borrowings ...... 302,937.6 404,743.5 Other cash receipts relating to financing activities ...... 5,321.7 5,208.4 Subtotal of cash inflows ...... 314,845.5 417,845.4 Cash repayments of amounts borrowed ...... 262,898.1 395,123.7 Cash payments for distribution of dividends or profit or interest expenses ...... 23,149.8 23,935.6 Including: Payments for distribution of dividends or profit to minorities of subsidiaries ...... 949.5 2,792.5 Other cash payments relating to financing activities ...... 3,918.3 3,713.9 Subtotal of cash outflows ...... 289,966.2 422,773.2 Net cash flows from financing activities ...... 24,879.3 -4,927.8 Effect of foreign exchange rate changes on cash and cash equivalents ...... -45.2 -14.9 Net increase in cash and cash equivalents ...... 2,916.1 -1,690.3 Add: Opening balance of cash and cash equivalents ...... 13,015.7 15,931.8 Closing balance of cash and cash equivalents ...... 15,931.8 14,241.5
Note: Items with Δ are for financial entities only.
11 CONSOLIDATED BALANCE SHEET OF THE GROUP (presented and prepared in accordance with PRC GAAP)
As at 31 December As at 30 September 2014 2015 2016 (RMB in (RMB in (RMB in millions) millions) millions) (unaudited and (restated) (audited) unreviewed) Current assets: Current funds ...... 21,267.0 26,784.7 21,087.4 Financial assets measured at fair value through profit or loss ...... 472.9 2,107.8 2,574.7 Derivative financial assets ...... — 202.8 — Notes receivable ...... 5,787.1 6,131.0 7,231.9 Including: Bank acceptance bill ...... — — 6,619.3 Commercial acceptance bill ...... — — 612.6 Accounts receivable ...... 26,083.4 29,389.9 35,548.1 Including: Receivables on electricity bills ...... — — 12,853.7 Receivables on heating bills ...... — — 1,086.0 Less: Bad debts provision ...... — — 805.8 Net accounts receivable ...... — — 34,742.3 Prepayments ...... 13,738.8 12,292.5 16,130.0 Interests receivable ...... 36.5 16.5 102.4 Dividends receivable ...... 310.8 430.5 320.5 Other receivables ...... 6,762.5 5,668.8 8,640.4 Inventories ...... 23,567.5 23,130.2 21,966.6 Including: Raw material ...... 7,642.8 6,551.7 5,057.4 Merchandise (Finished goods) ...... 4,385.8 5,176.5 2,528.5 Non-current assets classified as held-for-sale ...... 138.7 — — Non-current assets maturing within one year ...... 2,054.5 4,655.8 3,893.4 Other current assets ...... 3,420.5 3,421.1 3,621.9 Total current assets ...... 103,640.1 114,231.7 120,311.4 Non-current assets: ΔLoans and payments on behalf ...... 1,304.6 956.8 428.7 Available-for-sale financial assets ...... 7,585.1 9,399.6 9,399.7 Held-to-maturity investments...... 871.2 981.9 2,776.0 Long-term receivables ...... 3,425.3 8,840.8 17,433.4 Long-term equity investments ...... 28,969.5 29,824.3 34,999.6 Investment properties ...... 2,402.0 2,408.7 2,420.7 Fixed assets original cost ...... 557,375.4 607,638.8 661,742.2 Less: Accumulated depreciation...... 160,060.0 183,234.8 206,713.8 Fixed assets — net value ...... 397,315.4 424,404.0 455,028.5 Less: Fixed assets impairment provision ...... 10,498.1 10,487.5 10,275.1 Fixed assets — net book value ...... 386,817.3 413,916.5 444,753.4 Construction in progress ...... 123,846.2 147,411.1 149,021.7 Construction supplies ...... 8,449.5 6,037.3 8,484.3 Disposal of fixed Assets ...... 1,077.7 660.7 658.9 Intangible assets ...... 18,660.9 20,523.4 23,898.8 Research and development costs ...... 4,424.1 5,416.6 5,971.9 Goodwill ...... 7,017.6 6,981.5 10,675.6 Long-term deferred expenses ...... 1,083.7 1,598.0 1,876.6 Deferred tax assets ...... 1,358.2 1,625.1 2,030.2 Other non-current assets ...... 4,771.9 2,985.5 2,721.1 Total non-current assets ...... 602,064.8 659,567.8 717,550.4 Total assets ...... 705,704.9 773,799.6 837,861.8
12 CONSOLIDATED BALANCE SHEET OF THE GROUP (CONTINUED) (presented and prepared in accordance with PRC GAAP)
As at 31 December As at 30 September 2014 2015 2016 (RMB in (RMB in (RMB in millions) millions) millions) (unaudited and (restated) (audited) unreviewed) Current liabilities: Short-term borrowings ...... 69,887.6 87,818.6 121,189.7 ΔSavings absorption and due to placements with banks and other financial institutions ...... 310.0 250.1 — ΔBorrowings from banks and other financial institutions ...... 1,000.0 — — Financial liabilities measured at fair value through profit or loss . . . 15.6 — — Financial derivative liabilities ...... 89.7 150.8 605.8 Notes payable ...... 12,471.5 12,258.9 9,823.3 Accounts payable ...... 45,462.5 45,392.2 47,134.6 Advance from customers ...... 9,816.8 8,816.9 7,079.8 Employee compensation ...... 977.6 1,064.2 1,775.3 Including: Accrued payroll ...... 343.8 338.6 482.3 Welfare benefits payable ...... 5.6 2.3 13.6 Including: Staff and workers bonus and welfare ...... 5.4 2.1 0.0 Taxes and surcharges payable ...... -5,409.7 -7,860.7 -9,243.4 Including: Taxes payable ...... -6,535.1 -9,239.4 -10,602.0 Interests payable ...... 3,956.0 3,808.4 4,062.7 Dividends payable ...... 466.6 372.2 1,565.6 Other payables ...... 14,169.7 12,854.0 16,770.0 Non-current liabilities maturing within one year ...... 56,100.8 56,005.6 12,182.6 Other current liabilities ...... 47,502.6 49,145.8 52,801.3 Total current liabilities ...... 256,817.3 270,077.0 265,747.4 Non-current liabilities: Long-term borrowings ...... 240,110.6 259,551.1 313,856.2 Bonds payable ...... 77,542.2 76,762.2 75,621.6 Long-term payables ...... 14,039.4 20,548.7 31,644.8 Long-term employee benefits payable ...... 9.3 7.4 11.3 Special payable ...... 3,984.3 3,892.5 4,295.4 Provisions ...... 399.6 564.6 524.1 Deferred revenue ...... 5,387.5 5,551.8 4,698.8 ΔLong-term deposits Deferred taxes liabilities ...... 659.2 601.5 2,025.7 Other non-current liabilities ...... 38.3 — -5,294.8 Total non-current liabilities ...... 342,170.4 367,479.8 427,383.1 Total liabilities ...... 598,987.7 637,556.8 693,130.5
13 CONSOLIDATED BALANCE SHEET OF THE GROUP (CONTINUED) (presented and prepared in accordance with PRC GAAP)
As at 31 December As at 30 September 2014 2015 2016 (RMB in (RMB in (RMB in millions) millions) millions) (unaudited and (restated) (audited) unreviewed) Owners’ (Owner’s)/Shareholders’ equity: Paid-in capital (share in capital) ...... 22,346.3 45,000.0 45,000.0 National capital ...... 22,346.3 45,000.0 — Including: investments from outside of the group ...... 22,346.3 45,000.0 — Pain-in capital—net book value ...... 22,346.3 45,000.0 — Other equity instruments ...... — 9,446.0 13,369.0 Including: Perpetual capital securities ...... — 9,446.0 13,511.0 Capital reserves ...... 24,653.2 3,694.3 3,694.3 Other comprehensive income ...... 199.5 -14.2 158.8 Including: Translation differences arising from translation of financial statements dominated in foreign currencies ...... -100.7 -63.0 173.0 Special reserves ...... 246.6 193.0 240.2 ΔGeneral risk reserve ...... — — 1.4 Retained earnings ...... -4,885.9 -3,326.4 -2,110.8 Total owner’s equity attributable to the parent company ...... 42,559.7 54,992.6 60,352.9 Non-controlling interest ...... 64,157.5 81,250.2 84,378.4 Total owner’s equity ...... 106,717.2 136,242.8 144,731.3 Total liabilities & owner’s equity ...... 705,704.9 773,799.6 837,861.8
Note: Items with Δ are for financial entities only.
14 CONSOLIDATED INCOME STATEMENT OF THE GROUP (presented and prepared in accordance with PRC GAAP)
For the nine months For the year ended 31 December ended 30 September 2014 2015 2015 2016 (RMB in (RMB in millions) millions) (RMB in (RMB in (unaudited (unaudited millions) millions) and and (restated) (audited) unreviewed) unreviewed) Overall Revenue ...... 193,234.9 192,403.8 135,435.4 125,652.8 Including: Operating income ...... 193,234.9 192,403.8 133,292.3 123,742.4 Other income ...... — — 2,143.1 1,910.4 Overall costs ...... 186,823.1 184,243.8 102,475.3 95,810.3 Including: Operating costs ...... 152,612.5 149,951.5 101,289.2 94,824.4 Other costs ...... — — 1,186.1 985.9 Business tax and surcharge ...... 2,083.0 2,628.4 1,818.1 1,534.9 Selling expenses ...... 1,500.7 1,511.7 693.6 589.9 Administrative expenses ...... 5,972.4 5,489.0 3,996.9 4,405.1 Including: research and development ...... 458.1 550.1 — — Financial expenses ...... 22,731.9 23,296.0 19,096.5 14,997.1 Including: Interest expense ...... 22,841.8 23,406.6 18,834.4 14,760.0 Interest income ...... 281.3 257.3 — — Gain or loss on foreign exchange transactions (less exchange gain) ...... -68.6 181.9 -68.8 -413.5 Impairment loss on assets ...... 1,922.5 1,367.1 456.9 423.5 Plus: Gain or loss from changes in fair values (loss expressed with “-”) ...... -67.3 52.9 35.9 51.9 Investment income(loss expressed with “-”) ...... 2,470.3 3,401.6 1,755.2 1,829.4 Including: Investment income from joint ventures and associates(loss expressed with “-”) ...... 1,932.9 1,783.0 900.0 1,062.5 Dividend income under cost method ...... — — 600.0 312.0 Others ...... — — 275.2 159.5 ΔGains from foreign exchange (loss expressed with “-”) ...... -1.9 1.8 — — Profit from operating ...... 8,812.9 11,616.3 8,709.1 9,773.3 Plus: Non-operating profit ...... 2,677.9 3,257.2 1,402.9 1,267.2 Including: Gains from disposal of non-current assets ...... 792.8 185.7 — — Government grant income ...... 1,588.1 2,259.2 749.7 736.3 Gains from debt restructuring ...... 35.5 6.8 — — Less: Non-operating expenses ...... 810.6 916.2 138.7 333.7 Including: Losses from disposal of non-current assets ...... 531.2 549.5 — — Profit before tax (loss expressed with “-”) ...... 10,680.3 13,957.2 9,973.2 10,706.8 Less: Income tax expenses ...... 4,446.3 5,495.4 3,973.9 3,676.7 Net profit (loss expressed with “-”) ...... 6,234.1 8,461.8 5,999.2 7,030.0 Net profit attributable to parent company ...... 1,663.2 1,819.0 1,153.9 1,514.2 *Non-controlling interest ...... 4,570.9 6,642.9 4,845.3 5,515.9
15 CONSOLIDATED INCOME STATEMENT OF THE GROUP (CONTINUED) (presented and prepared in accordance with PRC GAAP)
For the nine months For the year ended 31 December ended 30 September 2014 2015 2015 2016 (RMB in (RMB in millions) millions) (RMB in (RMB in (unaudited (unaudited millions) millions) and and (restated) (audited) unreviewed) unreviewed) Other comprehensive income, net of income tax effect ...... 1,277.3 -371.0 — — Other comprehensive income that cannot to be reclassified into the profit and loss ...... -0.9 -0.8 — — Including: Share in other comprehensive income that cannot be classified into profit and loss under equity method ...... -0.9 -0.8 — — Other comprehensive income that will be reclassified into the profit and loss ...... 1,278.2 -370.2 — — Including: Share in other comprehensive income that cannot be classified into profit and loss under equity method ...... 0.2 0.1 — — Changes in fair value through profit and loss of available- for-sale financial assets ...... 1,202.5 -414.2 — — Gain or loss on the reclassification from held-to-maturity investment to available-for sale financial assets ...... Effective part of profit and loss on cash-flow hedge ...... 10.8 -33.4 — — Translation differences arising on translation of financial statements dominated in foreign currencies ...... 64.7 77.3 — — Total comprehensive income ...... 7,511.4 8,090.9 — — Comprehensive income attributable to parent company ...... 2,461.2 1,605.3 — — Comprehensive income attributable to non-controlling interest ...... 5,050.2 6,485.6 — —
Note: Items with Δ are for financial entities only.
16 CONSOLIDATED CASH FLOW STATEMENT OF THE GROUP (presented and prepared in accordance with PRC GAAP)
For the year ended For the nine months 31 December ended 30 September 2014 2015 2015 2016 (RMB in (RMB in millions) millions) (RMB in (RMB in (unaudited (unaudited millions) millions) and and (restated) (audited) unreviewed) unreviewed) Cash flows arising from operating activities: Cash from the sale of goods and rendering of services ...... 199,475.8 199,291.8 163,952.0 150,778.6 ΔNet increase of savings absorption and due to placements with banks and other financial institutions ...... 2,913.4 -62.4 — — ΔNet increase borrowings from other financial institutions ...... -1,000.0 -1,000.0 — — ΔNet increase of borrowing funds ...... 1,586.7 1,562.9 — — Receipts of tax refunds ...... 665.3 658.9 513.5 825.3 Other cash receipts relating to operating activities ...... 14,578.1 13,540.1 1,047.5 713.4 Subtotal of cash inflows ...... 218,219.3 213,991.4 165,512.9 152,317.2 Cash payments for goods purchased and service received ...... 125,638.8 117,478.0 102,346.2 94,548.1 ΔNet increase of loans and payments on behalf ...... -2,813.6 -1,997.4 — — ΔNet increase of deposit in central bank and other banks ...... 221.2 -1,077.1 — — ΔCash payments for dividends and commissions ...... 31.6 16.1 — — Cash paid to employee and on behalf of employees ...... 21,396.2 21,625.9 10,278.5 11,286.0 Payments of all types of taxes ...... 20,233.0 21,861.8 14,558.7 15,312.0 Other cash payments relating to operating activities ...... 11,809.6 9,088.1 585.6 553.7 Subtotal of cash outflows ...... 176,516.8 166,995.3 127,769.0 121,699.7 Net cash flows from operating activities ...... 41,702.5 46,996.1 37,743.9 30,617.5 Cash flows arising from investing activities: Cash receipts from disposals or withdraw of investments ...... 24,193.1 25,734.9 18,576.5 15,548.3 Cash receipts from investment income ...... 5,246.8 2,605.5 3,273.1 5,719.5 Net cash receipts from disposal of fixed assets, intangible assets and other long-term assets ...... 1,468.1 1,283.2 636.8 743.3 Net cash receipts from disposal of subsidiaries and other business units ...... 46.1 83.7 34.8 60.1 Other cash receipts relating to investing activities ...... 1,832.3 11,441.6 555.2 501.5 Subtotal of cash inflows ...... 32,786.4 41,148.9 23,076.3 22,572.7 Cash payments to acquire and construct fixed assets, intangible assets and other long-term assets ...... 58,147.9 57,825.2 35,010.0 60,000.4 Cash payments to acquire investment ...... 12,771.7 13,586.9 29,440.2 14,114.6 Net cash payments for acquisition of subsidiaries and other business units .... 1,506.0 124.7 2,151.0 1,856.6 Other cash payments relating to investing activities ...... 1,063.1 6,015.5 334.2 -6,401.3 Subtotal of cash outflows ...... 73,488.7 77,552.2 66,935.4 69,570.3 Net cash flows from investment activities ...... -40,702.3 -36,403.3 -43,859.1 -46,997.5 Cash flows from financial activities: Cash receipts from investors making investment in the enterprise ...... 8,070.1 19,973.7 10,376.5 5,002.8 Including: cash receipts from minorities making investment in subsidiaries . . . 6,677.9 9,773.7 — — Cash receipts from borrowings ...... 413,906.8 327,428.6 303,941.5 322,806.0 Other cash receipts relating to financing activities ...... 5,878.0 11,577.8 387.9 702.6 Subtotal of cash inflows ...... 427,854.9 358,980.1 314,705.8 328,511.3 Cash repayments of amounts borrowed ...... 398,398.9 290,932.3 275,905.9 295,783.8 Cash payments for distribution of dividends or profit or interest expenses .... 27,125.8 32,792.7 24,771.8 20,916.4 Including: payments for distribution of dividends or profit to minorities of subsidiaries ...... 2,855.7 2,527.2 3,396.3 3,278.6 Other cash payments relating to financing activities ...... 6,022.0 39,280.1 89.0 113.6 Subtotal of cash outflows ...... 431,546.7 363,005.2 300,766.7 316,813.8 Net cash flow from financial activities ...... -3,691.8 -4,025.1 13,939.2 11,697.5 Effect of foreign exchange rate changes on cash and cash equivalents .... -14.7 19.7 -42.7 86.1 Net increase in cash and cash equivalents ...... -2,706.2 6,587.4 7,781.2 -4,596.4 Add: Opening balance of cash and cash equivalents ...... 20,384.5 17,678.2 28,319.3 32,915.7 Closing balance of cash and cash equivalents ...... 17,678.2 24,265.6 36,100.5 28,319.3
Note: Items with Δ are for financial entities only.
17 RISK FACTORS
Prior to making any investment decision, prospective investors should consider carefully all of the information contained in this Offering Circular, including the risks and uncertainties described below. The business, financial condition or results of operations of the Group could be materially and adversely affected by any of these risks. The Group believes that the following factors may affect its ability to fulfil its obligations under the Bonds. Additional risks and uncertainties not presently known to the Group or which the Group currently deems immaterial may also have an adverse effect on an investment in the Bonds. All of these factors are contingencies which may or may not occur and the Group is not in a position to express a view on the likelihood of any such contingency occurring.
Factors which the Group believes may be material for the purpose of assessing the market risks associated with the Bonds are described below. The Group believes that the factors described below represent the principal risks inherent in investing in the Bonds, but the inability of the Group to repay principal, pay interest (if any) or other amounts or fulfil other obligations on or in connection with the Bonds may occur for other reasons and the Group does not represent that the statements below regarding the risks of holding the Bonds are exhaustive.
Risks Relating to the Group’s Business and the PRC Power Industry The Group’s results of operations may be adversely affected by changes in general economic conditions in China. The power generation sector in China is significantly influenced by China’s economic conditions and the economic measures undertaken by the PRC Government. To date, the Group’s results of operations and business growth have benefited from the rapid economic growth and industrialisation in China, which has led to increased business prosperity across the power generation sector. Demand for the Group’s electricity could be affected by numerous factors, many of which are beyond its control, including but not limited to: • an economic downturn in China or any regional market in China; • economic policies and initiatives undertaken by the PRC Government; and • changes in the PRC or regional business or regulatory environment affecting the power generation sector.
These factors could result in a decrease in nationwide electricity demand, and may have a material adverse effect on the Group’s business, financial condition and results of operations.
The Group operates in a capital-intensive business, and a significant increase in capital costs could have a material adverse effect on the Group. The Group operates in a capital-intensive industry. Developing, acquiring or investing in new power projects, and developing or expanding existing power plants require substantial capital, and the capital investment required therefor generally varies based on the cost of the necessary fixed assets. The price of such equipment and/or civil construction works may increase if the market demand for such equipment or works is greater than the available supply, or if the prices of key component commodities and raw materials used to build such equipment increase. Other factors affecting the amount of capital investment required include, among others, construction costs and finance expenses. A significant increase in the costs of developing and constructing the Group’s energy facilities could have a material adverse effect on the Group’s business, financial condition or results of operations.
The Group expects to finance its capital expenditures principally with cash flow from operating activities, its existing cash resources and financing from other external sources. The Group’s ability to obtain external financing in the future is however subject to a variety of uncertainties, including (i) obtaining the necessary PRC Government approvals to raise financing for projects; (ii) the Group’s future financial condition, operating results and cash flows; (iii) the general condition of the global and domestic financial markets and changes in the monetary policy of PRC Government with respect to bank interest rates and lending policies; and (iv) credit availability from banks or other lenders, investor confidence in the Group and the continued success of the Group’s power plants. In the event the Group’s current resources are not sufficient for its needs, the Group may have to seek additional financing, including equity or debt financing. There is no assurance that the Group will be able to raise the financing required for its planned capital expenditures on acceptable terms or at all. If the Group were unable to raise such financing, it may have to reduce its planned capital expenditures and delay or abandon its expansion plan, which in turn could have a material adverse effect on its business or results of operations.
18 The Group’s borrowing levels, significant interest payment obligations and net current liabilities could limit the funds available to the Group for various business purposes. Due to the rapid expansion of its business in recent years, the Group has relied on both long-term and short-term borrowings to fund a portion of its capital requirements, and expects to continue to do so in the future. The Group’s long-term and short-term borrowings were RMB303,424.9 million, RMB309,998.2 million and RMB347,369.7 million as at 31 December 2013, 2014 and 2015. The Group recorded net current liabilities of RMB129,512.4 million, RMB153,177.2 million and RMB155,845.2 million, respectively, as at 31 December 2013, 2014 and 2015.
The Group may continue to have net current liabilities in the future. The degree to which the Group is leveraged and the high level of net current liabilities could constrain its operational flexibilities and have significant consequences, including (i) limiting the Group’s ability to repay its outstanding debt; (ii) requiring a substantial portion of the Group’s cash flows from operations to be used for servicing its debt, thereby reducing the cash flow for working capital, capital expenditure or other general corporate uses; (iii) making the Group more vulnerable to adverse general economic and industry conditions, and increasing its exposure to interest rate fluctuations; (iv) limiting the Group’s ability to obtain, and increasing the cost of, additional financing to fund future working capital, capital expenditures or general corporate uses; (v) limiting the Group’s flexibility in planning for or reacting to the changes in its businesses and the industry, and (vi) causing the Group to be less competitive as compared to its competitors that have less debt.
There is no assurance that the Group will always be able to raise necessary funding to finance its current liabilities and other debt obligations. The Group’s business, prospects and financial condition may be materially and adversely affected, if its cash flows and capital resources are insufficient to finance its debt obligations.
The Group’s business may be affected by fluctuations in interest rates and the general availability of credit. The Group is exposed to interest rate risk resulting from fluctuations in interest rates on its debt, and changes in interest rates affect its finance expenses and, ultimately, its results of operations. As the Group relies heavily on external financing to secure investment capital to finance the expansion of its power generation business, the Group is sensitive to the cost of capital in securing these loans. The Group’s interest expenses amounted to RMB20,492.1 million, RMB22,841.8 million and RMB23,406.6 million for the years ended 31 December 2013, 2014 and 2015, respectively. Any significant increase in interest rates will result in a substantial increase in the Group’s interest expenses, which may materially and adversely affect its business, financial condition, results of operations and expansion plans. In the future, the Group may continue to incur substantial indebtedness to finance its business expansion. In incurring indebtedness in the future, the Group may create security interests over its assets or receivables in favour of creditors. If the Group incurs additional debt, the risks that the Group faces as a result of its already substantial indebtedness and leverage ratio could intensify.
Government regulation of on-grid power tariffs and other aspects of the power industry may adversely affect the Group’s business. Similar to electric power companies in other countries, the Group is subject to governmental and electric grid regulations in virtually all aspects of the Group’s operations, including the amount and timing of electricity generations, the setting of on-grid tariffs, the performance of scheduled maintenance and compliance with power grid control and dispatch directives and environment protection. There can be no assurance that these regulations will not change in the future in a manner which could adversely affect the Group’s business.
In 2009, the PRC government started to promote the practise of direct power purchase by large power end-users. Pursuant to the circular jointly issued by the NDRC, The State Electricity Regulatory Commission (“SERC”) and China National Energy Administration (“NEA”) in June 2009, the direct power purchase price consists of direct transaction price, on-grid dispatch and distribution price and governmental levies and charges, in which the direct transaction price shall be freely determined through negotiation between the power generation company and the large power end-user. The price of direct power purchase is subject to the demand in the power market, and may increase due to power supply shortfall. Furthermore, the scale and mode of the transaction are also subject to the structure and level of development of the local economy. For power generation companies engaged in direct power purchase, direct power sales constitute a portion of the total power sales, thus affecting the on- grid power sales of such companies. In 2016, the PRC government continued the reform of direct power purchases by large power end-users. Although a direct power purchase may act as an alternative channel for the
19 Group’s power sales, there is uncertainty as to the effect of the practise of direct power purchase over the Group’s operating results. The on-grid tariff-setting mechanism is evolving with the reforming of the PRC electric power industry. There is no assurance that it will not change in a manner which could adversely affect the Group’s business and results of operations.
If the Group’s power plants receive less dispatching than planned generation, the power plants will sell less electricity than planned. The Group’s profitability depends, in part, upon each of the Group’s power plants generating electricity at a level sufficient to meet or exceed the planned generation, which in turn will be subject to local demand for electric power and dispatching to the grids by the dispatch centres of the local grid companies.
The dispatch of electric power generated by a power plant is controlled by the dispatch centre of the applicable grid companies pursuant to a dispatch agreement with the Group and to governmental dispatch regulations. In each of the markets the Group operates, the Group compete against other power plants for power sales. No assurance can be given that the dispatch centres will dispatch the full amount of the planned generation of the Group’s power plants. A reduction by the dispatch centre in the amount of electric power dispatched relative to a power plant’s planned generation could have an adverse effect on the profitability of the Group’s operations. There can be no assurance that the Group will not encounter such event in the future.
In August 2007, the General Office of the State Council issued Notice of the General Office of the State Council on Forwarding the Energy-Saving and Electricity Dispatch Measures (Trial) Formulated by the NDRC and Several Other Departments (Guo Ban Fa [2007] No. 53), which provides that the energy saving and electricity dispatch shall consolidate with the development of the power market, in an effort to optimise the power market. In October 2008, the SERC approved the trial implementation of the policy of energy saving and electricity dispatch in certain pilot provinces. In 2016, the PRC Government continued promoting the policy of energy saving and electricity dispatch. There can be no assurance that such implementation will not result in any decrease in the amount of the power dispatched of any of the Group’s power plants.
The power industry reform may affect the Group’s business. In 2002, the PRC Government announced and started to implement measures to further reform the power industry, with the ultimate goal of creating a more open and fair power market. As part of the reform, five power generation companies, including CPI, were created or restructured to take over all the power generation assets originally belonging to the State Power Corporation of China. In addition, two grid companies were created to take over the power transmission and distribution assets originally belonging to the State Power Corporation of China. An independent power supervisory commission, the SERC, was created to regulate the power industry. It is still uncertain as to whether any further reforms are going to be implemented and how they will impact the Group’s business.
2016 is the first year of the “Thirteenth Five-Year Plan”, and the PRC Government continued the reform in the power industry, especially on the optimisation and upgrading of power structure and promotion of clean and renewable energy. The further reform will intensify competition and phase out obsolete facilities, which may adversely affect the Group’s business and prospects.
Power plant development, acquisition and construction is a complex and time-consuming process.
The Group develops, constructs, manages and operates large power plants. The Group’s success depends upon the Group’s ability to secure all required PRC Government approvals, power sales and dispatch agreements, construction contracts, fuel supply and transportation and electricity transmission arrangements. Delay or failure to secure any of these could increase cost or delay or prevent commercial operation of the affected power plant. No assurances can be given that all the future projects will receive approvals in a timely fashion or at all. In addition, the PRC Government approval requirements and procedures for thermal power plant are increasingly stringent, due to national policies and related regulations promoting environmentally friendly energy. The Group believes that each of its power plants in operation and power plants under construction are in material compliance with the requirements of applicable laws and regulations. However, there can be no assurance that the Group possesses at all times adequate certificates, authorisations, licences, orders, consents, approvals or permits required by all applicable laws and regulations in the PRC. A breach of any laws or regulations to which the Group is subject may result in the imposition of fines and penalties or the suspension or closure of the relevant power plant operation.
20 The Group may also face costs, delays or difficulties in the acquisition of land and associated demolition, resettlement, rehabilitation and compensation issues in the development and construction of its power plants. Local government authorities may choose not to support the development of power project facilities to protect the local environment and community from potential risks. Due to the actual or perceived environmental and other impact of power plants, local residents, environmental activists or other special interest groups may also protest the development and construction of power plants, and any disputes relating to demolition, relocation and compensation of local residents may result in delays in the resettlement process. There is no assurance that the Group or its affiliates or partners will not fail to manage community relationships appropriately. Opposition from or disputes with local community, political or environmental groups or local government authorities with respect to development or construction of the Group’s power projects could increase development costs, cause delays, interruptions or even cancelations of development plans, adversely affect the Group’s reputation and/or hamper its ability to acquire or construct new power plants to grow its business. The Group has generally acted as, and intends to continue to act as, the general contractor for the construction of the Group’s power plants. As with any major infrastructure construction effort, the construction of a power plant involves many risks, including shortages of equipment, material and labour, labour disturbances, accidents, inclement weather, unforeseen engineering, environmental problems, geological problems, delays and other problems and unanticipated cost increases, any of which could give rise to delays or cost overruns. Construction delays may result in loss of revenues. Failure to complete construction according to specifications may result in liabilities, decrease power plant efficiency, increase operating costs and reduce earnings. No assurance can be given that construction of on-going future projects will be completed on schedule or within budget. In addition, from time to time, the Group may acquire existing power plants from other parties. The timing and the likelihood of the completion of any such acquisitions will depend, among other things, on the Group’s ability to obtain financing and relevant PRC Government approvals and to negotiate relevant agreements for terms acceptable to the Group.
The Group and its operations are required to comply with various regulatory requirements and are subject to inspection by regulatory authorities. Any failure to fully comply with such requirements and any adverse findings resulting from such inspections could materially and adversely affect its business, financial condition, results of operations and reputation. The Group and its operations are required to comply with various regulatory requirements in the PRC and elsewhere, and the relevant regulatory authorities conduct periodic inspections, examinations and inquiries in respect of its compliance with such requirements. On occasion the Group may fail to comply with certain requirements and guidelines set by the relevant regulatory authorities. On 10 May 2013, the National Audit Office of the PRC (the “CNAO”) released a report in respect of SNPTC titled “Results of Audit on Income and Expenses of SNPTC for the Financial Year of 2011” (“ 2011 ”) (the “CNAO SNPTC Report”), and similarly released a report in respect of CPI titled “Results of Audit on Income and Expenses of CPI for the Financial Year of 2013” (“ 2013 ”) (the “CNAO CPI Report”, and together with the CNAO SNPTC Reports, the “CNAO Reports”) on 28 June 2015. Each of the CNAO Reports has been published on the CNAO’s website. The CNAO Reports have each identified certain financial reporting, internal controls and business integrity issues involving CPI and/or SNPTC and their respective subsidiaries, including misuse of funds, understating earnings, overstating assets, understating taxes with improper accounting practices and commencing projects prior to obtaining all necessary internal and/or regulatory approvals. In addition, the CNAO has reported the issues relating to CPI to the relevant authorities for their future investigation where necessary. In response to the issues identified in the CNAO Reports, SNPTC and CPI published an announcement on 10 May 2013 and 28 June 2015, respectively, stating that they had rectified and restated the relevant accounting entries, repaid relevant taxes, improved internal accounting policies, rectified any non-compliance with internal and regulatory approval requirements and imposed penalties on relevant persons involved. While the Group has taken measures to address the issues identified in the CNAO Reports and formulated or revised its internal regulations and operating procedures to improve its internal controls and risk management systems, there can be no assurance that there will not be any further investigations or actions against the Group, its officers or employees resulting from the findings of the CNAO or other governmental authorities. The Group is also subject to certain negative findings by an inspection team from the Central Leading Group for Inspection Work ( ) (the “Inspection Leading Group”), which is a coordination body set up under the Central Committee of the Communist Party of the PRC for the purpose of conducting party disciplinary inspections nationwide. According to a report published by the Central Commission for Discipline Inspection of the PRC ( ) on 16 June 2015 (the “CCDI Report”), an inspection team from the Inspection Leading Group issued its findings upon inspection on CPI and SNPTC following the
21 Merger. The inspection team pointed out a number of deficiencies in the Group’s corporate governance systems, including deficiencies in the Group’s hiring and promotion management practises and deficiencies in the public bidding, authorisation, licensing and procurement processes in respect of its projects. The inspection team has also issued a number of recommendations for rectification of the aforementioned deficiencies to help improve the Group’s internal control and corporate governance mechanisms. In response to the issues identified in the CCDI Report, the Group published an announcement on 13 September 2015 stating that it had taken measures to address the issues identified by the Inspection Leading Group, including implementing internal controls to prevent misuse of authority and to enhance senior management’s accountabilities and responsiveness. The Group had also conducted its own internal investigations against the relevant subsidiaries involved and removed certain senior staff of the relevant subsidiaries who were involved in such misconduct. While the Group has taken steps to implement measures to improve its internal control, corporate governance and risk management mechanisms to address the issues identified in the CCDI Report, there is no assurance that there will not be any further investigations or actions against the Group, its officers or employees resulting from the findings of the Inspection Leading Group or other governmental authorities.
There can be no assurance that the remedial actions taken by the Group in response to the investigations by CNAO and the Inspection Leading Group can sufficiently address all deficiencies identified in such investigations. Further, there can be no assurance that the Group’s internal control system will effectively prevent similar deficiencies from happening in the future. In either case, the Group’s business, financial condition, results of operations and reputation may be materially and adversely affected, and the Group or any of its management, officers or employees may be subject to further investigations and sanctions imposed by the PRC authorities. If sanctions, fines and other penalties are imposed on the Group for failing to comply with applicable requirements, guidelines or regulations, the Group’s business, financial condition, results of operations and its reputation may be materially and adversely affected.
In addition, the Group may not be able to always detect or prevent fraud, corruption or other misconduct committed by its employees, which may have a negative impact on its reputation and business. It is not always possible to deter or prevent employee misconduct, and the precautions taken by the Group to prevent and to detect such activities may not be effective in all cases. In October 2016, an employee of SNPTC was arrested on suspicion of taking bribes and the case is currently being prosecuted in court. There can be no assurance that other cases of fraud, corruption or other misconduct of the Group’s employees will not occur in future. The Group could suffer from negative publicity, reputational damage, monetary losses or litigation losses as a result of the fraud, corruption or other misconduct of its employees.
The Group could be adversely affected as a result of its operations in certain countries that are subject to evolving sanctions. The U.S. and other jurisdictions have had or currently have comprehensive or broad economic sanctions (the “Sanctions”) against and in relation to certain countries. These Sanctions may also include restrictions on dealing with certain designated persons and entities, including persons on the list of the Office of Foreign Assets Control of U.S. Department of the Treasure of Specially Designated Nationals (“SDN List”). The Group has investments, operations and business dealings in countries that have in the past been, or are currently, the subject of Sanctions (the “Sanctioned Countries”). The Group also had business dealings with entities and persons that were listed on the SDN List in the past.
The Group believes that its business activities in such Sanctioned Countries do not involve industries or sectors specifically sanctioned and would not be deemed as activities prohibited by Sanctions to the extent these are applicable to the Group. However, if it were determined that any transaction in which the Group participated in violates any Sanctions, the Group could be subject to sanctions or other penalties and its business, results of operations and financial condition may be materially and adversely affected. In addition, the Group may be the subject of negative media or investor attention as a result of its activities or presence in Sanctioned Countries or dealings with entities and persons that have in the past been listed on the SDN List, which may harm the Group’s reputation and may have a negative impact on the Group’s business, financial condition and results of operations. Furthermore, the Sanctions are evolving and there can be no guarantee that the Group’s present and future investments, operations and business dealings will not be materially and negatively impacted by any changes in the Sanctions or their interpretation, implementation and enforcement.
Operation of power plants involves many risks, and the Group may not have adequate insurance to cover the economic losses if any of the Group’s power plants’ ordinary operations is interrupted. The operation of power plants involves many risks and hazards, including breakdown, failure or substandard performance of equipment, improper installation or operation of equipment, labour disturbances, natural
22 disasters, environmental hazards and industrial accidents. The occurrence of material operational problems, including but not limited to the above events, may adversely affect the profitability of a power plant.
The Group’s power plants in the PRC currently maintain insurance coverage that is typical in the electric power industry in the PRC and in amounts that the Group believes to be adequate. Such insurance, however, may not provide adequate coverage in certain circumstances. In particular, in accordance with industry practise in the PRC, the Group’s power plants in the PRC do not generally maintain business interruption insurance, or any of third party liability insurance other than that included in construction all risks insurance or erection all risks insurance covering claims in respect of bodily injury or property or environmental damage arising from accidents on the Group’s property or relating to the Group’s operations. There is no assurance that such accidents will not occur at the Group’s power plants in the future. The occurrence of any such incident, accident or disaster for which the Group is uninsured or inadequately insured may materially and adversely affect the Group’s business, financial condition and results of operations.
The Group is exposed to substantial potential risks and liabilities associated with the Group’s nuclear power generation business. The Group engages in nuclear power generation activities. Unlike in other industries, including the non-nuclear power generation industry, a significant quantity of radioactive substances is contained in the nuclear reactors of a nuclear power station, which could present a possible radioactive threat to humans, the environment and society under certain circumstances. In addition, as an important part of the Group’s business operations, the Group needs to handle, store, transport and dispose of radioactive materials, such as low- and medium-level radioactive waste and spent fuel, and other hazardous materials, including explosive or flammable materials used in the Group’s electricity generating activities. Therefore, the Group’s business involves certain significant potential risks.
Approximately half of the cost of nuclear fuel generally consists of the cost of natural uranium. The importation and trading of natural uranium is strictly regulated in China. Prices and availability of nuclear fuel are subject to fluctuations due to both domestic and international political and economic considerations which are beyond the Group’s control. Factors that might impact the prices and availability of such products and services include increased demand due to worldwide and domestic growth of the nuclear energy sector, product shortages associated with an operating accident in a uranium mine, an internal or external event leading to political instability in a uranium-producing country and increased regulatory oversight of the production of uranium or the provision of the services mentioned above. If the Group is unable to secure a stable supply of nuclear fuel, the operations of its nuclear power stations may be interrupted or delayed, which may adversely affect the Group’s business, operating results and financial position.
The Group is also exposed to other substantial potential risks and liabilities associated with nuclear power generation, including the risks and liabilities which may be caused by one or several of the following factors: (i) ageing, defects, malfunctioning, inappropriate installation, control or operation of various equipment, systems and facilities, (ii) human errors or misconduct, strikes or disputes with the Group’s labour force, (iii) external attacks, such as terrorist attacks and other third-party malicious acts, and (iv) natural disasters. Any of the above factors, if occurring individually or collectively, could cause significant disruptions or interruptions to the Group’s operations, materially and adversely affect the Group’s power generation activities or cause significant extra costs or expenses. These and other factors may also lead to nuclear accidents and other serious consequences, such as deaths or long-term illnesses to humans, including the Group’s employees and the general public in a large geographic area, and long-term contamination of the environment, which could expose the Group to significant compensation and damages, clean-up costs, legal proceedings and other liabilities.
The Group have taken steps to adhere to high standards of risk control procedures applicable to the preparatory phase, construction phase, operation phase and decommissioning phase of the Group’s nuclear power stations, in order to protect the public, the environment and society from the threat of radiation, ensuring the smooth operation of the nuclear power stations, and reducing the possibility of accidents. However, there can be no assurance that these measures will be effective under any circumstances. The Group, in conjunction with the public authorities, has also implemented safety measures aimed at countering external attacks. However, there can be no assurance that the above risks and uncertainties will not affect the safe and reliable operation of the Group’s nuclear power stations or lead to any nuclear accident, thus causing harm to humans, the environment and society, and leading to partial or total closure of the Group’s nuclear power stations for an extended period of time or resulting in significant liabilities. If any of these risks materialises, it could have a material and adverse effect on the Group’s business, financial condition, results of operations and prospects.
23 Disruptions in coal supply and its transportation as well as increases in coal prices may adversely affect the normal operation of the Group’s thermal power plants. A substantial majority of the Group’s thermal power plants are fuelled by coal. Prior to 31 December 2012, the Group obtained coal for the Group’s power plants through a combination of purchases pursuant to key contracts and purchases in the open market. Effective from 1 January 2013, the NDRC cancelled the key contract regime, abolishing the coal-electricity dual track system; the coal and power companies will now enter into contracts independently, and freely negotiate to determine prices. This may affect the ability of the Group to ensure a stable supply of coal for its thermal power plants. There can be no assurance that any disruptions in the supply of coal will not adversely affect the Group’s business during certain periods. Further, the PRC Government continues to promote market-oriented reforms for coal transportation, and has requested the relevant government departments to rationally allocate capacity and maintain relative stability based on the contracts signed by the suppliers and customers and their transport capacity, and has given priority transportation protection to larger medium-sized coal companies that have signed medium to long term coal contracts. However, there can be no assurance that there will be adequate transportation capacity for all the Group’s transportation needs. If lack of transport capacity causes delays or interruptions to the Group’s coal transportation, it may adversely affect the Group’s operations. In addition, the Group’s results of operations are sensitive to fluctuations in coal prices. The PRC Government has established a coal-electricity price linkage mechanism to allow power generation companies to increase their power tariffs to cope with the increase of coal price. However, such increase is allowed only within specific price fluctuation range according to the Circular of National Development and Reform Commission on the Matters Relating to Improvement of Linkage Mechanism for Coal and Electricity Price (Fa Gai Jia Ge [2015] No. 3169) which became effective on 1 January 2016. Moreover, according to the Guidance on Deepening the Marketisation Reform of the Thermal Coal Industry, the government will make corresponding tariff adjustments if fluctuations in coal prices reach more than 5% on an annual basis, while at the same time the percentage of coal price increases that power companies are not allowed to pass to end-users through on-grid tariffs increases will be reduced from 30% to 10%. However, there are still uncertainties concerning how these mechanisms will be implemented. There is no assurance that the Group will be able to adjust the Group’s power tariff to pass on the increase of coal price to the Group’s customers.
The Group’s hydropower business is dependent on hydrological conditions. The Group’s hydropower stations are dependent upon hydrological conditions prevailing from time to time in the broad geographic region in which its existing and future hydropower projects are located. There can be no assurance that water flow at the Group’s project sites will be consistent with its expectations, or that climatic and environmental conditions will not change significantly from the prevailing conditions at the time its projects were made. Water flow varies each year or season and depends primarily on the levels of precipitation and seasonal changes. If hydrological conditions result in droughts or other conditions that negatively impact the Group’s hydropower generation, the Group’s hydropower business and results of operations could be materially and adversely affected.
The commercial viability and profitability of the Group’s wind farms depend on the PRC government’s policies and regulatory framework supporting renewable energy development. The PRC Government has adopted policies and established a regulatory framework to encourage the development of wind power projects and to increase the proportion of electricity generated from wind power. PRC laws and regulations, such as the Renewable Energy Law, also provide economic incentives to companies engaged in the development of wind power projects. Such incentives include mandatory grid connection and dispatch of 100% of electricity generation from wind farms, on-grid tariff premiums (the on-grid tariffs for wind power are generally higher than those for coal power within the same province), and tax benefits such as a refund of 50% of the VAT levied on electricity generation from wind power and other tax reduction plans. The on-grid tariff for electricity produced by wind farm projects as determined by the “government guided price” has been replaced by geographically unified tariffs, a form of the “government fixed price”, which is more stable and predictable. The new on-grid tariffs continue to be subsidised by on-grid tariff premiums enjoyed by renewable energy projects in general. The development and profitability of wind power projects in the PRC, including the Group’s wind farms, are significantly dependent on policies and regulatory framework that support such development. For the years ended 31 December 2013, 2014 and 2015, the Group received government grants of RMB 1,932.8 million, RMB1,588.0 million and RMB2,259.2 million, respectively, which mainly represent various preferential tax incentives granted by the PRC Government. While the PRC Government has publicly stated its intent to continue to encourage the development of wind power projects and the Group is not aware of any indication of any
24 potential changes to the existing wind power policies in the PRC that may have a material adverse effect on the Group in the foreseeable future, there is no assurance that the PRC Government will not in fact change or eliminate current incentives and favourable policies currently available to the Group at any time. On 25 August 2011, the NEA promulgated the Provisional Regulations on Administration of Wind Power Development and Construction ( ) (the “Provisional Regulations”). According to the Provisional Regulations, the governmental authorities at the provincial level responsible for approval of wind power investment and construction of wind power projects should record their annual plans for wind power development and for construction of wind farms with the NEA. If the projects approved are not included in the respective plans filed with the NEA, the projects shall not be entitled to receive dispatch services provided by local grid companies or the tariff surcharge from the national fund for development of renewable resources. The wind power industry generally regards these Provisional Regulations as a sign that the PRC Government authorities intend to put the approval and construction of wind projects under more severe administration and supervision. On 16 February 2012, NEA issued the Notice on Relevant Requirement Concerning Regulating Wind Power Development and Construction Administration ( ), pursuant to which local governmental authorities are required to strictly carry out provisions under the Provisional Regulations. In addition, as the regulatory framework in the PRC for renewable energy is relatively new and still evolving, the implementation and enforcement of these policies, laws and regulations involve uncertainties and may differ from region to region in the PRC. Any reduction, discontinuation or unfavourable application of the policies and economic incentives for renewable energy could reduce demand for renewable energy which could have a material adverse effect on the Group’s business, financial condition, results of operations or prospects. Furthermore, if these favourable policies and incentives were changed or discontinued to the Group’s detriment before its wind farms or PV power plants reach the economies of scale necessary to become cost-effective in a non-subsidised market place, the Group could be forced to compete directly against producers of electricity from fossil fuels and other wind farms in the sale of electricity and the setting of tariffs, which could also have a material adverse effect on the Group’s business, financial condition, results of operations or prospects.
If the PRC Government adopts new and stricter environmental laws and additional capital expenditure is required for complying with such laws, the operation of the Group’s power plants may be adversely affected and the Group may be required to make more investment in compliance with these environmental laws. Most of the Group’s power plants, like all coal-fired power plants, discharge pollutants into the environment. The Group is subject to central and local government environmental protection laws and regulations, which currently impose base-level discharge fees for various polluting substances and graduated schedules of fees for the discharge of waste substances. The amount of discharge fees is determined by the local environmental protection authority based on the periodic inspection of the type and volume of pollution discharges. In addition, such environmental protection laws and regulations also set the benchmark for the overall control on the discharge volume of key polluting substances. These laws and regulations impose fines for violations of laws, regulations or decrees and provide for the possible closure by the central government or local government of any power plant which fails to comply with orders requiring it to cease or cure certain activities causing environmental damage. In 2011, the PRC Government promulgated new and more stringent standards on the discharge of polluting substances by thermal power plants, which also require thermal power plants to equip all units with denitrification facilities. Such stringent standards, together with the increase in discharge fees, will result in the increase of the environmental protection expenditure and operating costs of power plants like the Group’s and may have an adverse impact on the Group’s operating results. The Group attaches great importance to the environmental impact of the Group’s existing power plants and the Group’s power plants under construction. The Group believes the Group’s environmental protection systems and facilities for the power plants are adequate for the Group to comply with applicable central government and local government environmental protection laws and regulations. However, the PRC Government may impose new, stricter laws and regulations on environmental protection, which may adversely affect the Group’s operations. The PRC is a party to the Framework Convention on Climate Change (“Climate Change Convention”), which is intended to limit or capture emissions of “greenhouse” gases, such as carbon dioxide. Ceilings on such emissions could limit the production of electricity from fossil fuels, particularly coal, or increase the costs of such production. In November 2016, the Paris Agreement under the Climate Change Convention came into force. The PRC has ratified the Paris Agreement and has committed to, among others, lower carbon dioxide emissions and achieve the peaking of carbon dioxide emissions around 2030. The PRC has also committed to increasing the share of non-fossil fuels in its primary energy consumption. Should the PRC government implement measures to
25 achieve such commitments to reduce carbon dioxide emissions and reduce its reliance on the production of electricity from coal and other fossil fuels, the Group’s business prospects could be adversely affected.
Accidents at nuclear power generation facilities in any country or region, regardless of the causes of such accidents, may lead the competent authorities to substantially tighten nuclear power station operating requirements or to refuse to authorise the construction or commencement of operations of new stations or to reject proposed extensions of the operating life of existing stations. Accidents at nuclear power generation facilities (whether the Group’s facilities or any other nuclear power generation facilities in other countries or regions), especially those that result in serious radioactive contamination or irradiation, regardless of the causes of such accidents, may turn public opinion or the opinion of specific interest groups against nuclear power or lead the competent authorities to take various actions, including but not limited to: (i) substantially tightening power station operating requirements (such as requirements for more extensive or more expensive insurance coverage or more stringent safety standards) or requesting modification of power generating facilities or operational procedures, (ii) ordering a temporary suspension or permanent termination or decommissioning of nuclear facilities in operation ahead of schedule, (iii) suspending or cancelling all the ongoing nuclear power station development projects, (iv) refusing to approve the construction or entering into operations of new power stations, (v) rejecting proposals for extending the operating life of existing power stations, (vi) contemplating a full cessation of the use of nuclear power to generate electricity or (vii) amending the relevant laws or regulations. The relevant authorities in the PRC may take such or similar decisions in the future, which may have a material and adverse effect on the Group’s operations and/or the Group’s ability to obtain financing or expand its nuclear power business. If the public in other countries or regions is against nuclear power generation, or if their governments take such or similar measures, the Group’s overseas expansion plan may be affected.
The Group’s plans for overseas business development and investment may be subject to unforeseen risks. In accordance with the Group’s business development strategy, the Group is acquiring or investing in projects in foreign countries. As the Group expands into other regions, the Group will be subject to additional risks that could materially and adversely affect the Group’s results of operations. These risks include, but are not limited to: • unsettled political conditions, war, civil unrest and hostilities in countries and regions where the Group operate or intend to invest; • breach of contract by the central or local government or the Group’s main business partners in the countries and regions where the Group’s overseas business is located or the Group intend to invest; • undeveloped legal systems or changes in government policies; • political and economic instability in foreign markets; • natural disasters; • fluctuations in market demand; • fluctuations and changes in foreign exchange rates; • PRC regulations and approval processes related to overseas investments; and • governmental actions such as expropriation of assets, changes in general legislative or regulatory environment, exchange controls, cancellation of contract rights, and changes in global trade policies such as trade restrictions and embargoes imposed by any country.
The Group cannot predict the effect that current conditions affecting various foreign economies or future changes in economic or political conditions abroad could have on the feasibility and costs of the projects the Group intend to invest in or acquire. Any of the above factors may have a material and adverse effect on the Group’s overseas expansion plans and, consequently, the Group’s business, prospects, financial condition and results of operations.
The businesses or projects the Group develops, acquires or invests in in the future may not be as profitable as it expects, or at all, and may subject the Group to additional risks and liabilities. The businesses that the Group develops, acquires or invests in may not be as profitable as it expects, or at all. Acquisitions or investments that the Group carries out in the future may cause it to incur liabilities, or result in the impairment of goodwill or other intangible assets or other related expenses. Business expansion carried out through acquisitions and investments could also expose the Group to successor liability and litigation resulting from the actions of the company it has acquired or in which it made an investment before or after the acquisition or investment. The due diligence that the Group conducts in connection with an acquisition or investment may
26 not be sufficient to discover unknown liabilities, and any contractual guarantees or indemnities that the Group receives from the sellers of the companies it has acquired or invested in may not be sufficient to protect it from, or compensate it for, actual liabilities. Any material liability associated with an acquisition and investment could adversely affect the Group’s reputation and reduce the benefits of the acquisition and investment. Any of the events mentioned above could have a material and adverse effect on the Group’s business, financial condition, results of operations and prospects.
Natural disasters and other factors may result in accidents or business interruption, which may materially and adversely affect the Group’s business, results of operations and financial condition. The Group’s business operations are subject to risks arising from natural disasters, such as typhoons, floods and earthquakes. The Group takes precautions in the design, construction and operation of power plants, but there can be no assurance that natural disasters or other circumstances such as system failure, equipment malfunction, risks currently unknown or human errors, will not result in any accident or business interruption. Safety measures were incorporated into the design of the Group’s facilities and sites, and the Group has taken protective measures. Nonetheless, like any safety measures intended to counter an external threat, there can be no assurance that these will prove fully effective in all cases.
If an accident were to occur at one or more of the Group’s facilities, whether caused by natural disaster or other reason, the Group’s business may be interrupted, and the Group may also be liable for casualties, property loss, environmental contamination or other damages caused or may be subject to investigations, legal proceedings and claims in relation to such accident. Accidents caused by any natural disasters or other factors may result in various serious damages, and other parties may attempt to make the Group liable for such events for the reason that the protective measures taken by the Group are not sufficient, which may have a material and adverse effect on the Group’s business, results of operations and financial condition.
The Group depends on key management personnel and professional technicians. The Group’s success is built substantially upon the continuous efforts and service of its experienced management team and specialised technical personnel. There can be no assurance that the Group will be able to retain its key management personnel or technical staff. If any of the Group’s key management personnel stops working in his or her present position, or if any of them fails to perform their obligations under their employment agreements, the Group may not be able to find a suitable replacement. In addition, since the operation of certain power plants, such as a nuclear power station or PV power station, is very complex, the Group is greatly dependent on the specialised services provided by its operation team that have been specially trained for a long time, especially the operation teams in key positions. If the Group fails to retain its senior management or operation team, its business may be adversely affected. The Group’s future growth and success will also depend to a large extent on its ability to retain or recruit suitable and qualified individuals to strengthen its management, operational, technical and research teams. There can be no assurance that the Group will be able to cultivate, recruit and retain the key personnel that the Group needs to achieve its business objectives, and if the Group is unable to do so it may lead to material and adverse impacts on the Group’s business, financial condition and results of operations.
The Group’s operations depend on its research and development capabilities, which may not always produce positive results. The Group’s ability to improve its power generating capabilities and to undertake high profile projects depend largely on its research and development capabilities. However, research and development programmes require considerable human resources, time and capital investment and the benefits of any such investment may not yield immediate tangible benefits. There can be no assurance that the Group’s research and development efforts will be effective. Even if such efforts are successful, the Group may be unable to apply such new technologies to products in satisfactory ways.
If the Group is unable to maintain or enhance its research and development capabilities, the Group may be disadvantaged against its competitors both domestically and overseas, thereby adversely affecting its businesses, financial condition, results of operations and future development. The Group is often engaged to undertake large scale, complicated projects that require it to develop or adopt new technology and construction methods, which could put a strain on its research and development resources. The use of new technology and construction methods may also result in experimental failures, increased costs and unstable conditions, which may adversely affect the profitability of some of the Group’s projects.
27 Assumptions applied to the Group’s investment analyses and feasibility studies may not be accurate, and thus the Group’s actual return on investments, operational results, and overall growth may be materially and adversely affected. In performing investment analysis and feasibility studies for the Group’s investment and development targets, the Group considers factors such as: (i) demand for power and growth potential in the areas where the power projects are located, (ii) increase in power generation capacity in the locality, (iii) the average tariff of power projects of similar types and capacity, (iv) quality of transmission systems to the local power grids, (v) facilities and technology at the power projects and (vi) ability to retain existing debt financing for the project or obtain new financing. In the PRC, with the rapid development of the clean energy industry in recent years and the uncertainty regarding the rate of future economic growth, there is some increased risk of power projects being built based on inaccurate or incomplete data, such as demand, tariff and financing. As a result, the assumptions we use to perform the Group’s internal investment analyses and feasibility studies may not be accurate or complete. If any one of the Group’s observations or assumptions, or a combination thereof, proves to be inaccurate, then the Group’s estimated returns on investments, operational results and the Group’s overall growth may be materially and adversely affected.
Failure to renew the Group’s offshore power purchase agreements (“PPAs”) could result in a reduction or complete loss of revenues from the specific power project affected, which would have a materially adverse effect on the Group’s revenues, results of operations and net cash used in operating activities. In the Group’s overseas business, the Group’s PPAs with the grid companies to which the Group’s power projects are connected and governed by a master PPA which establishes a general framework under which a more detailed PPA is entered into on an annual basis. If the Group is unable to renegotiate and renew a PPA or master PPA with the grid companies when their original terms expire, it is unlikely it would be able to obtain alternative customers to replace that power grid and purchase the power generated by the Group’s project, as there are only a very limited number of grids to each power project and there are no neighbouring industrial sites ready to take up the power.
The generation of wind power depends heavily on suitable wind conditions. If wind conditions are unfavourable or below the Group’s estimates, the Group’s power generation, and therefore the Group’s revenue, may be substantially below the Group’s expectations. The electricity and revenue generated at a wind power project are highly dependent on climatic conditions, particularly wind conditions, which vary across seasons and regions and are difficult to predict. Turbines will only start to operate when the wind speed reaches a certain minimum velocity, and must be disconnected when the wind speed exceeds a certain maximum velocity to avoid damage. If wind speed falls outside the operating ranges, which vary by turbine model and manufacturer, the amount of electricity the Group generates will decrease or cease. There can be no assurance that the wind conditions at any given wind site will always fall within such ranges. The Group bases its investment decisions for each wind power project on the findings of feasibility studies conducted onsite before starting construction. However, actual climatic conditions at a wind site, particularly wind conditions, may not conform to the findings of these feasibility studies, and, therefore, the Group’s wind power projects may not meet anticipated generation levels, which could adversely affect the Group’s forecasted profitability.
There can be no assurance that actual climatic conditions at any project site will conform to the Group’s assumptions during the project planning phase. As a result, it cannot be guaranteed that the Group’s wind farms will meet their anticipated electricity output. The Group’s wind farms have natural seasonal variation that the Group tracks historically. In the Group’s wind farms in northern China, the seasons with the highest average wind speed are spring and autumn, whereas summer generally has the lowest average wind speed. In contrast, in the Group’s coastal wind farms summer is the windiest season, generally allowing for an increase in power generation. If seasonal variations and fluctuations in the wind conditions in the regions in which the Group currently operates do not conform to the Group’s historical observations or do not meet the Group’s assumptions, unexpected fluctuations in the electricity output of the Group’s wind farms may occur. Similarly, extreme wind or weather conditions could reduce the Group’s operational efficiency and power generation, which could materially and adversely affect the Group’s business, financial condition and results of operations.
The Group may fail to keep pace with technological changes in the rapidly evolving renewable energy industry. The technologies used in the renewable energy industry are evolving rapidly, and in order to remain competitive and expand the Group’s business, the Group must be able to respond to these technological changes. The Group
28 may be unable to update its technologies swiftly and regularly, possibly rendering the Group’s operations less competitive. Failure to respond to current and future technological changes in the renewable energy industry in an effective and timely manner may have a material adverse effect on the Group’s business, financial condition or results of operations.
The Group’s business benefits from certain preferential tax treatment and other government incentives. Expiration of, or changes to, the incentives could adversely affect the Group’s operating results. Under the PRC EIT Law, a uniform 25% EIT rate is generally applied to all types of enterprises, except where a specific preferential rate applies. PRC tax laws and regulations provide certain preferential tax treatments to different enterprises, industries and locations. Some of the Group’s subsidiaries enjoyed, or are currently enjoying, preferential tax treatments applicable to enterprises that are (i) located in areas under the Western Development Programme of the PRC, (ii) High-New Technology Enterprises and (iii) engaged in public infrastructure projects. Some of the Group’s subsidiaries are entitled to VAT refunds for their revenue from the sale of electricity or heat generated from incineration plants or wind farms and revenue from the sale of heat to residential customers. These preferential tax treatments will expire in accordance with the applicable PRC laws and regulations and are also subject to changes as may be required by PRC laws and regulations. The Group also receives government grants and subsidies for its research activities.
The Group’s effective income tax rate fluctuates as the preferential tax treatment for its various subsidiaries commences and expires at different times. Any change or elimination of such preferential tax treatments may materially and adversely affect the Group’s results of operations and financial condition. There can be no assurance that the current favourable policies or the various incentives available to the Group will not be withdrawn or revoked by the PRC Government. If the favourable government policies and incentives are reduced or are no longer available in the future, the Group’s results of operations in the future may be materially and adversely affected.
The Group is large and complicated, and may be restructured, and there is no assurance that its efforts to further integrate all its business and coordinate among different subsidiaries will be successful. As at 31 December 2015, the Group had over 700 direct and indirect subsidiaries located across the PRC and other jurisdictions, whose financial results have been included in the Group’s consolidated financial statements as at and for the year ended 31 December 2015. The Group has a portfolio of businesses, which exposes it to challenges in managing its ancillary business segments. The Group’s management may experience difficulty ensuring that sufficient attention and support is provided to each of its business segments, and may also not possess the necessary experience or be able to focus on what drives each business segment. In addition, the large scale and scope of the Group’s operations make central coordination of activities a challenging task. There may be overlap in the operating activities of certain of its subsidiaries in terms of geography, product type and/or business scope. The Group may be subject to restructuring pursuant to the reform of state-owned enterprises by SASAC, which may result in SASAC requiring the Group to acquire or divest certain of its subsidiaries or merge with other state-owned enterprises, and there can be no assurance that the Group will receive fair compensation, or any compensation at all, as a result of such restructuring activities.
The Group intends to maintain the independent operation of its subsidiaries, which may result in certain subsidiaries competing directly in certain areas. While the Group is of the view that such competition amongst some of its subsidiaries would not have a material adverse impact on its overall business operation and market position, the effect of such internal competition on its financial results is uncertain.
Fluctuations in exchange rates could have an adverse effect on the Group’s results of operations and your investment. A substantial portion of the Group’s revenues and cost of sales is denominated in Renminbi. However, as the Group conducts part of its businesses overseas, and the Group has made and expects to continue to make equity and other investments in overseas projects, the Group’s foreign exchange-denominated assets and liabilities are expected to increase as a result as the Group further expands its overseas businesses. The Group is therefore subject to significant risks associated with foreign currency exchange fluctuations.
The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The conversion of Renminbi into foreign
29 currencies, including U.S. dollars, is based on rates set by the People’s Bank of China (“PBOC”). On 21 July 2005, the PRC Government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. After then, the PBOC enlarged the floating band for the trading prices in the inter-bank spot exchange market of Renminbi against the U.S. dollar for several times. On 11 August 2015, the PBOC announced to improve the central parity quotations of Renminbi against the U.S. dollar by authorising market- makers to provide central parity quotations to the China Foreign Exchange Trading Centre daily before the opening of the interbank foreign exchange market with reference to the interbank foreign exchange market closing rate of the previous day, the supply and demand for foreign exchange as well as changes in major international currency exchange rates. Following the announcement by the PBOC on 11 August 2015, Renminbi depreciated significantly against the U.S. dollar. In January and February 2016, Renminbi experienced further fluctuation in value against the U.S. dollar. The PRC Government may adopt further reforms of its exchange rate system, including making the Renminbi freely convertible in the future.
These changes in policy have resulted in fluctuations of the Renminbi against the U.S. dollar. There can be no assurance that such exchange rate will remain stable against the U.S. dollar or other foreign currencies in the market. While the international reaction of the Renminbi revaluation has generally been positive, there remains significant international pressure on the PRC Government to adopt an even more flexible currency policy, which could result in a further and more significant depreciation of the Renminbi against the U.S. dollar or other foreign currencies. Further depreciation of the Renminbi against these currencies may lead to an increase in the costs of the Group’s overseas operations. Fluctuations in exchange rates may adversely affect the value, translated or converted into U.S. dollars or Euro, of the Group’s net assets, earnings and any declared dividends.
The Group’s auditors have limited international capital markets experience and are currently under investigation initiated by relevant PRC authorities. Ruihua Certified Public Accountants (“Ruihua”), the Group’s independent auditors, is a registered accounting firm in the PRC supervised by relevant PRC regulatory agencies, including the MOF and the CSRC. Ruihua is also a member of Beijing Institute of Certified Public Accountants and a member of National Association of Financial Market Institutional Investors (“NAFMII”). Although Ruihua has significant audit experience in the PRC, it has limited international capital markets experience.
Ruihua is currently under several investigations initiated by the CSRC (“CSRC Investigations”) in May 2016 in relation to a corporate reorganisation proposal by an A-share listed company, of which Ruihua is the auditor. According to Ruihua, the on-going CSRC Investigations are not related to the Ruihua team serving as the Group’s auditors or the team involved in this Offering. While the CSRC Investigations are ongoing, the CSRC may impose sanctions on the investigated accounting firm or its management, officers or employees, refuse to accept applications which include reports or opinions audited by the investigated accounting firm or, jointly with MOF, order that the investigated accounting firm’s relevant licences be revoked, pursuant to which no securities and futures business services may be provided. The CSRC may also re-examine the financial statements audited by an investigated accounting firm and announce such financial statements to be untrue or unreliable. There is no certainty as to how long the CSRC Investigations may last, what the final result of the CSRC Investigations may be, or what penalties, if any, may be imposed on Ruihua. According to Ruihua, (i) the on-going investigation by CSRC is not related to the Ruihua team serving as the Group’s auditors, (ii) as at the date of this Offering Circular, the CSRC investigation is still on-going with no conclusion being made, and (iii) CSRC has not imposed any sanctions upon Ruihua as at the date of this Offering Circular.
In connection with an investigation against a bond offering by an A-share listed company on the PRC Inter-bank Bond Market, NAFMII requested Ruihua, who is the auditor of the parent company of such A-share listed company, to provide audit working papers of the parent company. Ruihua did not promptly provide such working papers due to its client-auditor confidentiality obligations. As a result, NAFMII issued a public warning notice against Ruihua on 21 June 2016 for not promptly providing certain audit working paper requested by NAFMII. In the aforementioned warning notice and a clarification letter subsequently issued by NAFMII, NAFMII stated that it is entitled to reject audit or review reports issued by Ruihua from 17 June 2016 to 16 June 2017 in relation to any bond issuance in the PRC by any new client to whom Ruihua did not provide audit or review services and which had not issued any bonds in the PRC as at the date of the warning notice. Ruihua subsequently obtained waivers from its client with respect to its client-auditor confidentiality obligations and announced in August 2016 that it will cooperate with the NAFMII investigation. Although NAFMII does not have general supervising authority on PRC accounting firms, any further sanctions by NAFMII may affect Ruihua’s ability to provide
30 services in the PRC Inter-bank Bond Market. Such further sanctions may restrict Ruihua from providing audit services or other services in connection with the Group’s financing transactions. According to Ruihua, the public warning notice issued by NAFMII does not (i) disqualify the Ruihua team from participating in this offering as the Group’s auditors, (ii) have any impact on Ruihua’s unqualified audit opinions for CPI’s or the Guarantor’s financial statements as at and for the years ended 31 December 2014 and 2015, respectively, (iii) have any impact on Ruihua in continuing to provide audit services to the Group, or (iv) have any impact on Ruihua’s ability to provide services to the Group in relation to any future bond issuance by the Group in the PRC, as an existing client of Ruihua who had issued bonds in the PRC prior to the warning notice. Ruihua may from time to time also be involved in legal proceedings arising in the ordinary course of its business. Prospective investors should consider these factors prior to making any investment decision.
This Offering Circular contains financial information of the Group prior to and post the Merger. The interim financial information of the Guarantor contained in this Offering Circular have not been reviewed or audited. This Offering Circular contains financial information of the Group prior to and post the Merger. The audited consolidated financial information of CPI as at and for the year ended 31 December 2013 has been derived from CPI’s audited consolidated financial statements as at and for the year ended 31 December 2014, which was audited by Ruihua Certified Public Accountants and is included elsewhere in this Offering Circular. As CPI and SNPTC were under the common control of SASAC, the Merger was considered as a common control combination. Accordingly, the financial information of the Group as at and for the year ended 31 December 2015 was prepared on a post-Merger basis and the financial information of the Group as at and for the year ended 31 December 2014 was restated as if the Merger had been completed on 1 January 2014. CPI is the surviving entity of the Merger and therefore the predecessor of the Guarantor. As a pre-Merger entity, CPI’s financial statements are not comparable to the financial information of the Group as at and for the years ended 31 December 2014 and 2015. Potential investors are advised not to use the financial information of CPI to evaluate the Group’s financial condition and results of operations.
The Guarantor’s Consolidated Third Quarter Financials included in this Offering Circular has not been audited or reviewed by Ruihua or any other person. Consequently, such financial information should not be relied upon by potential investors to provide the same type or quality of information associated with information that has been subject to an audit or review. Such financial information should not be taken as an indication of the expected financial condition or results of operations of the Group for the full financial year ending 31 December 2016.
None of the Joint Lead Managers or any of their respective affiliates, directors or advisers makes any representation or warranty, express or implied, regarding the accuracy of the Guarantor’s Consolidated Third Quarter Financials and the financial information contained therein or their sufficiency for an assessment of, and potential investors must exercise caution when using such data to evaluate the Group’s financial condition and results of operations. Potential investors must exercise caution when using such data to evaluate the Group’s financial condition and results of operation.
Risks Relating to Doing Business in the PRC The slowdown of the PRC’s economy caused in part by the recent challenging global economic conditions may adversely affect the Group. A large majority of the Group’s revenue is derived from power sales in the PRC. The Group relies on domestic demand for electric power to achieve revenue growth. Domestic demand for electric power is materially affected by industrial development, growth of private consumption and overall economic growth in the PRC. The global crisis in financial services and credit markets in 2008 caused a slowdown in the growth of the global economy, and the PRC economy has displayed signs of slowdown as evidenced by a decrease in the growth rate of its gross domestic product (“GDP”) in recent years. In 2014, the PRC government reported a GDP of CNY63.7 trillion, representing year-on-year growth of 7.4 per cent., which was a record-low figure for the past 24 years. In the first quarter of 2015, the PRC reported a GDP of CNY140.7 billion, representing year-on-year growth of 7.0 per cent., according to the statistic released by National Bureau of Statistics of the PRC. Although the PRC government has recently taken several measures and actions with an aim to increase investors’ confidence in the PRC economy in the PRC and elsewhere in the world, there can be no assurance that those measures will be effective. In addition, recent macroeconomic events have had or could result in an adverse affect on the global and the PRC economy, such as the Greek debt crisis, volatile commodity prices and uncertainties relating to American monetary policies and the possible withdrawal of the United Kingdom from the European Union. If the PRC’s economic growth
31 slows down or if the PRC economy experiences a recession, the growth of power demand may also slow down or stop, and the Group’s business prospects may be materially and adversely affected.
PRC economic, political and social conditions as well as government policies could adversely affect the Group’s business. The PRC economy differs from the economies of most developed countries in many respects, including government involvement, level of development, economic growth rate, control of foreign exchange, and allocation of resources. The PRC economy has been transitioning from a planned economy to a more market- oriented economy. In recent years, the PRC government has implemented measures emphasising market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises. However, the PRC government continues to play a significant role in regulating industrial development, the allocation of resources, production, pricing and management, and there can be no assurance that the PRC government will continue to pursue a policy of economic reform or that any such reforms will not have an adverse effect on the Group’s business.
The Group’s operations and financial results could also be materially and adversely affected by changes in political, economic and social conditions or the relevant policies of the PRC government, such as changes in laws and regulations (or the interpretation thereof). For example, the PRC government may decide to change its current policies with respect to power pooling, and the Group’s power plants and projects which are currently not subject to power pooling may become subject to power pooling. The power pooling process typically results in lower selling prices than the tariffs received from the power dispatched as part of the planned output, and as such, this could have adverse impact on the Group’s results of operations. The Group’s operating results and financial condition may also be materially and adversely affected by other changes in taxation, changes in on- grid tariff-setting mechanisms for the Group’s power plants and projects, changes in the usage and costs of state controlled transportation services, and changes in state policies affecting the power and coal industries. The Group’s operations and financial results, as well as its ability to satisfy its obligations under the Bonds, could also be materially and adversely affected by changes in measures which might be introduced to control inflation, changes in the rate or method of taxation, the imposition of additional restrictions on currency conversion and the imposition of additional import restrictions.
Turmoil in the financial markets could increase the Group’s cost of borrowing and impede access to or increase the cost of financing its operations and investments. The availability of credit to entities operating within emerging markets, including the Group, is significantly influenced by levels of investor confidence in such markets as a whole. Any factors that may affect market confidence could affect the costs or availability of funding for entities within emerging markets. Historically, challenging market conditions in emerging markets have resulted in reduced liquidity, widening of credit spreads, lack of price transparency in credit markets, a reduction in available financing and a tightening of credit terms. In 2015, China’s stock markets have experienced significant turmoil and disruption. Throughout June and early July of 2015, the Shanghai Composite Index experienced significant declines and many PRC-listed companies were subject to trading suspensions on major stock exchanges. The PRC government responded by cutting interest rates, suspending initial public offerings and starting investigations into market manipulation in an effort to stabilise the market. Due to its increasing financial reliance upon China, Hong Kong’s stock markets experienced a similar fluctuation during the relevant times and the Hang Seng Index had a record-breaking slump in single day in the recent decade. As the Guarantor has two principal subsidiaries whose shares are listed on the Shanghai Stock Exchange (namely Shanghai Electric Power Company Limited and Spic Yuanda Environmental Protection Co., Ltd.), three principal subsidiaries whose shares are listed on the Shenzhen Stock Exchange (namely Huolinhe Opencut Coal Industry Corporation Limited of Inner Mongolia, Shijiazhuang Dongfang Energy Co., Ltd. and Jilin Power Share Co., Ltd.) and two principal subsidiaries whose shares are listed on the Hong Kong Stock Exchange (namely China Power International Development Ltd. and China Power New Energy Development Company Limited), significant fluctuations in these financial markets could increase the costs of financing activities, and therefore cause substantial adverse effects on the business operations and investments of the listed companies individually and the Group as a whole.
Interpretation of PRC laws and regulations involves significant uncertainties. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, the PRC government has been developing a comprehensive system of
32 commercial laws, and considerable progress has been made in introducing laws and regulations dealing with economic matters such as foreign investment, corporate organisation and governance, commerce, taxation and trade. However, as these laws and regulations are relatively new, and due to the limited volume of published cases and judicial interpretation and their lack of precedential force, interpretation and enforcement of these laws and regulations involve significant uncertainties. In particular, the PRC power generation industry is a highly regulated industry. Many aspects of the Group’s business such as the connection and dispatch of power generation and the setting of on-grid and retail tariffs are subject to negotiation with the PRC government and the relevant government authority’s approval. As the PRC legal system develops together with the PRC power generation industry, there is no assurance that changes in such laws and regulations, or in their interpretation or enforcement, will not have a material adverse effect on the Group’s business operations.
Furthermore, the administration of PRC laws and regulations may be subject to a certain degree of discretion by the executive authorities. This has resulted in the outcome of dispute resolutions not being as consistent or predictable compared to more developed jurisdictions. In addition, it may be difficult to obtain a swift and equitable enforcement of laws in the PRC, or the enforcement of judgements by a court of another jurisdiction. These uncertainties relating to the interpretation and implementation of PRC laws and regulations may adversely affect the legal protections and remedies that are available to the Group in its operations and to holders of the Bonds.
Certain PRC regulations governing PRC companies are less developed than those applicable to companies incorporated in more developed countries. Most of the Guarantor’s subsidiaries and associates are established in the PRC and are subject to PRC regulations governing PRC companies. These regulations contain certain provisions that are required to be included in the joint venture contracts, articles of association and all other major operational agreements of these PRC companies and are intended to regulate the internal affairs of these companies. These regulations in general, and the provisions for protection of shareholders’ rights and access to information in particular, are less developed than those applicable to companies incorporated in Hong Kong, the United States, the United Kingdom and other developed countries or regions.
The Group’s labour costs may increase for reasons such as the implementation of the PRC Labour Contract Law or inflation in the PRC. The Labour Contract Law of the People’s Republic of China, adopted at the 28th Meeting of the Standing Committee of the Tenth National People’s Congress of the PRC on 29 June 2007, was promulgated and became effective on 1 January 2008 and was amended on 28 December 2012 (the “PRC Labour Contract Law”). It imposes more stringent requirements on employers in relation to entry into fixed-term employment contracts and dismissal of employees. Pursuant to the PRC Labour Contract Law, the employer is required to make compensation payment to a fixed-term contract employee when the term of their employment contract expires, unless the employee does not agree to renew the contract even though the conditions offered by the employer for renewal are the same as or are better than those stipulated in the current employment contract. In general, the amount of compensation payment is equal to the monthly wage of the employee multiplied by the number of full years that the employee has worked for the employer. A minimum wage requirement has also been incorporated into the PRC Labour Contract Law. In addition, unless otherwise prohibited by the PRC Labour Contract Law or objected to by the employees themselves, the employer is also required to enter into non-fixed-term employment contracts with employees who have previously entered into fixed-term employment contracts for two consecutive terms.
In addition, under the Regulations on Paid Annual Leave for Employees, which became effective on 1 January 2008, employees who have worked continuously for more than one year are entitled to paid annual leave ranging from 5 to 15 days, depending on the length of the employees’ work time. Employees who consent to waive such vacation at the request of employers shall be compensated an amount equal to three times their normal daily salaries for each vacation day being waived. Under the National Leisure and Tourism Outline 2013-2020 which became effective on 2 February 2013, all workers must receive paid annual leave by 2020. As a result of the PRC Labour Contract Law, the Regulations on Paid Annual Leave for Employees and the National Leisure and Tourism Outline 2013-2020, the Group’s labour costs (inclusive of those incurred by contractors) may increase. Further, under the PRC Labour Contract Law, when an employer terminates its PRC employees’ employment, the employer may be required to compensate them for such amount which is determined based on their length of service with the employer, and the employer may not be able to efficiently terminate non-fixed-term employment contracts under the PRC Labour Contract Law without cause. In the event the Group decides to significantly
33 change or decrease its workforce, the PRC Labour Contract Law could adversely affect its ability to effect these changes in a cost-effective manner or in the manner that the Group desires, which could result in an adverse impact on the Group’s businesses, financial condition and results of operations.
Further, if there is a shortage of labour or for any reason the labour cost in the PRC rises significantly, the Group’s operating costs are likely to increase, thereby adversely affecting the Group’s financial condition. In such circumstances, the profit margin may decrease and the financial results may be adversely affected.
Any force majeure events, including the outbreak, or threatened outbreak, of any severe communicable disease in Hong Kong or the PRC, could materially and adversely affect the Group’s business and results of operations. Any force majeure events, including the outbreak, or threatened outbreak, of any severe communicable disease (such as severe acute respiratory syndrome or avian influenza) in Hong Kong or the PRC could materially and adversely affect the overall business sentiment and environment in the PRC, particularly if such outbreak is inadequately controlled. This, in turn, could materially and adversely affect domestic consumption, labour supply and, possibly, the overall GDP growth of the PRC. The Group’s revenue is currently derived mainly from its PRC operations, and any labour shortages on contraction or slowdown in the growth of domestic consumption in the PRC could materially and adversely affect the Group’s business, financial condition and results of operations. In addition, if any of the Group’s employees are affected by any severe communicable disease, it could adversely affect or disrupt production levels and operations at the relevant plants and materially and adversely affect the Group’s business, financial condition and results of operations, which may also involve a closure of the Group’s facilities to prevent the spread of the disease. The spread of any severe communicable disease in the PRC may also affect the operations of the Group’s customers and suppliers, which could materially and adversely affect the Group’s business, financial condition, and results of operations.
It may be difficult to effect service of legal process, enforce foreign judgements or bring original actions in the PRC based on other foreign laws against the Group. The PRC does not have treaties providing for the reciprocal recognition and enforcement of judgements of courts with the United States, the United Kingdom, Japan and many other countries. Therefore, it may not be possible for investors to effect service of process upon those persons in the PRC or to enforce against them in the PRC any judgements obtained from non-PRC courts. In addition, recognition and enforcement in the PRC of judgements of a court of any other jurisdiction in relation to any matter not subject to a binding arbitration provision may be difficult or even impossible.
Risks Relating to the Bonds and the Guarantee An active trading market for the Bonds may not develop. The Bonds are a new issue of securities for which there is currently no trading market. There can be no assurance as to the liquidity of the Bonds or that an active trading market will develop or as to liquidity or sustainability of any such market, the ability of holders to sell their Bonds or the price at which holders will be able to sell their Bonds. If the Bonds are allocated to a limited group of investors, and a limited number of investors hold a significant proportion of the Bonds, liquidity will be restricted and the development of a liquid trading market for the Bonds will be affected. If a market does develop, it may not be liquid and the Bonds could trade at prices that may be higher or lower than the initial issue price depending on many factors, including prevailing interest rates, the Group’s operations and the market for similar securities. The Joint Lead Managers are not obligated to make a market in the Bonds and any such market making, if commenced, may be discontinued at any time at the sole discretion of the Joint Lead Managers. Therefore, investors may not be able to sell their Bonds easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. In addition, Bondholders should be aware of the prevailing and widely reported global credit market conditions (which continue at the date of this Offering Circular), whereby there is a general lack of liquidity in the secondary market for instruments similar to the Bonds. Such lack of liquidity may result in investors suffering losses on the Bonds in secondary resales even if there is no decline in the performance of the assets of the Group. It is not possible to predict which of these circumstances will change and whether, if and when they do change, there will be a more liquid market for the Bonds and instruments similar to the Bonds at that time. Although application will be made for the listing of the Bonds on the Hong Kong Stock Exchange, no assurance can be given as to the liquidity of, or trading market for, the Bonds. In addition, the Bonds are being offered pursuant to exemptions from registration under the Securities Act and, as a result, investors will only be able to resell their
34 Bonds in transactions that have been registered under the Securities Act or in transactions not subject to or exempt from registration under the Securities Act.
The liquidity and price of the Bonds following this offering may be volatile. If an active trading market for the Bonds were to develop, the price and trading volume of the Bonds may be highly volatile. Factors such as variations in the revenues, earnings and cash flows of the Group, proposals of new investments, strategic alliances and/or acquisitions, interest rates and fluctuations in prices for comparable companies, changes in the power industry and competition and general economic conditions could cause the price of the Bonds to change. Any such developments may result in large and sudden changes in the volume and price at which the Bonds will trade. There can be no assurance that these developments will not occur in the future.
The Bonds may not be a suitable investment for all investors. Each potential investor in any Bonds must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: • have sufficient knowledge and experience to make a meaningful evaluation of the Bonds, the merits and risks of investing in the Bonds and the information contained or incorporated by reference in this Offering Circular; • have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Bonds and the impact such investment will have on its overall investment portfolio; • have sufficient financial resources and liquidity to bear all of the risks of an investment in the Bonds, or where the currency for principal or interest payments is different from the potential investor’s currency; • understand thoroughly the terms of the Bonds and be familiar with the behaviour of any relevant indices and financial markets; and • be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.
Additionally, the investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities.
The Guarantor’s obligations under the Guarantee will be structurally subordinated to all existing and future indebtedness and other liabilities of each of the Guarantor’s existing and future subsidiaries (other than the Issuer), and effectively subordinated to the Guarantor’s secured debt to the extent of the value of the collateral securing such indebtedness. The Issuer was established by the Guarantor specifically for the purpose of issuing the Bonds and will on-lend the entire proceeds from the issue of the Bonds to other members of the Group. The Issuer does not and will not have any assets other than such loan(s) and its ability to make payments under the Bonds will depend on its receipt of timely payments from the borrower(s) under such loan arrangement(s).
The Guarantee will be structurally subordinated to any debt and other liabilities and commitments, including trade payables and lease obligations, of the Guarantor’s existing and future subsidiaries, whether or not secured. The Guarantor’s obligations under the Guarantee will not be guaranteed by any of the Guarantor’s subsidiaries, and the Guarantor’s ability to make payments under the Guarantee depends partly on the receipt of dividends, distributions, interest or advances from its subsidiaries. The ability of such subsidiaries to pay dividends to the Guarantor is subject to various restrictions under applicable laws. The Guarantor’s subsidiaries are separate legal entities that have no obligation to pay any amounts due under the Guarantee or make any funds available therefore, whether by dividends, loans or other payments. The Guarantor’s right to receive assets of any of the Guarantor’s subsidiaries, upon that subsidiary’s liquidation or reorganisation, will be effectively subordinated to the claim of that subsidiary’s creditors (except to the extent that the Guarantor are creditors of that subsidiary). Consequently, the Guarantee will be effectively subordinated to all liabilities, including trade payables and lease obligations, of any of the Guarantor’s subsidiaries and any subsidiaries that the Guarantor may in the future acquire or establish. The outstanding indebtedness of the subsidiaries of the Guarantor may also contain covenants restricting the ability of such subsidiaries to pay dividends in certain circumstances for so long as such indebtedness remains outstanding. Moreover, the Guarantor’s percentage interests in its subsidiaries and joint ventures could be reduced in the future.
35 The Guarantee is the Guarantor’s unsecured obligations and will (i) rank equally in right of payment with all the Guarantor’s other present and future unsubordinated and unsecured indebtedness; and (ii) be effectively subordinated to all of the Guarantor’s present and future secured indebtedness to the extent of the value of the collateral securing such obligations. Accordingly, claims of secured lenders, whether senior or junior, with respect to assets securing their loans will be prior with respect to those assets. In the event of the Guarantor’s bankruptcy, insolvency, liquidation, reorganisation, dissolution or other winding up, or upon any acceleration of the Bonds, these assets will be available to pay obligations on the Guarantee only after all other debt secured by these assets has been repaid in full. Any remaining assets will be available to the Bondholders rateably with all of the Guarantor’s other unsecured and unsubordinated creditors, including trade creditors. If there are not sufficient assets remaining to pay all these creditors, then all or a portion of the Bonds then outstanding would remain unpaid.
If the Guarantor fails to complete the registration of the Guarantee with SAFE within the time period prescribed by SAFE, there may be logistical hurdles for cross-border payment under the Guarantee. Pursuant to the Deed of Guarantee executed by the Guarantor, the Guarantor will unconditionally and irrevocably guarantee the due payment of all sums expressed to be payable by the Issuer under the Bonds and the Trust Deed. The Guarantor is required to submit the Deed of Guarantee to SAFE for registration in accordance with, and within the time period prescribed by, the Foreign Exchange Administration Rules on Cross-Border Guarantees ( )(“Foreign Exchange of Cross-Border Guarantee Measures”). Although the non- registration does not render the Guarantee ineffective or invalid under PRC law, the Guarantor may not be able to go through the procedures for the purchase of foreign exchange and remittance to perform its obligations under the Guarantee of the Bonds and SAFE may impose penalties on the Guarantor if registration of the Guarantee is not carried out within the stipulated time frame. The Guarantor intends to register the Guarantee as soon as practicable and in any event before the registration deadline (being 120 business days after the Issue Date). If the registration of the Guarantee is not completed within the registration deadline, the holder of a Bond shall have the option to require the Issuer to redeem such Bond pursuant to Condition 6(c) of the Terms and Conditions of the Bonds. In addition, if the Guarantor fails to complete such registration of the Guarantee, there may be logistical hurdles at the time of remittance of funds (if any cross-border payment is to be made by the Guarantor under the Guarantee) as domestic banks may require evidence of the registration of the Guarantee with SAFE in order to effect such remittance, although this does not affect the validity of the Guarantee itself.
The Foreign Exchange of Cross-Border Guarantee Measures is a recent regulation and its interpretation may involve significant uncertainty, which may adversely affect the enforceability and/or effective performance of the Guarantee of the Bonds in the PRC. In addition, the administration of the Foreign Exchange of Cross-Border Guarantee Measures may be subject to a certain degree of executive and policy discretion by SAFE. There is no assurance that the registration of the Guarantee with SAFE can be completed by the Guarantor or that such registration will not be revoked or amended in the future or that future changes in PRC laws and regulations will not have a negative impact on the validity and enforceability of the Guarantee of the Bonds in the PRC.
The Bonds and the Guarantee are unsecured obligations. The Bonds and the Guarantee are unsecured obligations of the Issuer and the Guarantor, respectively. The repayment of the Bonds and payment under the Guarantee may be adversely affected if: • the Issuer or the Guarantor enters into bankruptcy, liquidation, reorganisation or other winding-up proceedings; • there is a default in payment under the Issuer’s or the Guarantor’s future secured indebtedness or other unsecured indebtedness; or • there is an acceleration of any of the Issuer’s or the Guarantor’s indebtedness.
If any of these events were to occur, the Issuer’s or the Guarantor’s assets may not be sufficient to pay amounts due on the Bonds.
The Issuer may be treated as a PRC resident enterprise for PRC tax purposes and certain withholding taxes and value-added tax may be applicable. Under the Enterprise Income Tax Law (“EIT Law”) and the implementation rules which both took effect on 1 January 2008, enterprises established outside the PRC whose “de facto management bodies” are located in China are considered “resident enterprises” for PRC tax purposes.
36 The implementation rules define the term “de facto management body” as a management body that exercises full and substantial control and management over the business, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation specified certain criteria for the determination of the “de facto management bodies” for foreign enterprises that are controlled by PRC enterprises, which may be relevant for the tax authorities to determine whether the Issuer is a PRC resident enterprise for tax purposes. However, there is no clear standard published by the tax authorities for making such a determination.
Although it is unclear under PRC tax law whether the Issuer has a “de facto management body” located in China for PRC tax purposes, the Group takes the position that the Issuer is not a PRC resident enterprise for tax purposes. There is no assurance that the tax authorities will agree with the Group’s position. If the Issuer is deemed to be a PRC resident enterprise for EIT purposes, the Issuer would be subject to the PRC enterprise income tax at the rate of 25 per cent. on its worldwide taxable income. Furthermore, the Issuer may be obligated to withhold PRC income tax of up to 10 per cent. on payments of interest and other amounts on the Bonds to investors that are not resident enterprises in countries with tax treaties between the PRC and those countries which exempt or reduce such withholding tax, because the interest and other amounts may be regarded as being derived from sources within the PRC. In addition, if the Issuer fails to do so, it may be subject to fines and other penalties. Similarly, any gain realised by such non-resident enterprise investors from the transfer of the Bonds may be regarded as being derived from sources within the PRC and may accordingly be subject to a 10 per cent. PRC withholding tax.
Furthermore, if the Issuer is treated as a PRC resident enterprise, the interest the Issuer pays in respect of the Bonds, and the gain any investor may realise from the transfer of the Bonds, may be treated as income derived from sources within the PRC and may be subject to PRC tax (including withholding tax in the case of interest). If the Issuer is required under the EIT Law to withhold PRC income tax from interest payments made to the Issuer’s foreign shareholders who are “non-resident enterprises”, the Issuer will be required to pay such additional amounts as will result in receipt by a holder of the Bonds of such amounts as would have been received by the holder had no such withholding been required. The requirement to pay additional amounts will increase the cost of servicing interest payments on the Bonds, and could have a material adverse effect on its ability to pay interest on, and repay the principal amount of, the Bonds, as well as its profitability and cash flow. It is unclear whether, if the Issuer is considered a PRC “resident enterprise”, holders of the Bonds might be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas.
On 23 March 2016, MOF and the State Administration of Taxation issued the Circular of Full Implementation of Replacing Business Tax with Value-Added Tax Reform (Caishui [2016] No. 36) (“Circular 36”), which introduced a new value-added tax (“VAT”) from 1 May 2016. VAT is applicable where entities or individuals provide services within the PRC. The Guarantor and, if the Issuer is treated as a PRC resident enterprise, the Issuer will be obligated to withhold VAT of 6 per cent. and certain surcharges (as described below) on VAT for payments of interest and certain other amounts on the Bonds paid by the Guarantor and, if the Issuer is treated as a PRC resident enterprise, the Issuer to Bondholders that are non-resident enterprises or individuals. VAT is unlikely to be applicable to any transfer of Bonds between entities or individuals located outside of the PRC and therefore unlikely to be applicable to gains realised upon such transfers of Bonds, but there is uncertainty as to the applicability of VAT if either the seller or buyer of Bonds is located inside the PRC. Circular 36 together with other laws and regulations pertaining to VAT are relatively new, the interpretation and enforcement of such laws and regulations involve uncertainties. Pursuant to the Interim Regulation of the PRC on City Maintenance and Construction Tax ( (2011 )), the Interim Provisions on the Collection of Educational Surcharges ( (2011 )) and the Administrative Measures on the Collection and Utilisation of Local Educational Surcharges in Beijing ( ), city maintenance and construction tax, educational surcharges and local educational surcharges will be applicable when entities and individuals are obliged to pay VAT (for an aggregate of 12 per cent. on any VAT payable).
If a Bondholder, being a non-resident enterprise or non-resident individual, is required to pay any PRC income tax on interest or gains on the transfer of the Bonds, the value of the relevant Bondholder’s investment in the Bonds may be materially and adversely affected.
37 If the Issuer, the Guarantor or any other member of the Group is unable to comply with the restrictions and covenants in their respective debt agreements (if any), or the Bonds, there could be a default under the terms of these agreements, or the Bonds, which could cause repayment of the debt of the Issuer or the Guarantor to be accelerated. Certain financing agreements entered into by members of the Group contain operational and financial restrictions on the Group’s or, as the case may be, the relevant subsidiary’s, business operations or financing activities, that prohibit the relevant borrower from incurring additional indebtedness, providing guarantees to other parties or changing its business focus or corporate structure unless it is able to satisfy certain requirements, including but not limited to meeting certain financial ratios or obtaining the relevant lender’s prior consent. The ability of the Group to meet such requirements may be affected by events beyond its control, and the Group may not be in compliance with such restrictions from time to time. Such restrictions may also negatively affect the Group’s ability to respond to changes in market conditions in time, take advantage of business opportunities the Group believes to be desirable, obtain future financing, fund capital expenditures or withstand a continuing or future downturn in its business. Any of these factors could materially and adversely affect the ability of the Issuer, the Guarantor and other members of the Group to satisfy its obligations under the Bonds and/or other debt, as the case may be.
If the Issuer, the Guarantor or any other member of the Group is unable to comply with the restrictions and covenants in the Bonds or its current or future debt obligations and other agreements (if any), as the case may be, there could be a default under the terms of these agreements, including the Bonds. In the event of a default under these agreements, the holders of the debt could terminate their commitments to lend to the Issuer, the Guarantor or such other member of the Group, accelerate repayment of the debt, declare all amounts borrowed due and payable or terminate the agreements, as the case may be. Furthermore, those debt agreements may contain cross- acceleration or cross-default provisions. As a result, the default by the Issuer, the Guarantor or any other member of the Group under one debt agreement may cause the acceleration of repayment of debt, including the Bonds, or result in a default under its other debt agreements. If any of these events occur, there can be no assurance that there would be sufficient assets and cash flows to repay in full all of the indebtedness of the Issuer, the Guarantor or such other member of the Group, or that it would be able to find alternative financing. Even if alternative financing could be obtained, there can be no assurance that it would be on terms that are favourable or acceptable to the Issuer, the Guarantor or such other member of the Group.
The ratings assigned to the Bonds may be lowered or withdrawn in the future. The Bonds are expected to be assigned a rating of “A2” and “A” by Moody’s and Fitch, respectively. The ratings represent the opinions of the rating agencies and their assessment of the ability of the Issuer and the Guarantor to perform their respective obligations under the Bonds and the Guarantee and credit risks in determining the likelihood that payments will be made when due under the Bonds. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time. The Group cannot assure investors that a rating will remain for any given period of time or that a rating will not be lowered or withdrawn entirely by the relevant rating agency if in its judgement circumstances in the future so warrant. In addition, credit rating agencies may change their methodology for assigning ratings at any time. Neither the Issuer nor the Guarantor has any obligation to inform holders of the Bonds of any such revision, downgrade or withdrawal. A suspension, reduction or withdrawal at any time of the rating assigned to the Bonds may adversely affect the market price of the Bonds and the Guarantor’s ability to access the debt capital markets.
The Bonds will be represented by a Global Certificate and holders of a beneficial interest in the Global Certificate must rely on the procedures of the relevant Clearing System(s). The Bonds will be represented by a Global Certificate which will be deposited with a common depositary for Euroclear and Clearstream, Luxembourg (each a “Clearing System”). Except in the circumstances described in the Global Certificate, investors will not be entitled to receive definitive Bonds. The Clearing System(s) will maintain records of the beneficial interests in the Global Certificate. While the Bonds are represented by the Global Certificate, investors will be able to trade their beneficial interests only through the Clearing Systems.
While the Bonds are represented by the Global Certificates, the Issuer, or failing which, the Guarantor will discharge its payment obligations under the Bonds by making payments to the Clearing System for distribution to their account holders. A holder of a beneficial interest in the Global Certificate must rely on the procedures of the Clearing System(s) to receive payments under the Bonds. Neither the Issuer nor the Guarantor has any responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the Global Certificate.
38 Holders of beneficial interests in the Global Certificate will not have a direct right to vote in respect of the Bonds. Instead, such holders will be permitted to act only to the extent that they are enabled by the Clearing System(s) to appoint appropriate proxies. Similarly, holders of beneficial interests in the Global Certificate will not have a direct right under the Global Certificate to take enforcement action against the Issuer or the Guarantor in the event of a default under the Bonds but will have to rely upon their rights under the Trust Deed.
The Issuer or the Guarantor may not be able to redeem the Bonds upon the due date for redemption thereof. The Issuer may, on the occurrence of a Change of Control (as defined under the Terms and Conditions of the Bonds), and at maturity will, be required to redeem part or all of the Bonds. If such an event were to occur, the Issuer may not have sufficient cash in hand and may not be able to arrange financing to redeem the Bonds in time, or on acceptable terms, or at all. There is also no assurance that the Guarantor would have sufficient funds at such time to make the required redemption of the Bonds. The ability to redeem the Bonds in such event may also be limited by the terms of other debt instruments. Failure to repay or redeem tendered Bonds by the Issuer or the Guarantor would constitute an event of default under the Bonds, which may also constitute a default under the terms of the Group’s other indebtedness.
The insolvency laws of British Virgin Islands and the PRC and other local insolvency laws may differ from those of another jurisdiction with which the holders of the Bonds are familiar. As the Issuer and the Guarantor are incorporated under the laws of the British Virgin Islands and the PRC, respectively, any insolvency proceeding relating to the Issuer or the Guarantor would likely involve British Virgin Islands or PRC insolvency laws, respectively, the procedural and substantive provisions of which may differ from comparable provisions of the local insolvency laws of jurisdictions with which the holders of the Bonds are familiar.
The Trustee may request the Bondholders to provide an indemnity and/or security and/or prefunding to its satisfaction. In certain circumstances, including, without limitation, giving of notice to the Issuer and the Guarantor pursuant to Condition 9 of the Terms and Conditions of the Bonds and taking enforcement steps pursuant to Condition 13 of the Terms and Conditions of the Bonds, the Trustee may, at its sole discretion, request the Bondholders to provide an indemnity and/or security and/or prefunding to its satisfaction before it takes actions on behalf of the Bondholders. The Trustee shall not be obliged to take any such actions if not first indemnified and/or secured and/or prefunded to its satisfaction.
Negotiating and agreeing to an indemnity and/or security and/or prefunding can be a lengthy process and may impact on when such actions can be taken. The Trustee may not be able to take actions, notwithstanding the provision of an indemnity or security or prefunding to it, in breach of the terms of the Trust Deed or the Terms and Conditions of the Bonds and in such circumstances, or where there is uncertainty or dispute as to the applicable laws or regulations, to the extent permitted by the agreements and the applicable laws and regulations, it will be for the holders of the Bonds to take such actions directly.
Decisions that may be made on behalf of all holders of the Bonds may be adverse to the interests of individual holders of the Bonds. The Terms and Conditions of the Bonds contain provisions for calling meetings of holders of the Bonds to consider matters affecting their interests generally. These provisions permit defined majorities to bind all holders of the Bonds including holders who did not attend and vote at the meeting and holders who voted in a manner contrary to the majority. Furthermore, there is a risk that the decision of the majority of holders of the Bonds may be adverse to the interests of the individual Bondholders.
39 TERMS AND CONDITIONS OF THE BONDS
The following, subject to modification and other than the words in italics, is the text of the Terms and Conditions of the Bonds which will appear on the reverse of each of the definitive certificates evidencing the Bonds:
The issue of the U.S.$[Š][Š] per cent. Guaranteed Bonds due [Š] (the “Bonds”, which term shall include, unless the context requires otherwise, any further bonds issued in accordance with Condition 15 and consolidated and forming a single series therewith) was authorised by written resolutions of the sole director of SPIC 2016 US dollar Bond Company Limited 2016 (the “Issuer”) passed on 21 November 2016 and the guarantee of the Bonds was authorised by resolutions of the executive committee of the board of directors of State Power Investment Corporation (the “Guarantor”) passed on 20 October 2016. The Bonds are constituted by a Trust Deed (the “Trust Deed”) dated on or about [Š] 2016 between the Issuer, the Guarantor and Citicorp International Limited (the “Trustee”, which expression shall include all persons for the time being the trustee or trustees under the Trust Deed) as trustee for the holders of the Bonds. These terms and conditions include summaries of, and are subject to, the detailed provisions of the Trust Deed, which includes the form of the Bonds. The Bonds have the benefit of a Deed of Guarantee (the “Deed of Guarantee”) dated on or about [Š] 2016 executed by the Guarantor and the Trustee relating to the Bonds. An Agency Agreement (the “Agency Agreement”) dated on or about [Š] 2016 relating to the Bonds has been entered into between the Issuer, the Guarantor, the Trustee, Citibank, N.A., London Branch as principal paying agent (the “Principal Paying Agent”) and as transfer agent (the “Transfer Agent”), Citibank, N.A., London Branch as registrar (the “Registrar”) and any other agents named in it. Copies of the Trust Deed, the Deed of Guarantee and the Agency Agreement are available for inspection during usual business hours at the principal place of business of the Trustee (being as at the date of issue of the Bonds at 39th Floor, Champion Tower, Three Garden Road, 3 Garden Road, Central, Hong Kong). “Agents” means the Principal Paying Agent, the Registrar, the Transfer Agent and any other agent or agents appointed from time to time pursuant to the Agency Agreement with respect to the Bonds. The Bondholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and the Deed of Guarantee and are deemed to have notice of those provisions applicable to them of the Agency Agreement.
All capitalised terms that are not defined in these terms and conditions (the “Conditions”) will have the meanings given to them in the Trust Deed.
1 Form, Specified Denomination and Title The Bonds are issued in the specified denomination of U.S.$200,000 and integral multiples of U.S.$1,000 in excess thereof. The Bonds are represented by registered certificates (“Certificates”) and, save as provided in Condition 2(a), each Certificate shall represent the entire holding of Bonds by the same holder. Title to the Bonds shall pass by registration in the register that the Issuer shall procure to be kept by the Registrar in accordance with the provisions of the Agency Agreement (the “Register”). Except as ordered by a court of competent jurisdiction or as required by law, the holder (as defined below) of any Bond shall be deemed to be and may be treated as its absolute owner for all purposes whether or not it is overdue and regardless of any notice of ownership, trust or an interest in it, any writing on the Certificate representing it or the theft or loss of such Certificate and no person shall be liable for so treating the holder. In these Conditions, “Bondholder” and, in relation to a Bond, “holder” mean the person in whose name a Bond is registered. Upon issue, the Bonds will be represented by a global certificate (the “Global Certificate”) registered in the name of a nominee of, and deposited with, a common depositary for Euroclear Bank SA/NV (“Euroclear”) and Clearstream Banking S.A. (“Clearstream, Luxembourg”). The Conditions are modified by certain provisions contained in the Global Certificate. See “Summary of Provisions Relating to the Bonds in Global Form”. Except in the limited circumstances described in the Global Certificate, owners of interests in Bonds represented by the Global Certificate will not be entitled to receive definitive Certificates in respect of their individual holdings of Bonds. The Bonds are not issuable in bearer form.
2 Transfers of Bonds and Delivery of New Certificates (a) Transfer: A holding of Bonds may, subject to Conditions 2(d) and 2(e), be transferred in whole or in part upon the surrender (at the specified office of the Registrar or any Transfer Agent) of the
40 Certificate(s) representing such Bonds to be transferred, together with the form of transfer endorsed on such Certificate(s) (or another form of transfer substantially in the same form and containing the same representations and certifications (if any), unless otherwise agreed by the Issuer), duly completed and executed and any other evidence as the Registrar or the relevant Transfer Agent may require. In the case of a transfer of part only of a holding of Bonds represented by one Certificate, a new Certificate shall be issued to the transferee in respect of the part transferred and a further new Certificate in respect of the balance of the holding not transferred shall be issued to the transferor. In the case of a transfer of Bonds to a person who is already a holder of Bonds, a new Certificate representing the enlarged holding shall only be issued against surrender of the Certificate representing the existing holding. Transfers of interests in the Bonds evidenced by the Global Certificate will be effected in accordance with the rules of the relevant clearing systems. (b) Delivery of New Certificates: Each new Certificate to be issued pursuant to Condition 2(a) shall be available for delivery within seven business days of receipt of a duly completed form of transfer and surrender of the existing Certificate(s). Delivery of the new Certificate(s) shall be made at the specified office of the Transfer Agent or of the Registrar (as the case may be) to whom delivery or surrender of such form of transfer or Certificate shall have been made or, at the option of the holder making such delivery or surrender as aforesaid and as specified in the relevant form of transfer or otherwise in writing, be mailed by uninsured post at the risk of the holder entitled to the new Certificate to such address as may be so specified, unless such holder requests otherwise and pays in advance to the relevant Transfer Agent or the Registrar (as the case may be) the costs of such other method of delivery and/or such insurance as it may specify. In this Condition 2(b), “business day” means a day, other than a Saturday or Sunday or public holiday, on which banks are open for business in the place of the specified office of the relevant Transfer Agent or the Registrar (as the case may be). (c) Transfer or Exercise Free of Charge: Certificates, on transfer, shall be issued and registered without charge to the relevant Bondholder by or on behalf of the Issuer, the Registrar or any Transfer Agent, but upon payment by the relevant Bondholder of any tax or other governmental charges that may be imposed in relation to them (or the giving of such indemnity and/or security and/or pre-funding as the Registrar or the relevant Transfer Agent may require). (d) Closed Periods: No Bondholder may require the transfer of a Bond to be registered (i) during the period of 15 days ending on (and including) the due date for redemption of that Bond, (ii) after a Put Exercise Notice has been deposited in respect of such Bond pursuant to Condition 6(c), or (iii) during the period of seven days ending on (and including) any Record Date (as defined in Condition 7(a)). (e) Regulations: All transfers of Bonds and entries on the Register will be made in accordance with the detailed regulations concerning transfer and registration of Bonds scheduled to the Agency Agreement. Each of the Issuer and the Registrar may change the regulations from time to time, with the prior written approval of the Trustee and (in the case of any regulation proposed by the Issuer) of the Registrar. A copy of the current regulations will be mailed (free of charge to the Bondholder and at the Issuer’s expense) by the Registrar to any Bondholder upon written request and is available at the specified office of the Registrar.
3 Guarantee and Status (a) Guarantee: The Guarantor has unconditionally and irrevocably guaranteed the due payment of all sums expressed to be payable by the Issuer under the Trust Deed and the Bonds. Its obligations in that respect (the “Guarantee”) are contained in the Deed of Guarantee. The obligations of the Guarantor under the Guarantee shall, save for such exceptions as may be provided by applicable legislation and subject to Condition 4(a), at all times rank at least equally with all its other present and future unsecured and unsubordinated obligations. (b) Status: The Bonds constitute direct, unsubordinated, unconditional and (subject to Condition 4(a)) unsecured obligations of the Issuer and shall at all times rank pari passu and without any preference among themselves. The payment obligations of the Issuer under the Bonds shall, save for such exceptions as may be provided by applicable legislation and subject to Condition 4(a), at all times rank at least equally with all the Issuer’s other present and future unsecured and unsubordinated obligations.
41 4 Negative Pledge and Other Covenants (a) Negative Pledge: So long as any Bond remains outstanding (as defined in the Trust Deed), neither the Issuer nor the Guarantor will, and each of the Issuer and the Guarantor will ensure that none of their Principal Subsidiaries (other than any Listed Subsidiary and a Subsidiary of such Listed Subsidiary) will create, or have outstanding, any mortgage, charge, lien, pledge or other security interest, upon the whole or any part of its present or future undertaking, assets or revenues (including any uncalled capital) to secure any Relevant Indebtedness, or to secure any guarantee or indemnity in respect of any Relevant Indebtedness, without at the same time or prior thereto according to the Bonds (a) the same security as is created or subsisting to secure any such Relevant Indebtedness, guarantee or indemnity or (b) such other security as either (i) the Trustee shall in its absolute discretion deem not materially less beneficial to the interest of the Bondholders or (ii) shall be approved by an Extraordinary Resolution (as defined in the Trust Deed) of the Bondholders. (b) Undertakings relating to the Guarantee: The Guarantor undertakes to file or cause to be filed with the State Administration of Foreign Exchange or its local branch (“SAFE”) the Deed of Guarantee within 15 PRC Business Days after execution of the Deed of Guarantee in accordance with the Provisions on the Foreign Exchange Administration of Cross-Border Guarantees ( ) promulgated by SAFE on 12 May 2014 which came into effect on 1 June 2014 (the “Cross-Border Security Registration”). The Guarantor shall use all reasonable endeavours to complete the Cross-Border Security Registration and obtain a registration certificate from SAFE (or any other document evidencing the completion of registration issued by SAFE) on or before the Registration Deadline and shall comply with all applicable PRC laws and regulations in relation to the Guarantee. The Guarantor shall, on or before the Registration Deadline, provide the Trustee with (i) a certificate in English substantially in the form set out in the Trust Deed signed by an Authorised Signatory (as defined in the Trust Deed) of the Guarantor confirming the completion of the Cross-Border Security Registration; and (ii) a copy of the SAFE registration certificate (or any other document evidencing the registration issued by SAFE) setting out the particulars of registration, certified as a true and complete copy of the original by an Authorised Signatory of the Guarantor (the “Registration Documents”). In addition, the Guarantor shall procure that within 10 PRC Business Days after the documents comprising the Registration Documents are delivered to the Trustee, the Issuer gives notice to the Bondholders (in accordance with Condition 16) confirming the completion of the Cross-Border Security Registration. The Trustee shall have no obligation or duty to monitor or ensure the registration of the Deed of Guarantee with SAFE on or before the Registration Deadline, to assist the Guarantor with the registration of the Deed of Guarantee with SAFE, to verify the accuracy, validity and/or genuineness of any documents in relation to or in connection with the Cross-Border Security Registration and/or the Registration Documents or to give notice to the Bondholders confirming the completion of the Cross-Border Security Registration, and shall not be liable to Bondholders or any other person for not doing so. (c) Undertakings relating to NDRC: The Guarantor undertakes to file or cause to be filed with the National Development and Reform Commission of the PRC (the “NDRC”) the requisite information and documents in respect of the issuance of the Bonds within 10 PRC Business Days after the Issue Date and in accordance with the Notice on Promoting the Reform of the Filing and Registration System for Issuance of Foreign Debt by Corporates ( ) promulgated by the NDRC on 14 September 2015 which came into effect immediately (the “Post-Issuance Filing”). The Guarantor shall use all reasonable endeavours to complete the Post-Issuance Filing and shall comply with all applicable PRC laws and regulations in relation to the issue of the Bonds and the Guarantee. The Guarantor shall, within 10 PRC Business Days after completion of the Post-Issuance Filing, provide the Trustee with (i) a certificate in English substantially in the form set out in the Trust Deed signed by an Authorised Signatory of the Guarantor confirming the completion of the Post-Issuance Filing; and (ii) a copy of the Post-Issuance Filing setting out the particulars of filing, certified as a true and complete copy of the original by an Authorised Signatory of the Guarantor (the “Filing Documents”). In addition, the Guarantor shall procure that within 10 PRC Business Days after the documents comprising the Filing Documents are delivered to the Trustee, the Issuer gives notice to the Bondholders (in accordance with Condition 16) confirming the completion of the Post-Issuance Filing. The Trustee shall have no obligation or duty to monitor or ensure the submission of the Post-Issuance Filing with the NDRC, to assist the Guarantor with the completion of the Post-Issuance Filing with the
42 NDRC, to verify the accuracy, validity and/or genuineness of any documents in relation to or in connection with the Post-Issuance Filing and/or the Filing Documents or to give notice to the Bondholders confirming the completion of the Post-Issuance Filing, and shall not be liable to Bondholders or any other person for not doing so. (d) Issuer Activities: The Issuer shall not, and the Guarantor will procure that the Issuer will not, carry on any business activity whatsoever other than in connection with the issue of the Bonds or other bonds and any other activities reasonably incidental thereto (such activities shall, for the avoidance of doubt, include the entry into of currency and interest rate swap transactions and the on-lending of the proceeds of the issue of the Bonds or other bonds and/or such swap transactions to any other Subsidiaries of the Guarantor outside the PRC). (e) Financial Statements: So long as any Bond remains outstanding, the Guarantor shall furnish the Trustee with (A) a Compliance Certificate of the Guarantor (on which the Trustee may rely conclusively as to such compliance and shall not be liable to any Bondholder or any other person for such reliance) and a copy of the relevant Guarantor Audited Financial Reports within 150 days of the end of each Relevant Period (audited by Ruihua Certified Public Accountants or a nationally recognised firm of independent accountants) and if such statements shall be in the Chinese language, together with an English translation of the same translated by (i) Ruihua Certified Public Accountants or a nationally recognised firm of accountants or (ii) a professional translation service provider and checked by Ruihua Certified Public Accountants or a nationally recognised firm of accountants (and the Trustee shall have no obligation to verify the completeness or accuracy of any such translation or that the person who has translated the relevant Guarantor Audited Financial Reports meets the requirements of (i) or (ii) above and may rely conclusively without liability to any Bondholder or any other person on any such translation furnished to it with the relevant Guarantor Audited Financial Reports by the Guarantor); and (B) a copy of the Guarantor Unaudited Financial Statements within 90 days of the end of each Relevant Period prepared on a basis consistent with the Guarantor Audited Financial Reports and if such statements shall be in the Chinese language, together with an English translation of the same and translated by (i) Ruihua Certified Public Accountants or a nationally recognised firm of accountants or (ii) a professional translation service provider and checked and confirmed by Ruihua Certified Public Accountants or a nationally recognised firm of accountants (and the Trustee shall have no obligation to verify the completeness or accuracy of any such translation or that the person who has translated the relevant Guarantor Unaudited Financial Statements meets the requirements of (i) or (ii) above and may rely conclusively without liability to any Bondholder or any other person on any such translation furnished to it with the relevant Guarantor Unaudited Financial Statements by the Guarantor); provided that, if at any time the capital stock of the Guarantor is listed for trading on a recognised stock exchange, the Guarantor may furnish to the Trustee, as soon as they are available but in any event not more than 30 days after any financial reports of the Guarantor are filed with the exchange on which the Guarantor’s capital stock is at such time listed for trading, copies of any financial reports of the Guarantor filed with such exchange and if such financial reports shall be in the Chinese language, together with an English translation of the same translated by (i) Ruihua Certified Public Accountants or a nationally recognised firm of accountants or (ii) a professional translation service provider and checked by Ruihua Certified Public Accountants or a nationally recognised firm of accountants (and the Trustee shall have no obligation to verify the completeness or accuracy of any such translation or that the person who has translated such financial reports meets the requirements of (i) or (ii) above and may rely conclusively without liability to any Bondholder or any other person on any such translation furnished to it with such financial reports by the Guarantor), in lieu of the documents identified in Condition 4(e) above. (f) Definitions: In these Conditions: “Compliance Certificate” means a certificate of the Issuer or the Guarantor, as the case may be, in English signed by any of the Authorised Signatories of the Issuer or the Guarantor, as the case may be, that, having made all reasonable enquiries, to the best knowledge, information and belief of the Issuer or the Guarantor, as the case may be, as a date (the “Certification Date”) not more than five days before the date of the certificate that: (a) no Event of Default (as defined in Condition 9) or Potential Event of Default (as defined in the Trust Deed) has occurred since the Certification Date of the last such certificate or (if none) the date of the Trust Deed or, if such an event had occurred, giving details of it; and (b) each of the Issuer and the Guarantor has complied with all its covenants and obligations under the Trust Deed, the Bonds and the Deed of Guarantee (as applicable).
43 “Guarantor Audited Financial Reports” means, for a Relevant Period the annual audited consolidated financial statements of the Guarantor together with any statements, reports (including, if any, any directors’ and auditors’ reports) and notes attached to or intended to be read with any of them, prepared in accordance with the applicable PRC GAAP or other internationally recognised generally accepted accounting principles; “Guarantor Unaudited Financial Statements” means, for a Relevant Period, the unaudited and unreviewed consolidated income statements, balance sheets and cash flow statements of the Guarantor without any notes attached, prepared on a basis consistent with the Guarantor Audited Financial Reports; “Issue Date” means [Š] 2016; a“Listed Subsidiary” of any person means any Subsidiary of such person whose ordinary shares are listed or dealt in or traded on any internationally recognised stock exchange; “PRC” means the People’s Republic of China, and for the purpose of these Conditions only, excluding the Hong Kong Special Administrative Region of the PRC, the Macau Special Administrative Region of the PRC and Taiwan; “PRC Business Day” means a day (other than a Saturday, Sunday or public holiday) on which commercial banks are generally open for business in Beijing and Shanghai; “PRC GAAP” means the Accounting Standards for Business Enterprises in China issued by the Ministry of Finance of the PRC from time to time; a“Principal Subsidiary” mean, at any time, any Subsidiary of the Issuer and/or the Guarantor: (i) whose total revenue (consolidated in the case of a Subsidiary which itself has Subsidiaries) attributable to the Issuer or the Guarantor, as the case may be, as shown by its latest audited income statement, is at least five per cent. of the consolidated total revenues as shown by the latest published audited income statement of the Issuer or the Guarantor, as the case may be, and their respective consolidated Subsidiaries including, for the avoidance of doubt, the Issuer or the Guarantor, as the case may be, and their respective consolidated Subsidiaries’ share of profits of Subsidiaries not consolidated and of associated entities and after adjustments for minority interests; (ii) whose net profit (consolidated in the case of a Subsidiary which itself has Subsidiaries) attributable to the Issuer or the Guarantor, as the case may be, as shown by its latest audited income statement, is at least five per cent. of the consolidated net profit as shown by the latest published audited income statement of the Issuer or the Guarantor, as the case may be, and their respective consolidated Subsidiaries including, for the avoidance of doubt, the Issuer or the Guarantor, as the case may be, and their respective consolidated Subsidiaries’ share of profits of Subsidiaries not consolidated and of associated entities and after adjustments for minority interests; or (iii) whose total assets (consolidated in the case of a Subsidiary which itself has Subsidiaries) attributable to the Issuer or the Guarantor, as the case may be, as shown by its latest audited balance sheet, is at least five per cent. of the consolidated total assets as shown by the latest published audited balance sheet of the Issuer or the Guarantor, as the case may be, and their respective consolidated Subsidiaries including, for the avoidance of doubt, the investment of the Issuer or the Guarantor, as the case may be, in each Subsidiary whose accounts are not consolidated with the consolidated audited accounts of the Issuer or the Guarantor, as the case may be, and after adjustments for minority interests; or (iv) to which is transferred the whole or substantially the whole of the assets of a Subsidiary which immediately prior to such transfer was a Principal Subsidiary, provided that (xx) the Principal Subsidiary which so transfers its assets shall forthwith upon such transfer cease to be a Principal Subsidiary and the Subsidiary to which the assets are so transferred shall forthwith become a Principal Subsidiary and (yy) on or after the date on which the first published audited accounts (consolidated, if appropriate) of the Issuer or the Guarantor, as the case may be, prepared as of a date later than such transfer are issued, whether such transferor Subsidiary or such transferee Subsidiary is or is not a Principal Subsidiary shall be determined on the basis of such accounts by virtue of the provisions of paragraphs (i), (ii) or (iii) above of this definition, provided that, in relation to paragraphs (i), (ii) and (iii) above of this definition: (a) in the case of a corporation or other business entity becoming a Subsidiary after the end of the financial period to which the latest consolidated audited accounts of the Issuer or the Guarantor, as
44 the case may be, relate, the reference to the then latest consolidated audited accounts of the Issuer or the Guarantor, as the case may be, for the purposes of the calculation above shall, until consolidated audited accounts of the Issuer or the Guarantor, as the case may be, for the financial period in which the relevant corporation or other business entity becomes a Subsidiary are published, be deemed to be a reference to the then latest consolidated audited accounts of the Issuer or the Guarantor, as the case may be, adjusted to consolidate the latest accounts (consolidated in the case of a Subsidiary of the Guarantor which itself has Subsidiaries) of such Subsidiary in such accounts; (b) if at any relevant time in relation to the Issuer or the Guarantor or any Subsidiary no financial statements are prepared and audited, the total revenue, net profit or total assets of the Issuer, the Guarantor and/or any such Subsidiary (consolidated, if appropriate) shall be determined on the basis of pro forma financial statements (consolidated, if appropriate) prepared for this purpose; and (c) if the accounts of any Subsidiary (not being a Subsidiary referred to in proviso (a) above of this definition) are not consolidated with those of the Issuer or the Guarantor, as the case may be, then the determination of whether or not such subsidiary is a Principal Subsidiary shall be based on a pro forma consolidation of its accounts (consolidated, if appropriate) with the consolidated accounts (determined on the basis of the foregoing) of the Issuer or the Guarantor, as the case may be; “Registration Deadline” means the day falling 120 calendar days after the Issue Date; “Relevant Indebtedness” means any indebtedness which is in the form of, or represented or evidenced by, bonds, notes, debentures, loan stock certificates or other securities which for the time being are, or are intended to be or capable of being, quoted, listed or dealt in or traded on any stock exchange or over-the-counter or other securities market issued outside the PRC; “Relevant Period” means, in relation to the Guarantor Audited Financial Reports, each period of 12 months ending on the last day of the Guarantor’s financial year (being 31 December of that financial year), and in relation to the Guarantor Unaudited Financial Statements, each period of three months, six months and nine months, respectively, ending on the last day of each quarter of the Guarantor’s financial year (being 30 March, 30 June and 30 September, respectively, of that financial year); and a“Subsidiary” of any person means (a) any company or other business entity of which that person owns or controls (either directly or through one or more other Subsidiaries) more than 50 per cent. of the issued share capital or other ownership interest having ordinary voting power to elect directors, managers or trustees of such company or other business entity, or (b) any company or other business entity which at any time has its accounts consolidated with those of that person or which, under the laws, regulations or generally accepted accounting principles of the jurisdiction of incorporation of such person from time to time, should have its accounts consolidated with those of that person.
5 Interest The Bonds bear interest on their outstanding principal amount from and including [Š] 2016 at the rate of [Š] per cent. per annum, payable semi-annually in arrear in equal instalments of U.S.$[Š] per Calculation Amount (as defined below) on [Š] and [Š] in each year (each an “Interest Payment Date”) commencing on [Š] 2017. Each Bond will cease to bear interest from the due date for redemption unless, upon surrender of the Certificate representing such Bond, payment of principal is improperly withheld or refused. In such event it shall continue to bear interest at such rate (both before and after judgment) until whichever is the earlier of (a) the date on which all sums due in respect of such Bond up to that day are received by or on behalf of the relevant Bondholder, and (b) the date falling seven days after the Trustee or the Principal Paying Agent has notified Bondholders of receipt of all sums due in respect of all the Bonds up to that seventh day (except to the extent that there is failure in the subsequent payment to the relevant Bondholder under these Conditions). If interest is required to be calculated for a period of less than a complete Interest Period (as defined below), the relevant day-count fraction will be determined on the basis of a 360-day year consisting of 12 months of 30 days each and, in the case of an incomplete month, the number of days elapsed. In these Conditions, the period beginning on and including [Š] 2016 and ending on but excluding the first Interest Payment Date and each successive period beginning on and including an Interest Payment Date and ending on but excluding the next succeeding Interest Payment Date is called an “Interest Period”.
45 Interest in respect of any Bond shall be calculated per U.S.$1,000 in principal amount of the Bonds (the “Calculation Amount”). The amount of interest payable per Calculation Amount for any period shall (save as provided above in relation to equal instalments) be equal to the product of the rate of interest specified above, the Calculation Amount and the day-count fraction for the relevant period, rounding the resulting figure to the nearest cent (half a cent being rounded upwards).
6 Redemption and Purchase (a) Final Redemption: Unless previously redeemed, or purchased and cancelled, the Bonds will be redeemed at their principal amount on [Š]. The Bonds may not be redeemed at the option of the Issuer other than in accordance with this Condition 6. (b) Redemption for Taxation Reasons: The Bonds may be redeemed at the option of the Issuer in whole, but not in part, at any time, on giving not less than 30 nor more than 60 days’ notice to the Bondholders (which notice shall be irrevocable), at their principal amount together with interest accrued up to but excluding the date fixed for redemption, if (i) the Issuer and/or the Guarantor (as the case may be) satisfies the Trustee immediately prior to the giving of such notice that the Issuer (or, if the Guarantee were called, the Guarantor) has or will become obliged to pay Additional Tax Amounts (as defined in Condition 8) as provided or referred to in Condition 8 as a result of any change in, or amendment to, the laws or regulations of the British Virgin Islands or the PRC, or, in each case, any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after [Š] 2016, and (ii) such obligation cannot be avoided by the Issuer (or the Guarantor, as the case may be) taking reasonable measures available to it, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer (or the Guarantor, as the case may be) would be obliged to pay such Additional Tax Amounts were a payment in respect of the Bonds (or the Guarantee, as the case may be) then due. Prior to the publication of any notice of redemption pursuant to this Condition 6(b), the Issuer (or the Guarantor, as the case may be) shall deliver to the Trustee (A) a certificate signed by any Authorised Signatory of the Issuer (or a certificate of the Guarantor signed by any Authorised Signatory of the Guarantor, as the case may be) stating that the obligation referred to in (i) above of this Condition 6(b) cannot be avoided by the Issuer (or the Guarantor, as the case may be) taking reasonable measures available to it and (B) an opinion, addressed to and in form and substance satisfactory to the Trustee, of independent tax or legal advisers of recognised standing to the effect that the Issuer (or the Guarantor, as the case may be) has or will become obliged to pay such Additional Tax Amounts as a result of such change in or amendment to laws or regulations or change in the application or official interpretation thereof, and the Trustee shall be entitled to accept such certificate and opinion as sufficient evidence of the satisfaction of the condition precedent set out in (ii) above of this Condition 6(b), in which event the same shall be conclusive and binding on the Bondholders. The Trustee shall be protected and shall have no liability to any Bondholder or any other person for so accepting and relying on any such certificate. All Bonds in respect of which any notice of redemption is given under Condition 6(b) shall be redeemed on the date specified in such notice in accordance with this Condition 6(b). (c) Redemption for Relevant Events: At any time following the occurrence of a Relevant Event, the holder of any Bond will have the right, at such holder’s option, to require the Issuer to redeem all but not some only of that holder’s Bonds on the Put Settlement Date (as defined below) at 101 per cent. (in the case of a redemption for a Change of Control) or 100 per cent. (in the case of a redemption for a No Registration Event or a No Filing Event) of their principal amount, together with accrued interest up to but excluding such Put Settlement Date. In order to exercise such right, the holder of the relevant Bond must deposit at the specified office of the Principal Paying Agent or any other Paying Agent a duly completed and signed notice of redemption, in the form for the time being current, obtainable from the specified office of the Principal Paying Agent or any other Paying Agent (a “Put Exercise Notice”), together with the Certificate evidencing the Bonds to be redeemed by not later than 30 days following a Relevant Event, or, if later, 30 days following the date upon which notice thereof is given to Bondholders by the Issuer in accordance with Condition 16. The “Put Settlement Date” shall be the fourteenth day after the expiry of such period of 30 days as referred to above. A Put Exercise Notice, once delivered, shall be irrevocable and the Issuer shall redeem the Bonds the subject of the Put Exercise Notices delivered as aforesaid on the Put Settlement Date. The Issuer shall give notice in writing to Bondholders in accordance with Condition 16 and to the Trustee and the Principal Paying Agent in writing by not later than 14 days following the first day on which it becomes aware of the occurrence of a Relevant Event, which notice shall specify the
46 procedure for exercise by holders of their rights to require redemption of the Bonds pursuant to this Condition 6(c). In this Condition 6: a“Change of Control” occurs when: (i) (A) SASAC and (B) any other person or persons (whether singly or in combination) directly or indirectly controlled by the central government of the PRC (such person or persons and SASAC, the “PRC Government Persons” and each, a “PRC Government Person”) together cease to directly or indirectly hold or own 100 per cent. of the issued ordinary share capital of the Guarantor; (ii) the Guarantor ceases to directly or indirectly hold or own 100 per cent. of the outstanding shares of the Issuer; or (iii) the Guarantor consolidates with or merges into or sells or transfers all or substantially all of the Guarantor’s assets to any other person or persons, acting together, except where such person(s) is/are Controlled by the PRC Government Person(s); “Control” means (i) the ownership, acquisition or control of more than 50 per cent. of the voting rights of the issued share capital of a person, (ii) the right to appoint and/or remove all or the majority of the members of a person’s board of directors or other governing body, whether obtained directly or indirectly, and whether obtained by ownership of share capital, the possession of voting rights, contract or otherwise or (iii) the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of such person, and the term “Controlled” has a meaning correlative to the foregoing; “Filing Conditions” means the receipt by the Trustee of the Filing Documents (as defined in Condition 4(c)) within 20 PRC Business Days after the Issue Date; a“No Filing Event” occurs when the Filing Conditions have not been satisfied in full; a“No Registration Event” occurs when the Registration Conditions have not been satisfied in full; a“person” includes any individual, company, corporation, firm, partnership, joint venture, undertaking, association, organisation, trust, state, agency of a state (in each case whether or not being a separate legal entity); “Registration Conditions” means the receipt by the Trustee of the Registration Documents within the Registration Deadline; a“Relevant Event” means a Change of Control, a No Registration Event or a No Filing Event; and “SASAC” means the State-owned Assets Supervision and Administration Commission of the State Council of the PRC or its successor. The Trustee and the Agents shall not be required to take any steps to ascertain whether a Relevant Event has occurred and shall not be responsible or liable to Bondholders, the Issuer, the Guarantor or any other person for any loss arising from any failure to do so. (d) Notices of Redemption: All Bonds in respect of which any notice of redemption is given under this Condition 6 shall be redeemed on the date specified in such notice in accordance with this Condition 6. If there is more than one notice of redemption given in respect of any Bond (which shall include any notice given by the Issuer pursuant to Condition 6(b) and any Put Exercise Notice given by a Bondholder pursuant to Condition 6(c)), the notice given first in time shall prevail and in the event of two notices being given on the same date, the first to be given shall prevail. (e) Purchase: The Issuer, the Guarantor and their respective Subsidiaries may at any time purchase Bonds in the open market or otherwise at any price. The Bonds so purchased, while held by or on behalf of the Issuer, the Guarantor or any such Subsidiary, shall not entitle the holder to vote at any meetings of the Bondholders and shall not be deemed to be outstanding for, among other things, the purposes of calculating quorums at meetings of the Bondholders or for the purposes of Conditions 9, 12(a) and 13. (f) Cancellation: All Certificates representing Bonds purchased by or on behalf of the Issuer, the Guarantor and their respective Subsidiaries shall be surrendered for cancellation to the Registrar and, upon surrender thereof, all such Bonds shall be cancelled forthwith. Any Certificates so surrendered for cancellation may not be reissued or resold and the obligations of the Issuer and the Guarantor in respect of any such Bonds shall be discharged.
47 7 Payments (a) Method of Payment: (i) Payments of principal and premium (if any) shall be made (subject to surrender of the relevant Certificates at the specified office of any Transfer Agent or of the Registrar if no further payment falls to be made in respect of the Bonds represented by such Certificates) in the manner provided in Condition 7(a)(ii) below. (ii) Interest on each Bond shall be paid on the due date to the person shown on the Register at the close of business on the fifth Payment Business Day before the due date for payment thereof (the “Record Date”). Payments of interest on each Bond shall be made in U.S. dollars by cheque drawn on a bank and mailed to the holder (or to the first named of joint holders) of such Bond at its address appearing in the Register. Upon application by the holder to the specified office of the Registrar or any Transfer Agent before the Record Date, such payment of interest may be made by transfer to an account in U.S. dollars maintained by the payee with a bank. So long as the Global Certificate is held on behalf of Euroclear and Clearstream, Luxembourg or any other clearing system, each payment in respect of the Global Certificate will be made to the person shown as the holder in the Register at the close of business of the relevant clearing system on the Clearing System Business Day before the due date for such payments, where “Clearing System Business Day” means a weekday (Monday to Friday, inclusive) except 25 December and 1 January. (iii) If the amount of principal being paid upon surrender of the relevant Certificate is less than the outstanding principal amount of such Certificate, the Registrar will annotate the Register with the amount of principal so paid and will (if so requested by the Issuer or a Bondholder) issue a new Certificate with a principal amount equal to the remaining unpaid outstanding principal amount. If the amount of premium (if any) or interest being paid is less than the amount then due, the Registrar will annotate the Register with the amount of premium (if any) or interest so paid. (b) Payments subject to Fiscal Laws: All payments are subject in all cases to (i) any applicable fiscal or other laws, regulations and directives in the place of payment but without prejudice to the provisions of Condition 8 and (ii) any withholding or deduction required pursuant to an agreement described in Section 1471(b) of the U.S. Internal Revenue Code of 1986 (the “Code”) or otherwise imposed pursuant to Sections 1471 through 1474 of the Code, any regulations or agreement thereunder, any official interpretations thereof, or (without prejudice to provisions of Condition 8) any law implementing an intergovernmental approach thereto. No commission or expenses shall be charged to the Bondholders in respect of such payments. (c) Payment Initiation: Where payment is to be made by transfer to an account in U.S. dollars, payment instructions (for value on the due date or, if that is not a Payment Business Day, for value the first following day which is a Payment Business Day) will be initiated, and where payment is to be made by cheque, the cheque will be mailed, on the due date for payment (or, if that date is not a Payment Business Day, on the first following day which is a Payment Business Day), or, in the case of payments of principal or premium (if any) where the relevant Certificate has not been surrendered at the specified office of any Transfer Agent or of the Registrar, on a Payment Business Day on which the Principal Paying Agent is open for business and on which the relevant Certificate is surrendered. (d) Appointment of Agents: The Principal Paying Agent, the Registrar and the Transfer Agent initially appointed by the Issuer and their respective specified offices are listed below. The Principal Paying Agent, the Registrar and the Transfer Agent act solely as agents of the Issuer and the Guarantor and do not assume any obligation or relationship of agency or trust for or with any Bondholder. The Issuer and the Guarantor reserve the right at any time with the prior written approval of the Trustee to vary or terminate the appointment of the Principal Paying Agent, the Registrar or the Transfer Agent and to appoint additional or other Paying Agents and/or Transfer Agents, provided that the Issuer and the Guarantor shall at all times maintain (i) a Principal Paying Agent, (ii) a Registrar, (iii) a Transfer Agent and (iv) such other agents as may be required by the stock exchange on which the Bonds may be listed, in each case, as approved in writing by the Trustee. Notice of any such change or any change of any specified office shall promptly be given by the Issuer to the Bondholders in accordance with Condition 16. (e) Delay in Payment: Bondholders will not be entitled to any interest or other payment for any delay after the due date in receiving the amount due on a Bond if the due date is not a Payment Business Day,
48 if the Bondholder is late in surrendering or cannot surrender its Certificate (if required to do so) or if a cheque mailed in accordance with Conditions 7(a)(ii) and 7(c) arrives after the due date for payment. (f) Non-Payment Business Days: If any date for payment in respect of any Bond is not a Payment Business Day, the holder shall not be entitled to payment until the next following Payment Business Day nor to any interest or other sum in respect of such postponed payment or if a cheque mailed in accordance with Condition 7a(ii) arrives after the due date for payment. In this Condition 7, “Payment Business Day” means a day (other than a Saturday, a Sunday or a public holiday) on which banks and foreign exchange markets are generally open for business and settlement of U.S. dollars payments in London and New York City and (if surrender of the relevant Certificate is required) the relevant place of presentation.
8 Taxation All payments of principal, premium (if any) and interest by or on behalf of the Issuer or the Guarantor in respect of the Bonds or under the Guarantee shall be made free and clear of, and without withholding or deduction for, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within the British Virgin Islands or the PRC or any political subdivision or authority therein or thereof having power to tax, unless such withholding or deduction is required by law. Where such withholding or deduction is made by the Issuer or, as the case may be, the Guarantor by or within the PRC at the rate applicable on [Š] 2016 (the “Applicable Rate”), the Issuer or, as the case may be, the Guarantor will increase the amounts paid by it to the extent required, so that the net amount received by Bondholders equals the amount which would otherwise have been receivable by them had no such withholding or deduction been required. If (i) the Issuer is required to make any deduction or withholding by or within the British Virgin Islands, or (ii) the Issuer, or as the case may be, the Guarantor is required to make a deduction or withholding by or within the PRC in excess of the Applicable Rate, then the Issuer (or the Guarantor, as the case may be) shall pay such additional amounts (“Additional Tax Amounts”) as will result in receipt by the Bondholders of such amounts as would have been received by them had no such withholding or deduction been required, except that no Additional Tax Amounts shall be payable in respect of any Bond (or the Guarantee, as the case may be): (a) Other Connection: to a holder (or to a third party on behalf of a holder) who is liable to such taxes, duties, assessments or governmental charges in respect of such Bond by reason of his having some connection with the British Virgin Islands (in the case of payments made by the Issuer) or the PRC (in the case of payments made by the Issuer or the Guarantor) other than the mere holding of the Bond or where the withholding or deduction could be avoided by the holder making a declaration of non- residence or other similar claim for exemption to the appropriate authority; or (b) Surrender more than 30 days after the Relevant Date: in respect of which the Certificate representing it is presented for payment more than 30 days after the Relevant Date except to the extent that the holder of it would have been entitled to such Additional Tax Amounts on surrendering the Certificate representing such Bond for payment on the last day of such period of 30 days (as if such last day were a Payment Business Day). “Relevant Date” in respect of any Bond means the date on which payment in respect of it first becomes due or (if any amount of the money payable is improperly withheld or refused) the date on which payment in full of the amount outstanding is made or (if earlier) the date falling seven days after that on which notice is duly given to the Bondholders that, upon further surrender of the Certificate representing such Bond being made in accordance with the Conditions, such payment will be made, provided that payment is in fact made upon such surrender. Neither the Trustee nor any Agent shall be responsible for paying any tax, duty, charges, withholding or other payment referred to in this Condition 8 or for determining whether such amounts are payable or the amount thereof, and none of them shall be responsible or liable for any failure by the Issuer, the Guarantor, any Bondholder or any third party to pay such tax, duty, charges, withholding or other payment in any jurisdiction or to provide any notice or information to the Trustee or any Agent that would permit, enable or facilitate the payment of any principal, premium (if any), interest or other amount under or in respect of the Bonds without deduction or withholding for or on account of any tax, duty, charge, withholding or other payment imposed by or in any jurisdiction.
49 9 Events of Default If any of the following events (each an “Event of Default”) occurs the Trustee at its discretion may, and if so requested in writing by holders of at least 25 per cent. in aggregate principal amount of the Bonds then outstanding or if so directed by an Extraordinary Resolution shall (provided in any such case that the Trustee shall have been indemnified and/or secured and/or pre-funded to its satisfaction), give notice to the Issuer and the Guarantor that the Bonds are, and they shall immediately become, due and payable at their principal amount together (if applicable) with any accrued and unpaid interest: (a) Non-Payment: there has been a failure to pay the principal of or any premium (if any) or interest on any of the Bonds when due and the default continues for a period of seven days in the case of interest; or (b) Breach of Other Obligations: the Issuer or the Guarantor does not perform or comply with any one or more of their respective other obligations under the Bonds, the Trust Deed or the Deed of Guarantee (other than where it gives rise to a redemption pursuant to Condition 6(c)), which default is, in the opinion of the Trustee, incapable of remedy or, if such default is, in the opinion of the Trustee, capable of remedy, such default is not remedied within 45 days after notice of such default shall have been given to the Issuer or the Guarantor (as the case may be) by the Trustee; or (c) Cross-Acceleration: (i) any other present or future indebtedness of the Issuer or the Guarantor or any of their respective Subsidiaries for or in respect of moneys borrowed or raised becomes due and payable prior to its stated maturity by reason of any actual or potential default, event of default or the like (howsoever described), or (ii) any such indebtedness is not paid when due or, as the case may be, within any originally applicable grace period, or (iii) the Issuer or the Guarantor or any of their respective Subsidiaries fails to pay when due any amount payable by it under any present or future guarantee for, or indemnity in respect of, any moneys borrowed or raised provided that the aggregate amount of the relevant indebtedness, guarantees and indemnities in respect of which one or more of the events mentioned above in this Condition 9(c) have occurred equals or exceeds U.S.$100,000,000 or its equivalent (on the basis of the middle spot rate for the relevant currency against the U.S. dollar as quoted by any leading bank on the day on which this Condition 9(c) operates); or (d) Enforcement Proceedings: a distress, attachment, execution or other legal process is levied, enforced or sued out on or against the whole or any material part of the property, assets or revenues of the Issuer or the Guarantor or any of their respective Principal Subsidiaries and is not discharged or stayed within 45 days; or (e) Security Enforced: any mortgage, charge, pledge, lien or other encumbrance, present or future, created or assumed by the Issuer or the Guarantor or any of their respective Principal Subsidiaries on the whole or any material part of its assets becomes enforceable and any step is taken to enforce it (including the taking of possession or the appointment of a receiver, manager or other similar person) and is not discharged or stayed within 45 days; or (f) Insolvency: the Issuer or the Guarantor or any of their respective Principal Subsidiaries is (or is deemed by law or a court of competent jurisdiction to be) insolvent or bankrupt, or unable to pay its debts as such debts fall due, stops, suspends or threatens to stop or suspend payment of all or a material part of its debts, proposes or makes a general assignment or an arrangement or composition with or for the benefit of the relevant creditors in respect of any of such debts or a moratorium is agreed or declared in respect of or affecting all or any material part of the debts of the Issuer, the Guarantor or any of their respective Principal Subsidiaries; or (g) Winding-up: an order is made by a court of competent jurisdiction or an effective resolution is passed for the winding-up or dissolution of the Issuer or the Guarantor or any of their respective Principal Subsidiaries, or the Issuer, the Guarantor or any of their respective Principal Subsidiaries ceases or threatens to cease to carry on all or substantially all of its business or operations, except, in the case of any Principal Subsidiary, for the purpose of and followed by a solvent winding-up, reconstruction, amalgamation, reorganisation, merger or consolidation (i) on terms approved by an Extraordinary Resolution of the Bondholders, or (ii) whereby the undertaking and assets of such Principal Subsidiary are transferred to or otherwise vested in the Issuer, the Guarantor and/or any of their respective Subsidiaries, whether due to a disposal of such Principal Subsidiary on an arm’s length basis or otherwise; or
50 (h) Nationalisation: (i) any step is taken by any person acting under the authority of any national, regional or local government with a view to the seizure, compulsory acquisition, expropriation or nationalisation of all or a material part of the undertaking, assets and revenues of the Issuer, the Guarantor or any of their respective Principal Subsidiaries or (ii) the Issuer, the Guarantor or any of their respective Principal Subsidiaries is prevented by any such person from exercising normal control over all or a material part of its undertaking, assets and revenues; or (i) Authorisation and Consents: any action, condition or thing (including the obtaining or effecting of any necessary consent, approval, authorisation, exemption, filing, licence, order, recording or registration) at any time required to be taken, fulfilled or done in order (i) to enable the Issuer and the Guarantor lawfully to enter into, exercise their respective rights and perform and comply with their respective obligations under the Bonds, the Trust Deed and the Deed of Guarantee, (ii) to ensure that those obligations are legally binding and enforceable and (iii) to make the Bonds, the Trust Deed and the Deed of Guarantee admissible in evidence in the courts of Hong Kong is not taken, fulfilled or done; (j) Illegality: it is or will become unlawful for the Issuer or the Guarantor to perform or comply with any one or more of its obligations under any of the Bonds, the Trust Deed and/or the Deed of Guarantee; or (k) Unenforceability of Guarantee: the Guarantee becomes unenforceable or invalid or shall for any reason cease to be in full force and effect or is claimed to be unenforceable, invalid or not in full force and effect by the Guarantor; or (l) Analogous Events: any event occurs which under the laws of any relevant jurisdiction has an analogous effect to any of the events referred to in any of Conditions 9(d) to 9(g) (both inclusive).
10 Prescription Claims against the Issuer or the Guarantor for payment in respect of the Bonds shall be prescribed and become void unless made within 10 years (in the case of principal or premium (if any)) or five years (in the case of interest) from the appropriate Relevant Date in respect of them.
11 Replacement of Certificates If any Certificate is lost, stolen, mutilated, defaced or destroyed, it may be replaced, subject to applicable laws, regulations or other relevant regulatory authority regulations, at the specified office of the Registrar or such Transfer Agent as may from time to time be designated by the Issuer for that purpose and notice of whose designation is given to Bondholders, in each case on payment by the claimant of the fees and costs incurred in connection therewith and on such terms as to evidence, security, indemnity and otherwise as the Issuer, the Registrar or the relevant Transfer Agent may require. Mutilated or defaced Certificates must be surrendered before replacements will be issued.
12 Meetings of Bondholders, Modification and Waiver (a) Meetings of Bondholders: The Trust Deed contains provisions for convening meetings of Bondholders to consider matters affecting their interests, including the sanctioning by Extraordinary Resolution of a modification of any of these Conditions or any provisions of the Trust Deed or the Deed of Guarantee. Such a meeting may be convened by the Issuer, the Guarantor and the Trustee and shall be convened by the Trustee if requested in writing by Bondholders holding not less than 10 per cent. in aggregate principal amount of the Bonds for the time being outstanding and subject to the Trustee being indemnified and/or secured and/or pre-funded to its satisfaction against all costs and expenses. The quorum for any meeting convened to consider an Extraordinary Resolution will be two or more persons holding or representing more than 50 per cent. in aggregate principal amount of the Bonds for the time being outstanding, or at any adjourned meeting two or more persons being or representing Bondholders whatever the principal amount of the Bonds held or represented, unless the business of such meeting includes consideration of proposals, inter alia, (i) to modify the maturity of the Bonds or the dates on which interest is payable in respect of the Bonds, (ii) to reduce or cancel the principal amount of, any premium payable on redemption of, or interest on, the Bonds, (iii) to change the currency of payment of the Bonds, (iv) to modify the provisions concerning the quorum required at any meeting of Bondholders or the majority required to pass an Extraordinary Resolution, or (v) to modify or cancel the Deed of Guarantee (other than as provided in Condition 12(b)), in which case the necessary quorum will be two or more persons holding or representing not less than 75 per cent., or at any adjourned meeting not less than 25 per cent., in aggregate principal amount of the Bonds for the time being outstanding. Any Extraordinary Resolution duly passed shall be binding on Bondholders (whether or not they were present at the meeting at which such resolution was passed).
51 The Trust Deed provides that a resolution in writing signed by or on behalf of the holders of not less than 90 per cent. in aggregate principal amount of the Bonds for the time being outstanding shall for all purposes be as valid and effective as an Extraordinary Resolution passed at a meeting of Bondholders duly convened and held. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Bondholders. (b) Modification and Waiver: The Trustee may (but shall not be obliged to) agree, without the consent of the Bondholders, to (i) any modification of any of these Conditions or any of the provisions of the Trust Deed, the Agency Agreement or the Deed of Guarantee that is in its opinion of a formal, minor or technical nature or is made to correct a manifest error or to comply with any mandatory provision of law, and (ii) any other modification (except as mentioned in the Trust Deed and the Deed of Guarantee), and any waiver or authorisation of any breach or proposed breach, of any of these Conditions or any of the provisions of the Trust Deed, the Agency Agreement and/or the Deed of Guarantee that is in the opinion of the Trustee not materially prejudicial to the interests of the Bondholders. Any such modification, authorisation or waiver shall be binding on the Bondholders and, unless the Trustee otherwise agrees, such modification, authorisation or waiver shall be notified by the Issuer to the Bondholders as soon as practicable. (c) Entitlement of the Trustee: In connection with the exercise of its functions, rights powers and discretions (including but not limited to those referred to in this Condition 12) the Trustee shall have regard to the interests of the Bondholders as a class and shall not have regard to the consequences of such exercise for individual Bondholders and the Trustee shall not be entitled to require on behalf of any Bondholder, nor shall any Bondholder be entitled to claim, from the Issuer, the Guarantor or the Trustee any indemnification or payment in respect of any tax consequence of any such exercise upon individual Bondholders.
13 Enforcement At any time after the Bonds become due and payable, the Trustee may, at its discretion and without further notice, institute such proceedings against the Issuer and/or the Guarantor as it may think fit to enforce the terms of the Trust Deed, the Bonds and/or the Deed of Guarantee (as the case may be), but it need not take any such proceedings unless (a) it shall have been so directed by an Extraordinary Resolution or so requested in writing by Bondholders holding at least 25 per cent. in aggregate principal amount of the Bonds then outstanding, and (b) it shall have been indemnified and/or secured and/or pre-funded to its satisfaction. No Bondholder may proceed directly against the Issuer or the Guarantor unless the Trustee, having become bound so to proceed, fails to do so within a reasonable time and such failure is continuing.
14 Indemnification of the Trustee The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility including provisions relieving it from taking proceedings to enforce payment or taking other actions unless first indemnified and/or secured and/or pre-funded to its satisfaction. The Trustee is entitled to enter into business transactions with the Issuer, the Guarantor and any entity related to the Issuer or the Guarantor without accounting for any profit. The Trustee may rely without liability to Bondholders, the Issuer, the Guarantor or any other person on any report, confirmation, certificate or information from or any advice or opinion of any legal counsel, accountants, financial advisers, financial institution or any other expert, whether or not obtained by or addressed to it and whether their liability in relation thereto is limited (by its terms or by any engagement letter relating thereto entered into by the Trustee or any other person in any other manner) by reference to a monetary cap, methodology or otherwise. The Trustee may accept and shall be entitled to rely on any such report, confirmation, certificate, information, advice or opinion, in which event such report, confirmation, certificate, information, advice or opinion shall be binding on the Issuer, the Guarantor and the Bondholders. Whenever the Trustee is required or entitled by the terms of the Trust Deed, the Deed of Guarantee, the Agency Agreement or these Conditions to exercise any discretion or power, take any action, make any decision or give any direction, the Trustee is entitled, prior to exercising any such discretion or power, taking any such action, making any such decision or giving any such direction, to seek directions from the Bondholders by way of Extraordinary Resolution, and the Trustee shall not be responsible for any loss or liability incurred by the Issuer, the Guarantor, the Bondholders or any other person as a result of any delay in it exercising such discretion or power, taking such action, making such decision or giving such direction as a result of seeking such direction from the Bondholders or in the event that no direction is given to the Trustee by the Bondholders.
52 None of the Trustee or any of the Agents shall be responsible for the performance by the Issuer, the Guarantor and any other person appointed by the Issuer and/or the Guarantor in relation to the Bonds of the duties and obligations on their part expressed in respect of the same and, unless it has express written notice from the Issuer or the Guarantor to the contrary, the Trustee and each Agent shall be entitled to assume that the same are being duly performed. None of the Trustee or any Agent shall be liable to any Bondholder, the Issuer, the Guarantor or any other person for any action taken by the Trustee or such Agent in accordance with the instructions of the Bondholders. The Trustee shall be entitled to rely on any direction, request or resolution of Bondholders given by holders of the requisite principal amount of Bonds outstanding or passed at a meeting of Bondholders convened and held in accordance with the Trust Deed. Neither the Trustee nor any of the Agents shall be under any obligation to ascertain whether any Event of Default, Potential Event of Default (as defined in the Trust Deed) or Relevant Event has occurred or to monitor compliance by the Issuer or the Guarantor with the provisions of the Trust Deed, the Agency Agreement, the Deed of Guarantee or these Conditions.
15 Further Issues The Issuer may from time to time without the consent of the Bondholders create and issue further securities having the same terms and conditions as the Bonds in all respects (or in all respects except for the issue date and the first payment of interest on such further securities and such necessary modification to Conditions 4(b), 4(c) and 6(c)) and so that such further issue shall be consolidated and form a single series with the outstanding securities of any series (including the Bonds). References in these Conditions to the Bonds include (unless the context requires otherwise) any other securities issued pursuant to this Condition 15 and forming a single series with the Bonds. Any further securities forming a single series with the outstanding Bonds constituted by the Trust Deed or any deed supplemental to it shall be constituted by a deed supplemental to the Trust Deed and be guaranteed by the Guarantor pursuant to a deed supplemental to the Deed of Guarantee.
16 Notices Notices to the holders of Bonds shall be mailed to them at their respective addresses in the Register and deemed to have been given on the fourth weekday (being a day other than a Saturday or a Sunday) after the date of mailing. The Issuer shall also ensure that notices are duly published in a manner that complies with the rules and regulations of any stock exchange or other relevant authority on which the Bonds are for the time being listed. Any such notice shall be deemed to have been given on the date of such publication or, if published more than once, on the first date on which publication is made. So long as the Global Certificate is held by or on behalf of Euroclear and Clearstream, Luxembourg, any notice to the holders of the Bonds shall be validly given by the delivery of the relevant notice to Euroclear and Clearstream, Luxembourg, for communication by the relevant clearing system to entitled accountholders in substitution for notification as required by the Conditions and shall be deemed to have been given on the date of delivery to such clearing system.
17 Contracts (Rights of Third Parties) Act 1999 No person shall have any right to enforce any term or condition of the Bonds under the Contracts (Rights of Third Parties) Act 1999.
18 Governing Law and Jurisdiction (a) Governing Law: The Trust Deed, the Agency Agreement, the Deed of Guarantee and the Bonds and any non-contractual obligations arising out of or in connection with them are governed by, and shall be construed in accordance with, English law. (b) Jurisdiction: The courts of Hong Kong are to have exclusive jurisdiction to settle any disputes that may arise out of or in connection with the Bonds, the Deed of Guarantee, the Trust Deed or the Agency Agreement and accordingly any legal action or proceedings arising out of or in connection with any Bonds, the Deed of Guarantee, the Trust Deed or the Agency Agreement (“Proceedings”) may be brought such courts. Each of the Issuer and the Guarantor has irrevocably submitted to the exclusive jurisdiction of such courts. (c) Agent for Service of Process: Each of the Issuer and the Guarantor irrevocably appoints China Power International Development Limited of Suite 6301, 63/F, Central Plaza, 18 Harbour Road, Wanchai,
53 Hong Kong as its authorised agent in Hong Kong to accept service of process in any Proceedings based on any of the Bonds, the Guarantee, the Trust Deed or the Agency Agreement. If for any reason the Issuer or the Guarantor as the case may be does not have such an agent in Hong Kong, it will promptly appoint a substitute process agent and notify the Bondholders of such appointment. Nothing herein shall affect the right to serve process in any other manner permitted by law. (d) Waiver of Immunity: Each of the Issuer and the Guarantor has waived any right to claim sovereign or other immunity from jurisdiction or execution and any similar defence, and has irrevocably consented to the giving of any relief or the issue of any process, including, without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment made or given in connection with any Proceedings.
54 SUMMARY OF PROVISIONS RELATING TO THE BONDS IN GLOBAL FORM
The Global Certificate contains provisions which apply to the Bonds in respect of which the Global Certificate is issued, some of which modify the effect of the Terms and Conditions of the Bonds set out in this Offering Circular. Terms defined in the Terms and Conditions of the Bonds have the same meaning in the paragraphs below. The following is a summary of those provisions:
The Bonds will be represented by the Global Certificate in registered form, which will be registered in the name of a nominee of, and deposited with, a common depositary for Euroclear and Clearstream, Luxembourg.
Under the Global Certificate, the Issuer, for value received, promises to pay such principal and interest on the Bonds to the holder of the Bonds on such date or dates as the same may become payable in accordance with the Terms and Conditions of the Bonds.
Owners of interests in the Bonds in respect of which the Global Certificate is issued will be entitled to have title to the Bonds registered in their names and to receive individual definitive Certificates if either Euroclear or Clearstream, Luxembourg or any other clearing system (an “Alternative Clearing System”) is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so. In such circumstances, the Issuer at its own expense will cause sufficient individual definitive Certificates to be executed and delivered to the Registrar for completion, authentication and despatch to the relevant holders of the Bonds. A person with an interest in the Bonds in respect of which the Global Certificate is issued must provide the Registrar not less than 30 days’ notice at its specified office of such holder’s intention to effect such exchange and a written order containing instructions and such other information as the Issuer and the Registrar may require to complete, execute and deliver such individual definitive Certificates.
Payment So long as the Bonds are represented by the Global Certificate, each payment in respect of the Global Certificate will be made to, or to the order of, the person whose name is entered on the Register at the close of business on the Clearing System Business Day immediately prior to the due date for such payments, where “Clearing System Business Day” means a weekday (Monday to Friday inclusive) except 25 December and 1 January.
Trustee’s Powers In considering the interests of the Bondholders whilst the Global Certificate is registered in the name of a nominee for a clearing system, the Trustee may, to the extent it considers it appropriate to do so in the circumstances, but without being obligated to do so, (a) have regard to any information as may have been made available to it by or on behalf of the relevant clearing system or its operator as to the identity of its accountholders (either individually or by way of category) with entitlements in respect of the Bonds and (b) consider such interests on the basis that such accountholders were the holders of the Bonds in respect of which the Global Certificate is issued.
Notices So long as the Bonds are represented by the Global Certificate and the Global Certificate is held on behalf of Euroclear and Clearstream, Luxembourg or any Alternative Clearing System, notices to holders of the Bonds shall be given by delivery of the relevant notice to Euroclear or Clearstream, Luxembourg or such Alternative Clearing System, for communication by it to accountholders entitled to an interest in the Bonds in substitution for notification as required by the Terms and Conditions of the Bonds.
Transfers Transfers of beneficial interests in the Bonds represented by the Global Certificate will be effected through the records of Euroclear and Clearstream, Luxembourg (or any Alternative Clearing System) and their respective participants in accordance with the rules and procedures of Euroclear and Clearstream, Luxembourg (or any Alternative Clearing System) and their respective direct and indirect participants.
55 Cancellation Cancellation of any Bond by the Issuer following its redemption or purchase by the Issuer, the Guarantor and their respective Subsidiaries will be effected by reduction in the principal amount of the Bonds in the register of the Bondholders.
Bondholder’s Redemption The Bondholder’s redemption option in Condition 6(c) of the Terms and Conditions of the Bonds may be exercised by the holder of the Global Certificate giving notice to the Principal Paying Agent of the principal amount of Bonds in respect of which the option is exercised within the time limits specified in the Terms and Conditions of the Bonds.
Meetings For the purposes of any meeting of Bondholders, the holder of the Bonds represented by the Global Certificate shall (unless the Global Certificate represents only one Bond) be treated as two persons for the purposes of any quorum requirements of a meeting of Bondholders and as being entitled to one vote in respect of each U.S.$1,000 in principal amount of the Bonds.
56 USE OF PROCEEDS
The Issuer estimates that the net proceeds from this offering, after deducting commissions and other estimated expenses payable in connection with the offering, will be approximately U.S.$[Š] million. The Issuer intends to use the net proceeds from the offering for refinancing of existing indebtedness of the Group and other general corporate purposes.
57 CAPITALISATION AND INDEBTEDNESS
The following table sets forth the actual consolidated debt and capitalisation of the Group as at 31 December 2015 and as adjusted to give effect to the issue of the Bonds.
As at 31 December 2015 Actual As adjusted (RMB in (U.S.$(2) in (RMB in ((U.S.$(2) in millions) millions) millions) millions) Bank and other borrowings (current portion) Short-term borrowings ...... 87,818.6 12,917.0 87,818.6 12,917.0 Long-term borrowings due within one year ...... 27,693.5 4,073.4 27,693.5 4,073.4 Bonds payable due within one year ...... 22,410.1 3,296.2 22,410.1 3,296.2 137,922.2 20,286.6 137,922.2 20,286.6 Bank and other borrowings (non-current portion) Long-term borrowings ...... 259,551.1 38,176.6 259,551.1 38,176.6 Bonds payable ...... 76,762.2 11,290.7 76,762.2 11,290.7 Bonds to be issued ...... — — [Š][Š] 336,313.3 49,467.3 [Š][Š] Total owner’s equity ...... 136,242.8 20,039.5 136,242.8 20,039.5 Total capitalisation(1) ...... 472,556.1 69,506.8 [Š][Š]
Notes: (1) Total capitalisation is equal to the sum of bank and other borrowings (non-current portion) and total owner’s equity. (2) Translation of RMB amounts to U.S. dollars and, as the case may be, U.S. dollar amounts to RMB was made at a rate of RMB6.7987 to U.S.$1.00, the exchange rate as at 10 November 2016 as set forth in the H.10 weekly statistical release of the Board of Governors of the Federal Reserve System of the United States.
As at 30 September 2016, the Group’s short-term borrowings increased to RMB121,189.7 million and long-term borrowings increased to RMB313,856.2 million.
Except as otherwise disclosed above, there has been no material adverse change in the Group’s capitalisation and indebtedness since 31 December 2015.
58 DESCRIPTION OF THE ISSUER
Formation The Issuer, SPIC 2016 US dollar Bond Company Limited ( 2016 ), is a BVI business company with limited liability incorporated in the British Virgin Islands on 9 November 2016, with BVI Company Number: 1928471. Its registered office is located at Nemours Chambers, Road Town, Tortola, British Virgin Islands. The Issuer is a wholly-owned subsidiary of SPIC Hong Kong Investment Company Limited, a Hong Kong subsidiary wholly-owned by the Guarantor.
Business Activity The Issuer was established for the purpose of issuing bonds and on-lending the proceeds to the Guarantor or its subsidiaries or affiliates. As at the date of this Offering Circular, the Issuer has not engaged, since its incorporation, in any material activities other than the proposed issue of the Bonds and the on-lending of the proceeds thereof to the Guarantor or its subsidiaries or affiliates, and the authorisation of documents and agreements referred to in this Offering Circular to which it is or will be a party.
Directors and Officers The sole director of the Issuer is Mr. He Zhaobin.
Share Capital As at the date of this Offering Circular, the Issuer is authorised to issue a maximum of 50,000 shares with no par value each of a single class. As at the date of this Offering Circular, one share, which is held by SPIC Hong Kong Investment Company Limited, a Hong Kong subsidiary wholly-owned by the Guarantor, has been issued, representing the entire issued shares of the Issuer. None of the equity securities of the Issuer was listed or dealt in on any stock exchange and no listing or permission to deal in such securities was being or was proposed to be sought as at the date of this Offering Circular.
Financial Information As at the date of this Offering Circular, the Issuer has no material assets or revenues and has no outstanding borrowings or contingent liabilities other than the proposed issuance of the Bonds. Under British Virgin Islands law, the Issuer is not required to publish interim or annual financial statements. The Issuer has not published, and does not propose to publish, any financial statements in the future. The Issuer is, however, required to keep such records that are sufficient to show and explain the Issuer’s transactions and will, at any time, enable the financial position of the Issuer to be determined with reasonable accuracy. The Issuer has no subsidiaries.
59 DESCRIPTION OF THE GROUP
All financial data as at and for the year ended 31 December 2013 quoted in this section are merely data of CPI as a pre-Merger entity, which are not comparable to those of the Group as at and for the years ended 31 December 2014 and 2015. All operational data as at and for the years ended 31 December 2013 and 2014 quoted in this section are merely data of CPI as a pre-Merger entity.
OVERVIEW As a large integrated energy conglomerate, the Group is one of the top five power generation groups in China (being China Huaneng Group Corporation, China Datang Corporation, China Huadian Corporation, China Guodian Corporation and the Group, collectively the “top five power groups”) and is the only one with qualifications to hold, develop, construct and operate nuclear power plants. The Group has diversified power assets across thermal power, nuclear power, hydropower, wind power, PV power and other non-nuclear clean energies. Apart from power generation business, the Group also has ancillary businesses such as heating, coal and aluminium which integrate with power generation business synergistically. The Group designs, develops, manages and operates power plants, and sells the electricity generated by its power plants to local grid companies. As at 31 December 2013, 2014 and 2015, the Group’s total installed power capacity was 89.7 GW, 97.7 GW and 107.4 GW, respectively.
The Group is formed pursuant to the Merger. CPI was established in 2002 through the reorganisation of the former State Power Corporation of China under the reform of China’s power system. CPI is one of the five state- owned power generation companies in China and is one of the three major operators of nuclear power investment projects, with strong assets and qualification and resources of operating nuclear power projects. SNPTC was established in 2007. It is the key entity to implement China’s self-developed third generation nuclear power technology and the leading unit of executing major nuclear science and technology projects in China, with strong research and development capabilities in both nuclear and related conventional power areas.
In May 2015, SNPTC merged into CPI with the approval from the State Council and was renamed as State Power Investment Corporation (“SPIC”). The Merger integrates the advantages of operation and technology innovation, realising resources optimisation across the upstream and downstream industry chain, and promoting automation and industrialisation development of the third generation nuclear power technology. The Merger aims to create a global company through effectively consolidating the operations and resources of CPI and SNPTC, so as to promote China’s “Going Global” strategy in respect of nuclear power and to expand the Group’s presence in global nuclear power market. The Group intends to introduce the third generation of nuclear power technology and focus on the development of nuclear power, new and renewable energy, and set examples for traditional Chinese power companies to transform from coal-dominated power generation business structure into a low- carbon power generation business structure.
As at 31 December 2015, the Group had registered capital of RMB45 billion and total assets of RMB773.8 billion. For the three years ended 31 December 2013, 2014 and 2015, the Group recorded revenue of RMB191.1 billion, RMB193.2 billion and RMB192.4 billion, respectively, and net profit of RMB7.5 billion, RMB6.2 billion and RMB8.5 billion, respectively.
60 CORPORATE HISTORY AND STRUCTURE Business Milestones in the History of the Group
29 December 2002 ...... theformer State Power Corporation of China was split and reorganised into five power groups in China’s electricity system reform, including CPI. Former State Power Corporation of China’s nuclear assets were fully injected into CPI, with registered capital of RMB12 billion 2005...... PRC Government started qualification evaluation process for CPI as the country’s third nuclear construction operator; CPI obtained China’s third nuclear project operation licence in 2007 2 November 2006 ...... PRC Government decided to introduce Westinghouse AP1000, the third generation nuclear technology. SNPTC was to be established to develop third generation nuclear technology, with four generating sets to be jointly constructed by China and the United States and located in Sanmen county in Zhejiang province and Haiyang city in Shandong province 22 May 2007 ...... SNPTC was formally established as key carrier, R&D platform and implementation unit for third-generation nuclear technology 2012...... CPIentered the Fortune Global 500 list for the first time and ranked No. 451 with revenue of U.S.$24.4 billion 9 January 2014 ...... National Energy Administration held CAP1400 preliminary design review meeting in Beijing at which CAP1400 preliminary design developed by SNPTC passed review 12 May 2015 ...... SASAC approved the merger of SNPTC into CPI 15 July 2015 ...... SPIC was established in Beijing formally 28 January 2016 ...... SPIC’s acquisition of Pacific Hydro Pty Ltd. was completed in Melbourne 27 April 2016 ...... CAP1400 passed IAEA general reactor security review 22 May 2016 ...... launched the operation for all four reactor coolant pumps of Sanmen No. 1, a third generation nuclear project and the world’s first AP1000 generating set 2016...... SPIC entered the Fortune Global 500 list for five consecutive years (including previously as CPI) and ranked No. 342 in 2016
61 Corporate Structure As at 31 December 2015, the Guarantor has 51 second-tier subsidiaries spanning across 31 provinces in the PRC and overseas, including two subsidiaries listed on the Shanghai Stock Exchange, three subsidiaries listed on the Shenzhen Stock Exchange and two subsidiaries listed on the Hong Kong Stock Exchange. The following chart sets forth the simplified structure of the Guarantor and its principal subsidiaries as at 31 December 2015:
State-owned Assets Supervision Commision of The State Council
100%
STATE POWER INVESTMENT CORPORATION
51 second-tier subsidiaries
15 branch companies 18 wholly-owned subsidiaries 15 holding companies 3 direct affiliated entities
Listed subsidiaries Onshore Offshore
Huolinhe Opencut Coal Spic Yuanda Shanghai Shijiangzhuang China Power Industry Environmental Jilin Electric China Power Electric Power Dongfang New Energy Corporation -Protection Power Co., International Co., Ltd. Energy Co., Development Limited of Co., Ltd. Ltd. Development Ltd. Company Inner Mongolia Ltd. (SHSE: Limited (SHSE: (SZSE: 000875) 600021) (SZSE: 000958) (SEHK: 2380) (SZSE: 600292) (SEHK: 735) 002128)
On 9 November 2016, the Issuer, SPIC 2016 US dollar Bond Company Limited ( ), was incorporated in the British Virgin Islands. The Guarantor directly holds 100% of the issued share capital of SPIC Hong Kong Investment Company Limited, a subsidiary incorporated in Hong Kong, which in turn holds 100% of the issued share capital of the Issuer.
STRENGTHS The Group believes that its leading position in the power industry is underpinned by the following principal strengths:
Strong shareholder and government support, undertaking national strategic mission With its historical inherent advantages, the Group is irreplaceable to the development of China’s power industry. In 2002, China carried out a reform of the power industry and State Power Corporation of China was reorganised and split into five power generation groups and two power grid companies. During such reform, all nuclear power assets of the former State Power Corporation of China were allocated to CPI (currently merged into the Group), with the aim of managing such nuclear power assets uniformly and develop CPI to a national power conglomerate with power as its main business. Detailed examples of governmental support include:
• Direct support from central government The Group is uniquely positioned to take advantage of its unparalleled ownership status and government support. The Group is one of 52 backbone state-owned enterprises supervised by SASAC. As the only electricity power conglomerate formed by merger and reorganisation of two vice-ministerial level central enterprises, the Group’s policy mission and historical significance are more special than general central enterprises. The Group’s Chairman and President are appointed by the State Council, Directors are accredited by SASAC, the Chairman of Board of Supervision is appointed by the State Council directly and the Vice President is appointed by SASAC.
• Strategically important role in technology advancement and development in the power sector in China The Group fulfils a crucial and strategic role in technology advancement and development in China’s power sector and, as a result, receives comprehensive and sustainable support from the PRC Government in the perspective of technology, such as government-led asset injection and industry-wide technology integration. For example, in 2013, the interest in Shijiazhuang Oriental Thermal Power held by Shijiazhuang Municipal
62 Commission of State-Owned Assets Supervision and Administration was gratuitously transferred to CPI. On 12 May 2015, SASAC issued the Notice regarding Reorganisation between CPI and SNPTC ( ) pursuant to which a 66% equity interest in SNPTC held by the State Council was gratuitously transferred to CPI, and SNPTC became the Group’s subsidiary. After the reorganisation, the Group’s registered capital reached RMB45 billion, ranking first among the top five power groups.
In addition, the PRC Government also injects technical research and development assets into the Group, which enhances the Group’s strength in research and promotes the Group’s competitiveness as an industry leader. For example, Shandong Electric Power Engineering Consulting Institute Corp., Ltd. and Shanghai Nuclear Engineering Research and Design Institute were transferred to SNPTC in 2007, and Shanghai Power Equipment Research Institute was transferred to SNPTC in 2011.
The Group plays a key role in the formulation and implementation of policies in the power sector. It is the only central state-owned enterprise that undertakes two of the 17 national major special sci-tech special projects ( ), including large Advanced PWR nuclear power plant key project and development of internationally competitive technology for heavy-duty gas turbines. The Group undertakes a number of special research and development projects under national strategy, such as development of nuclear CAP1400 and heavy gas turbine technologies. As an industry leader, the Group participated in the establishment of multiple policy standards, playing an irreplaceable driving role in industry development. For example, in the electricity power area, the Group has participated in the compilation of eight national or industry standards which have been issued formally; in the nuclear power area, the Group has led the compilation of 13 international standards, 119 national standards and 465 industry standards; in the new energy area, the Group has participated in the compilation of 36 industry standards; and in the environmental protection area, the Group has led or participated in the compilation of four national standards and 18 industry standards.
• Financial support provided via capital injection and policy bank financing The PRC Government provides continuous financial support to the Group, which helps cement the Group’s market position. For the three years from 2013 to 2015, subsidies received by the Group amounted to RMB5.78 billion in total. In 2015, the Group obtained total subsidy of RMB2.259 billion from the PRC Government, representing an increase of 42.2% from RMB1.588 billion in 2014. For the three years from 2013 to 2015, the Group received state-owned capital funds of RMB5.68 billion in total.
In addition, PRC policy banks provide sufficient financial supports to the Group. These banks also provide strong support to the Group in respect of offshore EPC or other projects financing, with interest rate below benchmark.
Steady industry leadership and comprehensive diversified power structure advantages The Group has diversified energy sources, which mitigate the impact of differentiating on-grid price based on energy type brought by power reform. The Group’s unique capacity of electricity research institute enables continuous improvement in operational efficiency through proprietary technical capacity and develops cost advantage. In addition, the Group’s multi-energy type strengthens capacity in managing rising costs in any single energy source, and helps to maintain a stable profitability. The Group’s stable cash flow enhances overall risk management capacity, while knowledge and practise sharing strengthens overall research and development capability.
The Group has proposed the concept of “Integrated Intelligent Energy” which consolidates different forms of energy, functions on the process basis (including energy supply process, energy transmission process and energy consumption process) instead of single-form of energy basis, and provides comprehensive energy solution to residents within a specific region. The Integrated Intelligent Energy will maximise utilisation of local energy resources endowment, match local demand with local supply, optimise synergies between generation, transmission and consumption of different varieties of energy, and improve the efficiency of the energy system. The Group is a market leader in comprehensive integrated energy system. For example, the Group’s Shanghai Caojing Electricity, Heat and Water Cogeneration Project, which has two 9F-class gas turbines and supporting heating and water supply pipes and provides electricity, steam, demineralised water and other forms of products and services to the industrial park, has become the largest heating enterprise in Shanghai. The Group’s Zhuhai Hengqin Electricity, Hot and Cold Water Cogeneration Project is the only multi-energy cogeneration plant in Hengqin Island and provides customers in the region with electricity, hot and cold water and other energy products and value-added services. The Group is also undertaking the Shanghai Qiantan Natural Gas Distributed Energy Project which is expected to provide energy for an area of over 2.17 million square metres, with major users being commercial and office buildings and service apartments.
63 Given the Group’s market leadership, it actively participated in electricity reform policy research and the preparation of supporting documents. Adapting to the national electricity system reform, the Group takes lead to establish energy selling platform and has set up 20 electricity sales companies in Guangdong, Chongqing and other provinces and cities nationwide, which enables the Group to sell electricity and other energy services to customers. In 2015, the direct sales volume of electricity between the Group and its customers amounted to 16.732 billion KWh.
Strong integrated synergies along the industrial chain, which significantly increases operating efficiency The Group benefits from strong integrated industry synergy, which ensures a significant improvement in operational efficiency. On the basis of assets strength in coal and power generation and the principle of balanced development, the Group has extended its business following the value chain of coal-power-aluminium and hydro- power-aluminium. This has strengthened segment integration and increased the competitiveness of the Group’s coal and power business.
For example, the Group’s Huolin River Cyclic Economy Demonstrative Integrated Generating Cluster Project is a large scale and complicated cyclic project of intelligent electricity grid, lignite, coal power plant, wind farm and electrolytic aluminium smelting. As at 31 December 2015, the total installed capacity of Huolin River Project is 2.1 GW, including thermal power of 1.8 GW and wind power of 0.3 GW; total substation capacity is 5,749 MVA; rectification load for primary aluminium is 1.33 GW and annual production capacity is 810,000 tonnes. In 2015, gross power generation of Huolin River Project is 12.8 billion KWh, including thermal power of 11.9 billion KWh and wind power of 0.9 billion KWh. Total electric power consumption of aluminium plant is 11.6 billion KWh.
Prominent nuclear power technology leader in China with core competitive advantages throughout the whole nuclear power industry chain Currently, only three state-owned enterprises are authorised by the PRC Government to control and operate nuclear power plants, namely the Group, China National Nuclear Corporation (“CNNC”) and China General Nuclear Power Corporation (“CGNPC”). The Group has a first mover advantage in the AP/CAP nuclear power plants construction. AP1000 is the only nuclear power technology introduction and cooperation project led by the PRC Government, and the Group was designated by the PRC Government to introduce the third generation of AP1000 nuclear power technology from Westinghouse Electric Corporation in the U.S. in 2007, which has become the major platform for realisation, engineering construction and independent development of the third generation nuclear technology. Based on full digestion and absorption of AP1000 technology, the Group has independently innovated and developed CAP1400 technology and constructed demonstration engineering projects. This technology has been listed as one of China’s 17 national major sci-tech special projects.
The Group has established a one-stop service platform integrating nuclear power research and development, construction and operation, and gradually realised “one-stop” overall design services covering nuclear island, conventional island and BOP. The Group has realised nuclear power mass production capacity which is able to supply six to eight units of AP/CAP nuclear power generating equipment and materials annually.
Industry leading energy sci-tech innovation capacity to maintain its innovation-based leadership The Group has formed an integrated innovation system by complementing central research academy with design institute and industrial development centres. It covers multi technological areas, coordinates long and short term development priorities, as well as combines research with operational applicability. The Group has eight national level research centres, 13 provincial level research centres and seven post-doctoral workshops. It also has a research and development team comprising 14,971 technicians, including 10 industry experts named in the “Thousand People Plan”, over 200 academic research experts and 6,074 research and development staff.
The Group has devoted continuous funding and support to research and development. The Group’s technology expense amounted to RMB2,458 million in 2015, of which research and experimental development expense was RMB1,782 million. The Group also set up technology venture capital fund which leverages the Group’s own fund and external resources to explore a market driven development model. The fund is dedicated to long-term commitment on technology research and to enhance the Group’s leading position in technological forefront.
The Group insists on technological innovation-led industrial development, possesses complete innovation chain and strong technical strength in the fields of third generation nuclear technology, clean and efficient coal-fired
64 power generation, PV power generation and power station environmental protection, and obtained a series of major innovative results with proprietary intellectual properties. The Group’s research and development results and scientific strength have been highly recognised. The Group won one special prize of national technological progress award awarded by the State Science and Technology Commission of the PRC, one special prize of national best engineering design award awarded by the Ministry of Construction of the PRC, several tens of first prizes of national, provincial and ministerial-level awards, and several hundreds of second and third prizes of national, provincial and ministerial-level awards.
Extensive financing channels and low-cost financing capability Compared with other power generating group, the Group has a low asset securitisation rate, which allows sufficient room for future equity financing activities. The Group has seven listed companies, and through these listed companies, the Group may promote listing of specialised segment, connect onshore and offshore capital markets and obtain funds and adjust debt structure through equity financing as appropriate.
As at 31 December 2015, the Group’s direct debt financing ratio was far below that of its international peers, showing great room for future bond issuance. The Group has an approved quota from China Securities Regulatory Commission to publicly issue corporate bonds of no more than RMB36 billion and renewable corporate bonds of no more than RMB20 billion (with an unutilised quota of RMB15 billion and RMB16 billion, respectively). In July 2016, the Group issued RMB5 billion 2.880% bonds due 2019 in the PRC, achieving a low cost of funding which reflects the Group’s strong credit position and financing capability. The Group’s high- quality rating is well-recognised by onshore investors. For example, it has received AAA rating (from CCXI and Dagong) in China. Currently, the Group has completed DFI registration (uniform registration of multi-variety debt financing instruments) at China’s National Association of Financial Market Institutional Investors and became one of DFI’s few members.
The Group has established comprehensive strategic partnership with China’s two policy banks, six state-owned banks and seven joint-stock banks. These banks provide ample source of funds to the Group. The Group receives strong support from policy banks which have provided long-term low-cost project financing to the Group, including unused credit lines of over RMB360 billion as at 30 September 2016. As at 30 September 2016, the Group has received credit lines of RMB1,223.0 billion from banks in total, including undrawn credit lines of RMB661.3 billion. The Group also keeps long-term partnership with China’s all major insurance companies, such as China Life Insurance, Ping An Insurance and Taikang Insurance.
Efficient modern management system, sound risk control, and safe and reliable production and operation The Group is one of SASAC’s Board of Directors governance structure pilot units. The Board of Directors has independent decision-making rights and capacity, which effectively improves decision-making efficiency. The Board of Directors has four special committees, namely, Strategic Development Committee, Nominating Committee, Remuneration and Appraisal Committee and Audit and Risk Control Committee, as its decision- making advisory body. The Group optimises management and control pattern, streamlines business structure, promotes a series of restructuring and reform programmes, such as distribution system reform, and establishes more efficient management system.
The Group has adopted a five-layer review and assessment system for project investments (comprising the Board of Directors, the General Manager Office, the investment project coordination team, the project accountability entity and the project implementation entity), each with distinguished duties and functions and valuating a potential project from the aspects of industry, return, risk and synergy, so as to ensure comprehensive risk control.
In accordance with the principle of unified management and hierarchical control, the Group integrates emergency management into every part of business management and establishes and improves emergency management organisation system. Some members of the Group carry out emergency exercises with relevant local government departments on a regular basis according to emergency drilling programmes, and improve their emergency management system continuously. The Group also reviews and updates its emergency rules and safety management measures on a regular basis. As at the date of this Offering Circular, the Group has not encountered any material personal casualty or equipment accident, reservoir, ash silo or tailings pond collapse accident, or railway traffic accident.
65 Experienced, professional and motivated management team supported by highly skilled professional talent team The Group has an experienced and knowledgeable management team. The Group’s senior managers have an average of over 25 years of experience in the PRC’s power industry and have the broad range of industry expertise necessary to develop and execute its strategy to capture market opportunities. In 2015, approximately 71% of the Group senior management members hold bachelor’s degrees and approximately 8% hold master’s degrees.
The Group’s management team is supported by highly skilled employees with extensive technical know-how and high levels of qualification and training. The Group’s in-house training centre provides professional training to its technicians and management to ensure they are equipped with necessary knowledge in the power industry and best practises of various aspects of the Group’s business. The Group has established the Talent Development Committee in which the President acts as the head and the relevant Vice President acts as deputy head. The Group has also set up Leadership Institute and Talent Institute as well as 23 distinctive talent training bases, including one of China’s first batch of “20 Overseas High-level Talents’ Innovative and Entrepreneurial Bases”.
STRATEGIES The Group aims to become an innovative international integrated energy conglomerate and modernised state owned enterprise with outstanding core competitiveness, especially in the respects of nuclear power and green energy development. The Group’s strategies include:
Continue to strengthen the Group’s leading position in the PRC power sector. As one of the largest integrated energy conglomerates in the PRC, the Group plans to strengthen its leading position in the PRC power sector by continuing to increase the Group’s total installed power capacity, maximising the Group’s operational efficiency, optimising the geographical distribution of Group’s power projects, and promoting synergies and complementary projects of different sub-segments under power business. In addition, the Group plans to apply the skills and experience the Group gained through its significant operating history to identify and develop new projects, as well as supplement its organic growth and enhance the scale of its operations by selectively pursuing acquisitions of additional power businesses and assets.
Continue to strengthen the development of clean energy power business. The Group believes the clean energy power markets in China has great development potential in light of recent legislation and favourable policies promoting the use of clean energy sources. The Group believes its wind power and PV power expertise and track record and its in-depth knowledge of local electricity markets give it a competitive advantage in capturing market opportunities in the wind and solar power markets. The Group is focusing its development efforts on southern, central and eastern China areas which have abundant wind resources, and western China area which has abundant solar resources. The Group is also exploring opportunities to expand its capabilities in electricity generation from other clean energy resources, including natural gas. The Group intends to continue to develop and enhance its capabilities in operating clean energy projects, thereby allowing it to diversify its project portfolio and exploit new business opportunities.
Accelerate the pace of developing nuclear power business. Pursuant to the Group’s “Thirteenth Five-Year Development Plan”, the Group plans to push forward its third- generation AP1000 project and CAP1400 nuclear power demonstration project and to master the independent third-generation nuclear power technology, which helps the Group to form mass production capacity of the third- generation nuclear power. The Group believes it can continuously support the sustainable development of the third-generation nuclear power in China, promote the localisation of nuclear power technology and equipment manufacturing, and successfully complete the major science and technology tasks of national large-scale advanced PWR nuclear power plant. The Group believes that its strong research and development capabilities and recent successful Merger as well as the support from the PRC Government lay a solid foundation for the development of its nuclear power business.
Accelerate the pace of developing overseas markets. In response to China’s “Going Global” strategy and the “One Belt, One Road” initiative, the Group plans to actively expand its power business in the international markets. The Group believes that the expansion of its
66 power business into international markets would help diversify its revenue base, increase its growth potential and enhance its brand. In addition, the PRC Government encourages state-owned companies to expand their overseas businesses. The Group plans to explore business opportunities globally in the thermal power markets in countries located in the “One Belt, One Road” area and in Africa, in the nuclear power markets in countries including South Africa and Turkey, in the hydropower market in Asia and Pacific area, and in other clean energy markets in developed countries in Asia and Pacific, Europe and North America. The Group believes that its comprehensive capabilities in the development and management process of power projects enable it to compete in the international markets that it selects.
Continue to invest in research and development and technology innovation. The Group believes that utilisation of advanced technologies is vital to the maintaining and further developing of its competitiveness. The Group intends to continue to invest in its research and development efforts and technology innovation, focusing on developing proprietary key technologies in the areas of nuclear power, heavy-duty gas turbines and solar power, as well as the commercialisation of technology. In addition, the Group plans to closely monitor industry trends and actively undertake and lead national key research and development projects.
AWARDS Awards in recognition of outstanding industry position • Gold Award for National Quality Project in 2015 • No. 1 in National Generating Units Ranking in terms of Reliability in 2015 • The First Prize in National Large Generating Unit Contest in 2015 • The Best Generating Unit by Coal Consumption Efficiency among Central Enterprises in 2015 • The First Prize of Outstanding Engineering Consultation Achievement Award by Ministry of Nuclear Industry in 2015
Awards in recognition of remarkable technological innovation • The First Prize of China Machinery Industry Science and Technology Progress Award in 2015 • The First Prize of China Power Innovation Award in 2015 • The First Prize of Outstanding Computer Software Award of the Year by Ministry of Nuclear Industry in 2015 • The Second Prize of State Technological Innovation Award in 2015 • The First Prize of China Non-ferrous Metal Science and Technology Award in 2014
Awards in recognition of excellent corporate governance • Construction and Implementation of Central Enterprises’ Asset Evaluation and Management System won the first prize of Enterprise Management Innovation Achievement Award for National Power Industry in 2015 • Equity Management System of the Group won the first prize of Enterprise Management Innovation Achievement Award for National Power Industry in 2015 • The Gold Prize of Best Capital Management designated by Financial Times and Institute of Finance of the Chinese Academy of Social Science in 2015 • CPI won SOE Reform Innovation Supporting Legal Award in 2015 • Integrated control system construction of energy conglomerate won the First Prize of the 21st session of National Enterprise Management Modern Innovation Achievement Award in 2015
Awards in recognition of comprehensive social responsibility • Advanced Group in the Field of Power Standardisation in 2016
67 • “Yingshanhong” Edu-Aid Volunteer Public Welfare Action was awarded Voluntary Service Brand among Central Enterprises in 2016 • Advanced Group in the Work of National Security People’s Defence Construction of the Year in 2013 and 2015 • First Prize of Environmental Protection Technology of the Year in 2014 • Today Reform Progress Prize by United Nations Climate Change Conference in 2014
RECENT DEVELOPMENTS Proposed Transfer of Nuclear Power Assets and Businesses to China Power New Energy Development Company Limited (“CP New Energy”) by SNPTC On 30 December 2015, the Guarantor entered into a Memorandum of Understanding (“MOU”) with CP New Energy, a subsidiary owned as to 28.07% by the Guarantor as at 31 December 2015, pursuant to which the Guarantor agrees to transfer all nuclear power assets and businesses of SNPTC to CP New Energy and the Guarantor will issue new shares and/or pay cash to SNPTC as consideration (the “Possible Transaction”). Subject to the approvals and consents by the relevant governmental departments and/or regulatory authorities and other reasonable factors, CP New Energy intends to issue shares to SNPTC and/or China Power New Energy Limited (an indirect wholly owned subsidiary of the Guarantor) at not less than HK$0.57 per share. As at the date of this Offering Circular, the discussion and negotiation between the Guarantor and CP New Energy in respect of the Possible Transaction remain ongoing; and save for the MOU, no formal or legally binding agreement has been entered into between the Guarantor and CP New Energy in respect of the Possible Transaction.
Proposed Acquisition of China Power Investment Henan Power Corporation (“Henan Power”) by China Power International Development Limited (“CPI Development”) In January 2016, the Guarantor and CPI Development entered into a non-legally binding letter of intent, pursuant to which CPI Development proposed to acquire 100% equity interest in Henan Power from the Guarantor. Henan Power is principally engaged in the operation, production, investment and management of power and heat generation. As at 31 December 2015, Henan Power had a consolidated total installed capacity of approximately 5,600MW (not including the installed capacity of its associates), of which approximately 4,600MW was from coal-fired power. As at the date of this Offering Circular, this proposed acquisition has not been completed.
Proposed Private Placement of A Shares by Jilin Electric Power Co., Ltd. (“Jilin Electric Power”) In March 2016, Jilin Electric Power proposed to issue up to 686.93 million A shares at the issue price of RMB5.59 per share or above in a private placement to no more than ten specific investors for an aggregate cash consideration of up to RMB3,839.93 million (the “Proposed Private Placement”). On 16 May 2016, the Proposed Private Placement was approved by the extraordinary general meeting of Jilin Electric Power. On 9 September 2016, the Proposed Private Placement was approved by the China Securities Regulatory Commission, which is effective for six months from the date of approval. As at the date of this Offering Circular, the Proposed Private Placement has not been completed.
Propose Acquisition of K-Electric Limited (“K-Electric”) by Shanghai Electric Power Co., Ltd. (“Shanghai Electric Power”) In October 2016, Shanghai Electric Power entered into a sale and purchase agreement with KES Power Limited (“KES”), pursuant to which Shanghai Electric Power agrees to purchase and KES agrees to sell 18,335,542,678 shares in K-Electric, representing a 66.40% equity interest in K-Electric, for an aggregate cash consideration of U.S.$1,770 million with a discretionary premium of up to U.S.$27 million. K-Electric is principally engaged in generation, transmission and distribution of electricity to Karachi and nearby towns and is listed on the Pakistan Stock Exchange. Shanghai Electric Power is currently applying for a waiver from general mandatory offer triggered by this proposed acquisition from the Securities and Exchange Commission of Pakistan. As at the date of this Offering Circular, this proposed acquisition is still subject to the approval of shareholders of Shanghai Electric Power.
Propose Acquisition of SPIC Jiangsu Electric Power Co., Ltd. (“Jiangsu Electric Power”) by Shanghai Electric Power In October 2016, Shanghai Electric Power proposed to acquire 100% equity interest in Jiangsu Electric Power from the Guarantor to be settled by a combination of cash consideration and issue of consideration shares by
68 Shanghai Electric Power. Shanghai Electric Power also proposed to issue further shares to finance this proposed acquisition. Jiangsu Electric Power is a wholly-owned subsidiary of the Guarantor and is principally engaged in onshore and offshore wind power generation, PV power generation, coal-fired power generation and harbour logistics. As at the date of this Offering Circular, parties are still negotiating the acquisition plan and conducting preliminary due diligence and evaluation work.
Financial Results as at and for the Nine Months ended 30 September 2016 of the Group The Group has published Guarantor’s Consolidated Third Quarter Financials for the nine months ended 30 September 2016. The financial information therein was prepared according to PRC GAAP. The Guarantor’s Consolidated Third Quarter Financials are available on the website of the www.chinabond.cn. The key information from the Guarantor’s Consolidated Third Quarter Financials has been included in the “Summary Consolidated Financial Information” section and remains unaudited and unreviewed. The Guarantor’s Consolidated Third Quarter Financials are condensed consolidated financial information of the Group and there are no notes to the consolidated financial information contained therein. The Guarantor’s Consolidated Third Quarter Financials have not been reviewed or audited by Ruihua or any other person and consequently should not be relied upon by investors to provide the same quality of information associated with information that has been subject to an audit or review. None of the Joint Lead Managers or any of their respective affiliates, directors, officers, employees, agents, representatives or advisers makes any representation or warranty, express or implied, regarding the accuracy or sufficiency of such consolidated financial statements for an assessment of, and potential investors must exercise caution when using such data to evaluate, the Group’s financial condition and results of operations. The Guarantor’s Consolidated Third Quarter Financials should not be taken as an indication of the expected financial condition or results of operations of the Group for the full financial year ending 31 December 2016. See “Risk Factors — Risks Relating to the Group’s Business and the PRC Power Industry — This Offering Circular contains financial information of the Group prior to and post the Merger. The interim financial information of the Guarantor contained in this Offering Circular have not been reviewed or audited.”
BUSINESS SEGMENTS The Group primarily engages in the power generation business and has diversified power assets across thermal power, nuclear power, hydropower, wind power, PV power and other non-nuclear clean energies. The Group also engages in ancillary business such as heating, coal, aluminium and other ancillary business. The Group’s core business segment contributed to the majority of the total revenue of the Group for each of the three years ended 31 December 2013, 2014 and 2015.
The following table sets forth certain details of the Group’s six business segments for the periods indicated.
Year ended 31 December 2013 2014 2015 Revenue Revenue Revenue (RMB in (RMB in (RMB in millions) millions) millions) (audited) % (restated) % (audited) % Business segments Power generation ...... 110,833.2 58.0 115,975.4 60.0 118,869.0 61.8 Heating ...... 3,799.4 2.0 4,906.1 2.5 5,641.3 3.0 Coal ...... 2,677.6 1.4 2,405.0 1.2 4,113.1 2.1 Aluminium ...... 49,360.8 25.8 42,425.9 22.0 45,397.2 23.6 Others ...... 18,293.1 9.6 24,689.2 12.8 15,934.0 8.3 Ancillary business ...... 5,257.6 0.5 2,833.4 1.5 2,449.2 1.3 Financial services charges and commission(1) ..... 881.3 2.8 — — — — Total Revenue ...... 191,103.1 100.0 193,234.9 100.0 192,403.8 100.0
Note: (1) As a result of the adjustment in the accounting subjects, the Group has reclassified its financial services charges and commission into “Others” since 2014.
Power Generation Business The power generation business is the core business segment of the Group and the main revenue contributor. The Group designs, develops, manages and operates power plants, power stations and wind farms, and sells the
69 electricity generated by its plants to local grid companies. The Group has diversified power assets across thermal power, nuclear power, hydropower, wind power, PV power and other non-nuclear clean energies. Revenue from the Group’s power generation business for the three years ended 31 December 2013, 2014 and 2015 amounted to RMB110,833.2 million, RMB115,975.4 million and RMB118,869.0 million, respectively, accounting for approximately 58.0%, 60.0% and 61.8% of its total revenue during the same period.
The following table sets out certain details of the total controlled installed capacity of the Group’s power generation business for the periods indicated.
Year ended 31 December 2013 2014 2015 Total controlled Total controlled Total controlled installed capacity installed capacity installed capacity (GW) % (GW) % (GW) % Thermal power ...... 62.09 70.1 63.33 67.1 68.27 65.6 Nuclear power(1) ...... 0.00 0.0 0.00 0.0 0.00 0.0 Hydropower ...... 19.25 21.7 20.71 21.9 20.94 20.1 Wind power ...... 4.71 5.3 6.67 7.1 9.98 9.6 PV power ...... 2.50 2.8 3.72 3.9 4.85 4.7
Note: (1) The Group consolidates the financial information of Liao Ning Hong Yan He Nuclear Power Co., Ltd. into its financial statements, but does not calculate its installed capacity of nuclear power stations as part of the Group’s total controlled installed capacity. The total installed capacity of nuclear power stations of Liao Ning Hong Yan He Nuclear Power Co., Ltd. was 1.12 GW, 2.24 GW and 3.36 GW for the three years ended 31 December 2013, 2014 and 2015, respectively.
Thermal power By the end of 2015, the total installed capacity of thermal power plants invested and operated by the Group amounted to 68.27 GW. The Group has eight coal-fired power generating units with GW capacity. Generating units with 0.6 GW capacity and above account for 56.8% of the Group’s thermal installed capacity, ranking the top among the top five power groups. The Group has been actively optimising its thermal power asset structure by focusing on high capacity and energy saving power units, equipment and technology upgrade, and thermoelectric gas-steam combined cycle power plant and natural gas distributed energy system.
The Group leverages its resources capability while continuously optimises its power plants layout across the PRC. Its thermal power assets are located in areas where coal resources or power demands are concentrated. The following table sets out the location of the thermal power projects of the Group as at 31 December 2015.
Installed Power Number of capacity generation Area projects (10MW) (100GWh) Northwestern China: Xinjiang, Qinghai, Gansu, Ningxia In operation 4 268.0 112.8 and Shaanxi Under construction 4 203.0 — Planned 2 140.0 — Northern China: Inner Mongolia, Hebei, Shanxi, Beijing In operation 17 863.9 434.5 and Tianjin Under construction 1 60.0 — Planned 7 702.0 — Southwestern China: Tibet, Sichuan, Chongqing, Yunnan In operation 15 1,379.0 447.6 and Guizhou Under construction 2 198.0 — Planned 1 132.0 — South-central China: He’nan, Hubei, Hu’nan, Guangxi, In operation 15 1,546.9 626.5 Guangdong and Hainan Under construction 1 94.0 — Planned 7 527.0 — Eastern China: Shandong, Jiangsu, Shanghai, Zhejiang, In operation 16 1,762.6 743.6 Fujian and Jiangxi Under construction 2 200.9 — Planned 5 277.3 — Northeastern China: Heilongjiang, Jilin and Liaoning In operation 16 992.1 382.5 Under construction 1 70.0 — Planned — — —
70 The following table sets out a summary of certain details of the demonstrative thermal power projects of the Group.
Installed Project name capacity Descriptions Awards Shanghai Electric Power Tianji 2×700 MW • No.3 generating unit won • Gold Award for National Power Plant Phase II the title of “the Best Quality Project in 2015 Generating Unit by Coal • the world’s first operating Consumption Efficiency” 620°C reheat steam granted by SASAC in temperature TT-type 2015 for its low coal boiler system consumption of 274g/ KWh (saving about 10g/ KWh) • annual standard coal saving of 62,700 tonnes, carbon dioxide emission reduction of 166,800 tonnes and sulphur dioxide emission reduction of 1,300 tonnes Pingyu Power Plant 4,540 MW • the world’s first “Three • Pingyu Phase III won the Million” project with Award for China’s “GW-capacity generating Quality Power unit, megavolt-level in- Engineering Project and plant master substation in 2016 the “Installation voltage and megavolt- Star” level UHV power output • Pingyu Phase II won the lines” Award for China’s • total installed capacity is Quality Power 4,540 MW, being the Engineering Project in largest thermal power 2009 plant of the Group in • Pingyu Power Plant won terms of installed capacity the Fourth Session of National Power Industry Equipment Management and Innovation Award in 2013 Shanghai Electric Power 2×1,000 MW • after renovation, emission • Gold Award for National Caojing Power Plant of dust, sulphur dioxide Quality Project and the and nitrogen oxides are title of Classic Project at 1.8 mg/m3, 13.9 mg/m3 the 30th Anniversary of and 21.6 mg/m3 National Quality Project respectively, all better Award in 2011 than benchmark emission • No. 2 generating unit standards became one of the first 13 coal power generating units of environment protection and renovation demonstrative projects approved by National Energy Administration in 2014
71 Nuclear power By the end of 2015, the total installed capacity of nuclear power stations invested and operated by the Group amounted to 3.36 GW, representing approximately 12.7% of the total installed capacity in China. The Group also has nuclear power stations under construction with an expected total installed capacity of 5.86 GW. The following table sets out a summary of certain details of the major nuclear power stations of the Group. Major nuclear power projects controlled or invested by the Group include: • Shandong Haiyang Nuclear Power Project Shandong Haiyang Nuclear Power Project is one of the first independently-developed projects using the third generation nuclear power technology in China. The construction of the first phase commenced from December 2012, which is expected to have two sets of AP1000 generating units with 1,250 MW capacity each. Shandong Nuclear Power Company Ltd., in which the Group controlled 65% equity interest, is in charge of the design, construction, operation and management of Shandong Haiyang Nuclear Power Project. • Liaoning Hongyan River Power Project Liaoning Hongyan River Power Project has two phases, where the first phase comprising No. 1 to 4 generating units is adopting CPR1000 nuclear power technology and the second phase comprising No. 5 to 6 generating units is adopting ACPR1000 nuclear power technology. Each set of the above generating units has a capacity over 1,000 MW. No. 1 to 3 generating units have already been in operation and No. 4 to 6 generating units are under either test or construction preparation. Liao Ning Hong Yan He Nuclear Power Co., Ltd., in which the Group owned 45% equity interest, is in charge of the design, construction, operation and management of Liaoning Hongyan River Power Project.
Hydropower By the end of 2015, the total installed capacity of hydropower plants invested and operated by the Group amounted to 20.94 GW, representing approximately 6.6% of the total installed capacity in China. The Group is designated by the State Council to develop hydropower bases of the upstream Yellow River and Yuanshui River, of which 10 cascade plants of the upstream Yellow River with total installed capacity of 10.35 GW and seven cascade plants of the Yuanshui River with total installed capacity of 4.14 GW have been completed. The Group is a national leader in hydropower centralised control operation. The Group’s hydropower plants in Yuanshui River have achieved automation, information and intelligence operation.
72 The following table sets out a summary of certain details of the demonstrative hydropower projects of the Group.
Installed Annual average Project name capacity power generation Descriptions Longyang Gorge Station 1,280 MW 6 billion KWh • the first large cascade hydropower station in Longqing section of the upstream Yellow River • with the largest reservoir capacity in the Yellow River Laxiwa Project 4,200 MW 10.2 billion KWh • the second large cascade hydropower station in Longqing Section of the upstream Yellow River • with the highest dam, the largest installed capacity and the largest power generation in North China Lijia Gorge Station 2,000 MW 5.9 billion KWh • the third large cascade hydropower station in Longqing Section of the upstream Yellow River • won “Luban Prize” and is the world’s largest hydropower station installed with double-row generating units • No. 4 generating unit adopts new evaporative cooling technology, which is the first trial in China Gongbo Gorge Station 1,500 MW 5.14 billion KWh • the fourth large cascade hydropower station in Longqing Section of the upstream Yellow River • a sample project in China’s hydropower construction industry Wuqiangxi Station 1,200 MW 5.3 billion KWh • the largest hydropower station in Hu’nan Province • named as “National Top-level Hydropower Plant” in September 2000 Sanbanxi Station 1,000 MW 2.4 billion KWh • the only station with interannual regulation capacity in Yuanshui • the third highest dam in the world among peers, China’s key national engineering construction project Changzhou Station 630 MW 3.01 billion KWh • Reputed as “Three Gorges Project” among power stations installed with bulb tubular type hydraulic generating units in terms of the longest dam, large units in both size and numbers, as well as its gigantic lock Jishi Gorge Station 1,020MW 3.36 billion KWh • China first soft rock concrete dam with penstock buried under the dam
73 Wind power The Group was one of the largest wind power generators in China with total installed capacity of 9.98 GW by the end of 2015, representing approximately 9.7% of the total installed capacity in China. The Group is also one of China’s earliest entities that engaged in wind power design and has completed feasibility and construction planning of over 100 wind farms accumulatively. The following table sets out a summary of certain details of the demonstrative wind farms of the Group.
Annual average power Project name Installed capacity generation Descriptions Gansu Jiuquan Gobi 1,070 MW 2.43 billion KWh • largely completed six renewable Wind Power Project energy bases of GW capacity in Qinghai Hainan and Haixi, Gansu Jiuquan, Xinjiang Hami, Yunnan Chuxiong, Ningxia Zhongwei, developed into a new stage of scale Yunnan Chuxiong Dagua 586 MW 1.34 billion KWh • mountain wind power projects Mountain and Dahuang • power plant development and Mountain Projects environmental protection were centrally planned to ensure a harmonious development of wind farms and mountain protection Jiangsu Binhai North 100 MW 0.24 billion KWh • the first offshore wind power project Region H1 Offshore of 100 MW put in operation in China Wind Power Project • construction of the first phase of 100 MW has been completed, with leading domestic construction cost level Jiangsu Dafeng Mudflat 200 MW 0.36 billion KWh • coastal intertidal zone development Wind Power Project demonstration project, overcomes the problems on construction in intertidal zone
74 PV power By the end of 2015, the total installed capacity of PV power plants invested and operated by the Group amounted to 4.85 GW, representing approximately 11.5% of the total installed capacity in China and ranking No. 1 in the world in terms of the total installed capacity. The Group has a complete PV industry chain, covering sci-tech research and development, poly-Si and PV cell component manufacturing, planning and design, engineering construction, and production and operation. The following table sets out a summary of certain details of the demonstrative PV power projects of the Group.
Annual average power Project name Installed capacity generation Descriptions Gonghe PV Power 850 MW 1.30 billion KWh • 47 kilometres from Longyang Gorge Station Station, together with which, being the first hydropower and PV power complementary operating project in the world • based on complementarities of hydropower and PV power and Longyang Gorge Station’s fast regulation capacity, compensate active output of PV power station and improve PV power generation quality Qinghai Golmud PV 540 MW 0.86 billion KWh • the largest one-time individual power Station station in the world Jiangsu Jianhu Fishing 66 MW 0.07 billion • harmonious development between and PV KWh innovative PV power generation and Complementary Power fishing Station • constructs large grid-connected PV power stations by using some local marshes, wetlands and fishponds. Multiple land usage increases revenue from agriculture and fishing as well as overall land use efficiency Jiangxi Leping 70 MW 0.07 billion • comprehensive cultivated and woody Agriculture (Forestry) KWh land use and PV • multiple land usage increases Complementary Power agricultural revenue, reduces power Station generation costs and improves overall land use efficiency
Overseas power assets In line with its internationalisation strategy, the Group is also actively expanding in the overseas power generation market. The Group’s overseas projects are located in 19 countries including Australia, Malta, Turkey, Japan and Pakistan, of which, six projects with a total installed capacity of 1.26 GW are in operation, six projects with a total installed capacity of over 10.05 GW are under construction, and ten contracted power plant projects with a total installed capacity of 12.5 GW are also under implementation.
Electricity sale Revenue of the Group’s power business is primarily derived from the sale of electricity generated from the Group’s power plants. According to relevant PRC regulations, a power plant’s sole customer is the relevant grid company to which it is connected. The Group’s power plants are connected and sell electricity to the grid company located in the same region. On-grid tariffs of the planned output of the Group’s power plants are reviewed and determined by the relevant pricing authorities, taking into account various factors including the construction costs and fuel cost.
75 The table below sets forth the Group’s average on-grid tariff for electricity from the Group’s power plants for the periods indicated.
Year ended 31 December 2013 2014 2015 (RMB per KWh) Average on-grid tariff (excluding VAT) ...... 0.338 0.340 0.334
Apart from the Group’s planned output, the Group’s power plants also sell electricity generated in excess of the planned output, by way of bilateral trading output, competitive bidding output and substituting generation output. Bilateral trading output allows an electricity generation company to directly negotiate with and sell its electricity to licensed large customers. Competitive bidding output is an excess output mechanism to meet increased demand for electricity within a specific area covered by a particular grid company whereby such grid company invites electricity generation companies to tender bids to sell their excess output, which such grid company purchases from the winner and sells to customers. Substituting generation allows an electricity generation company to sell its electricity to other power generating companies (substituting the seller’s excess output as the buyer’s planned output).
Repair and maintenance The Group’s power plants have timetables for routine maintenance, regular inspections and repairs. Such timetables and the repair and maintenance are established by each plant pursuant to the relevant regulations. The Group’s maintenance procedures are reasonably scheduled and coordinated to support stable power generation and high reliability of facilities.
Heating Business Some of the Group’s generating units are combined heat and power cogenerating units whereby the generation of electric energy produces heat as a by-product. The Group mainly supplies heat to industrial, commercial and residential customers located within proximity. The simultaneous production of electricity and heat increases the Group’s efficiency of energy conversion and use, provides additional competitiveness of the Group and diversifies the Group’s revenue sources. In order to secure supply for heat, local governments usually prioritises operation of cogenerating units during the peak season with high demand for heat through measures, which improves the utilisation rate of the Group’s generating units.
Revenue from the Group’s heating business for the three years ended 31 December 2013, 2014 and 2015 amounted to RMB3,799.4 million, RMB4,906.1 million and RMB5,641.3 million, respectively, accounting for approximately 2.0%, 2.5% and 3.0% of its total revenue during the same period.
Coal Business By the end of 2015, the Group has coal resource reserves of 16.2 billion tonnes and coal production capacity of 80.4 million tonnes. The Group operates five opencast coal mines in eastern Inner Mongolia, each with an annual production capacity of over ten-million tonnes and totalling 75 million tonnes’ production capacity per year. Coal resources provide sound guarantee for the supply of the Group’s coal-fired power plants located within proximity, and the Group is actively promoting coal-electricity synergic and joint operation. In 2015, approximately 74% of the coal consumed by the Group’s coal-fired power plants in greater northeastern China region was supplied by the Group internally. The Group’s coal-fired power plants in eastern Inner Mongolia and northeastern China region consumed about 26 million tonnes of coal and 39 million tonnes of lignite per year, respectively, representing 37% and 55% of the Group’s total sales of coal and lignite in the same period, respectively.
Revenue from the Group’s coal business for the three years ended 31 December 2013, 2014 and 2015 amounted to RMB2,677.6 million, RMB2,405.0 million and RMB4,113.1 million, respectively, accounting for approximately 1.4%, 1.2% and 2.1% of its total revenue during the same period.
Aluminium Business By the end of 2015, the Group’s electrolytic aluminium production capacity reached 2.485 million tonnes, mainly spread across resource-rich and energy-rich areas of eastern Inner Mongolia, Ningxia, and Qinghai, and
76 the Group’s alumina production capacity reached 2.6 million tonnes, mainly spread across Shanxi. Through the combination of and synergy among the coal-fired or wind power, hydropower and aluminium industry chains, the Group has reduced production costs and improved efficiency of resources utilisation.
Revenue from the Group’s aluminium business for the three years ended 31 December 2013, 2014 and 2015 amounted to RMB49,360.8 million, RMB42,425.9 million and RMB45,397.2 million, respectively, accounting for approximately 25.8%, 22.0% and 23.6% of its total revenue during the same period.
Other Business The Group’s other business segment mainly include financial businesses such as deposit and loan services, insurance brokerage, trust, futures, financial leasing, factoring, funds and assets management. The Group engages in financial business through its subsidiaries including China Power Investment Financial Co., Ltd. and CPI Ronghe Holding Investment Co., Ltd.
Revenue from the Group’s other business for the three years ended 31 December 2013, 2014 and 2015 amounted to RMB18,293.1 million, RMB24,689.2 million and RMB15,934.0 million, respectively, accounting for approximately 9.6%,12.8% and 8.3% of its total revenue during the same period.
Ancillary Business Apart from the five principal business segments above, some members of the Group also operate in ancillary businesses, including sales of materials, transportation, processing and repair of facilities and equipment for power plants, lease of fixed assets, entrusted operation of power generation, employee training, electricity power transmission, clean development mechanism (CDM), garbage disposal and transport subsidies, and others.
Revenue from the Group’s ancillary businesses for the three years ended 31 December 2013, 2014 and 2015 amounted to RMB5,257.6 million, RMB2,833.4 million and RMB2,449.2 million, respectively, accounting for approximately 0.5%, 1.5% and 1.3% of its total revenue during the same period.
RAW MATERIALS AND SUPPLIERS The Group’s major suppliers include fuel suppliers (including coal, gas, oil and nuclear fuel), project construction service providers, technical services providers and mechanical and electronic equipment suppliers. Fuel costs represent the majority of the operating expense for the Group.
EMPLOYEES As at 31 December 2015, the Group had approximately 129,000 employees. The Group considers its relationship with its workforce to be good and the Group has not experienced a work stoppage or strike. In accordance with regulations applicable to enterprises and the relevant requirements of various local governments in areas in which the Group operates, the Group makes contributions to the pension contribution plan, employees’ medical insurance, unemployment insurance, maternity insurance and workers’ compensation injury insurance.
INTELLECTUAL PROPERTY The Group places great importance on the creation, application, management and protection of its intellectual property rights. Through research and development and its ordinary course of business, the Group has obtained various intellectual property rights that are valuable to its business. The Group protects and will continue to seek to protect these intellectual property rights through copyrights, patents, trademarks and contractual rights. As at 31 December 2015, the Group had over 2,500 authorised patents in the PRC, including over 400 authorised invention patents.
HEALTH AND SAFETY COMPLIANCE The Group’s business operations, particularly the Group’s power generation business, involve risks and hazards that are inherent in such activities. These risks and hazards could result in damage to, or destruction of, property or production facilities, personal injury, environmental damage, business interruption and possible legal liability. Nuclear power stations face special safety challenges because while generating electricity, nuclear power stations also produce radioactive by-products, which carry with them risks including personal injuries, property damages
77 and environmental contamination. All of the Group’s power plants, power stations and wind farms have adopted various internal policies and taken protective measures to prevent health and safety risks and hazards in accordance with national standards, and the Group believes its nuclear safety policy comprises a myriad of measures to protect personnel, environment and society from possible radioactive hazards throughout the life cycle of a nuclear power generating unit. The Group’s power plants, power stations or wind farms have not encountered any material unplanned outages due to health and safety issues.
ENVIRONMENTAL REGULATION The Group is committed to conducting the Group’s operations in a manner that complies with applicable environmental laws and regulations, and endeavours to mitigate the adverse effect of the Group’s operations on the environment. The Group’s operations are currently subject to environmental laws and regulations relating to the construction and operation of power generation facilities and power plants, noise control, air and water emissions, water and ground protection, hazardous substances, radioactive by-products and waste management. The Group has implemented a system that is designed to control pollution caused by the Group’s power plants, including the establishment of an environmental protection and supervision department at each power plant, adoption of relevant control and evaluation procedures and the installation of certain pollution control equipment. The Group operates under a number of licences and authorisation that are related to environmental regulations. The Group requires all of its members to comply with applicable environmental regulations in the relevant jurisdictions in which it operates. As at the date of this Offering Circular, the Group is not aware of any environmental proceedings or investigations to which it is or might become a party that could have a material adverse effect on its business, financial condition or results of operations.
INSURANCE The Group’s assets are covered by insurance with reputable insurance companies (including PICC Property and Casualty Company Limited, China Pacific Insurance (Group) Co., Ltd. and Ping An Property and Casualty Insurance Company of China), such as property all risks insurance, machinery breakdown insurance, contractors/ erecting all risks insurance. The Group’s insurance policies are reviewed on an annual basis.
Consistent with what the Group believes to be customary practise in the PRC, certain members of the Group carry third party liability insurance to cover claims in respect of personal injury, property or environmental damages arising from accidents on the Group’s property or relating to the Group’s operations, while the Group does not carry any business interruption insurance. The Group believes that the insurance coverage of the power plants, power stations and wind farms within the Group’s insurance coverage is adequate and is standard for the power industry in the PRC. See “Risk Factors — Risks Relating to the Group’s Business and the PRC Power Industry — Operation of power plants involves many risks, and the Group may not have adequate insurance to cover the economic losses if any of the Group’s power plants’ ordinary operations is interrupted.”
LEGAL, COMPLIANCE AND PROCEEDINGS The Group is from time to time involved in legal proceedings arising in the ordinary course of its business, including as plaintiff or defendant in litigation or arbitration proceedings. To the best of the Group’s knowledge, there are no current, pending or threatened litigation, arbitration or other proceedings against the Group that could have a material adverse effect on its businesses, financial condition or results of operations.
78 DIRECTORS AND SENIOR MANAGEMENT
Directors The members of the Board of Directors of the Guarantor as at the date of this Offering Circular are as follows:
Name Age Position Wang Binghua ( ) 62 Chairman Meng Zhenping ( ) 54 President Zhu Hongjie ( ) 62 External Director Liu Baoying ( ) 63 External Director Li Jiamo ( ) 66 External Director Yang Jixue ( ) 66 External Director Xu Zuyong ( ) 52 Employee Representative Director
Mr. Wang Binghua, aged 62, has a master’s degree and graduated from Wuhan University of Hydraulic and Electrical Engineering with major in Electric Power System and Automation. Mr. Wang currently serves as the Chairman of the Board and the Secretary of the Communist Party of China (“CPC”) committee of the Guarantor. Mr. Wang previously worked as the Vice President and a member of the CPC committee of the China National Nuclear Corporation. Mr. Wang was appointed as the Secretary of the CPC committee and President of China Power Investment Corporation. He also served as the Chairman of the Board and Secretary of the CPC committee of the State Nuclear Power Technology Co., Ltd.
Mr. Meng Zhenping, aged 54, has a master’s degree and graduated from China Europe International Business School with major in EMBA. Mr. Zheng is a Senior Accountant. Mr. Meng currently serves as the President, Director and Deputy Secretary of the CPC committee of the Guarantor. He previously worked as the Deputy Director and a member of the CPC committee of ZouXian Power Plant of Shandong Province ( ), the Deputy General Director of Business Department and the Deputy Chief Financial Officer of State Grid Shandong Electric Power Company. Mr. Meng was appointed as the Deputy General Director of Auditing Department, Deputy General Director of Finance and Asset Department and the General Director of Comprehensive Plan, Investment and Financing Department ( ) of State Grid Corporate of China. Mr. Meng also worked as the President and the Secretary of the CPC committee of State Grid Henan Electric Power Company, and the Vice President, Chief Financial Officer and a member of the CPC committee of China Power Investment Corporation.
Mr. Zhu Hongjie, aged 62, , has a bachelor’s degree. Mr. Zhu currently serves as an External Director of the Guarantor. Mr. Zhu previously worked as the Director and Deputy General Director of Planning and Finance Department of Ministry of Foreign Trade and Economic Cooperation ( ), the General Manager of the Planning Treasury Department ( ), the General Manager of the Concessional Loan Department ( ), the General Manager of the Supplier’s Credit Department I ( ), and Assistant to the President and the Vice President in the Export-Import Bank of China.
Mr. Liu Baoying, aged 63, has a bachelor’s degree. Mr. Liu currently serves as an External Director of the Guarantor. Mr. Liu previously worked as the Deputy Secretary (responsible for operation) of the Communist Youth League Committee, the Vice President of the Labour Union, the Chief Editor of factory’s newspaper, the President of Publicity Department of the CPC committee, and the Deputy Secretary of the CPC committee of Luoyang Glass Factory ( ). Mr. Liu served as the Deputy Secretary of the CPC committee, the Vice President, the Secretary of the CPC committee, the Vice Chairman of the Board, and the Chairman of the Board of Luoyang Glass Company Limited ( ). Mr. Liu also served as the Assistant to the President, the Vice President, and a standing member of the CPC committee of China National Building Materials Group Co., Ltd.
Mr. Li Jiamo, aged 66, has a bachelor’s degree. Mr. Li currently serves as an External Director of the Guarantor. Mr. Li previously worked as the Political Assistant ( ) (equivalent to Deputy Director level) of the Structure Reform Department of Ministry of Aviation and Aerospace Industry ( ). He served as the Director and Political Assistant of the General Management Department of the Production Management Bureau ( ) as well as the Director of the Corporate Management Office of Aviation Industry Corporation of China ( ). Mr. Li was appointed as the Assistant to the Special Inspector for Supervision ( ) (equivalent to Director level) of State Council’s Special Inspector for Supervision Department ( ). He also served as the Professional Supervisor equivalent to Director level, Professional Supervisor equivalent to Deputy General Director level, and Professional Supervisor equivalent to General Director level of the Board of Supervisors for certain large key state-owned enterprises.
79 Mr. Yang Jixue, aged 66, has a master’s degree. Mr. Yang currently serves as an External Director of the Guarantor. Mr. Yang worked as a Cadre of the CPC Office and the Director of Legal Counsel Department of Gezhouba Engineering Bureau ( ). He also served as the President of Gezhouba Engineering Bureau the Fifth Construction Company ( ), the Assistant of President, the Vice President and Deputy Secretary of the CPC committee of China Gezhouba Water Resources and Hydropower Construction Group Corporation ( ), the President, a standing member of the CPC committee and the Secretary of the CPC committee of China Gezhouba Group Corporation ( ), as well as the Chairman of the Board and a standing member of the CPC committee of China Gezhouba Group Co., Ltd. ( ). Mr. Yang also served as the Chairman of the Board, a standing member of the CPC committee and the General Director of Strategy Counsel Committee of China Energy Engineering Group Co., Ltd. and an External Director of China Guodian Corporation.
Mr. Xu Zuyong, aged 52, has a bachelor’s degree. Mr. Xu currently serves as the Deputy General Director of the Labour Committee, the Deputy General Director of the Department of Party and Masses’ Affairs ( ), and the Employee Representative Director of the Guarantor. Mr. Xu previously worked as the Deputy General Director of the Journalists Department, the Deputy General Director of the News Department, the Deputy General Director of the General Newsroom in China Electric Power News, the Director of the Coordination Department in General Department of Ministry of Electric Power ( ), the Director of the General Management Office of the International Department in State Grid Corporate of China, and the Director and President of State Grid Corporation of China United States Office ( ). He also appointed as the Manager of the General Manager Work Department, the General Director of the Policy and Law Department, the Secretary of the CPC committee in Jiangxi Branch, the Deputy General Director of the Labour Union Work Committee (equivalent to General Director of a Department of the Corporation) in China Power Investment Corporation.
Senior Management The members of the Guarantor’ senior management as at the date of this Offering Circular are as follows:
Name Age Position Wang Binghua ( ) 62 Chairman Meng Zhenping ( ) 54 President Yu Jianfeng ( ) 51 Vice President Shi Jialin ( ) 54 Vice President Wei Suo ( ) 57 Vice President Wang Yihua ( ) 50 Chief Financial Officer Xia Zhong ( ) 54 Vice President Deng Wenkui ( ) 59 Leader of the CPC Committee Discipline Inspection Commission
For Mr. Wang Binghua’s and Mr. Meng Zhenping’s experiences, please see “— Directors” in this section.
Mr. Yu Jianfeng, aged 51, has a bachelor’s degree. Mr. Yu currently serves as a member of the CPC committee and the Vice President of the Guarantor. He is a senior engineer equivalent to Researcher level ( ) and started to work on August 1988. Mr. Yu is a member of the CPC and graduated from Tsinghua University with major in Nuclear Reactor Engineering. Mr. Yu previously worked as the Director of Nuclear Power Department, a member of the CPC committee and the Vice President of China National Nuclear Corporation, the Chairman of the Board of Jiangsu Nuclear Power Co., Ltd.
Mr. Shi Jialin, aged 54, graduated from College of Technology of Shandong and majored in Electric Power System and Automation. Mr. Shi currently serves as a member of the CPC committee and the Vice President of the Guarantor. Mr. Shi previously served as the Director and a member of the CPC committee of Jinan Power Supply Bureau ( ), and the Assistant of the President, the Chief Economic Manager, the Employee Representative Director, a member of the CPC committee and the President of the Labour Union of Shandong Electric Power Corporation ( ). Mr. Shi worked as the Vice President, the Deputy Secretary of the CPC committee, the President and the Secretary of the CPC committee of State Grid Gansu Electric Power Company. Mr. Shi also served as the Director of State Grid Northwest China Grid Co., Ltd., the President and the Deputy Secretary of the CPC committee in State Grid Beijing Electric Power Company, the Director of State Grid North China Grid Co., Ltd., the Assistant of the President of State Grid Corporation of China, and a member of the CPC committee and the Vice President of State Nuclear Power Technology Co., Ltd.
Mr. Wei Suo, aged 57, graduated from Business College of Wuhan University with a master’s degree in Business Management and from Xi’an JiaoTong University with a master’s degree in EMBA. Mr. Wei currently
80 serves as a member of the CPC committee and the Vice President of the Guarantor. Mr. Wei previously served as the leader of the commissioning unit ( ) of China Power Investment Corporation Henan Branch; a member of the CPC committee and the Director of Cadres Department ( ) of State Grid Henan Electric Power Company. He worked as the Chairman of Henan Province Electric Power Labour Union, the Secretary of the CPC committee and the President of China Power Investment Corporation Henan Branch, and the temporary leader and Director of the Human Resource Department, a member of the CPC committee, the Vice President and the Director of the Human Resource Department of State Nuclear Power Technology Co., Ltd. He was also the President of SNPTC University.
Mr. Wang Yihua, aged 50, graduated from Changsha University of Electric Power ( ) and majored in Accounting. Mr. Wang currently serves as a member of the CPC committee and the Chief Financial Officer of the Guarantor. Mr. Wang previously was the Director of Finance Department of State Grid Hunan Electric Power Company, the Budget Supervision Senior Manager and Deputy Director of the Finance and Assets Management Department of China Power Investment Corporation. He served as the temporary leader of the Finance Department, the Director of the Finance Department, the Director of Funds Management Centre, a member of the CPC committee and the Chief Financial Officer of State Nuclear Power Technology Co., Ltd.
Mr. Xia Zhong, aged 54, obtained his master’s degree and doctor’s degree from Xi’an University of Technology with major in Hydrology and Water Resources. Mr. Xia currently serves as a member of the CPC committee and Vice President of the Guarantor. Mr. Xia is a senior engineer equivalent to professor level and he started to work in August 1982. Mr. Xia previously served as the Vice President of China Power Investment Corporation.
Mr. Deng Wenkui, aged 59, has a master’s degree. He graduated from Renmin University of China Chinese Language and Literature School and majored in Literature and Art. Mr. Deng currently serves as a member of the CPC committee and the Leader of the CPC Committee Discipline Inspection Commission ( )of the Guarantor. Mr. Deng started to work in October 1972. He previously served as a member of the CPC committee and the Leader of the CPC Committee Discipline Inspection Commission of China Power Investment Corporation.
81 EXCHANGE RATE INFORMATION
The People’s Bank of China (the “PBOC”), the central bank of the PRC, sets and publishes daily a base exchange rate with reference primarily to the supply and demand of Renminbi against a basket of currencies in the market during the prior day. The PBOC also takes into account other factors, such as the general conditions existing in the international foreign exchange markets. On 21 July 2005, the PRC government introduced a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of currencies. On the same day, the value of the Renminbi appreciated by 2 per cent. against the U.S. dollar. The PRC government has since made and in the future may make further adjustments to the exchange rate system. On 18 May 2007, the PBOC enlarged, effective on 21 May 2007, the floating band for the trading prices in the inter-bank spot exchange market of Renminbi against the U.S. dollar from 0.3 per cent. to 0.5 per cent. around the central parity rate. This allows the Renminbi to fluctuate against the U.S. dollar by up to 0.5 per cent. above or below the central parity rate published by the PBOC. The floating band was further widened to 1.0 per cent. on 16 April 2012. These changes in currency policy resulted in the Renminbi appreciating against the U.S. dollar by approximately 26.9 per cent. from 21 July 2005 to 31 December 2013. On 14 March 2014, the PBOC further widened the floating band against the U.S. dollar to 2.0 per cent. On 11 August 2015, the PBOC announced to improve the central parity quotations of Renminbi against the U.S. dollar by authorising market-makers to provide central parity quotations to the China Foreign Exchange Trading Centre daily before the opening of the interbank foreign exchange market with reference to the interbank foreign exchange market closing rate of the previous day, the supply and demand for foreign exchange as well as changes in major international currency exchange rates. Following the announcement by the PBOC on 11 August 2015, Renminbi depreciated significantly against the U.S. dollar. On 11 December 2015, CFETS, a sub-institutional organisation of the PBOC, published the CFETS Renminbi exchange rate index for the first time which weighs the Renminbi based on 13 currencies, to guide the market in order to measure the Renminbi exchange rate from a new perspective. In January and February 2016, Renminbi experienced further fluctuations in value against the U.S. dollar. The PRC government may adopt further reforms of its exchange rate system, including making the Renminbi freely convertible in the future.
The following table sets forth the noon buying rates for U.S. dollars in New York City for cable transfers payable in Renminbi as certified by the Federal Reserve Bank of New York for customs purposes for and as at the periods indicated as set forth in the H.10 statistical release of the Federal Reserve Board.
Noon Buying Rate Period Period End Average(1) High Low (Renminbi per U.S.$1.00) 2011 ...... 6.2939 6.4475 6.6364 6.2939 2012 ...... 6.2301 6.2990 6.3879 6.2221 2013 ...... 6.0537 6.1478 6.2438 6.0537 2014 ...... 6.2046 6.1704 6.2591 6.0402 2015 ...... 6.4778 6.2869 6.4896 6.1870 2016 January ...... 6.5752 6.5726 6.5932 6.5219 February ...... 6.5525 6.5501 6.5795 6.5154 March ...... 6.4450 6.5027 6.5500 6.4480 April ...... 6.4738 6.4754 6.5004 6.4571 May ...... 6.5798 6.5259 6.5798 6.4738 June ...... 6.5849 6.5738 6.5930 6.5590 July ...... 6.6371 6.6771 6.7013 6.6371 August ...... 6.6776 6.6466 6.6778 6.6239 September ...... 6.6685 6.6702 6.6790 6.6600 October ...... 6.7735 6.7303 6.7819 6.6685 November (through 10 November 2016) ...... 6.7987 6.7715 6.7987 6.7534
Note: (1) Averages are calculated by averaging the rates on the last business day of each month during the relevant year. Monthly averages are calculated by averaging the daily rates during the relevant monthly period.
82 PRC REGULATIONS
This section summarises the principal PRC laws and regulations which are relevant to the Group’s business and operations. As this is a summary, it does not contain a detailed analysis of the PRC laws and regulations which are relevant to the Group’s business and operations or to the Guarantor.
The PRC Legal System The PRC legal system is based on the PRC Constitution and is made up of written laws, regulations, directives and local laws, laws of Special Administrative Regions and laws resulting from international treaties entered into by the PRC government. In general, court judgements do not constitute binding precedents. However, they are used for the purposes of judicial reference and guidance.
The National People’s Congress of the PRC (“NPC”) and the Standing Committee of the NPC are empowered by the PRC Constitution to exercise the legislative power of the state. The NPC has the power to amend the PRC Constitution and enact and amend basic laws governing state agencies and civil, criminal and other matters. The Standing Committee of the NPC is empowered to enact and amend all laws except for the laws that are required to be enacted and amended by the NPC.
The State Council is the highest organ of the state administration and has the power to enact administrative rules and regulations. The ministries and commissions under the State Council are also vested with the power to issue orders, directives and regulations within the jurisdiction of their respective departments. All administrative rules, regulations, directives and orders promulgated by the State Council and its ministries and commissions must be consistent with the PRC Constitution and the national laws enacted by the NPC. In the event that a conflict arises, the Standing Committee of the NPC has the power to annul administrative rules, regulations, directives and orders.
At the regional level, the provincial and municipal congresses and their respective standing committees may enact local rules and regulations and the people’s governments may promulgate administrative rules and directives applicable to their own administrative areas. These local rules and regulations must be consistent with the PRC Constitution, the national laws and the administrative rules and regulations promulgated by the State Council.
The State Council, provincial and municipal governments may also enact or issue rules, regulations or directives in new areas of the law for experimental purposes or in order to enforce the law. After gaining sufficient experience with experimental measures, the State Council may submit legislative proposals to be considered by the NPC or the Standing Committee of the NPC for enactment at the national level.
The PRC Constitution vests the power to interpret laws in the Standing Committee of the NPC. The Supreme People’s Court, in addition to its power to give general interpretation on the application of laws in judicial proceedings, also has the power to interpret specific cases. The State Council and its ministries and commissions are also vested with the power to interpret rules and regulations that they have promulgated. At the regional level, the power to interpret regional rules and regulations is vested in the regional legislative and administrative bodies which promulgated such laws.
The PRC Judicial System Under the PRC Constitution and the Law of Organisation of the People’s Courts, the judicial system is made up of the Supreme People’s Court, the local courts, military courts and other special courts.
The local courts comprise the basic courts, the intermediate courts and the higher courts. The basic courts are organised into civil, criminal, economic, administrative and other divisions. The intermediate courts are organised into divisions similar to those of the basic courts, and are further organised into other special divisions, such as the intellectual property division. The higher level courts supervise the basic and intermediate courts. The people’s procuratorates also have the right to exercise legal supervision over the civil proceedings of courts of the same level and lower levels.
The Supreme People’s Court is the highest judicial body in the PRC. It supervises the administration of justice by all other courts.
83 The courts employ a two-tier appellate system. A party may appeal a judgement or order of a local court to the court at the next higher level. Second judgements or orders given at the next higher level and the first judgements or orders given by the Supreme People’s Court are final. First judgements or orders of the Supreme People’s Court are also final. If, however, the Supreme People’s Court or a court at a higher level finds an error in a judgement which has been given by any court at a lower level, or the president of a court finds an error in a judgement which has been given in the court over which he presides, the case my then be retried in accordance with judicial supervision procedures.
The Civil Procedure Law of the PRC, which was adopted on 9 April 1991 and amended on 28 October 2007 and August 2012, sets forth the criteria for instituting a civil action, the jurisdiction of the courts, the procedures to be followed for conducting a civil action and the procedures for enforcement of a civil judgement or order. All parties to a civil action conducted within the PRC must comply with the Civil Procedure Law. Generally, a civil case is initially heard by a local court of the municipality or province in which the defendant resides. The parties to a contract may, by express agreement, select a jurisdiction where civil actions may be brought, provided that the jurisdiction is either the plaintiff’s or the defendant’s place of residence, the place of execution or implementation of the contract or the place of the object of the contract. However, such selection cannot violate the stipulations of grade jurisdiction and exclusive jurisdiction in any case.
A foreign individual or enterprise generally has the same litigation rights and obligations as a citizen or legal person of the PRC. If a foreign country’s judicial system limits the litigation rights of PRC citizens and enterprises, the PRC courts may apply the same limitations to the citizens and enterprises of that foreign country within the PRC. If any party to a civil action refuses to comply with a judgement or order made by a court or an award granted by an arbitration panel in the PRC, the aggrieved party may apply to the court to request for enforcement of the judgement, order or award. The time limit imposed on the right to apply for such enforcement is two years after the enforcement period stipulated in the judgement by the court. If a person fails to satisfy a judgement made by the court within the stipulated time, the court will, upon application by either party, mandatorily enforce the judgement.
A party seeking to enforce a judgement or order of a court against a party who is not located within the PRC and does not own any property in the PRC may apply to a foreign court with proper jurisdiction for recognition and enforcement of the judgement or order. A foreign judgement or ruling may also be recognised and enforced by a court in accordance with the PRC enforcement procedures if the PRC has entered into, or acceded to, an international treaty with the relevant foreign country, which provides for such recognition and enforcement, or if the judgement or ruling satisfies the court’s examination in accordance with the principle of reciprocity, unless the court finds that the recognition or enforcement of such judgement or ruling will result in a violation of the basic legal principles of the PRC, its sovereignty or security, or for reasons of social and public interests.
Power Industry Regulation in the PRC The regulatory framework of the PRC power industry is mainly codified in the Electric Power Law, which became effective on 28 December 1995 and was revised on 27 August 2009 and 24 April 2015, and the Electric Power Regulatory Ordinance, which became effective on 1 May 2005. One of the stated purposes of the Electric Power Law is to protect the legitimate interests of investors, operators and users and to ensure the safety of power operations. The Electric Power Law also states that the PRC government encourages and regulates Chinese and foreign investment in the power industry. The Electric Power Regulatory Ordinance sets forth regulatory requirements for many aspects of the power industry, including, among others, the issuance of electric power business permit, the regulatory inspections of power generators and grid companies and the legal liabilities resulting from violations of the regulatory requirements.
Pursuant to SERC’s Provision on the Administration of the Electric Power Business Permit (the “Permit Provision”), with effect from 1 December 2005, the PRC power industry adopted the market-access permit system. Pursuant to the Permit Provision, unless otherwise provided by SERC, any company or individual in the PRC may not engage in any electric power business (including power generation, transmission, dispatch and sales) without obtaining an electric power business permit promulgated by SERC. Applicants for the electric power business permit applicable to power generation business must submit relevant evidence documents in respect of the power project’s construction, generation capacity and environmental compliance. SERC will issue the electric power business permit to the applicants once the application materials have passed review.
On-grid tariff is the price the grid companies pay the power plants. The Electric Power Law sets out the general principles for the determination of power tariffs, according to which, tariffs are to be set to provide reasonable
84 compensation for costs and a reasonable return on investment, to share expenses fairly and to promote the construction of further power projects. The on-grid power tariffs of power plants, the supply power tariffs between the grid companies and the sales power tariffs of the grid companies are based on a centralised policy, fixed in accordance with a unified principle and administered at different levels. The on-grid tariffs are subject to review and approval by the NDRC and other competent pricing bureaus.
To achieve more efficient and reasonable power dispatch, the State Council promulgated the Regulations on the Administration of Electric Power Dispatch to Networks and Grids (the “Dispatch Regulations”), effective on 1 November 1993 and revised on 8 January 2011. The former Ministry of Power Industry (whose major function was previously performed by SERC and now by NEA) promulgated and implemented the Implementation Measures on the Regulations on the Administration of Electric Power Dispatch to Networks and Grids on 11 October 1994. Pursuant to the Dispatch Regulations, all power generating enterprises and power grid companies must comply with the centralised dispatch of the dispatch centres. The dispatch centres shall be responsible for the administration and dispatch of power distribution to the grids by the power plants. In July 2003, the State Council approved the Power Tariff Reform Plan (the “Reform Plan”) and stated that their long- term objective is to establish a standardised and transparent on-grid tariff-setting mechanism. On 28 March 2005, the NDRC issued the Provisional Measures for the Administration of On-grid Tariffs, which provides regulatory guidance for the Reform Plan. For power plants within the regional grids that have not implemented competitive bidding tariff-setting mechanisms, on-grid tariffs will be set by relevant pricing bureaus based on economic life cycle of power projects and in accordance with the principles of reasonable compensation for costs, a reasonable return on investment and tax compliance. For power plants within the regional grids that have implemented competitive bidding tariff-setting mechanisms, the on-grid tariffs comprise of two components: (i) a capacity tariff determined by the NDRC based on the average investment cost of the power producers competing within the same regional grid and (ii) a competitive tariff determined through the competitive bidding process. This NDRC regulation became effective from 1 May 2005. The Circular Regulations on the Administration of Issues Related to the Electricity Energy Transaction Prices issued by the NDRC, SERC and NEA dated 11 October 2009 provides that other than the inter-provincial or cross-regional power energy transactions, all on-grid power should be priced in accordance with the tariffs set by the pricing bureaus of the government unless otherwise provided by the state. Inter-provincial, cross-regional power trading tariffs shall be priced according to the Guidance on Promoting Cross-regional Power Trading which was formulated by the NDRC. All producers of clean and renewable energy, except hydropower producers, must comply with the on-grid tariffs approved by the pricing bureaus. On 27 May 2011, the NDRC promulgated the Circular on Relevant Issues Regarding Proper Adjustment of the Tariff, according to which the on-grid tariff of thermal power enterprises was increased and the on-grid tariffs of some hydroelectric power enterprises were verified and adjusted. In 2013 and 2015, the NDRC promulgated circulars to decrease the on-grid tariff of thermal power and the tariff for general industrial and commercial use.
Regulations relating to clean and renewable energy industries According to the Renewable Energy Law which was promulgated on 28 February 2005 and amended on 26 December 2009, all electricity power generated from clean and renewable energy shall be purchased in full amount provided that on-grid technical standards have been complied with and the related power generation entities have obtained related administrative approvals or been filed for record. Grid companies shall purchase the full amount of on-grid electricity generated by approved clean and renewable energy plants whose power generation projects meet the grid connection technical standards in the areas covered by the grid companies’ power grids. Power grid companies shall improve the power grid construction, expand the dispatch area of the power generated by renewable energy sources, improve and implement technologies regarding intelligent power grid and energy storage, improve operational management of power grids and increase the power grids’ capacity to absorb power generated by renewable energy sources in order to provide better on-grid service for the electricity generated from clean and renewable energy.
Regulations regarding Overseas Investment and Acquisition Activities NDRC Supervision According to the Measures for the Administration of the Confirmation and Filing of Overseas Investment Projects by the NDRC, overseas investment projects shall obtain the approval or recordation, respectively, depending on the relevant circumstance.
According to Decision of the National Development and Reform Commission on Amending the Relevant Clauses of the Measures for the Administration of the Confirmation and Recordation of Overseas Investment
85 Projects and the Measures for the Administration of the Confirmation and Recordation of Foreign-Funded Projects (2014), Article 7 is amended to “Overseas investment projects involving sensitive countries and regions or sensitive industries shall be subject to confirmation by the NDRC. Where the amount of investment made by the Chinese party is two billion U.S. dollars or more, the NDRC shall offer an examination opinion and report it to the State Council for confirmation.
Any overseas investment project not subject to Article 7 of Measures for the Administration of the Confirmation and Recordation of Overseas Investment Projects shall undergo filing procedures. An overseas investment project of a central management enterprise, and an overseas investment project of a local enterprise with an amount of U.S.$300 million or more, shall undergo filing procedures with the NDRC. The overseas investment project of local enterprise with the amount of less than U.S.$300 million shall undergo filing procedures with the local enterprise’s provincial department of investment administration.
MOFCOM supervision MOFCOM’s Measures for the Administration of Overseas Investment require that a domestic enterprise intending to carry out any overseas investments shall report to the competent department of commerce for verification and approval and shall, with regard to an enterprise verified and approved, issue thereto an Enterprise Overseas Investment Certificate. If two or more enterprises make joint investment to establish an overseas enterprise, the larger (or largest) shareholder shall be responsible for the verification and approval formalities after soliciting written consent of other investing parties.
The MOFCOM and provincial competent Commerce Departments carry out administration either by record- filing or by verification and approval depending on different circumstances of outbound investment by enterprises. Outbound investment by enterprises that involves sensitive countries and regions or sensitive industries shall be subject to administration by verification and approval. Outbound investment by enterprises that falls under any other circumstances shall be subject to administration by record-filing.
The MOFCOM and provincial competent Commerce Departments conduct administration over the outbound investment by enterprises via the Outbound Investment Management System (hereinafter referred to as the “Management System”), and issue the Certificate of Outbound Investment by Enterprises (hereinafter referred to as the “Certificate”) to enterprises that have obtained record-filing or approval upon verification. The Certificate would be separately printed and stamped by the MOFCOM and provincial competent Commerce Departments, and be managed by unified coding.
Foreign Exchange Administration According to Administrative on Foreign Exchange of PRC and Circular of the State Administration of Foreign Exchange on Promulgating the Administrative Provisions on Foreign Exchange of the Outbound Direct Investments of Domestic Institutions, corporations, enterprises or other economic organisations (domestic investors) that have been permitted to make outbound investment shall go through the procedures of registration to the Foreign Exchange Bureau. The Foreign Exchange Bureau shall issue the Foreign Exchange Registration Certificate for overseas direct investment or an IC card to the domestic institution. The domestic institution shall go through the formalities for outward remittance of funds for overseas direct investment at a designated foreign exchange bank by presenting the approval document issued by the department in charge of overseas direct investment and the Foreign Exchange Registration Certificate for overseas direct investment. The scope of foreign exchange funds for overseas direct investment of domestic institutions includes their own foreign exchange funds, domestic loans in foreign currencies in compliance with relevant provisions, foreign exchange purchased with Renminbi, material objects, intangible assets and other foreign exchange funds approved by the Foreign Exchange Bureaus for overseas direct investment. The profits gained from overseas direct investment of domestic institutions may be deposited in overseas banks and used for overseas direct investment.
State-owned Assets Supervision Interim Measures for Administration of Overseas State-owned Property Rights of Central Enterprises and Interim Measures for the Supervision and Administration of Overseas State-owned Assets of Central Enterprises also apply to overseas investment projects. Where overseas enterprises wholly owned or controlled by Central Enterprises and their subsidiaries at all levels are involved in contribution with nonmonetary assets, they shall retain a professional agency with the corresponding qualifications, professional experiences and good reputation to evaluate or valuate subject matters, and the evaluation items or valuation results shall be submitted to SASAC for record-filing or approval.
86 If the domestic enterprise is a Central Enterprise, it shall establish and perform investment decision-making procedures and management control system, shall establish and improve administration systems and submit to SASAC for record-filing, and shall establish annual investment plan and submit it SASAC and make a copy of the project approval documents to SASAC.
Overseas enterprises which have completed overseas registration shall make state-owned assets ownership registration with SASAC.
Enterprise Income Tax Law Prior to 1 January 2008, under the then applicable PRC law and regulations (the “Old EIT Law”), entities established in China were generally subject to a 33 per cent. enterprise income tax, or EIT. However, entities that satisfied certain conditions enjoyed preferential tax treatment. In accordance with the tax laws and regulations effective until 31 December 2007, foreign invested manufacturing enterprises scheduled to operate for a period not less than ten years were exempted from paying state income tax for two years starting from its first profit making year and were allowed a 50 per cent. reduction in its tax rate in the third, fourth and fifth years (“two-year exemption and three-year reduction by half”).
On 16 March 2007, the NPC enacted the EIT Law, which, together with its related implementation rules issued by the State Council on 6 December 2007, became effective on 1 January 2008. The new EIT Law imposes a single uniform income tax rate of 25 per cent. on all Chinese enterprises, including foreign invested enterprises, and eliminates or modifies most of the tax exemptions, reductions and preferential treatments available under the previous tax laws and regulations. On 26 December 2007, the State Council issued a Notice on the Implementation of the Transitional Preferential Tax Policies, or Circular 39. Further, as at 1 January 2008, the enterprises that previously enjoyed “two-year exemption and three-year reduction by half” of the enterprise income tax and other preferential treatments in the form of tax deductions and exemptions within specified periods may, after the implementation of the new EIT Law, continue to enjoy the relevant preferential treatments until the expiration of the time period. However, if such an enterprise has not enjoyed the preferential treatments yet because of its failure to make profits, its preferential time period shall be calculated from 2008.
Under the new EIT Law, the preferential tax treatment for encouraged enterprises located in western China and certain industry-oriented tax incentives are still available. Pursuant to the Notice on Tax Policy Issues Concerning Further Implementation of the Western China Development Strategy, effective from 1 January 2011, enterprises within the state-encouraged industry located in western China are taxed at a preferential income tax rate of 15 per cent. from January 2011 to December 2020.
Pursuant to the Circular on Enterprise Income Tax concerning Further Implementation of the Western China Development Strategy dated 6 April 2012, effective from 1 January 2011, an enterprise deriving more than 70 per cent. of its total income from the core businesses within the state-encouraged industries located in Western China may be entitled to 15 per cent. preferential tax upon verification by the relevant tax authority.
In addition, pursuant to the Circular of the Ministry of Finance and State Administration of Taxation on Issues Relevant to the Execution of the Catalogue of Public Infrastructure Projects Entitled for Preferential Tax Treatment promulgated on 23 September 2008 (“Circular 46”) and Circular of the State Administration of Taxation on the Issues of the Implementation of the Key Public Infrastructure Projects Supported by the State and Entitled for Preferential Tax Treatment with effect from 1 January 2008 (“Circular 80”), an enterprise set up after 1 January 2008 and engaged in public infrastructure projects is entitled to three-year full exemption followed by a three-year 50 per cent. exemption commencing from the first year it generates operating income. Accordingly, wind power projects which have obtained government approval on or after 1 January 2008 are fully exempted from EIT for three years starting from the year when operating income is first derived from the sales of electricity, and is 50 per cent. exempted from EIT for three years thereafter.
Value Added Tax Under the Interim Regulation of the PRC on Value Added Taxes, effective from 1 January 2009 and revised on 6 February 2016, general VAT payers are allowed to credit against output VAT in respect of input VAT on fixed assets purchased or self-manufactured based on the relevant VAT credit receipts in accordance with the revised VAT regulations and its implementation rules. Pursuant to the Notice of the Ministry of Finance and the State Administration of Taxation on Overall Implementation of the Pilot Programme of Replacing Business Tax with Value-added Tax, effective from 1 May 2016, the pilot programme of replacing business tax with value-added
87 tax shall be implemented nationwide effective from 1 May 2016 and all business tax payers in construction industry, real estate industry, finance industry and consumer service industry, etc. shall be included in the scope of the pilot programme and pay value-added tax instead of business tax.
Pursuant to the Notice of the Ministry of Finance and the State Administration of Taxation on Value-added Tax Policies Applicable to Large Hydropower Enterprises, where a hydroelectric power station with an installed capacity of over one million kilowatts (including a pumped storage hydropower station) sells self-produced power products, the policies of immediate refund of VAT upon levy shall be applicable to the portion where the actual VAT burden exceeds 8% during the period from 1 January 2013 to 31 December 2015, while the policies of immediate refund of VAT upon levy shall be applicable to the portion where the actual VAT burden exceeds 12% during the period from 1 January 2016 to 31 December 2017.
Environmental Protection Laws The State Environmental Protection Administration is responsible for the overall supervision and management of environmental protection in the PRC. All manufacturers in the PRC must comply with environmental laws and regulations including the Environmental Protection Law of the PRC, Prevention and Control of Water Pollution Law of the PRC, Prevention and Control of Air Pollution Law of the PRC and Prevention and Control of Environmental Pollution by Solid Waste Law of the PRC, and relevant environmental regulations such as provisions regarding the treatment and disposal of pollutants and sewage, discharge of polluted fumes and the prevention of industrial pollution. Depending on the circumstances and the seriousness of the violation of the environmental regulations, the local authorities are authorised to impose various types of penalties on the persons or entities in violation of the environmental regulations. The penalties which could be imposed include the issue of warning, suspension of operation or installation and use of preventive facilities which are incomplete and fail to meet the prescribed standard, reinstallation of preventive facilities which have been dismantled or left idle, administrative sanction against office-in-charge, suspension of business operations or shut-down of the enterprise or institution. Fines could also be levied together with these penalties. The relevant local authorities may apply to the court for compulsory enforcement of environmental compliance. The persons or entities in violation of the applicable laws and regulations may also be liable to pay damages to the victims and/or result in criminal liability.
Other environmental protection laws applicable to the Group include: Regulations of Environmental Management on Project, Regulations of Environmental Protection Acceptance Inspection on Projects Completion and Environmental Impact Evaluation Law of the PRC.
Industry Policy On 2 December 2005, the State Council issued the Interim Provisions on Promoting Industrial Structure Adjustment, under which industries were classified into encouraged section, permitted section, restricted section and elimination section.
On 27 March 2011, the NDRC promulgated the Guidance Catalogue for Industrial Structure Adjustment (2011 Version) which became effective on 1 June 2011 and revised on 16 February 2013, under which 24 power industry sectors were classified as “encouraged”, three power industry sectors, including the regular coal-fired power unit outside small regional power grids with single capacity of 300,000 KW and below, were classified as “restricted” and four other power industry sectors, including the regular coal-fired power unit inside large regional power grids with single capacity of 100,000 KW and below and the regular small coal-fired power unit with single capacity of 50,000 KW and below, were classified as “elimination sectors”.
88 TAXATION
The following summary of certain tax consequences of the purchase, ownership and disposition of the Bonds is based upon applicable laws, regulations, rulings and decisions in effect as at the date of this Offering Circular, all of which are subject to change (possibly with retroactive effect). This discussion does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase, own or dispose of the Bonds and does not purport to deal with consequences applicable to all categories of investors, some of which may be subject to special rules. Neither these statements nor any other statements in this Offering Circular are to be regarded as advice on the tax position of any holder of the Bonds or any persons acquiring, selling or otherwise dealing in the Bonds or on any tax implications arising from the acquisition, sale or other dealings in respect of the Bonds. Persons considering the purchase of the Bonds should consult their own tax advisers concerning the possible tax consequences of buying, holding or selling any Bonds under the laws of their country of citizenship, residence or domicile.
PRC Taxation The following summary accurately describes the principal PRC tax consequences of ownership of the Bonds by beneficial owners who, or which, are not residents of mainland China for the PRC tax purposes. These beneficial owners are referred to as non-resident Bondholders in this “PRC Taxation” section. In considering whether to invest in the Bonds, investors should consult their individual tax advisers with regard to the application of PRC tax laws to their particular situations as well as any tax consequences arising under the laws of any other tax jurisdiction. Reference is made to PRC taxes from the taxable year beginning on or after 1 January 2008.
Pursuant to the EIT Law effective on 1 January 2008 and the PRC Individual Income Tax Law, as amended on 30 June 2011 and effective on 1 September 2011, and their implementation regulations, an income tax is imposed on the interests by way of withholding in respect of the Bonds, paid by the Issuer (if such interests are regarded as income derived from sources within the PRC under the EIT Law and/or the Individual Income Tax Law) to non-resident Bondholders, including non-resident enterprises and non-resident individuals. The current rates of such income tax are 20 per cent. (for non-resident individuals) and 10 per cent. (for non-resident enterprises) of the gross amount of the interest. However, the tax so charged on interests paid on the Bonds to non-resident Bondholders who or which are residents of Hong Kong (including enterprise holders and individual holders) as defined under the Arrangement between mainland China and Hong Kong for Purpose of the Avoidance of Double Taxation will be 7 per cent. of the gross amount of the interest pursuant to the arrangement between mainland China and Hong Kong and relevant interpretation of the arrangement formulated by the State Administration of Taxation of China.
Under the EIT Law and its implementation rules, any gains realised on the transfer of the Bonds by holders who are deemed under the EIT Law as non-resident enterprises may be subject to PRC enterprise income tax if such gains are regarded as incomes derived from sources within the PRC. Under the EIT Law, a “non-resident enterprise” means an enterprise established under the laws of a jurisdiction other than the PRC and whose actual administrative organisation is not in the PRC, which has established offices or premises in the PRC, or which has not established any offices or premises in the PRC but has obtained incomes derived from sources within the PRC. In addition, there is uncertainty as to whether gains realised on the transfer of the Bonds by individual holders who are not PRC citizens or residents will be subject to PRC individual income tax. If such gains are subject to PRC income tax, the 10 per cent. enterprise income tax rate and 20 per cent. individual income tax rate will apply respectively unless there is an applicable tax treaty or arrangement that reduces or exempts such income tax. The taxable income will be the balance of the total income obtained from the transfer of the Bonds minus all costs and expenses that are permitted under PRC tax laws to be deducted from the income. According to an arrangement between mainland China and Hong Kong for avoidance of double taxation, Bondholders who are Hong Kong residents, including both enterprise holders and individual holders, will be exempted from PRC income tax on capital gains derived from a sale or exchange of the Bonds.
On 23 March 2016, MOF and the State Administration of Taxation issued Circular 36, which introduced a new value-added tax (“VAT”) from 1 May 2016. Under Circular 36, VAT is applicable where the entities or individuals provide services within the PRC. The operating income generated from the provision of taxable sale of services by entities and individuals, such as financial services, shall be subject to PRC VAT if the seller or buyer of the services is within PRC. In the event that foreign entities or individuals do not have a business establishment in the PRC, the purchaser of services shall act as the withholding agent. According to the Explanatory Notes to Sale of Services, Intangible Assets and Real Property attached to Circular 36, financial services refer to the business activities of financial and insurance operation, including loan processing services,
89 financial services of direct charges, insurance services and the transfer of financial instruments, and the VAT rate is 6 per cent. Accordingly, the interest and other interest like earnings received by a non-PRC resident Bondholder from the Guarantor and, if the Issuer is treated as a PRC resident enterprise, the Issuer will be subject to PRC VAT at the rate of 6 per cent. The Issuer will be obligated to withhold VAT of 6 per cent. and certain surcharges on VAT for payments of interest and certain other amounts on the Bonds paid by the Guarantor and, if the Issuer is treated as a PRC resident enterprise, the Issuer to Bondholders that are non-resident enterprises or individuals. And as the withholding agent, the Guarantor and, if the Issuer is treated as a PRC resident enterprise, the Issuer shall calculate the withholding tax according to the following formula: withholding tax = price paid by the purchaser ÷ (1 + tax rate) × tax rate. Pursuant the Interim Regulation of the PRC on City Maintenance and Construction Tax ( (2011 )), the Interim Provisions on the Collection of Educational Surcharges ( (2011 )) and the Administrative Measures on the Collection and Utilisation of Local Educational Surcharges in Beijing ( ), city maintenance and construction tax, educational surcharges and local educational surcharges will be applicable when entities and individuals are obliged to pay VAT (for an aggregate of 12 per cent. on any VAT payable). However, there is uncertainty as to whether gains derived from a sale or exchange of Bonds consummated outside of the PRC between non-PRC resident Bondholders will be subject to PRC VAT. VAT is unlikely to be applicable to any transfer of Bonds between entities or individuals located outside of the PRC and therefore unlikely to be applicable to gains realised upon such transfers of Bonds, but there is uncertainty as to the applicability of VAT if either the seller or buyer of Bonds is located inside the PRC. Circular 36 together with other laws and regulations pertaining to VAT are relatively new, the interpretation and enforcement of such laws and regulations involve uncertainties.
No PRC stamp duty will be imposed on non-resident Bondholders either upon issuance of the Bonds or upon a subsequent transfer of Bonds.
British Virgin Islands Taxation The Issuer and all dividends, interest, rents, royalties, compensation and other amounts paid by the Issuer to persons who are not resident in the British Virgin Islands and any capital gains realised with respect to any shares, debt obligations or other securities of the Issuer by persons who are not resident in the British Virgin Islands are exempt from all provisions of the Income Tax Ordinance in the British Virgin Islands.
No estate, inheritance, succession or gift tax, rate, duty, levy or other charge is payable by persons who are not resident in the British Virgin Islands with respect to any shares, debt obligations or other securities of the Issuer.
All instruments relating to transfers of property to or by the Issuer and all instruments relating to transactions in respect of the shares, debt obligations or other securities of the Issuer and all instruments relating to other transactions relating to the business of the Issuer are exempt from payment of stamp duty in the British Virgin Islands. This assumes that the Issuer does not hold an interest in real estate in the British Virgin Islands.
There are currently no withholding taxes or exchange control regulations in the British Virgin Islands applicable to the Issuer.
Hong Kong Taxation Withholding tax No withholding tax is payable in Hong Kong in respect of payments of principal (including any premium payable on redemption of the Bonds) or interest on the Bonds or in respect of any capital gains arising from the sale of the Bonds.
Profits tax Hong Kong profits tax is chargeable on every person carrying on a trade, profession or business in Hong Kong in respect of profits arising in or derived from Hong Kong from such trade, profession or business (excluding profits arising from the sale of capital assets).
Interest on the Bonds may be deemed to be profits arising in or derived from Hong Kong from a trade, profession or business carried on in Hong Kong in the following circumstances: (a) Interest on the Bonds is derived from Hong Kong and is received by or accrues to a corporation carrying on a trade, profession or business in Hong Kong;
90 (b) Interest on the Bonds is derived from Hong Kong and is received by or accrues to a person other than a corporation (such as a partnership), carrying on a trade, profession or business in Hong Kong and is in respect of the funds of the trade, profession or business; or (c) Interest on the Bonds is received by or accrues to a financial institution (as defined in the Inland Revenue Ordinance (Cap.112) of Hong Kong) and arises through or from the carrying on by the financial institution of its business in Hong Kong.
Sums received by or accrued to a financial institution by way of gains or profits arising through or from the carrying on by the financial institution of its business in Hong Kong from the sale, disposal or redemption of the Bonds will be subject to Hong Kong profits tax.
Sums derived from the sale, disposal or redemption of the Bonds will be subject to Hong Kong profits tax where received by or accrued to a person, other than a financial institution, who carries on a trade, profession or business in Hong Kong and the sums are revenue in nature unless otherwise exempted. The source of such sums will generally be determined by having regard to the manner in which the Bonds are acquired and disposed of.
Stamp duty No Hong Kong stamp duty will be chargeable upon the issue or transfer of a Bond.
The Proposed Financial Transactions Tax (the “FTT”) On 14 February 2013, the European Commission published a proposal (the “Commission’s Proposal”) for a Directive for a common FTT in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the “participating Member States”). However, Estonia has since stated that it will not participate.
The Commission’s Proposal has very broad scope and could, if introduced, apply to certain dealings in the Bonds (including secondary market transactions) in certain circumstances.
Under the Commission’s Proposal the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in the Bonds where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, “established” in a participating Member State in a broad range of circumstances, including (a) by transacting with a person established in a participating Member State or (b) where the financial instrument which is subject to the dealings is issued in a participating Member State.
However, the FTT proposal remains subject to negotiation between participating Member States. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate.
Prospective holders of the Bonds are advised to seek their own professional advice in relation to the FTT.
United States’ Foreign Account Tax Compliance Act Tax Provisions Pursuant to certain provisions of the U.S. Internal Revenue Code of 1986, commonly known as FATCA, a “foreign financial institution” may be required to withhold on certain payments it makes (“foreign passthru payments”) to persons that fail to meet certain certification, reporting or related requirements. The Issuer may be a foreign financial institution for these purposes. A number of jurisdictions have entered into, or have agreed in substance to, intergovernmental agreements with the United States to implement FATCA (“IGAs”), which modify the way in which FATCA applies in their jurisdictions. Under the provisions of IGAs as currently in effect, a foreign financial institution in an IGA jurisdiction would generally not be required to withhold under FATCA or an IGA from payments that it makes. Certain aspects of the application of the FATCA provisions and IGAs to instruments such as the Bonds, including whether withholding would ever be required pursuant to FATCA or an IGA with respect to payments on instruments such as the Bonds, such withholding would not apply prior to 1 January 2019. Holders should consult their own tax advisors regarding how these rules may apply to their investment in the Bonds.
91 SUBSCRIPTION AND SALE
The Issuer and the Guarantor have entered into a subscription agreement with the Joint Lead Managers dated [Š] 2016 (the “Subscription Agreement”) pursuant to which and subject to certain conditions contained in the Subscription Agreement, the Issuer has agreed to sell to the Joint Lead Managers, and the Joint Lead Managers have agreed to severally and not jointly, subscribe and pay for the aggregate principal amount of the Bonds set forth opposite their names below:
Principal amount of the Bonds to be Joint Lead Manager subscribed The Hongkong and Shanghai Banking Corporation Limited ...... U.S.$[Š] Australia and New Zealand Banking Group Limited ...... U.S.$[Š] Credit Suisse (Hong Kong) Limited ...... U.S.$[Š] ICBC International Securities Limited ...... U.S.$[Š] J.P. Morgan Securities plc ...... U.S.$[Š] Merrill Lynch International ...... U.S.$[Š] BOCI Asia Limited ...... U.S.$[Š] CCB International Capital Limited ...... U.S.$[Š] Total ...... U.S.$[Š]
The Subscription Agreement provides that the Issuer and the Guarantor will jointly and severally indemnify the Joint Lead Managers and their affiliates against certain liabilities in connection with the offer and sale of the Bonds. The Subscription Agreement provides that the obligations of the Joint Lead Managers are subject to certain conditions precedent and entitles the Joint Lead Managers to terminate it in certain circumstances prior to payment being made to the Issuer.
The Joint Lead Managers and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities (“Banking Services or Transactions”). The Joint Lead Managers and their respective affiliates may have, from time to time, performed, and may in the future perform, various Banking Services and/or Transactions with the Issuer and the Guarantor for which they have received, or will receive, fees and expenses. The proceeds from the offering of the Bonds may be used towards repaying certain loans extended to the Group from certain of the Joint Lead Managers in their ordinary course of business as part of various Banking Services and/or Transactions performed by such Joint Lead Managers with the Issuer and the Guarantor. In particular, one or more of the Joint Lead Managers and their respective affiliates have provided existing bank loan facilities to the Group and the Issuer may refinance such bank loan facilities using the net proceeds from the issuance of the Bonds. In addition, JPMorgan Chase & Co., an affiliate of J.P. Morgan Securities plc, is a minority shareholder in a trust company in the PRC in which the Guarantor has a controlling stake.
In connection with the Offering of the Bonds, the Joint Lead Managers and/or their respective affiliates, or affiliates of the Issuer or the Guarantor, may place orders, receive allocations and purchase Bonds for their own account (without a view to distributing such Bonds) and such orders and/or allocations of the Bonds may be material. Such entities may hold or sell such Bonds or purchase further Bonds for their own account in the secondary market or deal in any other securities of the Issuer or the Guarantor, and therefore, they may offer or sell the Bonds or other securities otherwise than in connection with the Offering. Accordingly, references herein to the Bonds being ‘offered’ should be read as including any offering of the Bonds to the Joint Lead Managers and/or their respective affiliates, or affiliates of the Issuer or the Guarantor for their own account. Such entities are not expected to disclose such transactions or the extent of any such investment, otherwise than in accordance with any legal or regulatory obligation to do so. Furthermore, it is possible that only a limited number of investors may subscribe for a significant proportion of the Bonds. If this is the case, liquidity of trading in the Bonds may be constrained (see “Risk Factors — Risks Relating to the Market — An active trading market for the Bonds may not develop”). The Issuer, the Guarantor and the Joint Lead Managers are under no obligation to disclose the extent of the distribution of the Bonds among individual investors.
In the ordinary course of their various business activities, the Joint Lead Managers and their respective affiliates make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the Issuer and/or the Guarantor, including the
92 Bonds and could adversely affect the trading prices of the Bonds. The Joint Lead Managers and their affiliates may make investment recommendations and/or publish or express independent research views (positive or negative) in respect of the Bonds or other financial instruments of the Issuer or the Guarantor, and may recommend to their clients that they acquire long and/or short positions in the Bonds or other financial instruments.
In connection with the issue of the Bonds, any of the Joint Lead Managers appointed and acting as stabilising manager (or persons acting on behalf of any of them) (the “Stabilising Manager”) may, to the extent permitted by applicable laws and directives, over-allot the Bonds or effect transactions with a view to supporting the price of the Bonds at a level higher than that which might otherwise prevail, but in so doing, the Stabilising Manager or any person acting on behalf of the Stabilising Manager shall act as principal and not as agent of the Issuer or the Guarantor. However, there is no assurance that the Stabilising Manager or any person acting on behalf of the Stabilising Manager will undertake stabilisation action. Any loss or profit sustained as a consequence of any such over-allotment or stabilisation shall be for the account of the Joint Lead Managers.
General The distribution of this Offering Circular or any offering material and the offering, sale or delivery of the Bonds is restricted by law in certain jurisdictions. Therefore, persons who may come into possession of this Offering Circular or any offering material are advised to consult their own legal advisers as to what restrictions may be applicable to them and to observe such restrictions. This Offering Circular may not be used for the purpose of an offer or invitation in any circumstances in which such offer or invitation is not authorised.
No action has been or will be taken in any jurisdiction by the Issuer, the Guarantor or the Joint Lead Managers that would permit a public offering, or any other offering under circumstances not permitted by applicable law, of the Bonds, or possession or distribution of this Offering Circular, any amendment or supplement thereto issued in connection with the proposed resale of the Bonds or any other offering or publicity material relating to the Bonds, in any country or jurisdiction where action for that purpose is required. Accordingly, the Bonds may not be offered or sold, directly or indirectly, and neither this Offering Circular now any other offering material or advertisements in connection with the Bonds may be distributed or published, by the Issuer, the Guarantor or the Joint Lead Managers, in or from any country or jurisdiction, except in circumstances which will result in compliance with all applicable rules and regulations of any such country or jurisdiction and will not impose any obligations on the Issuer, the Guarantor or the Joint Lead Managers.
If a jurisdiction requires that the offering be made by a licenced broker or dealer and the Joint Lead Managers or any affiliate of the Joint Lead Managers are licenced brokers or dealers in that jurisdiction, the offering shall be deemed to be made by the Joint Lead Managers or such affiliate on behalf of the Issuer in such jurisdiction.
United States The Bonds and the Guarantee have not been and will not be registered under the Securities Act and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Each of the Joint Lead Managers has represented that it has not offered or sold, and has agreed that it will not offer or sell, any of the Bonds or the Guarantee constituting part of its allotment within the United States except in accordance with Rule 903 of Regulation S under the Securities Act. Accordingly, neither it, its affiliates nor any persons acting on its or their behalf have engaged or will engage in any directed selling efforts with respect to the Bonds or the Guarantee. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act.
Each Joint Lead Manager has represented that it has not entered and has agreed that it will not enter into any contractual arrangement with any distributor (as that term is defined in Regulation S) with respect to the distribution or delivery of the Bonds and the Guarantee, except with its affiliates or with the prior written consent of the Issuer.
Each of the Joint Lead Managers has represented and agreed that neither it nor any of their respective affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act (“Regulation D”)), nor any person acting on its or their behalf, has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with any offer and sale of the Bonds and the Guarantee in the United States.
93 United Kingdom Each of the Joint Lead Managers has represented, warranted and agreed that: (a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the “FSMA”)) received by it in connection with the issue or sale of any Bonds in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer or the Guarantor; and (b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Bonds in, from or otherwise involving the United Kingdom.
Hong Kong Each of the Joint Lead Managers has represented, warranted and agreed that: (a) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Bonds other than (i) to “professional investors” as defined in Chapter 37 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (ii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance; and (b) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Bonds, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the Bonds which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in Chapter 37 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance.
Singapore Each of the Joint Lead Managers has acknowledged that this Offering Circular has not been and will not be registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each of the Joint Lead Managers has represented and agreed that it has not offered or sold any Bonds or caused such Bonds to be made the subject of an invitation for subscription or purchase and will not offer or sell such Bonds or cause such Bonds to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this Offering Circular or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of such Bonds, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the Bonds are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Bonds pursuant to an offer made under Section 275 of the SFA, except: (i) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; (ii) where no consideration is or will be given for the transfer;
94 (iii) where the transfer is by operation of law; (iv) as specified in Section 276(7) of the SFA; or (v) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.
Japan The Bonds have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended, the “Financial Instruments and Exchange Act”). Accordingly, each of the Joint Lead Managers has represented and agreed that it has not, directly or indirectly, offered or sold and will not, directly or indirectly, offer or sell any Bonds in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organised under the laws of Japan) or to others for re-offering or re-sale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act and other relevant laws and regulations of Japan.
The People’s Republic of China Each of the Joint Lead Managers has represented and agreed that the Bonds are not being offered or sold and may not be offered or sold, directly or indirectly, in the People’s Republic of China (for such purposes, not including the Hong Kong and Macau Special Administrative Regions or Taiwan) except as permitted by the securities laws of the People’s Republic of China.
British Virgin Islands Each of the Joint Lead Managers has represented, warranted and agreed that it has not made and will not make, directly or indirectly, any offer to any person in the British Virgin Islands to purchase or subscribe for any of the Bonds.
95 GENERAL INFORMATION
Clearing Systems: The Bonds have been accepted for clearance through Euroclear and Clearstream, Luxembourg under Common Code [Š] and ISIN [Š].
Authorisations: The Issuer has obtained all necessary consents, approvals and authorisations in connection with the issue and performance of the Bonds. The issue of the Bonds was authorised by written resolutions of the sole director of the Issuer dated 21 November 2016. The Guarantor has obtained all necessary consents, approvals and authorisations in connection with the giving and performance of the Guarantee. The giving of the Guarantee was authorised by resolutions of the executive committee of the board of directors of the Guarantor passed on 20 October 2016.
No Material Adverse Change: There has been no material adverse change, or any development or event likely to involve a prospective change, in the condition (financial or otherwise), prospects, properties, results of operations, business or general affairs of the Issuer or the Guarantor since 31 December 2015.
Litigation: The Guarantor is not involved in any litigation or arbitration proceedings that the Guarantor believes are material in the context of the Bonds nor is the Guarantor aware that any such proceedings are pending or threatened.
Reliance on Certificates: Pursuant to the Terms and Conditions of the Bonds and the Trust Deed, the Trustee may rely without liability to Bondholders on any report, confirmation, certificate or information from or any advice or opinion of any accountants, lawyers, financial advisers, financial institution or other expert, whether or not addressed to it and whether or not their liability in relation thereto is limited (by its terms or by any engagement letter entered into in relation thereto by the Trustee or any other person or in any other manner) by reference to a monetary cap, methodology or otherwise. The Trustee may accept and shall be entitled to rely on any such report, confirmation, certificate, information, advice or opinion, in which event such report, confirmation, certificate, information, advice or opinion shall be binding on the Issuer, the Guarantor and the Bondholders.
Available Documents: So long as any of the Bonds is outstanding, copies of the following documents will be available for inspection upon prior written request and satisfactory proof of holding from the Issue Date during normal business hours at the specified office of the Principal Paying Agent and the registered office of the Issuer: • the Trust Deed; • the Deed of Guarantee; and • the Agency Agreement.
Financial Statements: The Guarantor’s Consolidated Audited Financial Statements, which are included elsewhere in this Offering Circular, have been audited by Ruihua, the Guarantor’s independent auditor, as stated in its report appearing herein. The Guarantor’s Consolidated Third Quarter Financials, which are included elsewhere in this Offering Circular, have not been reviewed or audited by Ruihua or any other person. Consequently, the Guarantor’s Consolidated Third Quarter Financials should not be relied upon by investors to provide the same quality of information associated with information that has been subject to an audit or review. CPI’s Consolidated Audited Financial Statements, which are included elsewhere in this Offering Circular, have been audited by Ruihua, as stated in its report appearing herein. As a pre-merger entity, CPI’s financial statements are not comparable to the financials of the Group. Potential investors are advised not to use the financial information of CPI to evaluate the Group’s financial condition and results of operations.
Listing: Application will be made to the Hong Kong Stock Exchange for the listing of the Bonds by way of debt issues to Professional Investors only and such permission is expected to become effective on [Š] 2016.
96 INDEX TO FINANCIAL STATEMENTS
Pages Audited consolidated financial statements of the Guarantor as at and for the year ended 31 December 2015 Auditors’ Report ...... F-2 Consolidated Balance Sheet ...... F-4 Consolidated Income Statement ...... F-6 Consolidated Cash Flow Statement ...... F-7 Consolidated Statement of Changes in Equity ...... F-8 Consolidated Statement of Provision for Impairment of Assets ...... F-10 The Company balance sheets ...... F-11 The Company income statements ...... F-13 The Company cash flow statements ...... F-14 The Company statement of changes in owners’ equity ...... F-15 The Company statement of provision for impairment of assets ...... F-17 Notes to the Financial Statements ...... F-18 Audited consolidated financial statements of CPI as at and for the year ended 31 December 2014 Auditors’ Report ...... F-274 Consolidated Balance Sheet ...... F-276 Consolidated Income Statement ...... F-278 Consolidated Cash Flow Statement ...... F-279 Consolidated Statement of Changes in Shareholders’ Equity ...... F-280 Consolidated Statement of Provision for Impairment of Assets ...... F-281 The Company balance sheets ...... F-282 The Company income statements ...... F-284 The Company cash flow statements ...... F-285 The Company statement of changes in owners’ equity ...... F-286 The Company statement of provision for impairment of assets ...... F-287 Notes to the Financial Statements ...... F-288
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FDVK IORZV IRU WKH \HDU WKHQ HQGHG LQ DFFRUGDQFH ZLWK &KLQD $FFRXQWLQJ 6WDQGDUGV IRU %XVLQHVV (QWHUSULVHV 5XL+XD &HUWLILHG 3XEOLF $FFRXQWDQWV &,&3$ %HLMLQJ &KLQD &,&3$ $SULO F-3 Consolidated Balance Sheets 2015-12-31 State Power Investment Corporation Unit: RMB Item Note 2015.12.31 2014.12.31 Current assets: üü Currency funds 8.1 26,784,742,867.52 21,266,967,212.05 Ƹ'HSRVLWbUHVHUYDWLRQbIRUbEDODQFH Ƹ/HQGLQJVbWRbEDQNVbDQGbRWKHUbILQDQFLDObLQVWLWXWLRQV Financial assets measured at fair value 8.2 2,107,810,792.66 472,895,550.98 Derivative financial assets 8.3 202,839,541.82 Notes receivable 8.4 6,130,979,757.83 5,787,136,869.99 Accounts receivable 8.5 29,389,854,149.35 26,083,404,633.30 Prepayments 8.6 12,292,516,133.82 13,738,811,668.80 ƸInsurance premiums receivable ƸAccount receivable under reinsurance contract ƸPremium reserves attributable to reinsurance contracts ceded Interests receivable 8.7 16,514,005.40 36,489,072.66 Dividends receivable 8.8 430,540,443.33 310,753,016.17 Other receivables 8.9 5,668,794,938.65 6,762,470,073.15 ƸRedemptory monetary capital for sale Inventories 8.10 23,130,203,007.05 23,567,464,675.12 Including:Raw material 8.10 6,551,736,531.09 7,642,817,919.41 Merchandise (Finished goods) 8.10 5,176,463,194.39 4,385,812,692.29 Non-current assets classified as held for sale 138,745,538.06 Non-current assets maturing within one year 8.11 4,655,849,380.94 2,054,478,148.23 Other current assets 8.12 3,421,065,893.61 3,420,467,146.12 Total current assets 114,231,710,911.98 103,640,083,604.63 Non-current assets: —— ƸLoans and payments on behalf 956,828,193.98 1,304,620,432.06 Available-for-sale financial assets 8.13 9,399,647,758.98 7,585,059,735.05 Held-to-maturity investments 8.14 981,879,524.09 871,232,532.05 Long-term receivables 8.15 8,840,751,036.44 3,425,313,364.82 Long-term equity investments 8.16 29,824,322,442.09 28,969,479,359.14 Investment properties 8.17 2,408,693,572.95 2,402,031,540.69 Fixed assets original cost 8.18 607,638,769,191.57 557,375,423,034.20 Less:Accumulated depreciation 8.18 183,234,798,802.04 160,060,004,626.42 Fixed assets--net value 8.18 424,403,970,389.53 397,315,418,407.78 Less:Fixed assets impairment provision 8.18 10,487,498,305.42 10,498,091,926.49 Fixed assets--net book value 8.18 413,916,472,084.11 386,817,326,481.29 Construction in progress 8.19 147,411,122,048.59 123,846,180,234.12 Construction supplies 8.20 6,037,288,707.55 8,449,528,979.60 Disposal of Fixed Assets 8.21 660,731,562.24 1,077,707,063.96 Bearer biological assets Oil and natural gas assets Intangible assets 8.22 20,523,366,883.84 18,660,863,271.03 Research and development costs 8.23 5,416,612,105.06 4,424,088,706.49 Goodwill 8.24 6,981,505,641.30 7,017,596,247.15 Long-term deferred expenses 8.25 1,597,953,340.65 1,083,678,750.62 Deferred tax assets 8.26 1,625,130,244.96 1,358,154,902.85 Other non-current assets 8.27 2,985,536,178.53 4,771,945,202.14 Specially approved reserve for materials Total non-current assets 659,567,841,325.36 602,064,806,803.06 Total assets 773,799,552,237.34 705,704,890,407.69 F-4 Consolidated Balance Sheets (Continued) 2015-12-31 State Power Investment Corporation Unit: RMB Item Note 2015.12.31 2014.12.31 Current liabilities: üü Short-term borrowings 8.28 87,818,562,445.11 69,887,612,497.54 ƸBorrowings from central bank Ƹ6DYLQJVDEVRUSWLRQDQGGXHWRSODFHPHQWVZLWKEDQNVDQGbRWKHUbILQDQFLDO 250,083,287.39 310,018,195.83 ƸBorrowings from banks and other financial institutions 1,000,000,000.00 Financial liabilities measured at fair value 8.29 15,593,082.22 through profit or loss Financial derivative liabilities 150,795,500.00 89,728,000.00 Notes payable 8.30 12,258,918,673.33 12,471,492,291.64 Accounts payable 8.31 45,392,244,829.11 45,462,481,280.45 Advance from customers 8.32 8,816,856,234.24 9,816,785,281.99 ƸFinancial Assets Sold for Repurchase Ƹ&ommissions payable Employee compensation payable 8.33 1,064,195,980.09 977,625,906.37 Including: Accrued payroll 8.33 338,572,333.43 343,773,533.43 Welfare benefits payable 8.33 2,292,451.14 5,581,865.30 Including: Staff and workers' bonus and welfare 8.33 2,116,046.83 5,405,376.44 Taxes and surcharges payable 8.34 -7,860,681,503.17 -5,409,699,912.13 Including:Taxes payable 8.34 -9,239,412,296.23 -6,535,116,444.79 Interests payable 8.35 3,808,426,791.57 3,955,958,262.01 Dividends payable 8.36 372,188,043.73 466,634,709.22 Other payables 8.37 12,854,015,014.57 14,169,718,791.49 ƸAccounts payable under reinsurance contracts ƸReserve for insurance contracts ƸReceivings from vicariously traded securities ƸReceivings from vicariously sold securities Liabilities included in disposal groups classified as held for sale Non-current liabilities maturing within one year 8.38 56,005,582,398.96 56,100,802,800.88 Other current liablities 8.39 49,145,766,705.11 47,502,577,296.02 Total current liabilities 270,076,954,400.04 256,817,328,483.53 Non-current liabilities: üü Long-term borrowings 8.40 259,551,129,643.83 240,110,617,482.51 Bonds payable 8.41 76,762,211,022.58 77,542,190,202.36 Long-term payables 8.43 20,548,692,745.80 14,039,369,666.93 Long-term employee benefits payable 8.44 7,374,919.63 9,287,964.51 Specific payable 8.45 3,892,505,339.18 3,984,273,059.04 Provisions 8.46 564,633,575.47 399,611,515.28 Deferred revenue 8.47 5,551,756,954.07 5,387,547,025.81 Deferred tax liabilities 8.26 601,499,527.39 659,195,695.38 Other non-current liabilities 8.48 38,297,920.59 Including: special reserve Total non-current liabilities 367,479,803,727.95 342,170,390,532.41 Total liabilities 637,556,758,127.99 598,987,719,015.94 Owners'(Owner's)/Shareholders' equity üü Paid-in capital (share in capital) 8.49 45,000,000,000.00 22,346,250,000.00 National capital 8.49 45,000,000,000.00 22,346,250,000.00 Including: State-owned legal person's capital 8.49 45,000,000,000.00 22,346,250,000.00 Collective capital Private Capital Including: Personal capital #Less: Returned investment Less: Returned investment Paid-in capital--net book value 8.49 45,000,000,000.00 22,346,250,000.00 Other equity instruments 8.50 9,446,000,000.00 Including: Preferred stock Perpetual capital securities 8.50 9,446,000,000.00 Capital reserves 8.51 3,694,280,908.30 24,653,183,818.09 Less: Treasury stock Other comprehensive income 8.62 -14,156,392.03 199,539,255.17 Including: Translation differences arising on translation of financial statements 8.62 -63,016,038.18 -100,738,740.20 dominated in foreign currencies Special reserves 8.52 192,954,691.81 246,579,161.73 Surplus reserves Including: Statutory accumulation reserve Discretionary reserve Reserved funds Enterprise expansion funds Profit return for investment Ƹ General risk reserve Retained earnings 8.53 -3,326,436,242.17 -4,885,877,431.80 Total owners' equity attributable to the parent company 54,992,642,965.91 42,559,674,803.19 * Non-controling interest 81,250,151,143.44 64,157,496,588.56 Total owners' equity 136,242,794,109.35 106,717,171,391.75 Total liabilities & Owners' equity 773,799,552,237.34 705,704,890,407.69 The notes on pages 17 to 272 form part of these financial statements. 3 to Page 16 have been approved by the following management personnel: Legal representative: Accounting-in-charge: Finance-in-charge: F-5 Consolidated Income Statements 2015 State Power Investment Corporation Unit: RMB Item Notes Current year Prior year 1.Overall Revenue 8.54 192,403,811,637.31 193,234,921,952.29 Including: Operating income 8.54 192,403,811,637.31 193,234,921,952.29 ƸInterest income ƸInsurance premiums earned ƸCommissions income 2.Overall costs 8.54 184,243,752,776.69 186,823,054,193.91 Including: Operating costs 8.54 149,951,540,641.66 152,612,528,190.24 ƸInterest expenses ƸCommissions expenses ƸRefund of insurance premiums ƸNet compensation expenses ƸNet reserve for insurance contracts ƸDividend expense for the insured ƸReinsurance premium Business tax and surcharge 2,628,399,823.39 2,083,007,411.21 Selling expenses 8.55 1,511,677,464.15 1,500,727,282.39 Administrative expenses 8.55 5,489,022,444.60 5,972,359,539.94 Including: research and development 8.55 550,078,730.53 458,063,274.57 Financial expenses 8.55 23,296,006,082.57 22,731,905,781.73 Including: Interest expense 8.55 23,406,566,780.74 22,841,789,094.84 Interest income 8.55 257,297,266.42 281,337,347.08 Gain or loss on foreign exchange transactions 8.55 181,903,974.55 -68,621,146.44 (less exchange gain) Impairment loss on assets 8.56 1,367,106,320.32 1,922,525,988.40 Other Plus: Gain or loss from changes in fair values(loss 8.57 52,869,443.30 -67,341,670.83 expressed with "-") Investment income(loss expressed with "-") 8.58 3,401,559,603.68 2,470,289,051.29 Including: Investment income from joint ventures and 8.58 1,782,991,543.10 1,932,914,581.18 associates(loss expressed with "-") ƸGains from foreign exchange˄loss expressed with "-"˅ 1,764,162.04 -1,865,539.40 3.Profit from operations 11,616,252,069.64 8,812,949,599.44 Plus: Non-operating profit 8.59 3,257,159,482.66 2,677,948,229.77 Gains from disposal of non-current assets 8.59 185,722,531.06 792,849,476.74 Gains from exchange of non-monetary assets Government grant income 8.59 2,259,227,703.71 1,588,059,840.03 Gains from debt restructuring 8.59 6,829,950.28 35,480,957.44 Less:Non-operating expenses 8.6 916,175,308.60 810,562,167.51 Including:Losses from disposal of non-current assets 8.6 549,469,014.49 531,158,872.29 Losses from exchange of non-monetary assets Losses from debt restructuring 4.Profit before tax (loss expressed with "-") 13,957,236,243.70 10,680,335,661.70 Less: Income tax expenses 8.61 5,495,401,220.72 4,446,256,792.17 5.Net profit (loss expressed with "-") 8,461,835,022.98 6,234,078,869.53 Net profit attributable to the parent company 1,818,959,689.63 1,663,156,913.43 *Non-controlling interest 6,642,875,333.35 4,570,921,956.10 6. Other comprehensive income, net of inome tax effect 8.62 -370,975,855.36 1,277,280,097.84 (1)Other comprehensive income that cannot to be reclassified into the 8.62 -763,200.00 -928,800.00 profit and loss Including: 1.The changes in net asset and liabilities that result from the remeasurement of acquirer’s defined benefit plan 8.62 2.Share in other comprehensive income that cannot be 8.62 -763,200.00 -928,800.00 classified into profit and loss under equity method (2)Other comprehensive income that will be reclassified into the profit 8.62 -370,212,655.36 1,278,208,897.84 and loss Including:1. Share in other comprehensive income that will be 8.62 98,843.75 178,371.07 classified into profit and loss under equity method 2.Changes in fair value through profit and loss of available- 8.62 -414,198,643.09 1,202,519,339.27 for-sale financial assets 3.Gain or loss on the reclassification from held-to-maturity 8.62 investment to available-for sale financial assets 4.Effective part of profit and loss on cash-flow hedge 8.62 -33,406,150.00 10,793,231.25 5.Translation differences arising on translation of financial 8.62 77,293,293.98 64,717,956.25 statements dominated in foreign currencies 7.Total comprehensive income 8,090,859,167.62 7,511,358,967.37 Comprehensive income attributable to the parent company 1,605,264,042.43 2,461,175,094.18 *Comprehensive income attributable to non-controlling interest 6,485,595,125.19 5,050,183,873.19 8.Earnins per share (EPS) —— Basic EPS Diluted EPS The notes on pages 17 to 272 form part of these financial statements. The financial statements from Page 3 to Page 16 have been approved by the following management personnel: Legal representative: Accounting-in-charge: Finance-in-charge: F-6 Consolidated Cash Flow Statements 2015 State Power Investment Corporation Unit: RMB Item Notes Current year Prior year 1.Cash flows arising from operating activities: —— Cash from the sale of goods and rendering of services 199,291,809,203.09 199,475,773,623.96 Net increase of savings absorption and due to placements with Ƹ -62,355,501.88 2,913,393,110.27 banks and other financial institutions ƸNet increase borrowings from central bank ƸNet increase borrowings from other financial institutions -1,000,000,000.00 -1,000,000,000.00 ƸCash receipts from direct insurance contract premium ƸNet cash receipts from reinsurance contract premium ƸNet increase of insured deposit and investment ƸNet increase of disposal of financial assets measured at fair value through profit or loss ƸCash receipts from interests and commissions 1,562,945,907.35 1,586,712,268.61 ƸNet increase of borrowing funds ƸNet increase of repurchasing business funds Receipts of tax refunds 658,933,095.28 665,347,486.71 Other cash receipts relating to operating activities 13,540,097,446.01 14,578,072,498.04 Subtotal of cash inflows 213,991,430,149.85 218,219,298,987.59 Cash payments for goods purchased and service received 117,478,014,480.53 125,638,843,204.85 ƸNet increase of loans and payments on behalf -1,997,404,302.42 -2,813,605,666.49 ƸNet increase of deposit in central bank and other banks -1,077,136,114.05 221,194,966.51 ƸCash payments of direct insurance contract compensation ƸCash payments for dividends and commissions 16,054,417.73 31,557,696.60 ƸCash payments for interests and commissions Cash paid to employee and on behalf of employees 21,625,921,728.58 21,396,157,513.51 Payments of all types of taxes 21,861,813,128.18 20,233,026,569.99 Other cash payments relating to operating activities 9,088,071,594.78 11,809,622,787.63 Subtotal of cash ouflows 166,995,334,933.33 176,516,797,072.60 Net cash flows from operating activities 8.69 46,996,095,216.52 41,702,501,914.99 2.Cash flows arising from investing activities: —— Cash receipts from disposals or withdraw of investments 25,734,883,433.32 24,193,100,135.31 Cash receipts from investment income 2,605,484,997.74 5,246,807,180.59 Net cash receipts from disposal of fixed assets, intangible assets 1,283,195,790.83 1,468,052,306.63 and other long-term assets Net cash receipts from disposal of subsidiaries and other business 83,691,501.16 46,103,268.01 units Other cash receipts relating to investing activities 11,441,629,359.61 1,832,321,457.15 Subtotal of cash inflows 41,148,885,082.66 32,786,384,347.69 Cash payments to acquire and construct fixed assets, intangible 57,825,155,117.44 58,147,852,394.64 assets and other long-term assets Cash payments to acquire investment 13,586,866,160.17 12,771,734,641.61 ƸNet increase of pledged loan Net cashpayments for acquisition of subsidiaries and other 124,695,218.52 1,505,972,810.73 business units Other cash payments relating to investing activities 6,015,477,160.32 1,063,103,347.20 Subtotal of cash ouflows 77,552,193,656.45 73,488,663,194.18 Net cash flows from investment activities -36,403,308,573.79 -40,702,278,846.49 3.Cash flows from financial activities: —— Cash receipts from investors making investment in the enterprise 19,973,746,402.96 8,070,077,439.66 Including: cash receipts from minorities making investment in 9,773,746,402.96 6,677,857,439.66 subsidiaries Cash receipts from borrowings 327,428,594,418.96 413,906,773,245.19 ƸCash receipts from issue of bonds Other cash receipts relating to financing activities 11,577,778,188.81 5,878,047,370.41 Subtotal of cash inflows 358,980,119,010.73 427,854,898,055.26 Cash repayments of amounts borrowed 290,932,331,891.77 398,398,902,908.48 Cash payments for distribution of dividends or profit or interest 32,792,722,751.07 27,125,792,793.01 expenses Including: payments for distribution of dividends or profit to 2,527,165,663.67 2,855,664,979.43 minorities of subsidiaries Other cash payments relating to financing activities 39,280,141,212.15 6,021,955,934.70 Subtotal of cash outflows 363,005,195,854.99 431,546,651,636.19 Net cash flow from financial activities -4,025,076,844.26 -3,691,753,580.93 4.Effect of foreign exchange rate changes on cash and cash 19,653,085.15 -14,707,113.52 equivalents 5.Net increase in cash and cash equivalents 8.69 6,587,362,883.62 -2,706,237,625.95 Add: Opening balance of cash and cash equivalents 8.69 17,678,225,789.00 20,384,463,414.95 6.Closing balance of cash and cash equivalents 8.69 24,265,588,672.62 17,678,225,789.00 The notes on pages 17 to 272 form part of these financial statements. The financial statements from Page 3 to Page 16 have been approved by the following management personnel: Legal representative: Accounting-in-charge: Finance-in-charge: F-7 Consolidated Statement of Changes in Equity Year 2015 State Power Investment Corporation Unit: RMB Current year Attributable to the owner of the parent Item Non-controlling (Less): Other Total owners' equity Other equity Ƹ*eneral risks interests Share capital Capital reserve Treasury comprehensive Special reserve Surplus reserve Retained earnings Others Sub-total instrument reserve stock income 1. Ending balance of prior year 22,346,250,000.00 24,653,183,818.09 199,539,255.17 246,579,161.73 -4,885,877,431.80 42,559,674,803.19 64,157,496,588.56 106,717,171,391.75 Add: Changes in accounting policies ———————————— — Correction to errors ———————————— — Others 2. Opening balance of the current year 22,346,250,000.00 24,653,183,818.09 199,539,255.17 246,579,161.73 -4,885,877,431.80 42,559,674,803.19 64,157,496,588.56 106,717,171,391.75 3. Movement during the year (decrease denoted by "-") 22,653,750,000.00 9,446,000,000.00 -20,958,902,909.79 -213,695,647.20 -53,624,469.92 1,559,441,189.63 12,432,968,162.72 17,092,654,554.88 29,525,622,717.60 (1) Total comprehensive income ———— -213,695,647.20 ——— 1,818,959,689.63 — 1,605,264,042.43 6,485,595,125.19 8,090,859,167.62 (2) Increase / (decrase) in investments by shareholders 9,446,000,000.00 1,694,847,090.21 20,092,756.41 11,160,939,846.62 14,127,879,704.44 25,288,819,551.06 1. Ordinary stocks injected by shareholders — 700,000,000.00 ——————— 700,000,000.00 4,101,190,399.69 4,801,190,399.69 2.Capital injected by other equity instrument-holders 9,446,000,000.00 ——————— 9,446,000,000.00 6,078,093,000.42 15,524,093,000.42 3. Share-based payments to equity — ——————— 433,627.10 433,627.10 4. Others — 994,847,090.21 20,092,756.41 1,014,939,846.62 3,948,162,677.23 4,963,102,523.85 (2) Provision and use of special reserve — -73,717,226.33 -73,717,226.33 -42,243,792.07 -115,961,018.40 1. Provision for special reserve — — ——— 687,911,847.96 ———— 687,911,847.96 587,758,102.75 1,275,669,950.71 2. Use of special reserve — — ——— -761,629,074.29 ———— -761,629,074.29 -630,001,894.82 -1,391,630,969.11 F-8 (4) Profits distribution -259,518,500.00 -259,518,500.00 -3,187,770,069.82 -3,447,288,569.82 1. Surplus reserve — — ——— — — — — Including: Statutory reserve — ——— — — — — Discretionary reserve — ——— — — — — Reserved funds — ——— — — — — Enterprise expansion funds — ——— — — — — Profit return for investment — ——— — — — — 2. Provision for general risks reserve — — ——— — — — — 3. Distributions to shareholders — — ——— — — — -259,518,500.00 — -259,518,500.00 -3,150,679,912.04 -3,410,198,412.04 4. Others -37,090,157.78 -37,090,157.78 (4) Internal transfers within equity 22,653,750,000.00 -22,653,750,000.00 -290,806,412.86 -290,806,412.86 1. From capital reserve to share capital 22,653,750,000.00 -22,653,750,000.00 ——————— — 2. From surplus reserve to share capital — ——— — — —— — 3. Surplus reserve to recover accumulated losses — — ——— — — — — 4. Carry forward of changes in net asset and liabilities that result from the remeasurement of acquirer’s defined benefit ———— ——— — — plan 5. Others -290,806,412.86 -290,806,412.86 4. Ending balance of the current year 45,000,000,000.00 9,446,000,000.00 3,694,280,908.30 -14,156,392.03 192,954,691.81 -3,326,436,242.17 54,992,642,965.91 81,250,151,143.44 136,242,794,109.35 The notes on pages 17 to 272 form part of these financial statements. The financial statements from Page 3 to Page 16 have been approved by the following management personnel: Legal representative: Accounting-in-charge: Finance-in-charge: Consolidated Statement of Changes in Equity (Continued) Year 2015 State Power Investment Corporation Unit: RMB Prior year Attributable to the owner of the parent ᇞ Item Non-controlling Total owners' Other Other equity (Less): General risks interests equity Share capital Capital reserve comprehensive Special reserve Surplus reserve Retained earnings Others Sub-total instrument Treasury stock reserve income 1. Ending balance of prior year 12,000,000,000.00 26,784,038,526.18 -598,124,042.63 144,539,102.53 2,847,339,825.68 41,177,793,411.76 54,572,661,120.67 95,750,454,532.43 Add: Changes in accounting policies Correction to errors -15,290,087.40 -12,344,902.66 -27,634,990.06 35,436,733.26 7,801,743.20 Others 6,790,086,311.24 -354,882.95 1,336,536,580.24 8,126,268,008.53 4,222,254,585.69 12,348,522,594.22 2. Opening balance of the current year 12,000,000,000.00 33,558,834,750.02 -598,478,925.58 144,539,102.53 4,171,531,503.26 49,276,426,430.23 58,830,352,439.62 108,106,778,869.85 3. Movement during the year (decrease denoted by "- 10,346,250,000.00 -8,905,650,931.93 798,018,180.75 102,040,059.20 -9,057,408,935.06 -6,716,751,627.04 5,327,144,148.94 -1,389,607,478.10 ") (1) Total comprehensive income ———— 798,018,180.75 ——— 1,663,156,913.43 — 2,461,175,094.18 5,050,183,873.19 7,511,358,967.37 (2) Increase / (decrase) in investments by 1,440,599,068.07 952,912.40 -10,205,145,348.49 -8,763,593,368.02 3,493,282,749.48 -5,270,310,618.54 shareholders 1. Ordinary stocks injected by shareholders — 1,392,220,000.00 ——————— 1,392,220,000.00 6,628,507,837.26 8,020,727,837.26 2.Capital injected by other equity instrument-holders ——————— 3. Share-based payments to equity — 722,366.18 ——————— 722,366.18 722,366.18 4. Others — 47,656,701.89 952,912.40 -10,205,145,348.49 -10,156,535,734.20 -3,135,225,087.78 -13,291,760,821.98 (2) Provision and use of special reserve — 101,087,146.80 101,087,146.80 29,618,845.31 130,705,992.11 1. Provision for special reserve ————— 739,247,893.07 ———— 739,247,893.07 556,399,617.87 1,295,647,510.94 2. Use of special reserve ————— -638,160,746.27 ———— -638,160,746.27 -526,780,772.56 -1,164,941,518.83 (4) Profits distribution -515,420,500.00 -515,420,500.00 -3,245,941,319.04 -3,761,361,819.04 1. Surplus reserve —————— — — — F-9 Including: Statutory reserve —————— — — — Discretionary reserve —————— — — — Reserved funds —————— — — — Enterprise expansion funds —————— — — — Profit return for investment —————— — — — 2. Provision for general risks reserve ——————— — — 3. Distributions to shareholders ———————— -515,420,500.00 — -515,420,500.00 -2,792,512,979.43 -3,307,933,479.43 4. Others -453,428,339.61 -453,428,339.61 (4) Internal transfers within equity 10,346,250,000.00 -10,346,250,000.00 1. From capital reserve to share capital 10,346,250,000.00 -10,346,250,000.00 ——————— — 2. From surplus reserve to share capital ————— ——— — 3. Surplus reserve to recover accumulated losses —————— — — — 4. Carry forward of changes in net asset and liabilities that result from the remeasurement of acquirer’s defined ———— ——— — — benefit plan 5. Others 4. Ending balance of the current year 22,346,250,000.00 24,653,183,818.09 199,539,255.17 246,579,161.73 -4,885,877,431.80 42,559,674,803.19 64,157,496,588.56 106,717,171,391.75 The notes on pages 17 to 272 form part of these financial statements. The financial statements from Page 3 to Page 16 have been approved by the following management personnel: Legal representative: Accounting-in-charge: Finance-in-charge: Consolidated Statements of Assets Impairment 31 December 2015 State Power Investment Corporation Unit: RMB Increase Decrease Item Opening balance Reverse due to Ending balance Item Amount Increase due to Increase due to Decrease due to Decrease due to Provision Total increase of Write-off Total combination other reason combination other reason asset value 1. Provision for bad debt 2,569,202,535.81 825,872,463.13 30,035,935.34 580,435.23 856,488,833.70 11,004,005.65 103,157,812.80 174,905,996.89 289,067,815.34 3,136,623,554.17 Supplementary information 2. Provision for inventory impairment 1,551,980,489.10 601,564,696.00 384,218.63 1,618,748.70 192,351,565.58 25,034,370.46 219,004,684.74 1,332,975,804.36 1. Remaining accounts under policy 3. Provision for available for sale financial assets 2. Dealing prior year loss in current year and remaining in 324,798,928.86 18,331,671.75 14,984,449.88 26,652,000.00 2,890,000.00 29,542,000.00 295,256,928.86 impairment account 4. Provision for held-for-sale investment Including: Remaining accounts under policy in priors year 5,070,938.75 108,177.71 108,177.71 4,962,761.04 impairment and booked in the current year's profit and loss 5. Provision for long-term equity investment 251,220,070.05 230,349,524.67 — 75,504,000.00 14,984,449.88 90,488,449.88 160,731,620.17 impairment 6. Provision for investment properties impairment — 7. Provision for fixed assets impairment 10,498,091,926.49 418,786,724.78 1,420,757.65 507,347,342.99 927,554,825.42 — 138,401,523.54 799,746,922.95 938,148,446.49 10,487,498,305.42 8. Provision for construction supplies impairment 867,286.00 — 867,286.00 9. Provision for construction in process 2,785,773,625.92 20,634,751.49 441,430,428.59 — 22,484,982.64 428,286,163.07 450,771,145.71 2,335,002,480.21 impairment 10. Provision for bearer biological assets — F-10 impairment 11. Provision for oil and natural gas assets — impairment 12. Provision for intangible assets impairment 903,262,011.63 1,069,495.93 — 903,262,011.63 13. Provision for goodwill impairment 71,417,039.29 11,183,208.41 — 71,417,039.29 14. Provision for other impairment 621,791,437.14 755,551,031.92 621,791,437.14 Total 19,583,476,289.04 2,883,343,568.08 31,456,692.99 964,726,875.32 3,879,527,136.39 39,274,754.35 534,898,062.27 1,442,957,903.25 2,017,130,719.87 21,445,872,705.56 The notes on pages 17 to 272 form part of these financial statements. The financial statements from Page 3 to Page 16 have been approved by the following management personnel: Legal representative: Accounting-in-charge: Finance-in-charge: Balance Sheets 31 December 2015 State Power Investment Corporation Unit: RMB Items Notes 2015.12.31 2014.12.31 Current assets: —— Currency funds 2,080,607,076.72 1,200,945,024.52 Deposit reservation for balance Lendings to banks and other financial institutions Financial assets measured at fair value through profit or loss Derivative financial assets Notes receivable 177,062,621.31 90,340,011.37 Accounts receivable 12.1 1,851,971,030.83 2,375,181,461.95 Prepayments 1,428,720,995.11 1,627,948,110.42 Insurance premiums receivable Account receivable under reinsurance contract Premium reserves attributable to reinsurance contracts ceded Interests receivable 6,821,443.47 5,639,379.07 Dividends receivable 197,847,560.70 3,318,140,618.49 Other receivables 12.2 3,457,877,105.86 5,342,813,879.74 Redemptory monetary capital for sale Inventories 453,734,894.67 626,753,126.27 Including:Raw material 110,000.00 Merchandise (Finished goods) 453,719,340.77 626,643,126.27 (finished product) Non-current assets classified as held for sale Non-current assets maturing within one year Other current assets 918,000,000.00 648,000,000.00 Total current assets 10,572,642,728.67 15,235,761,611.83 Non-current assets: —— Loans and payments on behalf Available-for-sale financial assets 32,198,400.00 1,412,198,400.00 Held-to-maturity investments Long-term receivables Long-term equity investments 12.3 123,020,818,895.67 104,075,826,589.27 Investment properties 1,228,716,275.39 1,260,481,204.37 Fixed assets original cost 1,218,086,427.89 1,186,657,709.48 Less:Accumulated depreciation 460,594,666.04 412,837,814.21 Fixed assets--net value 757,491,761.85 773,819,895.27 Less:Fixed assets impairment provision Fixed assets--net book value 757,491,761.85 773,819,895.27 Construction in progress 111,853,025.04 33,358,211.08 Construction supplies 1,356,000.00 Disposal of Fixed Assets Bearer biological assets Oil and natural gas assets Intangible assets 44,271,005.82 33,699,629.41 Research and development costs Goodwill Long-term deferred expenses Deferred tax assets Other non-current assets 7,783,535,174.04 3,026,605,142.04 Specially approved reserve for materials Total non-current assets 132,980,240,537.81 110,615,989,071.44 Total assets 143,552,883,266.48 125,851,750,683.27 F-11 Balance sheets (Continued) 31 December 2015 State Power Investment Corporation Unit: RMB Items Notes 2015.12.31 2014.12.31 Current liabilities: —— Short-term borrowings 23,956,339,829.85 14,885,555,377.52 Borrowings from central bank Savings absorption and due to placements with banks and other financial institutions 551,777,241.86 322,450,228.35 Borrowings from banks and other financial institutions Financial liabilities measured at fair value through profit or loss Financial derivative liabilities 147,730,000.00 89,728,000.00 Notes payable 1,457,428,628.32 Accounts payable 1,900,146,864.46 1,341,545,893.21 Advance from customers 591,094,204.33 921,484,233.90 Financial Assets Sold for Repurchase Commissions payable Employee compensation payable 266,396,971.42 267,911,854.55 Including: Accrued payroll 249,809,277.54 255,009,277.54 Welfare benefits payable Including: Staff and workers' bonus and f Taxes and surcharges payable 85,509,675.09 811,937.46 Including:Taxes payable 81,823,528.87 608,439.38 Interests payable 1,357,218,218.94 1,762,916,928.74 Dividends payable Other payables 237,131,417.90 278,692,563.40 Accounts payable under reinsurance contracts Reserve for insurance contracts Receivings from vicariously traded securities Receivings from vicariously sold securities Liabilities included in disposal groups classified as held for sale Non-current liabilities maturing within one year 12,300,000,000.00 15,400,000,000.00 Other current liablities 26,300,000,000.00 30,200,000,000.00 Total current liabilities 67,693,344,423.85 66,928,525,645.45 Non-current liabilities: —— Long-term borrowings 1,399,800,000.00 1,623,200,000.00 Bonds payable 28,246,184,486.70 31,746,184,486.70 Long-term payables Long-term employee benefits payable Specific payable 40,536,370.87 200,058,313.99 Provisions Deferred revenue 97,563,841.42 89,051,166.26 Deferred tax liabilities Other non-current liabilities Including: special reserve Total non-current liabilities 29,784,084,698.99 33,658,493,966.95 Total liabilities 97,477,429,122.84 100,587,019,612.40 Owners'(Owner's)/Shareholders' equity —— Paid-in capital (share in capital) 45,000,000,000.00 22,346,250,000.00 National capital 45,000,000,000.00 22,346,250,000.00 Including: State-owned legal person's capital 45,000,000,000.00 22,346,250,000.00 Collective capital Private Capital Including: Personal capital #Less: Returned investment Less: Returned investment Paid-in capital--net book value 45,000,000,000.00 22,346,250,000.00 Other equity instruments 9,446,000,000.00 Including: Preferred stock Perpetual capital securities 9,446,000,000.00 Capital reserves 1,048,204,459.11 14,461,174,300.39 Less: Treasury stock Other comprehensive income Including: Translation differences arising on translation of financial statements dominated in foreign currencies Special reserves Surplus reserves Including: Statutory accumulation reserve Discretionary reserve Reserved funds Enterprise expansion funds Profit return for investment General risk reserve Retained earnings -9,418,750,315.47 -11,542,693,229.52 Total owners' equity attributable to the parent company 46,075,454,143.64 25,264,731,070.87 * Non-controling interest Total owners' equity 46,075,454,143.64 25,264,731,070.87 Total liabilities & Owners' equity 143,552,883,266.48 125,851,750,683.27 The notes on pages 17 to 272 form part of these financial statements. The financial statements from Page 3 to Page 16 have been approved by the following management personnel: Legal representative: Accounting-in-charge: Finance-in-charge: F-12 Income Statement Year 2015 State Power Investment Corporation Unit: RMB Items Notes 2015 2014 1.Overall Revenue 12.4 4,491,085,505.83 3,165,786,131.32 Including: Operating income 12.4 4,491,085,505.83 3,165,786,131.32 Interest income Insurance premiums earned Commissions income 2.Overall costs 12.4 9,321,707,381.25 8,081,985,964.71 Including: Operating costs 12.4 4,310,705,752.98 2,948,079,521.15 Interest expenses Commissions expenses Refund of insurance premiums Net compensation expenses Net reserve for insurance contracts Dividend expense for the insured Reinsurance premium Business tax and surcharge 35,415,847.71 31,073,254.82 Selling expenses 9,597,045.16 5,005,805.64 Administrative expenses 421,201,079.75 248,509,354.67 Including: research and development Financial expenses 4,543,415,319.11 4,848,048,512.67 Including: Interest expense 4,557,696,787.59 4,865,868,445.46 Interest income 17,824,946.50 20,617,067.02 Gain or loss on foreign exchange 2,184.23 transactions (less exchange gain) Impairment loss on assets 1,372,336.54 1,269,515.76 Other Plus: Gain or loss from changes in fair -58,002,000.00 -46,048,000.00 values(loss expressed with "-") Investment income(loss expressed with "-") 12.5 7,258,653,228.32 2,878,989,041.31 Including: Investment income from joint ventures 475,677,765.27 69,775,404.18 and associates(loss expressed with "-") Gains from foreign exchange˄loss expressed with "-"˅ 3.Profit from operations 2,370,029,352.90 -2,083,258,792.08 Plus: Non-operating profit 19,626,622.80 8,803,378.26 Gains from disposal of non-current assets 55,987.95 48,062.68 Gains from exchange of non-monetary assets Government grant income 17,587,324.84 7,484,517.58 Gains from debt restructuring Less:Non-operating expenses 6,194,561.65 2,843,643.49 Including:Losses from disposal of non- 621,120.82 733.17 tt Losses from exchange of non-monetary t Losses from debt restructuring 4.Profit before tax (loss expressed with "-") 2,383,461,414.05 -2,077,299,057.31 Less: Income tax expenses 5.Net profit (loss expressed with "-") 2,383,461,414.05 -2,077,299,057.31 Net profit attributable to the parent company 2,383,461,414.05 -2,077,299,057.31 *Non-controlling interest 6. Other comprehensive income, net of inome tax effect (1)Other comprehensive income that cannot to be reclassified into the profit and loss Including: 1.The changes in net asset and liabilities that result from the remeasurement of acquirer’s defined benefit plan 2.Share in other comprehensive income that cannot be classified into profit and loss under equity method (2)Other comprehensive income that will be reclassified into the profit and loss Including:1. Share in other comprehensive income that will be classified into profit and loss under equity method 2.Changes in fair value through profit and loss of available-for-sale financial assets 3.Gain or loss on the reclassification from held-to- maturity investment to available-for sale financial assets 4.Effective part of profit and loss on cash-flow hedge 5.Translation differences arising on translation of financial statements dominated in foreign currencies 7.Total comprehensive income 2,383,461,414.05 -2,077,299,057.31 Comprehensive income attributable to the parent company 2,383,461,414.05 -2,077,299,057.31 *Comprehensive income attributable to non-controlling interest 8.Earnins per share (EPS) —— Basic EPS Diluted EPS The notes on pages 17 to 272 form part of these financial statements. he financial statements from Page 3 to Page 16 have been approved by the following management personne Legal representative: Accounting-in-charge: Finance-in-charge: F-13 Cashflow Statement Year 2015 State Power Investment Corporation Unit: RMB Items Notes Current year Prior year 1.Cash flows arising from operating activities: üü Cash from the sale of goods and rendering of services 2,858,801,370.91 2,248,308,448.86 Net increase of savings absorption and due to placements with banks and other ᇞ 229,327,013.51 -891,003,318.32 financial institutions ᇞNet increase borrowings from central bank ᇞNet increase borrowings from other financial institutions ᇞCash receipts from direct insurance contract premium ᇞNet cash receipts from reinsurance contract premium Net increase of insured deposit and investment Net increase of disposal of financial assets measured at fair value ᇞ through profit or loss ᇞCash receipts from interests and commissions ᇞNet increase of borrowing funds Net increase of repurchasing business funds Receipts of tax refunds 7,200.00 Other cash receipts relating to operating activities 3,315,898,903.95 312,717,966.23 Subtotal of cash inflows 6,404,027,288.37 1,670,030,296.77 ᇞ Cash payments for goods purchased and service received 2,929,402,732.58 2,274,886,752.73 ᇞNet increase of loans and payments on behalf ᇞNet increase of deposit in central bank and other banks ᇞCash payments of direct insurance contract compensation ᇞCash payments for dividends and commissions 7,865,268.00 10,032,953.28 Cash payments for interests and commissions Cash paid to employee and on behalf of employees 297,247,402.60 260,687,251.48 Payments of all types of taxes 26,559,173.00 53,029,575.37 Other cash payments relating to operating activities 2,903,591,946.83 894,350,171.83 Subtotal of cash ouflows 6,164,666,523.01 3,492,986,704.69 Net cash flows from operating activities 12.6 239,360,765.36 -1,822,956,407.92 2.Cash flows arising from investing activities: —— Cash receipts from disposals or withdraw of investments 3,116,760,000.00 4,832,481,735.18 Cash receipts from investment income 7,466,327,972.22 2,329,977,616.73 Net cash receipts from disposal of fixed assets, intangible assets and other long- 108,100.00 649,511,207.52 term assets Net cash receipts from disposal of subsidiaries and other business units Other cash receipts relating to investing activities 9,750,069,228.38 18,620,000.00 Subtotal of cash inflows 20,333,265,300.60 7,830,590,559.43 Cash payments to acquire and construct fixed assets, intangible assets and other 170,342,295.02 86,752,567.06 long-term assets ᇞ Cash payments to acquire investment 8,544,921,771.38 8,800,706,702.31 Net increase of pledged loan Net cashpayments for acquisition of subsidiaries and other business units Other cash payments relating to investing activities 3,368,244,410.65 201,829,924.35 Subtotal of cash ouflows 12,083,508,477.05 9,089,289,193.72 Net cash flows from investment activities 8,249,756,823.55 -1,258,698,634.29 3.Cash flows from financial activities: —— Cash receipts from investors making investment in the enterprise 10,200,000,000.00 1,209,000,000.00 Including: cash receipts from minorities making investment in subsidiaries ᇞ Cash receipts from borrowings 143,716,941,700.30 214,816,971,485.03 Cash receipts from issue of bonds Other cash receipts relating to financing activities 2,145,340,797.44 1,150,564,215.87 Subtotal of cash inflows 156,062,282,497.74 217,176,535,700.90 Cash repayments of amounts borrowed 143,847,990,052.31 205,339,492,237.27 Cash payments for distribution of dividends or profit or interest expenses 5,272,777,501.97 4,768,491,405.16 Including: payments for distribution of dividends or profit to minorities of subsidiaries Other cash payments relating to financing activities 14,550,970,480.17 4,538,985,910.73 Subtotal of cash outflows 163,671,738,034.45 214,646,969,553.16 Net cash flow from financial activities -7,609,455,536.71 2,529,566,147.74 4.Effect of foreign exchange rate changes on cash and cash equivalents 5.Net increase in cash and cash equivalents 12.6 879,662,052.20 -552,088,894.47 Add: Opening balance of cash and cash equivalents 12.6 1,200,945,024.52 1,753,033,918.99 6.Closing balance of cash and cash equivalents 12.6 2,080,607,076.72 1,200,945,024.52 The notes on pages 17 to 272 form part of these financial statements. The financial statements from Page 3 to Page 16 have been approved by the following management personnel: Legal representative: Accounting-in-charge: Finance-in-charge: F-14 Statement of Changes in Equity Year 2015 State Power Investment Corporation Unit: RMB Current year Attributable to the owner of parent Item ᇞ Non-controlling Other Total owners' equity Other equity (Less): Treasury General risks interests Share capital Capital reserve comprehensive Special reserve Surplus reserve Retained earnings Others Sub-total instrument stock reserve income 1. Ending balance of prior year 22,346,250,000.00 14,461,174,300.39 -11,542,693,229.52 25,264,731,070.87 25,264,731,070.87 Add: Changes in accounting policies ————————————— Correction to errors ————————————— Others 2. Opening balance of the current year 22,346,250,000.00 14,461,174,300.39 -11,542,693,229.52 25,264,731,070.87 25,264,731,070.87 3. Movement during the year (decrease denoted by "-") 22,653,750,000.00 9,446,000,000.00 -13,412,969,841.28 2,123,942,914.05 20,810,723,072.77 20,810,723,072.77 (1) Total comprehensive income ———— ——— 2,383,461,414.05 — 2,383,461,414.05 2,383,461,414.05 (2) Increase / (decrase) in investments by shareholders 9,446,000,000.00 9,240,780,158.72 18,686,780,158.72 18,686,780,158.72 1. Ordinary stocks injected by shareholders — 9,240,780,158.72 ——————— 9,240,780,158.72 9,240,780,158.72 2.Capital injected by other equity instrument-holders 9,446,000,000.00 ——————— 9,446,000,000.00 9,446,000,000.00 3. Share-based payments to equity — ——————— 4. Others — (2) Provision and use of special reserve — 1. Provision for special reserve ————— ———— F-15 2. Use of special reserve ————— ———— (4) Profits distribution -259,518,500.00 -259,518,500.00 -259,518,500.00 1. Surplus reserve — — ——— — — — — Including: Statutory reserve — — ——— — — — — Discretionary reserve — — ——— — — — — Reserved funds — — ——— — — — — Enterprise expansion funds — — ——— — — — — Profit return for investment — — ——— — — — — 2. Provision for general risks reserve ——————— — — 3. Distributions to shareholders ———————— -259,518,500.00 — -259,518,500.00 -259,518,500.00 4. Others (4) Internal transfers within equity 22,653,750,000.00 -22,653,750,000.00 1. From capital reserve to share capital 22,653,750,000.00 -22,653,750,000.00 ——————— — 2. From surplus reserve to share capital — ——— — — —— — 3. Surplus reserve to recover accumulated losses — — ——— — — — — 4. Carry forward of changes in net asset and liabilities that result from the remeasurement of acquirer’s defined benefit ———— ——— — — plan 5. Others 4. Ending balance of the current year 45,000,000,000.00 9,446,000,000.00 1,048,204,459.11 -9,418,750,315.47 46,075,454,143.64 46,075,454,143.64 The notes on pages 17 to 272 form part of these financial statements. The financial statements from Page 3 to Page 16 have been approved by the following management personnel: Legal representative: Accounting-in-charge: Finance-in-charge: Statement of Changes in Equity (Continued) Year 2015 State Power Investment Corporation Unit: RMB Prior year Item Attributable to the owner of parent ᇞ Non-controlling Total owners' Other equity (Less): Treasury Other General risks interests equity Share capital Capital reserve Special reserve Surplus reserve Retained earnings Others Sub-total instrument stock comprehensive reserve 1. Ending balance of prior year 12,000,000,000.00 24,493,240,549.44 -7,662,663,695.14 28,830,576,854.30 28,830,576,854.30 Add: Changes in accounting policies Correction to errors Others -13,184,187.50 -13,184,187.50 -13,184,187.50 2. Opening balance of this year 12,000,000,000.00 24,493,240,549.44 -7,675,847,882.64 28,817,392,666.80 28,817,392,666.80 3. Movement during the year (decrease denoted by "-") 10,346,250,000.00 -10,032,066,249.05 -3,866,845,346.88 -3,552,661,595.93 -3,552,661,595.93 (1) Total comprehensive income —— —— ——— -2,077,299,057.31 — -2,077,299,057.31 -2,077,299,057.31 (2) Increase / (decrase) in investments by shareholders 314,183,750.95 -1,258,463,011.60 -944,279,260.65 -944,279,260.65 1. Ordinary stocks injected by shareholders — 1,373,600,000.00 —— — — — — — 1,373,600,000.00 1,373,600,000.00 2.Capital injected by other equity instrument-holders —— — — — — — 3. Share-based payments to equity — ————— — — 4. Others — -1,059,416,249.05 -1,258,463,011.60 -2,317,879,260.65 -2,317,879,260.65 (2) Provision and use of special reserve — 1. Provision for special reserve —— ——— —— — — 2. Use of special reserve —— ——— —— — — F-16 (4) Profits distribution -531,083,277.97 -531,083,277.97 -531,083,277.97 1. Surplus reserve —— ———— — — — Including: Statutory reserve —— ———— — — — Discretionary reserve —— ———— — — — Reserved funds —— ———— — — — Enterprise expansion funds —— ———— — — — Profit return for investment —— ———— — — — 2. Provision for general risks reserve —— ————— — — 3. Distributions to shareholders —— —————— -515,420,500.00 — -515,420,500.00 -515,420,500.00 4. Others -15,662,777.97 -15,662,777.97 -15,662,777.97 (4) Internal transfers within equity 10,346,250,000.00 -10,346,250,000.00 1. From capital reserve to share capital 10,346,250,000.00 -10,346,250,000.00 —— — — — — — — 2. From surplus reserve to share capital ————— ——— — 3. Surplus reserve to recover accumulated losses —— ———— — — — 4. Carry forward of changes in net asset and liabilities that result from the remeasurement of acquirer’s defined benefit —— —— ——— — — plan 5. Others 4. Ending balance of the current year 22,346,250,000.00 14,461,174,300.39 -11,542,693,229.52 25,264,731,070.87 25,264,731,070.87 The notes on pages 17 to 272 form part of these financial statements. The financial statements from Page 3 to Page 16 have been approved by the following management personnel: Legal representative: Accounting-in-charge: Finance-in-charge: Statement of Assets Impairment 31 December 2015 State Power Investment Corporation Unit: RMB Increase Decrease Item Opening balance Increase due Increase due Reverse due Decrease due Decrease Ending balance Item Amount Provision to to other Total to increase of Write-off to due to other Total combination reason asset value combination reason 1. Provision for bad debt 1,672,915.20 1,372,336.54 1,372,336.54 3,045,251.74 Supplementary information 2. Provision for inventory impairment 1. Remaining accounts under policy 3. Provision for available -for-sale financial 2. Dealing prior year loss in current year 100,000.00 100,000.00 assets impairment and remaining in account 4. Provision for held-for-sale investment Including: Remaining accounts under impairment policy in priors year and booked in the 5. Provision for long-term equity investment 1,258,463,011.60 1,258,463,011.60 impairment 6. Provision for investment properties impairment 7. Provision for fixed assets impairment 8. Provision for construction supplies impairment 9. Provision for construction in process impairment 10. Provision for bearer biological assets impairment 11. Provision for oil and natural gas assets F-17 impairment 12. Provision for intangible assets impairment 13. Provision for goodwill impairment 14. Provision for other impairment Total 1,260,235,926.80 1,372,336.54 1,372,336.54 1,261,608,263.34 The notes on pages 17 to 272 form part of these financial statements. 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