IMPORTANT NOTICE
NOT FOR DISTRIBUTION IN THE UNITED STATES
NOT FOR DISTRIBUTION TO ANY PERSON OR ADDRESS IN THE UNITED STATES OR ANY U.S. PERSONS. THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE ADDRESSEES OUTSIDE OF THE UNITED STATES.
IMPORTANT: You must read the following before continuing. The following applies to the preliminary supplement to the offering circular following this page (the ‘‘Supplement’’), and you are therefore advised to read this carefully before reading, accessing or making any other use of this Supplement. In accessing this Supplement, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from us as a result of such access.
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 SECURITIES 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. THE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT (‘‘REGULATION S’’), 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.
THIS SUPPLEMENT 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: This Supplement is being sent at your request and by accepting the electronic mail and accessing this Supplement, you shall be deemed to have represented to us that the electronic mail address that you gave us and to which this electronic mail has been delivered is not located in the United States and that you consent to delivery of such Supplement by electronic transmission.
You are reminded that this Supplement is in preliminary form and has been delivered to you on the basis that you are a person into whose possession this Supplement may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorised to, deliver this Supplement to any other person.
The materials relating to the offering of securities to which this Supplement relates 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 law. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the underwriters or any affiliate of the underwriters is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the underwriters or such affiliate on behalf of the Issuer or the Guarantor (each as defined in this Supplement) in such jurisdiction.
This Supplement has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently none of the Issuer, the Guarantor, the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners (each as defined in this Supplement) nor any person who controls any Joint Global Coordinator, Joint Lead Manager and Joint Bookrunner, nor any director, officer, employee or agent of any of the Issuer, the Guarantor or the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners or affiliate of any such person accepts any liability or responsibility whatsoever in respect of any difference between this Supplement distributed to you in electronic format and the hard copy version available to you on request from the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners.
You are responsible for protecting against viruses and other destructive items. Your use of this electronic 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. SUBJECT TO COMPLETION STRICTLY CONFIDENTIAL PRELIMINARY SUPPLEMENT DATED 2 NOVEMBER 2017
HNA Group (International) Company Limited (incorporated with limited liability in Hong Kong) ities and is not U.S.$@@ @@ per cent. Guaranteed Notes due @@ issued under U.S.$3,000,000,000 Medium Term Note Programme dnoagreementshallbe unconditionally and irrevocably guaranteed by
HNA Group Co., Limited (incorporated with limited liability in the People’s Republic of China)
This Supplement (the ‘‘Supplement’’) to the Offering Circular dated 17 March 2015 (the ‘‘Offering Circular’’) is prepared in connection with the U.S.$3,000,000,000 Medium Term Note Programme (the ‘‘Programme’’) established by HNA Group (International) Company Limited (the ‘‘Issuer’’), and the U.S.$@@ @@ per cent. Guaranteed notes due @@ (the ‘‘Notes’’) issued by the Issuer under the Programme. This Supplement is supplemental to, forms part of and should be read in conjunction with, the Offering Circular. Terms defined in the Offering Circular have the same meaning when used in this Supplement. The Notes will be unconditionally and irrevocably guaranteed (‘‘Guarantee of the Notes’’) by HNA Group Co., Limited (the ‘‘Guarantor’’). The Guarantor will enter into a deed of guarantee (the ‘‘Deed of Guarantee’’)on@@ 2017. The Guarantor will be required to register or cause to be registered with the State Administration of Foreign Exchange (‘‘SAFE‘‘ ）the Deed of Guarantee following the issue of the Notes in accordance with the Provision on Foreign Exchange Administration of Cross-Border Guarantees promulgated by SAFE. The Guarantor shall submit for registration the Deed of Guarantee within 15 China Business Days after its execution and complete the registration of the Deed of Guarantee with SAFE as soon as practicable and, in any event, before the Registration Deadline (being 30 China Business Days after @@ 2017 (the ‘‘Issue Date’’). Following the occurrence of a Non-Registration Event (as defined in the Terms and Conditions of the Notes), the Issuer shall redeem on the Non-Registration Event Redemption Date (as defined in the Terms and Conditions of the Notes) all, and not some only, of the Notes subject to the Non-Registration Event at fer or invitation shall be made or received, an the Early Redemption Amount (No Registration Event), together with accrued interest up to, but excluding the Non-Registration Event Redemption Date. The obligations of the Guarantor under the Guarantee of the Notes shall, save for such exceptions as may be provided by applicable legislation and subject to Conditions 5(a) of the Terms and Conditions of the Notes at all times rank at least pari passu with all its other present and future unsecured and unsubordinated obligations. As the maturity of the Notes is less than one year and there are no conditions under the Terms and Conditions of the Notes which provide for an extension of maturity to more than one year, the Guarantor and the Notes will not be subject to any pre-issuance registration or post-issuance filing requirements with the National Development and Reform Commission of the PRC (‘‘NDRC’’) pursuant to the Circular on Promoting the Reform of the Filing and Registration System for Issuance of Foreign Debt by Enterprises（國家發展改革委關於推進企業發行外債備案登記制管理改革的通知 （發改外資[2015]2044號）,the‘‘NDRC Circular’’) issued by the NDRC and which came into effect on 14 September 2015. Approval-in-principle has been received from the Singapore Exchange Securities Trading Limited (the ‘‘SGX-ST’’) for the listing and quotation of the Notes. There is no assurance that the application to the Official List of the SGX-ST for the listing of the Notes of any Series will be approved. Each of the Issuer and the Guarantor accepts responsibility for the information contained in the Offering Circular and this Supplement. To the best of the knowledge of the Issuer and the Guarantor (having taken all reasonable care to ensure that such is the case), the information contained in these Listing Particulars is in accordance with the facts and does not omit anything likely to affect the import of such information. The financial information and tables containing such information as at and for the years ended 31 December 2015 and 2016 included in the sections, ‘‘Description of the Issuer Group’’ and ‘‘Description of the Group’’ of this Supplement have been derived from the Group’s audited consolidated financial statements. The Notes will be represented by beneficial interest in a global note certificate (the ‘‘Global Note Certificate’’) in registered form, which will be registered in the name of a nominee for, and shall be deposited on or about the Issue Date, with a common depositary for Euroclear Bank SA/NV (‘‘Euroclear’’) and Clearstream Banking S.A. (‘‘Clearstream, Luxembourg’’). Beneficial interests in the Global Note Certificate will be shown on, and transfer thereof will be effected through, records maintained by Euroclear and Clearstream, Luxembourg. The provisions governing the exchange of interests in a Global Note for other Global Notes or Definitive Notes or a Global Note Certificate for Certificates are described in ‘‘Forms of Notes’’ in the Offering Circular. The Notes and the Guarantee of the Notes have not been and will not be registered under the United States Securities Act of 1933, as
tion where such offer or sale is not permitted. Noamended, of or with any securities regulatory authority of any state or other jurisdiction of the United States. The Notes may not be offered, sold, or delivered within the United States or to, or for the benefit or account of U.S. persons (as defined in Regulation S under the Securities Act) except in accordance with Regulation S under the Securities Act or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The Notes may be subject to additional selling restrictions as set out in ‘‘Pricing Supplement’’. Investing in the Notes involves certain risks and may not be suitable for all investors. Investors should have sufficient knowledge and experience in financial and business matters to evaluate the information contained in the Offering Circular, this Supplement and in the Pricing Supplement and the merits and risks of investing in the issue of the Notes in the context of their financial position and particular circumstances. Investors also should have the financial capacity to bear the risks associated with an investment in the Notes. Investors should not purchase the Notes unless they understand and are able to bear risks associated with Notes. See ‘‘Risk Factors’’ beginning on page 27 of the Supplemental Offering Circular for a discussion of factors that investors should consider carefully before investing in the Notes. Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners CCB International China International CITIC CLSA Guotai Junan International Capital Corporation Securities
Joint Lead Managers and Joint Bookrunners AMTD Hong Kong International GPB Financial Services Mizuho Securities Securities Limited Hong Kong Limited The information contained in this Preliminary Supplement is not complete and may be changed. This Preliminary Supplement is not an offer to sell secur soliciting an offer to buy securities in any jurisdic made, on the basis of this Preliminary Supplement, to purchase or subscribe for any securities. Supplement dated @@ 2017 CONTENTS
Page
IMPORTANT NOTICE ...... 1
PRICING SUPPLEMENT ...... 5
SUMMARY CONSOLIDATED FINANCIAL INFORMATION OF THE ISSUER ...... 12
SUMMARY CONSOLIDATED FINANCIAL INFORMATION OF THE GUARANTOR ...... 19
RISK FACTORS ...... 27
USE OF PROCEEDS ...... 28
CAPITALISATION AND INDEBTEDNESS OF THE ISSUER ...... 29
CAPITALISATION AND INDEBTEDNESS OF THE GUARANTOR ...... 31
DIRECTORS AND SENIOR MANAGEMENT OF THE ISSUER ...... 32
DIRECTORS OF THE GUARANTOR ...... 34
DESCRIPTION OF THE ISSUER GROUP ...... 37
DESCRIPTION OF THE GROUP ...... 50
PRC REGULATIONS ...... 75
GENERAL INFORMATION ...... 76
ANNEXURE 1 — OFFERING CIRCULAR DATED 17 MARCH 2015 ...... A-1
ANNEXURE 2 — ISSUER’S AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2015 .... A-553
ANNEXURE 3 — ISSUER’S AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2016 ...... A-650
ANNEXURE 4 — ISSUER’s UNAUDITED SUMMARY CONSOLIDATED FINANCIAL INFORMATION AS AT AND FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2017 ...... A-746
ANNEXURE 5 — GUARANTOR’S AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2015 ...... A-753
ANNEXURE 6 — GUARANTOR’S AUDITED CONSOLIDATED FINANCIAL INFORMATION AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2016 ...... A-862
i IMPORTANT NOTICE
The section headed ‘‘Summary Consolidated Financial Information of the Issuer’’ of the Offering Circular should be replaced in its entirety with the section headed ‘‘Summary Consolidated Financial Information of the Issuer’’ of this Supplement.
The section headed ‘‘Summary Consolidated Financial Information of the Guarantor’’ of the Offering Circular should be replaced in its entirety with the section headed ‘‘Summary Consolidated Financial Information of the Guarantor’’ of this Supplement.
The section headed ‘‘Use of Proceeds’’ of the Offering Circular should be replaced in its entirety with the section headed ‘‘Use of Proceeds’’ of this Supplement.
The section headed ‘‘Directors and Senior Management of the Issuer’’ of the Offering Circular should be replaced in its entirety with the section headed ‘‘Directors and Senior Management of the Issuer’’ of this Supplement.
The section headed ‘‘Directors of the Guarantor’’ of the Offering Circular should be replaced in its entirety with the section headed ‘‘Directors of the Guarantor’’ of this Supplement.
The section headed ‘‘Description of the Issuer Group’’ of the Offering Circular should be replaced in its entirety with the section headed ‘‘Description of the Issuer Group’’ of this Supplement.
The section headed ‘‘Description of the Guarantor Group’’ of the Offering Circular should be replaced in its entirety with the section headed ‘‘Description of the Group’’ of this Supplement.
The section headed ‘‘Remittance of Renminbi into and Outside the PRC and PRC Regulations on the Guarantee of the Notes’’ of the Offering Circular should be supplemented with the section headed ‘‘PRC Regulations’’ of this Supplement.
To the extent that there is any inconsistency between any statement in this Supplement and any other statement in the Offering Circular, the statements in this Supplement will prevail with effect from the date hereof.
Save as disclosed in this Supplement, no other significant new factor, material mistake or inaccuracy relating to information included in the Offering Circular has arisen or been noted, as the case may be, since the publication of the Offering Circular.
Each of the Issuer and the Guarantor, having made all reasonable enquiries, accepts full responsibility for the accuracy of the information contained in this Supplement and confirms that to the best of its knowledge and belief (i) this Supplement (to be read in conjunction with the Offering Circular to the extent that the Offering Circular is not supplemented or restated) contains all information with respect to the Guarantor and its subsidiaries (collectively, the ‘‘Group’’), the Notes and the Guarantee of the Notes, which is material in the context of the issue, offering, sale or distribution of the Notes (including all information which, according to the particular nature of the Issuer, the Guarantor, the Group, the Notes and the Guarantee of the Notes 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, the Group and of the rights attaching to the Notes and the Guarantee of the Notes), (ii) the statements contained in this Supplement (to be read in conjunction with the Offering Circular to the extent that the Offering Circular is not supplemented or restated) relating to the Issuer, the Guarantor, the Group, the Notes and the Guarantee of the Notes are in all material respects true and accurate and not misleading, (iii) the statements of intention, opinions, belief or expectation relating to the Issuer, the Guarantor and the Group expressed in this Supplement (to be read in conjunction with the Offering Circular to the extent that the Offering Circular is not supplemented or restated) are honestly held, have been reached after considering all relevant circumstances and are based on reasonable assumptions, (iv)
1 there are no other material facts relating to the Issuer, the Guarantor, the Group, the Notes and the Guarantee of the Notes, the omission of which would, in the context of the issue and offering of the Notes and the giving of the Guarantee of the Notes, make any statement in this Supplement (to be read in conjunction with the Offering Circular to the extent that the Offering Circular is not supplemented or restated), in light of the circumstances under which they were made, misleading, and (v) all reasonable enquiries have been made by the Issuer and the Guarantor to ascertain such facts and to verify the accuracy of all such information and statements.
The distribution of this Supplement (including the Pricing Supplement herein) and the Offering Circular and the offering, sale and delivery of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession either this Supplement or the Offering Circular are required by the Issuer, the Guarantor, the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners to inform themselves about and to observe any such restrictions. None of the Issuer, the Guarantor, the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners, the Trustee or the Agents represents that may be lawfully distributed, or that any Notes may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assumes any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Issuer, the Guarantor, the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners, the Trustee or the Agents, which would permit a public offering of any Notes or distribution of this Supplement (including the Pricing Supplement therein) and the Offering Circular in any jurisdiction where action for such purposes is required. Accordingly, no Notes may be offered or sold, directly or indirectly, and none of this Supplement (including the Pricing Supplement therein) and the Offering Circular or any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations.
There are restrictions on the offer and sale of the Notes and the circulation of documents relating thereto, in certain jurisdictions including, but not limited to, the United States of America, the European Economic Area, the United Kingdom, the PRC, Hong Kong, Japan, Singapore and to persons connected therewith the Notes and the Guarantee of the Notes have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the ‘‘Securities Act’’) or with any securities regulatory authority of any state or other jurisdiction of the United States. Notes may not be offered or sold within the United States (as defined in Regulation S under the Securities Act (‘‘Regulation S’’)), or to, or for the account or benefit of, U.S. persons (as defined in Regulation S) except in accordance with Regulation S under the Securities Act or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. For a description of certain restrictions on offers, sales and resales of the Notes and the distribution of this Supplement and the Offering Circular, see ‘‘Subscription and Sale’’ of the Offering Circular. This Supplement and the Offering Circular does not constitute an offer of, or an invitation to purchase, any of the Notes in any jurisdiction in which such offer or invitation would be unlawful. By purchasing any Notes, investors represent and agree to all of those provisions contained in that section of the Offering Circular.
No person has been or is authorised in connection with the issue, offer, sale or distribution of the Notes to give any information or to make any representation not contained in or not consistent with this Supplement or any other document entered into in relation to the Programme and the sale of the Notes and, if given or made, such information or representation should not be relied upon as having been authorised by the Issuer, the Guarantor, the Group, the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners, the Trustee or any Agent or any of their respective affiliates (each, as defined in the Terms and Conditions of the Notes).
Neither the delivery of this Supplement (including the Pricing Supplement therein) and the Offering Circular nor the offering, sale or delivery of any Note shall, in any circumstances, create any implication that the information contained in this Supplement is true subsequent to the date hereof or the date upon
2 which this Supplement has been most recently amended or supplemented or that there has been no change, or any event reasonably likely to involve any change, in the prospects or financial or trading position of the Issuer, the Guarantor or the Group since the date thereof.
Neither this Supplement nor any Pricing Supplement constitutes an offer or an invitation to subscribe for or purchase any Notes and should not be considered as a recommendation by the Issuer, the Guarantor, the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners, the Trustee, the Agents or any director, officer, employee, agent or affiliate of any such person or any of them that any recipient of this Supplement or any Pricing Supplement should subscribe for or purchase any Notes. Each recipient of this Supplement shall be taken to have made its own investigation and appraisal of the condition (financial or otherwise) of the Issuer, the Guarantor and/or the Group.
No representation or warranty, express or implied, is made or given by the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners, the Trustee or the Agents or any of their respective affiliates, directors or advisers as to the accuracy, completeness or sufficiency of the information contained in this Supplement, any Pricing Supplement or any other information supplied in connection with the Notes or the Guarantee of the Notes, and nothing contained in this Supplement is, or shall be relied upon as, a promise, representation or warranty by the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners, the Trustee or the Agents or any of their respective affiliates, directors or advisers. The Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners, the Trustee and the Agents and their respective affiliates, directors or advisers have not independently verified any of the information contained in this Supplement and can give no assurance that this information is accurate, truthful or complete. To the fullest extent permitted by law, none of the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners, the Trustee or any Agent or any director, officer, employee, agent or affiliate of any such person makes any representation, warranty or undertaking, express or implied, or accepts any responsibility, with respect to the accuracy or completeness of any of the information in this Supplement or the contents of this Supplement or for any other statement made or purported to be made by the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners, the Trustee, the Agents, or any director, officer, employee, agent or affiliate of any such person or on its behalf in connection with the Issuer, the Guarantor, the Group, the Guarantee of the Notes, the Notes or the issue and offering of the Notes. The Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners, the Trustee, each Agent and each of their respective affiliates, directors or advisers accordingly disclaim all and any liability whether arising in tort or contract or otherwise (save as referred to above) which it might otherwise have in respect of this Supplement or any such statement.
In connection with the issue of the Notes, the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners (if any) named as the stabilising manager(s) (the ‘‘Stabilising Manager(s)’’)(or persons acting on behalf of any Stabilising Manager(s)) in the Pricing Supplement may, to the extent permitted by applicable laws and rules, over allot the Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager(s) (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 Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the Notes and 60 days after the date of the allotment of the Notes.
Listing of and quotation for the Notes on the SGX-ST is not to be taken as an indication of the merits of the Issuer, the Guarantor, the Group or the Notes. In making an investment decision, investors must rely on their own examination of the Issuer, the Guarantor, the Group and the terms of the offering, 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 Notes. Each Joint Global Coordinator, Joint Lead Manager and Joint Bookrunner and its affiliates may purchase the Notes for its or their own account and enter into transactions, including credit derivatives, such as asset swaps, repackaging and credit default swaps relating to the Notes and/or other securities of the Issuer or the Guarantor or the Group or their
3 respective subsidiaries or associates at the same time as the offer and sale of the Notes or in secondary market transactions. Such transactions may be carried out as bilateral trades with selected counterparties and separately from any existing sale or resale of the Notes to which this Supplement relates (notwithstanding that such selected counterparties may also be purchasers of the Notes). Furthermore, investors in the Notes may include entities affiliated with the Group. Investors are advised to read and understand the contents of this Supplement before investing. If in doubt, investors should consult his or her adviser.
The Issuer, the Guarantor, the Group, the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners, the Trustee and the Agents and their respective affiliates are not making any representation to any purchaser of the Notes regarding the legality of any investment in the Notes by such purchaser under any legal investment or similar laws or regulations. The contents of this Supplement should not be construed as providing legal, business, accounting or investment advice. Each person receiving this Supplement acknowledges that such person has not relied on the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners, the Trustee, the Agents or any of their respective affiliates in connection with its investigation of the accuracy of such information or its investment decision.
This Supplement does not describe all of the risks and investment considerations (including those relating to each investor’s particular circumstances) of an investment in the Notes. Each potential purchaser of the Notes should refer to and consider carefully the Pricing Supplement for the issue of the Notes, which may describe additional risks and investment considerations associated with such Notes. The risks and investment considerations identified in this Supplement and the applicable Pricing Supplement are provided as general information only. Investors should consult their own financial and legal advisors as to the risks and investment considerations arising from an investment in an issue of the Notes and should possess the appropriate resources to analyse such investment and the suitability of such investment in their particular circumstances.
Neither this Supplement nor any other information provided in connection with the Programme and the issue of the Notes are intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation by any of the Issuer, the Guarantor, the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners, the Trustee or the Agents or any director, officer, employee, agent or affiliate of any such person that any recipient, of this Supplement or of any such information, should purchase the Notes. Each potential purchaser of the Notes should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer, the Guarantor and the Group. Each potential purchaser of the Notes should determine for itself the relevance of the information contained in this Supplement and its purchase of the Notes should be based upon such investigation, as it deems necessary. None of the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners, the Trustee, the Agents or any of their respective affiliates, directors or advisers undertakes to review the financial condition or affairs of the Issuer, the Guarantor or the Group for so long as the Notes remain outstanding nor to advise any investor or potential investor of the Notes of any information coming to the attention of any of the Joint Global Coordinators, Joint Lead Managers and Joint Bookrunners, the Trustee, the Agents or their respective affiliates, directors or advisers.
The contents of this Supplement have not been reviewed by any regulatory authority in any jurisdiction. Investors are advised to exercise caution in relation to the offer. If investors are in any doubt about any of the contents of this Supplement, investors should obtain independent professional advice.
4 PRICING SUPPLEMENT HNA GROUP (INTERNATIONAL) COMPANY LIMITED （海航集團（國際）有限公司）
Issue of U.S.$@@ @@ per cent. Guaranteed Notes due 2018 Guaranteed by
HNA GROUP CO., LIMITED（海航集團有限公司）
under the U.S.$3,000,000,000 Medium Term Note Programme
The document constitutes the Pricing Supplement relating to the issue of Notes described herein.
Terms used herein shall be deemed to be defined as such for the purposes of the Conditions (the ‘‘Conditions’’) set forth in the Offering Circular dated 17 March 2015. This Pricing Supplement contains the final terms of the Notes and must be read in conjunction with such Offering Circular and the supplement to the Offering Circular dated @@ 2017.
The Guarantor is a private company and therefore there is less publicly available information about the Guarantor than a public company. In particular, they are not required to publish periodic financial statements.
Where interest, discount income (not including discount income arising from secondary trading), prepayment fee, redemption premium or break cost is derived from any Notes by any person who is not resident in Singapore and who carries on any operations in Singapore through a permanent establishment in Singapore, the tax exemption available (subject to certain conditions) under the Income Tax Act, Chapter 134 of Singapore (the ‘‘ITA’’), shall not apply if such person acquires such Notes using the funds and profits of such person’s operations through a permanent establishment in Singapore. Any person whose interest, discount income (not including discount income arising from secondary trading), prepayment fees, redemption premium or break cost derived from the Notes is not exempt from tax (including for the reasons described above) shall include such income in a return of income made under the ITA.
1. (i) Issuer: HNA Group (International) Company Limited（海航集團（國際）有限公司）
(ii) Guarantor: HNA Group Co., Limited（海航集團有限公 司）
2. (i) Series Number: [9]
(ii) Tranche Number: 1
(iii) Date on which the Notes become fungible: Not Applicable
3. Specified Currency or Currencies: U.S. dollars
4. Aggregate Nominal Amount: U.S.$@@
5. (i) Issue Price: @@ per cent. of the Aggregate Nominal Amount
(ii) Net Proceeds: Approximately U.S.$@@
5 6. (i) Specified Denominations: U.S.$200,000 and integral multiples of U.S.$1,000 in excess thereof
(ii) Calculation Amount: U.S.$1,000
7. (i) Issue Date: @@ 2017
(ii) Interest Commencement Date: Issue Date
8. Maturity Date: @@ 2018
9. Interest Basis: @@ per cent. Fixed Rate (further particulars specified below)
10. Redemption/Payment Basis: [Redemption at par]
11. Change of Interest or Redemption/Payment Basis: Not Applicable
12. Put/Call Options: Not Applicable
13. Date of Board approval for issuance of Notes and [16 March 2015] and [19 September 2016], Guarantee of the Notes respectively obtained: respectively
14. Listing: Singapore Exchange Securities Trading Limited (‘‘SGX-ST’’).
ListingoftheNotesontheSGX-STis expected to become effective on @@ 2017.
15. Method of distribution: Syndicated
PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE
16. Fixed Rate Note Provisions Applicable
(i) Rate of Interest: @@ per cent. per annum payable [semi- annually] in arrear
(ii) Interest Payment Date(s): [@@ and] @@with no adjustments
(iii) Fixed Coupon Amount: U.S.$@@ per Calculation Amount [in respect of the first Interest Payment Date and U.S.$@@ per Calculation Amount in respect of the last Interest Payment Date]
(iv) Broken Amount(s): Not Applicable
(v) Day Count Fraction: 30/360
(vi) Determination Dates: Not Applicable
(vii) Other terms relating to the method of Not Applicable calculating interest for Fixed Rate Notes:
6 17. Floating Rate Note Provisions Not Applicable
18. Zero Coupon Note Provisions Not Applicable
19. Index-Linked Interest Note/other variable- Not Applicable linked interest Note Provisions
20. Dual Currency Note Provisions Not Applicable
PROVISIONS RELATING TO REDEMPTION
21. Call Option Not Applicable
22. Put Option Not Applicable
23. Final Redemption Amount of each Note U.S.$1,000 per Calculation Amount
24. Early Redemption Amount
(i) Early Redemption Amount (Tax) per U.S.$1,000 per Calculation Amount Calculation Amount payable on redemption for taxation reasons and/or the method of calculating the same (if required or if different from that set out in the Conditions):
(ii) Early Redemption Amount (Change of U.S.$1,010 per Calculation Amount Control) per Calculation Amount payable on redemption on a Change of Control and/or the method of calculating the same (if required or if different from that set out in the Conditions):
(iii) Early Redemption Amount (Non- U.S.$1,000 per Calculation Amount Registration Event) per Calculation Amount payable on mandatory redemption on a Non- Registration Event and/or the method of calculating the same (if required or if different from that set out in the Conditions):
(iv) Early Termination Amount per Calculation U.S.$1,000 per Calculation Amount Amount payable on mandatory redemption on event of default or other early redemption and/or the method of calculating the same (if required or if different from that set out in the Conditions):
GENERAL PROVISIONS APPLICABLE TO THE NOTES
25. Form of the Notes: Registered Notes:
Global Note Certificate exchangeable for Individual Note Certificates in the limited circumstances described in the Global Note Certificate
7 26. Additional Financial Centre(s) or other special Not Applicable provisions relating to payment dates:
27. Talons for future Coupons or Receipts to be Not Applicable attached to Definitive Notes (and dates on which such Talons mature):
28. Details relating to Partly Paid Notes: amount of Not Applicable each payment comprising the Issue Price and date on which each payment is to be made:
29. Details relating to Instalment Notes: amount of Not Applicable each instalment, date on which each payment is to be made:
30. Redenomination, renominalisation and Not Applicable reconventioning provisions:
31. Consolidation provisions: The provisions in Condition 20 (Further Issues) apply
32. Any applicable currency disruption/fallback Not Applicable provisions:
33. Escrow Arrangement: Not Applicable
34. Other terms or special conditions: Refer to Appendix
DISTRIBUTION
35. (i) If syndicated, names of Managers: CCB International Capital Limited
China International Capital Corporation Hong Kong Securities Limited
CLSA Limited
Guotai Junan Securities (Hong Kong) Limited
AMTD Asset Management Limited
GPB Financial Services Hong Kong Limited
Hong Kong International Securities Limited
Mizuho Securities Asia Limited
(ii) Stabilising Manager(s) (if any): Each of the Managers is appointed to act as stabilising manager
36. If non-syndicated, name and address of Dealer: Not Applicable
37. Total commission and concession: Applicable
8 38. U.S. Selling Restrictions: Reg. S Category 2
TEFRA Not Applicable
39. Additional selling restrictions: Not Applicable
OPERATIONAL INFORMATION
40. ISIN Code: XS1650045583
41. Common Code: 165004558
42. CMU Instrument Number: Not Applicable
43. Any clearing system(s) other than Euroclear/ Not Applicable Clearstream, Luxembourg, the CMU Service and CDP and the relevant identification number(s):
44. Delivery: Delivery free of payment
45. Additional Paying Agent(s) (if any): Not Applicable
GENERAL
46. Private Bank Rebate/Commission: Applicable
47. The aggregate principal amount of the Notes Not Applicable issued has been translated into United States dollars at the rate of @@, producing a sum of (for Notes not denominated in United States dollars):
48. Ratings: The Notes to be issued have not been rated.
USE OF PROCEEDS
The net proceeds from the Notes will be used by the Issuer Group for general corporate purposes and refinancing existing indebtedness overseas in compliance with the relevant SAFE regulations.
STABILISING
In connection with this issue, each of the Managers is appointed in its own capacity to act as stabilising manager (the ‘‘Stabilising Manager’’) (or persons acting on behalf of any Stabilising Manager) and may over-allot Notes or effect transactions with a view to supporting the market price of the Notes 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 Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the Notes and 60 days after the date of the allotment of the Notes. Any stabilisation action or over-allotment must be conducted by the relevant Stabilising Manager (or persons acting on behalf of any Stabilising Manager) in accordance with all applicable laws and rules.
9 PURPOSE OF PRICING SUPPLEMENT
This Pricing Supplement comprises the final terms required for issue and admission to the Official List of the SGX-ST of the Notes described herein pursuant to the U.S.$3,000,000,000 Medium Term Note Programme of the Issuer.
RESPONSIBILITY
The SGX-ST takes no responsibility for the correctness of any of the statements made or opinions expressed or reports contained in this Pricing Supplement. The admission of the Notes to the Official List of the SGX-ST is not to be taken as an indication of the merits of the Issuer, the Guarantor, the Programme or the Notes.
The Issuer and the Guarantor each accepts responsibility for the information contained in this Pricing Supplement.
Signed on behalf of: Signed on behalf of:
HNA GROUP (INTERNATIONAL) HNA GROUP CO., LIMITED COMPANY LIMITED （海航集團有限公司） （海航集團（國際）有限公司）
By:...... By:...... Duly authorised Duly authorised Name: Name: Title: Title:
10 APPENDIX
SPECIAL CONDITIONS
Set out below are the special conditions (‘‘Special Conditions’’)referredtoinitem34(Other terms or special conditions) of this Pricing Supplement. These Special Conditions are applicable only to the Series of Notes governed by this Pricing Supplement.
1. Interpretation: (i) All provisions in the Conditions stipulating that any two directors or duly authorised officers will issue a certificate or notice or will do an act on behalf of the Guarantor shall be construed to mean any director or duly authorised officer will do so on behalf of the Guarantor.
(ii) The definition of ‘‘Registration Deadline’’ in Condition 2(a) in the Conditions is deleted and replaced with the following:
‘‘Registration Deadline’’ means the day falling 30 China Business Days after the Issue Date of a Tranche of Notes;’’.
2. Taxation: Condition 13(b) in the Conditions is deleted and replaced with the following:
‘‘Withholding for PRC enterprise income tax: Where such withholding or deduction is in respect of PRC enterprise income tax on interest payments at the rate applicable on @@ 2017, the Issuer or, as the case may be, the Guarantor will increase the amount of interest paid to the extent required so that the amount of interest received by Noteholders and the Couponholders (without prejudice to Condition 11(d) (Payments – Bearer Notes – Payments subject to fiscal laws) or Condition 12(c) (Payments – Registered Notes – Payments subject to fiscal laws), as the case may be) amounts to the relevant amount of the interest payable pursuant to Condition 6 (Fixed Rate Note Provisions)orCondition7(Floating Rate Note and Index-Linked Interest Note Provisions), as the case may be.’’
11 SUMMARY CONSOLIDATED FINANCIAL INFORMATION OF THE ISSUER
The following tables set forth the summary consolidated financial information of the Issuer as at and for the periods indicated.
The summary consolidated financial information of the Issuer as at and for the years ended 31 December 2015 and 2016 has been extracted from and should be read in conjunction with the Issuer’s audited consolidated financial statements as at and for the year ended 31 December 2016, including the notes thereto and the auditor’s report in respect of the year ended 31 December 2016 included elsewhere in this Supplement.
The summary consolidated financial information of the Issuer as at and for the nine months ended 30 September 2016 and 2017 has been extracted from and should be read in conjunction with the Issuer’s unaudited summary consolidated financial information as at and for the nine months ended 30 September 2017, including the auditor’s review report in respect of the nine months ended 30 September 2017 included elsewhere in this Supplement.
As the summary consolidated financial information of the Issuer as at and for the nine months ended 30 September 2017 has not been audited, 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 by an independent auditor. Potential investors must exercise caution when using such data to evaluate the Issuer’s financial condition, results of operations and prospects. Such financial information as at and for the nine months ended 30 September 2017 should not be taken as an indication of the expected financial condition, results of operations and prospects of the Issuer for the full financial year ending 31 December 2017.
The Issuer’s audited consolidated financial statements as at and for the year ended 31 December 2016 have been audited by and the unaudited summary consolidated financial information as at and for the nine months ended 30 September 2017 has reviewed by Li, Tang, Chen & Co., independent auditor, in accordance with Hong Kong Standards on Auditing issued by Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’).
The Issuer’s audited consolidated financial statements are presented in accordance with HKFRSs and have been prepared in accordance with Hong Kong Companies Ordinance (Cap. 622 of the Laws of Hong Kong).
12 Consolidated Statement of Profit or Loss and Other Comprehensive Income of the Issuer For the Years Ended 31 December 2015 and 2016 For the year ended 31 December 2016 2015 HK$ (Audited)
REVENUE ...... 3,711,517,295 3,476,097,270 Otherincomeandgains...... 2,437,325,092 1,285,789,841 Administrativeandoperatingexpenses...... (4,009,327,233) (3,467,631,479)
PROFIT FROM OPERATIONS ...... 2,139,515,154 1,294,255,632 Financecosts...... (1,524,729,929) (638,454,471) Shareofresultsofassociates...... 123,135,829 (15,820,006)
PROFIT BEFORE TAXATION...... 737,926,054 639,981,155 Incometaxexpenses...... (132,263,860) (97,679,541)
PROFIT FOR THE YEAR ...... 605,662,194 542,301,614
Profit for the year attributable to:
Equityshareholdersofthecompany...... 628,566,695 548,646,595 Non-controllinginterests...... (22,904,501) (6,344,981)
PROFIT FOR THE YEAR ...... 605,662,194 542,301,614
OTHER COMPREHENSIVE INCOME/(LOSS) Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of financial statements of overseassubsidiariesandassociates...... (314,724,465) (622,214,398) Available-for-sale financial assets: net movement intheinvestmentrevaluationreserve...... (288,508,852) (70,224,043) Cash flow hedge: net movement in the hedging reserve ...... (5,895,750) 906,125
OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR (NET OF TAX) ...... (609,129,067) (691,532,316)
TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR ...... (3,466,873) (149,230,702)
Total comprehensive income/(loss) for the year attributable to:
Equityshareholdersofthecompany...... 20,642,955 (143,089,283) Non-controllinginterests...... (24,109,828) (6,141,419)
TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR ...... (3,466,873) (149,230,702)
13 Consolidated Statement of Financial Position of the Issuer As At 31 December 2015 and 2016 As at As at 31 December 31 December 2016 2015 HK$ (Audited)
NON-CURRENT ASSETS
Property,plantandequipment...... 2,345,677,373 1,799,676,978 Investmentproperty...... 320,000,000 – Fleet...... 6,407,130,200 4,384,543,800 Interestsinassociates...... 6,228,912,099 5,144,147,628 Goodwill...... 418,365,271 198,039,240 Otherintangibleassets...... 398,079,528 390,317,300 Held-to-maturityinvestment...... 100,075,000 – Available-for-salefinancialassets...... 2,167,950,361 1,287,398,437 Deferredtaxassets...... 38,287,054 99,551,200 Othernon-currentassets...... 35,568,649,448 15,419,193,719
53,993,801,334 28,722,868,302
CURRENT ASSETS
Inventories...... 126,604,136 67,459,402 Accountreceivables...... 1,996,520,765 2,027,120,218 Deposits,prepaymentsandotherreceivables...... 569,864,655 430,270,394 Financialassetsatfairvaluethroughprofitorloss...... 3,502,712,792 1,357,901,409 Othercurrentfinancialassets...... 19,457,500 42,628,900 Taxrecoverable...... 30,435,547 11,832,014 Amount due from immediate holding company ...... 10,310,438,761 10,310,438,761 Amountsduefromfellowsubsidiarycompanies...... 12,475,532 12,475,532 Amountsduefromrelatedcompanies...... 544,703,570 55,233,141 Pledgedbankdeposits...... 2,191,605,000 1,224,697,500 Restrictedcash...... 11,568,200 30,037,000 Cashandbankbalances...... 8,565,287,009 4,499,887,406
27,881,673,467 20,069,981,677
CURRENT LIABILITIES
Accountpayables...... 807,986,027 346,822,939 Accrualsandotherpayables...... 688,412,972 1,343,702,235 Other current financial liabilities ...... 15,699,700 7,723,800 Amountsduetofellowsubsidiarycompanies...... 661,207,117 21,603,800 Amountsduetorelatedcompanies...... 21,512,191 11,085,808 Amountduetoanassociate...... 1,556,349,302 1,555,882,739 Securitydeposits...... 38,836,100 43,768,200 Bankloans...... 14,284,634,357 10,445,093,814 Obligationunderfinancelease...... 107,430,040 22,324,240 Interestbearingloansandborrowings...... 824,324,500 189,948,000 Provisions...... 6,610,400 858,200 Marginloanpayable...... – 241,391,195 Taxpayable...... 29,087,322 20,038,600 Deferredrevenues...... 43,238,073 17,852,957 Bondspayable...... 3,108,184,000 –
22,193,512,101 14,268,096,527
14 As at As at 31 December 31 December 2016 2015 HK$ (Audited)
NET CURRENT ASSETS...... 5,688,161,366 5,801,885,150
TOTAL ASSETS LESS CURRENT LIABILITIES ...... 59,681,962,700 34,524,753,452
NON-CURRENT LIABILITIES
Deferredtaxliabilities...... 313,994,000 122,094,463 Other non-current financial liabilities ...... 13,220,800 32,826,106 Obligationunderfinancelease...... 300,800,800 61,829,960 Interestbearingloansandborrowings...... 3,976,544,664 3,467,697,120 Provisions...... – 32,182,500 Deferredrevenues...... 34,704,600 40,335,400 Bondspayable...... 13,733,761,150 4,962,340,614 18,373,026,014 8,719,306,163
NET ASSETS ...... 41,308,936,686 25,805,447,289
CAPITAL AND RESERVES
Sharecapital...... 21,606,011,408 21,606,011,408 Reserves...... 4,069,962,483 4,058,125,061
Total equity attributable to equity shareholders of thecompany...... 25,675,973,891 25,664,136,469 Non-controllinginterests...... 15,632,962,795 141,310,820
TOTAL EQUITY...... 41,308,936,686 25,805,447,289
15 Consolidated Statement of Profit or Loss For the Nine Months Ended 30 September 2017 For the nine months ended 30 September 2017 2016 HK$ (Unaudited)
REVENUE ...... 3,894,483,288 2,907,971,071 Otherincomeandgains...... 2,257,143,825 1,593,191,213 Administrativeandoperatingexpenses...... (4,215,421,009) (3,115,952,315)
PROFIT FROM OPERATIONS ...... 1,936,206,104 1,385,209,969 Financecosts...... (1,318,040,529) (865,733,721) Shareofresultsofassociates...... 41,017,356 101,708,358
PROFIT BEFORE TAXATION...... 659,182,931 621,184,606 Incometaxexpenses...... (53,910,885) (51,856,337)
PROFIT FOR THE PERIOD ...... 605,272,046 569,328,269
Profit for the period attributable to: Equityshareholdersofthecompany...... 635,514,647 589,248,939 Non-controllinginterests...... (30,242,601) (19,920,670)
605,272,046 569,328,269
Consolidated Statement of Profit or Loss and Other Comprehensive Income For the Nine Months Ended 30 September 2017 For the nine months ended 30 September 2017 2016 HK$ (Unaudited)
PROFIT FOR THE PERIOD ...... 605,272,046 569,328,269
OTHER COMPREHENSIVE INCOME/(LOSS)
Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of financial statements of overseassubsidiariesandassociates...... 575,231,371 620,306,988 Available-for-sale financial assets: net movement in the investment revaluation reserve ...... 70,041,194 (89,241,951)
OTHER COMPREHENSIVE INCOME FOR THE YEAR (NET OF TAX)...... 645,272,565 531,065,037
TOTAL COMPREHENSIVE INCOME FOR THE YEAR...... 1,250,544,611 1,100,393,306
Total comprehensive income/(loss) for the period attributable to: Equityshareholdersofthecompany...... 1,363,312,284 1,119,968,660 Non-controllinginterests...... (112,767,673) (19,575,354)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR...... 1,250,544,611 1,100,393,306
16 Consolidated Statement of Financial Position As At 30 September 2017 As at As at 30 September 31 December 2017 2016 HK$ (Unaudited) HK$ (Audited)
NON-CURRENT ASSETS
Property,plantandequipment...... 2,052,096,870 2,345,677,373 Investmentproperty...... 959,857,125 320,000,000 Fleet...... 8,032,263,313 6,407,130,200 Interestinjointventure...... 3,201,366,180 – Interestsinassociates...... 6,833,873,111 6,228,912,099 Goodwill...... 433,763,046 418,365,271 Otherintangibleassets...... 439,358,073 398,079,528 Held-to-maturityinvestment...... 100,750,000 100,750,000 Available-for-salefinancialassets...... 3,537,778,853 2,167,950,361 Deferredtaxassets...... 41,875,896 38,287,054 Othernon-currentassets...... 45,859,618,174 35,568,649,448
71,492,600,641 53,993,801,334
CURRENT ASSETS
Inventories...... 142,132,166 126,604,136 Accountreceivables...... 3,667,303,630 1,996,520,765 Deposits, prepayments and other receivables ...... 1,260,466,629 569,864,655 Financialassetsatfairvaluethroughprofitorloss...... 3,138,207,762 3,502,712,792 Othercurrentfinancialassets...... 63,224,019 19,457,500 Taxrecoverable...... 62,495,495 30,435,547 Amount due from immediate holding company ...... 8,685,014,649 10,310,438,761 Amountsduefromfellowsubsidiarycompanies...... – 12,475,532 Amountsduefromrelatedcompanies...... 453,971,397 544,703,570 Pledgedbankdeposits...... 2,316,600,000 2,191,605,000 Restrictedcash...... 13,074,600 11,568,200 Cashandbankbalances...... 1,164,353,260 8,565,287,009
20,966,843,607 27,881,673,467
CURRENT LIABILITIES
Accountpayables...... 1,281,546,916 807,986,027 Accrualsandotherpayables...... 1,215,706,221 688,412,972 Other current financial liabilities ...... – 15,699,700 Amounts due to fellow subsidiary companies...... 505,207,772 661,207,117 Amountsduetorelatedcompanies...... 192,236,381 21,512,191 Amountduetoanassociate...... 1,566,652,766 1,556,349,302 Securitydeposits...... 43,893,299 38,836,100 Bankloans...... 11,832,267,328 14,284,634,357 Obligationsunderfinanceleases...... 121,418,040 107,430,040 Interestbearingloansandborrowings...... 1,012,109,460 824,324,500 Provisions...... – 6,610,400 Marginloanpayable...... 17,744,100 – Taxpayable...... 12,955,949 29,087,322 Deferredrevenues...... 46,800,568 43,238,073 Bondspayable...... 1,485,000,000 3,108,184,000
19,333,538,800 22,193,512,101
17 As at As at 30 September 31 December 2017 2016 HK$ (Unaudited) HK$ (Audited)
NET CURRENT ASSETS...... 1,633,304,807 5,688,161,366
TOTAL ASSETS LESS CURRENT LIABILITIES ...... 73,125,905,448 59,681,962,700
NON-CURRENT LIABILITIES
Deferredtaxliabilities...... 425,037,749 313,994,000 Other non-current financial liabilities ...... – 13,220,800 Obligationsunderfinanceleases...... 279,255,420 300,800,800 Bankloan...... 8,187,130,744 – Interestbearingloansandborrowings...... 4,203,360,591 3,976,544,664 Provisions...... 14,588 – Deferredrevenues...... 47,244,373 34,704,600 Derivativefinancialinstruments...... 24,335,573 – Bondspayable...... 10,904,840,800 13,733,761,150
24,071,219,838 18,373,026,014
NET ASSETS ...... 49,054,685,610 41,308,936,686
EQUITY
Sharecapital...... 21,606,011,408 21,606,011,408 Reserves...... 5,149,535,919 4,069,962,483
Capital and reserves attributable to equity holders of the company ...... 26,755,547,327 25,675,973,891 Non-controllinginterests...... 22,299,138,283 15,632,962,795
TOTAL EQUITY...... 49,054,685,610 41,308,936,686
18 SUMMARY CONSOLIDATED FINANCIAL INFORMATION OF THE GUARANTOR The following tables set forth the summary consolidated financial information of the Guarantor as at and for the periods indicated.
The summary consolidated financial information of the Guarantor as at and for the years ended 31 December 2015 and 2016 has been extracted from and should be read in conjunction with the Guarantor’s audited consolidated financial statements as at and for the year ended 31 December 2016, including the notes thereto and the auditor’s report in respect of the year ended 31 December 2016 included elsewhere in this Supplement. The Guarantor’s audited consolidated financial statements as at and for the year ended 31 December 2016 have been audited by ZhongXingCai GuangHua Certified Public Accountants LLP, independent auditor, in accordance with PRC Accounting Standards.
As the summary consolidated financial information of the Guarantor as at and for the six months ended 30 June 2017 has not been audited, 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 by an independent auditor. Potential investors must exercise caution when using such data to evaluate the Guarantor’s financial condition, results of operations and prospects. Such financial information as at and for the six months ended 30 June 2017 should not be taken as an indication of the expected financial condition, results of operations and prospects of the Guarantor for the full financial year ending 31 December 2017.
The Guarantor’s audited consolidated financial statements are presented in accordance with PRC Accounting Standards. The differences between PRC Accounting Standards and IFRS are summarised in ‘‘Differences between PRC Accounting Standards and International Financial Reporting Standards’’.
Consolidated Income Statement of the Guarantor For the year ended 31 December Items 2016 2015 CNY (Audited)
I. Totaloperatingrevenue...... 195,569,230,558.74 100,940,556,184.46 Including:Operatingrevenue...... 183,008,358,587.97 95,163,765,396.21 Interestincome...... 1,481,612,163.20 406,829,006.95 Earnedinsurancepremium...... 9,769,839,670.83 4,233,434,922.79 Handlingchargesandcommissionincome...... 1,309,420,136.74 1,136,526,858.51 II. Totaloperatingcost...... 201,333,757,006.98 103,452,271,073.67 Including:Operatingcost...... 142,928,674,851.37 67,636,693,818.91 Interestexpenses...... 483,211,536.85 247,250,661.00 Handlingchargesandcommissionexpenses...... 1,420,581,111.77 643,003,900.93 Netamountofcompensationpaid...... 4,553,691,567.14 2,183,240,445.83 Netamountsofinsurancecontractreserve...... 481,895,361.79 63,842,628.16 Businesstaxandsurcharges...... 1,670,105,675.18 1,885,190,485.78 Sellingexpenses...... 4,112,984,843.31 5,101,444,527.40 Administrativeexpenses...... 23,084,053,820.27 12,993,424,016.97 Financialcost...... 20,918,404,557.39 12,002,595,211.05 Assetimpairmentlosses...... 1,604,623,989.81 664,515,826.91 Add:Gainsfromchangesinfairvalue...... 1,338,071,767.77 165,677,887.84 Investmentincome...... 9,665,403,407.52 4,727,519,387.90 Including:Incomefrominvestmentinassociatesandjointventures...... 585,441,632.47 523,537,812.41 Exchangegains...... 15,953,550.64 (15,819,279.40) III. Operating profit ...... 5,254,902,277.69 2,365,663,107.13 Add:Non-operatingincome...... 2,745,944,563.13 2,908,499,755.36 Including:Gainsondisposalofnon-currentassets...... 230,099,779.81 266,010,109.11 Governmentsubsidies...... 2,017,081,549.05 1,587,188,802.83 Gainsondebtrestructuring...... 41,280,000.00 528,850,000.00 Less:Non-operatingexpenses...... 703,444,063.06 403,861,634.25 Including:Lossesondisposalofnon-currentassets...... 299,299,000.00 129,252,716.76 IV. Totalprofit...... 7,297,402,777.76 4,870,301,228.24 Less:Incometaxexpenses...... 2,634,794,005.20 1,789,300,350.76 V. Netprofit...... 4,662,608,772.56 3,081,000,877.48 Netprofitattributabletoshareholdersoftheparentcompany...... 1,454,980,416.35 805,722,155.86 Net(loss)profitattributabletominorityinterests...... 3,207,628,356.21 2,275,278,721.62 VI. Othercomprehensiveincome,netoftax...... 3,077,346,314.24 624,743,866.04 VII. Totalcomprehensiveincome...... 7,739,955,086.80 3,705,744,743.52 Totalcomprehensiveincomeattributabletoownersoftheparentcompany...... 3,179,941,803.92 1,439,711,802.46 Totalcomprehensiveincomeattributabletominorityinterests...... 4,560,013,282.88 2,266,032,941.06
19 Consolidated Balance Sheet of the Guarantor For the year ended 31 December Items 2016 2015 CNY (Audited)
Assets Current assets: Cash at bank and in hand ...... 172,511,037,779.53 106,242,771,680.52 Financial assets at fair value through profit or loss...... 11,891,622,107.10 13,617,423,398.61 Notesreceivable...... 12,726,496.83 4,830,200.40 Accounts receivable ...... 56,267,529,592.23 4,847,851,588.86 Prepayments ...... 9,731,969,681.32 5,214,801,417.16 Interests receivable ...... 270,354,281.16 369,777,690.16 Other receivables...... 20,162,565,217.79 5,874,787,056.56 Financial assets purchased under agreements to resell ...... 522,588,000.00 1,074,866,968.63 Inventories ...... 75,410,536,880.88 36,040,037,399.97 Non-current assets due within one year...... 19,208,850,764.33 11,400,349,371.70 Insurance receivable...... 209,696,943.79 183,473,637.86 Reinsurance receivable ...... 352,450,425.89 169,134,161.72 Reinsurancecontractsreservereceivable...... – 95,939,342.29 Dividends receivable ...... 255,390,527.82 44,000,000.00 Other current assets ...... 9,671,997,511.61 7,357,789,174.89
Total current assets ...... 376,479,316,210.28 192,537,833,089.33
Non-current assets: Entrusted loans and advances granted...... 1,185,630,015.69 1,416,355,731.83 Available-for-sale financial assets ...... 197,251,004,472.20 13,242,159,914.62 Held-to-maturity investments...... 31,731,484,831.18 9,487,584,604.56 Long-term accounts receivable ...... 38,760,703,074.22 32,031,039,143.79 Long-term equity investments ...... 46,787,880,179.14 28,784,017,125.08 Investment properties ...... 41,472,509,988.49 23,633,427,241.16 Fixed assets ...... 184,564,042,928.67 128,391,521,493.79 Construction in progress...... 10,303,833,321.46 12,149,719,264.88 Constructionmaterials...... 142,948.72 60,124.00 Disposaloffixedassets...... 3,541,752.61 3,881,144.59 Intangible assets ...... 26,089,624,148.02 8,619,101,265.79 Development expenditure ...... 100,300,538.04 40,854,153.33 Goodwill ...... 46,520,867,505.65 8,846,234,490.28 Long-term prepaid expenses ...... 3,508,836,158.13 3,007,281,749.04 Deferred income tax assets ...... 4,125,174,841.52 1,692,207,418.43 Other non-current assets ...... 6,614,572,970.62 4,825,291,547.27
Total non-current assets ...... 639,020,149,674.36 276,170,736,412.44
Total assets ...... 1,015,499,465,884.64 468,708,569,501.77
20 For the year ended 31 December Items 2016 2015 CNY (Audited)
Liabilities and owner’s equity Current liabilities: Short-term borrowings ...... 120,147,389,502.85 78,731,453,167.35 Deposits takings and deposits from banks and other financial institutions . . –– Placements from banks and other financial institutions ...... 885,590,000.00 – Financial liabilities at fair value through profit or loss ...... 49,714,083.65 – Notes payable ...... 3,887,047,023.54 4,595,473,060.79 Accounts payable ...... 54,306,986,650.59 7,071,402,505.20 Advances from customers ...... 5,278,964,780.40 4,633,616,301.37 Financial assets sold under agreement to repurchase ...... 2,341,397,150.19 3,212,787,569.95 Handling charges and commission payable ...... 126,663,070.01 100,354,853.65 Employee benefits payable ...... 5,601,112,540.85 897,283,815.21 Tax payable ...... 6,140,633,413.81 2,736,356,271.61 Interests payable ...... 2,863,600,847.87 1,571,308,757.36 Dividends payable ...... 126,639,796.27 49,422,865.08 Other payables ...... 8,777,218,327.45 8,369,027,270.95 Non-current liabilities due within one year ...... 26,578,055,872.27 19,603,714,321.91 Other current liabilities...... 3,616,123,599.57 4,414,911,256.67
Total current liabilities...... 247,277,457,203.85 141,829,191,691.74
Non-current liabilities: Long-term borrowings ...... 228,704,619,154.30 145,971,860,537.90 Bonds payable ...... 92,554,297,996.42 48,356,537,187.16 Long-term payables ...... 18,590,047,192.53 8,222,493,463.79 Specialpayables...... 31,449,779.80 327,661,383.35 Estimated liabilities ...... 852,080,454.33 30,244,715.45 Deferred income tax liabilities...... 10,203,105,623.82 6,391,219,619.64 Other non-current liabilities ...... 5,259,228,035.29 2,573,036,795.50 Total non-current liabilities...... 356,194,828,236.49 211,873,053,702.79
Total liabilities...... 603,472,285,440.34 353,702,245,394.53
Shareholders’ equity (or owner’s equity): Share capital...... 60,000,000,000.00 11,151,800,000.00 Other equity instruments...... 10,890,000,000.00 – Capital reserve ...... 7,764,414,414.38 7,679,980,475.23 Other comprehensive income...... 1,718,306,372.62 (6,655,014.95) Specialreserve...... 1,000.00 382,711,351.65 Surplus reserve ...... 319,301,045.27 265,881,392.82 General risk provision ...... 901,899,392.21 285,160,133.72 Undistributed profits ...... 3,127,605,143.16 2,755,213,885.73 Total equity attributable to shareholders of the parent company ...... 84,721,527,367.64 22,514,092,224.20 Minority interests ...... 327,305,653,076.66 92,492,231,883.04
Total shareholders’ equity ...... 412,027,180,444.30 115,006,324,107.24
Total liabilities and shareholders’ equity ...... 1,015,499,465,884.64 468,708,569,501.77
21 Non-GAAP Financial Measures As at 31 December 2016 2015 (in CNY million, except for ratios and percentages) (Audited)
EBITDA(1) ...... 51,909.04 26,182.88 EBITDA margin(2) ...... 26.54% 25.36% EBITDA/Interestexpense...... 2.42x 2.02x Total debt(3)/EBITDA...... 8.5x 10.43x Total debt/Total capital(4) ...... 51.72% 70.36% Net gearing(5) ...... 0.65 1.45
Notes:
(1) EBITDA for any period consists of total profit, fixed asset depreciation, intangible asset amortisation, long-term deferred expenses and interest expense. EBITDA is not a standard measure under PRC GAAP. EBITDA is a widely used financial indicator of a company’s ability to service and incur debt. EBITDA should not be considered in isolation or construed as an alternative to cash flows, net income or any other measure of financial performance or as an indicator of our operating performance, liquidity, profitability or cash flows generated by operating, investing or financing activities. EBITDA does not account for taxes, interest expense or other non-operating cash expenses. In evaluating EBITDA, investors should consider, among other things, the components of EBITDA such as sales and operating expenses and the amount by which EBITDA exceeds capital expenditures and other charges. EBITDA has been included because the Group believe it is a useful supplement to cash flow data as a measure of its performance and its ability to generate cash flow from operations to cover debt service and taxes. EBITDA presented herein may not be comparable to similarly titled measures presented by other companies. Investors should not compare the Group’s EBITDA to EBITDA presented by other companies because not all companies use the same definition.
(2) EBITDA margin is calculated as EBITDA divided by total operating revenue.
(3) Total debt consists of short-term borrowing, absorbing deposits and borrowing form other financial institutions, long-term borrowing and bonds payable.
(4) Total capital consists of total debt and total owner’s equity.
(5) Net gearing is total debt less cash at bank and in hand over total owner’s equity.
22 Income Statement
For the six months ended 30 June Item 2017 2016 CNY (unaudited) I. Total operating revenue ...... 271,936,288,189.75 53,933,703,740.01 Including: Operating revenue ...... 265,106,101,798.77 48,540,638,990.53 Interest income ...... 745,073,827.01 178,946,067.79 Earned insurance premium ...... 5,251,394,601.78 4,773,427,821.71 Handling charges and commission revenue ...... 833,717,962.19 440,690,859.98 II. Total operating costs ...... 273,287,067,586.74 53,176,523,830.00 Less: Operating cost ...... 231,048,254,777.34 34,802,632,651.63 Interest expenses ...... 289,419,345.25 77,430,973.21 Handling charges and commission expenses ...... 751,552,276.56 681,621,644.02 Returnedpremium...... –– Net amount of compensation paid ...... 2,521,646,021.82 2,204,094,960.60 Net amounts of insurance contract reserve...... 222,836,212.66 145,982,092.18 Insurancebonuspayments...... –– Reinsurancepremium...... 42,526,980.81 38,935,079.15 Business taxes and surcharges ...... 1,143,841,011.81 711,498,413.75 Selling expenses ...... 3,623,817,624.26 1,539,185,745.82 Administrative expenses ...... 18,840,488,863.51 6,302,054,963.15 Financial cost ...... 14,189,111,487.37 6,474,829,482.91 Assets impairment losses ...... 613,572,985.35 198,257,823.58 Add: Gains from changes in fair value (‘‘-’’ for losses) ...... (264,869,399.48) 7,698,639.83 Investment income (‘‘-’’ for losses) ...... 5,172,989,477.61 1,671,546,956.74 Including: Gains from investments inassociatesandjointlyventures...... –– Exchange gains (‘‘-’’ for losses)...... 3,278,577.16 5,428,877.45 III. Operating profit (‘‘-’’ for losses) ...... 3,560,619,258.30 2,441,854,384.03 Add: Non-operating revenue ...... 811,386,979.68 615,431,970.24 Including:Gainsondisposalofnon-currentassets...... –– Governmentsubsidies...... –– Gainsondebtrestructuring...... –– Less: Non-operating expenses ...... 144,616,820.35 330,135,383.99 Including: Losses on disposal of non-current assets ...... 3,785,435.33 – IV. Total profit (‘‘-’’ for losses) ...... 4,227,389,417.63 2,727,150,970.28 Less: Income tax expenses ...... 1,590,322,522.72 884,740,609.75 V. Net profit (‘‘-’’ for losses) ...... 2,637,066,894.91 1,842,410,360.53 Net profit attributable to the owners of the parent company ...... 812,484,721.34 554,253,323.30 Minority shareholders ...... 1,824,582,173.58 1,288,157,037.23
23 For the six months ended 30 June Item 2017 2016 CNY (Unaudited) VI. Other comprehensive income (net of tax) ...... (876,776,922.70) 51,502,313.11 (I) Other comprehensive income that may not be subsequently reclassified to profit or loss ...... –– 1. Changes in net liabilities or net assets arising from the re-measurement of definedbenefitplans...... –– 2. Share of other comprehensive income of investees that may not be reclassified to profit or loss undertheequitymethod...... –– (II) Other comprehensive income that may be subsequently reclassified to profit or loss...... (569,357,706.50) 50,618,693.30 1. Share of other comprehensive income of investees that may be subsequently reclassified to profit or loss under the equitymethod...... 1,402,520.44 – 2. Profit or loss from changes in fair value of available-for-sale financial assets...... 324,860,051.09 48,595,707.16 3. Profit or loss from reclassifying held-to-maturity investments to available-for-sale financial assets ...... –– 4. Effective portion of cash flows adjusted for hedging profit or loss ...... (86,873,983.57) – 5. Exchange differences from translation of financial statements ...... (557,350,698.62) 2,022,986.14 6. Others ...... (251,395,595.84) – (III) Other comprehensive income attributable to minority interests ...... (307,419,216.21) 883,619.81 VI. Total comprehensive income ...... 1,760,289,972.22 1,893,912,673.64 Total comprehensive income attributable to the owners of the parent company ...... 243,127,014.84 604,872,016.60 Total comprehensive income attributable to minority shareholders . . . . 1,517,162,957.38 1,289,040,657.04
24 Balance Sheet As at As at Item 30 June 2017 31 December 2016 CNY (Unaudited) CNY (Audited) Current assets: Cash at bank and in hand ...... 185,110,229,142.54 172,511,037,779.53 Settlement deposit ...... –– Lending to banks and other financial institutions...... –– Financial assets at fair value through profit or loss...... 11,113,859,932.68 11,891,622,107.10 Derivativefinancialassets...... –– Notesreceivable...... 46,977,233.60 12,726,496.83 Accounts receivable ...... 62,510,454,040.70 56,267,529,592.23 Prepayments ...... 11,807,778,057.52 9,731,969,681.32 Insurance receivable...... 323,364,909.08 209,696,943.79 Reinsurance receivable ...... 532,002,254.71 352,450,425.89 Reinsurancecontractsreservereceivable...... –– Interests receivable ...... 1,180,659,715.73 270,354,281.16 Dividends receivable ...... 871,424,087.37 255,390,527.82 Other receivables...... 15,887,492,337.14 20,162,565,217.79 Financial assets purchased under agreements to resell ...... 534,128,056.00 522,588,000.00 Inventories ...... 92,007,810,931.34 75,410,536,880.88 Classifiedasheld-for-saleassets...... –– Non-current assets due within one year...... 16,982,294,450.80 19,208,850,764.33 Other current assets ...... 12,997,457,001.95 9,671,997,511.61 Total current assets ...... 411,905,932,151.16 376,479,316,210.28 Non-current assets: Loans and advances granted ...... 953,817,019.61 1,185,630,015.69 Available-for-sale financial assets ...... 208,640,532,581.83 197,251,004,472.20 Held-to-maturity investments...... 26,896,732,644.05 31,731,484,831.18 Long-term accounts receivable ...... 51,580,762,507.90 38,760,703,074.22 Long-term equity investments ...... 101,296,943,156.38 46,787,880,179.14 Investment properties ...... 43,141,640,817.94 41,472,509,988.49 Fixed assets ...... 253,706,563,234.98 184,564,042,928.67 Construction in progress...... 8,575,324,874.46 10,303,833,321.46 Constructionmaterials...... 142,948.72 142,948.72 Disposaloffixedassets...... 4,596,506.33 3,541,752.61 Breedingbiologicalassets...... –– Oilandgasassets...... –– Intangible assets ...... 27,478,430,494.61 26,089,624,148.02 Development expenditures ...... 128,486,298.65 100,300,538.04 Goodwill ...... 48,829,806,421.73 46,520,867,505.65 Long-term deferred expenses...... 2,056,538,771.33 3,508,836,158.13 Deferred income tax assets ...... 4,791,275,734.46 4,125,174,841.52 Other non-current assets ...... 15,906,787,131.71 6,614,572,970.62 Total non-current assets ...... 793,988,381,144.69 639,020,149,674.36 Total assets ...... 1,205,894,313,295.85 1,015,499,465,884.64
25 As at As at Item 30 June 2017 31 December 2016 CNY (Unaudited) CNY (Audited) Current liabilities: Short-term borrowings ...... 147,448,735,186.91 120,147,389,502.85 Borrowingsfromthecentralbank...... –– Deposits taking and deposits from banks and other financial institutions...... –– Placements from banks and other financial institutions ...... 1,514,208,000.00 885,590,000.00 Financial liabilities at fair value through profit or loss ...... 434,740,700.00 49,714,083.65 Derivativefinancialliabilities...... –– Notes payable ...... 4,064,975,899.62 3,887,047,023.54 Accounts payable ...... 59,895,742,527.98 54,306,986,650.59 Advanced from customers...... 5,104,518,105.19 5,278,964,780.40 Financial assets sold under agreements to repurchase ...... 5,744,322,149.32 2,341,397,150.19 Handling charges and commissions payable...... 157,095,257.04 126,663,070.01 Employee benefits payable ...... 4,163,646,323.25 5,601,112,540.85 Taxes payable ...... 4,381,184,183.60 6,140,633,413.81 Interests payable ...... 3,251,290,709.52 2,863,600,847.87 Dividends payable ...... 186,435,388.30 126,639,796.27 Other payables ...... 7,569,386,681.47 8,777,218,327.45 Reinsuranceaccountspayable...... –– Insurance contract reserve...... 6,856,880,680.08 6,550,320,544.53 Customerbrokeragedeposits...... –– Amounts due to issuers for securities underwriting ...... –– Classifiedasheld-for-saleliabilities...... 67,339,592.60 – Non-current liabilities due within one year ...... 26,442,497,025.66 26,578,055,872.27 Other current liabilities...... 7,252,202,590.54 3,616,123,599.57 Total current liabilities...... 284,535,201,001.08 247,277,457,203.85 Non-current liabilities: Long-term borrowings ...... 291,474,308,125.40 228,704,619,154.30 Bonds payable ...... 91,324,167,537.37 92,554,297,996.42 Including:Preferenceshares...... –– Perpetualbonds...... –– Long-term payables ...... 22,863,951,373.13 18,590,047,192.53 Long-termemployeebenefitspayable...... –– Specialpayables...... 89,259,667.46 31,449,779.80 Estimated liabilities ...... 329,727,056.80 852,080,454.33 Deferredincome...... –– Deferred income tax liabilities...... 12,134,397,799.76 10,203,105,623.82 Other non-current liabilities ...... 15,203,024,812.44 5,259,228,035.29 Total non-current liabilities ...... 433,418,836,372.36 356,194,828,236.49 Total liabilities...... 717,954,037,373.44 603,472,285,440.34 Owners’ equity: Share capital...... 60,000,000,000.00 60,000,000,000.00 Other equity instruments...... 9,300,000,000.00 10,890,000,000.00 Including:Preferenceshares...... –– Perpetual bonds...... 9,300,000,000.00 10,890,000,000.00 Capital reserve ...... 7,764,414,414.38 7,764,414,414.38 Less:Treasurystocks...... –– Other comprehensive income...... 1,148,948,666.12 1,718,306,372.62 Specialreserve...... 14,773,792.23 1,000.00 Surplus reserve ...... 319,301,045.27 319,301,045.27 General risk provision ...... 859,559,505.43 901,899,392.21 Undistributed profits ...... 3,925,317,072.27 3,127,605,143.16 Total equity attributable to owners of the parent company...... 83,332,314,495.70 84,721,527,367.64 Minority interests ...... 404,607,961,426.71 327,305,653,076.66 Total shareholders’ equity ...... 487,940,275,922.41 412,027,180,444.30 Total liabilities and shareholders’ equity ...... 1,205,894,313,295.85 1,015,499,465,884.64
26 RISK FACTORS
The risk factor entitled ‘‘Investment in the Renminbi Notes is subject to exchange rate risks’’ on page 54 of the Offering Circular shall be deleted in its entirety and replaced with the following:
Investment in the Renminbi Notes is subject to exchange rate risks The value of Renminbi against other foreign currencies fluctuates from time to time and is affected by changes in the PRC and international political and economic conditions as well as many other factors. Recently, the PBoC implemented changes to the way it calculates the Renminbi’s daily mid-point against the U.S. dollar to take into account market-maker quotes before announcing such daily mid- point. This change, and others that may be implemented, may increase the volatility in the value of the Renminbi against foreign currencies. All payments of interest and principal will be made in Renminbi with respect to Renminbi Notes unless otherwise specified. As a result, the value of these Renminbi payments may vary with the changes in the prevailing exchange rates in the marketplace. If the value of Renminbi depreciates against another foreign currency, the value of the investment made by a holder of the Renminbi Notes in that foreign currency will decline.
After the risk factor headed ‘‘Payments with respect to the Renminbi Notes may be made only in the manner designated in the terms and conditions of the Renminbi Notes’’ on page 54 of the Offering Circular, the following risk factor is inserted:
Gains on the transfer of the Renminbi Notes may become subject to income taxes under PRC tax laws Under the PRC Enterprise Income Tax Law,thePRC Individual Income Tax Law and the relevant implementing rules, as amended from time to time, any gain realised on the transfer of Renminbi Notes by non-PRC resident enterprise or individual Holders may be subject to PRC enterprise income tax (‘‘EIT’’) or PRC individual income tax (‘‘IIT’’) if such gain is regarded as income derived from sources within the PRC. The PRC Enterprise Income Tax Law levies EIT at the rate of 20 per cent. of the gains derived by such non-PRC resident enterprise or individual Holder from the transfer of Renminbi Notes but its implementation rules have reduced the enterprise income tax rate to 10 per cent. The PRC Individual Income Tax Law levies IIT at a rate of 20 per cent. of the gains derived by such non-PRC resident or individual Holder from the transfer of Renminbi Notes.
However, uncertainty remains as to whether the gain realised from the transfer of Renminbi Notes by non-PRC resident enterprise or individual Holders would be treated as income derived from sources within the PRC and become subject to the EIT or IIT. This will depend on how the PRC tax authorities interpret, apply or enforce the PRC Enterprise Income Tax Law,thePRC Individual Income Tax Law and the relevant implementing rules. According to the arrangement between the PRC and Hong Kong, for avoidance of double taxation, Holders who are residents of Hong Kong, including enterprise Holders and individual Holders, will not be subject to EIT or IIT on capital gains derived from a sale or exchange of the Notes.
Therefore, if non-PRC enterprise or individual resident Holders are required to pay PRC income tax on gains derived from the transfer of Renminbi Notes, unless there is an applicable tax treaty between PRC and the jurisdiction in which such non-PRC enterprise or individual resident holders of Renminbi Notes reside that reduces or exempts the relevant EIT or IIT, the value of their investment in Renminbi Notes may be materially and adversely affected.
27 USE OF PROCEEDS
The net proceeds from the Notes will be used by the Issuer Group for general corporate purposes and refinancing existing indebtedness overseas in compliance with the relevant SAFE regulations.
28 CAPITALISATION AND INDEBTEDNESS OF THE ISSUER
The following table sets forth the capitalisation and indebtedness of the Issuer as at 31 December 2016, as adjusted to give effect to the issue of the Notes and the use of proceeds discussed in ‘‘Use of Proceeds’’ before deducting the underwriting commission and estimated offering expenses payable by the Issuer.
The information set out below should be read in conjunction with, and is qualified in its entirety by reference to, the Issuer’s unaudited reviewed consolidated financial statements as at and for the six months ended 31 December 2016 included elsewhere in this Supplement.
As at 31 December 2016 Actual As adjusted HK$ HK$ Current liabilities Accountpayables...... 807,986,027 807,986,027 Accrualsandotherpayables...... 688,412,972 688,412,972 Other current financial liabilities ...... 15,699,700 15,699,700 Amounts due to fellow subsidiary companies...... 661,207,117 661,207,117 Amountsduetorelatedcompanies...... 21,512,191 21,512,191 Amountduetoanassociate...... 1,556,349,302 1,556,349,302 Securitydeposits...... 38,836,100 38,836,100 Bankloans...... 14,284,634,357 14,284,634,357 Obligationsunderfinanceleases...... 107,430,040 107,430,040 Interestbearingloansandborrowings...... 824,324,500 824,324,500 Provisions...... 6,610,400 6,610,400 Marginloanpayable...... –– Taxpayable...... 29,087,322 29,087,322 Deferredrevenues...... 43,238,073 43,238,073 Bondspayable...... 3,108,184,000 3,108,184,000
Total current liabilities ...... 22,193,512,101 22,193,512,101
Non-current liabilities Deferredtaxliabilities...... 313,994,000 313,994,000 Other non-current financial liabilities ...... 13,220,800 13,220,800 Obligationunderfinancelease...... 300,800,800 300,800,800 Interestbearingloansandborrowings...... 3,976,544,664 3,976,544,664 Provisions...... –– Deferredrevenues...... 34,704,600 34,704,600 Bonds payable(1) ...... 13,733,761,150 13,733,761,150 Bond/Notes offered(2)...... – @@
Totalnon-currentliabilities...... 18,373,026,014 @@
Equity Sharecapital...... 21,606,011,408 21,606,011,408 Reserves...... 4,069,962,483 4,069,962,483
25,675,973,891 25,675,973,891 Non-controllinginterests...... 15,632,962,795 15,632,962,795 Totalequity...... 41,308,936,686 41,308,936,686
Total capitalisation(3) ...... 59,681,962,700 @@
Notes:
(1) Since 31 December 2016, the Issuer has issued bonds and notes in the aggregate principal amount of U.S.$500,000,000 outside the PRC.
(2) The translation of USD amounts into Hong Kong dollar amounts have been made at the rate of HK$7.8055 to U.S$1.00.
(3) Total capitalisation equals the sum of total non-current liabilities and total equity.
29 Unless otherwise disclosed in this Offering Circular, there has not been any material adverse change in the Issuer’s capitalisation or indebtedness since 31 December 2016.
30 CAPITALISATION AND INDEBTEDNESS OF THE GUARANTOR
The following table sets forth the Guarantor’s consolidated capitalisation and indebtedness as at 31 December 2016 as adjusted to give effect to the issue of the Notes and the use of proceeds discussed in ‘‘Use of Proceeds’’ before deducting the underwriting commission and estimated offering expenses payable by the Issuer.
The information set out below should be read in conjunction with ‘‘Use of Proceeds’’, and is qualified in its entirety by reference to, the audited consolidated financial statement of the Guarantor for the year ended 31 December 2016 included elsewhere in this Supplement.
As at 31 December 2016 Actual As Adjusted CNY CNY
Current liabilities: Short-termborrowings...... 120,147,389,502.85 120,147,389,502.85 Othercurrentliabilities...... 3,616,123,599.57 3,616,123,599.57 Total current liabilities ...... 247,277,457,203.85 247,277,457,203.85
Non-current liabilities: Long-termborrowings...... 228,704,619,154.30 228,704,619,154.30 Bonds payable(1) ...... 92,554,297,996.42 92,554,297,996.42 Deferred income tax liabilities...... 10,203,105,623.82 10,203,105,623.82 Othernon-currentliabilities...... 5,259,228,035.29 5,259,228,035.29 Bonds/Notes offered(2) ...... – @@ Totalnon-currentliabilities...... 356,194,828,236.49 @@
Shareholders’ equity: Equity attributable to the owners of the company...... 84,721,527,367.64 84,721,527,367.64 Minorityinterests...... 327,305,653,076.66 327,305,653,076.66 Totalshareholdersequity...... 412,027,180,444.30 412,027,180,444.30
Total capitalisation(3) ...... 768,222,008,680.79 @@
Notes:
(1) Since 31 December 2016, the Guarantor has guaranteed bonds and notes issued by the Issuer in the aggregate principal amount of U.S.$500,000,000 outside the PRC.
(2) The translation of USD amounts into RMB amounts have been made at the rate of RMB6.7793 to U.S.$1.00.
(3) Total capitalisation equals the sum of total non-current liabilities and total shareholders’ equity.
Unless otherwise disclosed in this Offering Circular, there has not been any material adverse change in the Guarantor’s capitalisation or indebtedness since 31 December 2016.
31 DIRECTORS AND SENIOR MANAGEMENT OF THE ISSUER
DIRECTORS
The members of the board of directors of the Issuer as of the date of this Supplement are as follows:
Name Positions ChenFeng...... Director WangJian...... DirectorandChairman TanXiangdong...... DirectorandViceChairman ZhangLing...... DirectorandViceChairman LiXiaoming...... Director WangShuang...... Director,ViceChairmanandCEO ChenChao...... Director
Chen Feng Mr. Chen, aged 64, is a senior economist, and is a member of the board of directors of the Issuer. He is also the chairman of the board of directors（董事局主席）of the Guarantor. He obtained a master degree in management science from Lufthansa College of Air Transportation Management in Germany in 1984 and a master degree in business administration from Maastricht School of Management in the Netherlands in 1995. He completed advanced studies in senior management at Harvard Business School in the United States in 2004. Mr. Chen was granted government special allowance by the State Council in October 1994. Mr. Chen has many years of managerial experience at the CAAC and the National Air Regulations Bureau（國家空中交通管制局）, and was an aviation business advisor to the governor of Hainan Province（海南省省長航空事務助理）whopresidedovertheformationofHainanAirlines Company Limited.
In addition, Mr. Chen was a member of the 2nd session of the Standing Committee of People’s Congress Hainan Province（第二屆海南省人民代表大會常務委員會）, the 16th, 17th and 18th National Congress of the Communist Party of China（中國共產黨第十六次、十七次及十八次全國代表大會）,andthe10th and 11th National Committee of the Chinese People’s Political Consultative Conference（中國人民政治 協商會議第十屆及第十一屆全國委員會）. Mr. Chen has been granted a number of awards by various government authorities and other organisations, including the Asian Business Leader Award（亞洲最佳 商業領袖獎）sponsored by CNBC in 2005 and Chinese Business Leader of the Year Award（華商領袖 年度人物大獎）in 2010.
Wang Jian Mr. Wang, aged 55, is the chairman of the board of directors of the Issuer. He is also chairman（董事 長）of the Guarantor. He obtained an undergraduate degree in Aviation Management from Civil Aviation University of China (formerly China Civil Aviation College（中國民 航大學，前稱中國民航學院）in 1983, and a master degree in business administration from Maastricht School of Management in the Netherlands in 1995. In 1990, he was involved in the establishment of Hainan Provincial Airlines Company and played a prominent role in the formation of the Group. Mr. Wang worked for the CAAC for many years and is now one of the key responsible persons and decision makers of both the Issuer and the Guarantor.
Tan Xiangdong Mr. Tan, aged 50, is the vice chairman of the board of directors of the Issuer. He is also vice chairman of the board of directors of the Guarantor, the chief executive officer and president of the Guarantor and the chairman of the board of directors of HNA Capital Holdings Limited（海航資本控股有限公司）.He obtained a degree in finance and a master degree in economics in 1989 from Capital University of Economics and Business（首都經貿大學）, and a master degree in business administration from the St. John’s University in the United States in 1999. Mr. Tan has worked for China’s Rural Trust and
32 Investment Corporation（中國農村信託投資公司）in its worldwide bank loans office, the World Bank loans office in Hainan province（世界銀行海南省貸款辦公室）, China Xingnan Group Company（中國 興南集團公司）and Hainan Meizhou Company Limited（海南美洲有限公司）.
Zhang Ling Mr. Zhang, aged 40, is a member of the board of directors of the Issuer. He is also a member of the board of directors of the Guarantor and the Deputy Chief Executive Officer of the Guarantor. He is also the deputy CEO of HNA Tourism Group Co., Ltd. He graduated from Central South University in 2000. Mr. Zhang has served the following positions in the Guarantor: the deputy general manager of the human resources department, the managing deputy general manager of the project development and management department, the director of office, the general manager of the information management department and the general manager of the international investment management department. He has also served as the special assistant to the chairman of HNA Infrastructure Company Limited, and the chairman of Hainan HNA Aviation Information System Co., Ltd.
Li Xiaoming Mr. Li, aged 55, is a member of the board of directors of the Issuer. Mr. Li Xiaoming is also the executive president of the Guarantor. Mr Li graduated from China University of Political Science and Law（中國政法大學）majoring in economic law. He joined the Group in 1993, and was engaged with senior management positions of the Group and its operating companies, including the executive president of the Guarantor, the chairman of Hainan Airlines Group Co., Ltd.（海南航空股份有限公司）(a Shanghai A-share listed company, stock code: 600221), the chairman of Hainan Airlines Logistics Co., Ltd.（海航物流有限公司）, the chairman of HNA Property Holdings Co., Ltd.（海航置業控股集團有限 公司）, the chairman of HNA Hotel (Group) Co., Ltd.（海航酒店（集團）有限公司）and the chairman of Yangtze River Real Estate Group Co., Ltd.（揚子江地產集團有限公司）. Mr. Li has over 30 years of experience in the airlines, logistics, real estate and hotel industries and has extensive knowledge and experience in corporate management.
Wang Shuang Mr. Wang, aged 34, is a member of the board of directors of the Issuer. He is also chief executive officer of the Issuer. He obtained an undergraduate degree in Central University of Finance and Economics（中央財經大學）in 2006 and a master degree in business administration from Shanghai Jiaotong University (joint programme with Nanyang Technological University in Singapore) in 2015. Since joining the Group in 2007, Mr. Wang served as the head of sales of Changjiang Leasing Co., Ltd from 2007 to 2010, the vice president of GC Tanker Pte Ltd from 2010 to 2012 and assistant to the president of Seaco Asia Pte Ltd. from 2012 to 2014.
Chen Chao Mr. Chen Chao, aged 34, is a member of the board of directors of the Issuer. Mr. Chen obtained an undergraduate degree in economics from University of Massachusetts in the United States in 2005. Mr. Chen has been a consultant of the Issuer since June 2013 and has been the director of the investment and development department of the Issuer from June 2014 to March 2015. He has been assistant to the Chairman of the Issuer from March 2015 to February 2016. He has over 11 years of management experience.
33 DIRECTORS OF THE GUARANTOR
DIRECTORS
The members of the board of directors of the Guarantor as of the date of this Supplement are as follows:
Name Position ChenFeng...... DirectorandChairman WangJian...... DirectorandChairman LiXianhua...... DirectorandExecutiveChairman TanXiangdong...... Director,ViceChairmanandChiefExecutiveOfficer ChenWenli...... DirectorandViceChairman ZhangLing...... DirectorandDeputyChiefExecutiveOfficer LuYing...... DirectorandViceChairman HuangQijun...... Director XinDi...... Director TangLiang...... Director TongFu...... Director
Chen Feng Mr. Chen, aged 64, is a senior economist, and is chairman of the board of directors of the Guarantor. He obtained a master degree in management science from Lufthansa College of Air Transportation Management in Germany in 1984 and a master degree in business administration from Maastricht School of Management in the Netherlands in 1995. He completed advanced studies in senior management at Harvard Business School in the United States in 2004. Mr. Chen was granted government special allowance by the State Council in October 1994. Mr. Chen has many years of managerial experience at the CAAC and the National Air Regulations Bureau（國家空中交通管制局）, and was an aviation business advisor to the governor of Hainan Province（海南省省長航空事務助理）who presided over the formation of Hainan Airlines Company Limited.
In addition, Mr. Chen was a member of the 2nd session of the Standing Committee of People’s Congress Hainan Province（第二屆海南省人民代表大會常務委員會）, the 16th, 17th and 18th National Congress of the Communist Party of China（中國共產黨第十六次、十七次及十八次全國代表大會）,andthe10th and 11th National Committee of the Chinese People’s Political Consultative Conference（中國人民政治 協商會議第十屆及第十一屆全國委員會）. Mr. Chen has been granted a number of awards by various government authorities and other organisations, including the Asian Business Leader Award（亞洲最佳 商業領袖獎）sponsored by CNBC in 2005 and Chinese Business Leader of the Year Award（華商領袖 年度人物大獎）in 2010.
Wang Jian Mr. Wang, aged 55, is chairman of the board of directors of the Guarantor. He obtained an undergraduate degree in Aviation Management from Civil Aviation University of China (formerly China Civil Aviation College（中國民 航大學，前稱中國民航學院）in 1983, and a master degree in business administration from Maastricht School of Management in the Netherlands in 1995. In 1990, he was involved in the establishment of Hainan Provincial Airlines Company and played a prominent role in the formation of the Group. Mr. Wang worked for the CAAC for many years and is now one of the key responsible persons and decision makers of both the Issuer and the Guarantor.
Li Xianhua Mr. Li, aged 54, is the executive chairman of the board of directors of the Guarantor and was the chief executive officer and executive president of the Guarantor from 2000 to 2014. Mr. Li obtained an undergraduate degree in economics and management from Wuhan University in 1986 and obtained a MBA degree from Maastricht School of Management in the Netherlands in 1995. Mr. Li has worked at
34 the National Price Bureau（國家物價局）and Hainan Airlines Group Company, as chairman of HNA Airport Group Co., Ltd and chairman of HNA Xinhua Culture Holdings (Group) Co. Ltd with many years of managerial experience.
Tan Xiangdong Mr. Tan, aged 50, is a vice chairman of the board of directors of the Guarantor, the chief executive officer and president of the Guarantor and the chairman of the board of directors of HNA Capital Holdings Limited（海航資本控股有限公司）. He obtained a degree in finance and a master degree in economics in 1989 from Capital University of Economics and Business（首都經貿大學）,andamaster degree in business administration from the St. John’s University in the United States in 1999. Mr. Tan then worked for China’s Rural Trust and Investment Corporation（中國農村信託投資公司）in its worldwide bank loans office, the World Bank loans office in Hainan province（世界銀行海南省貸款辦 公室）, China Xingnan Group Company（中國興南集團公司）andHainanMeizhouCompanyLimited （海南美洲有限公司）.
Chen Wenli Mr. Chen, aged 54, is a vice chairman of the board of directors of the Guarantor. He obtained an undergraduate degree in mechanics from Civil Aviation University of China (formerly China Civil Aviation College)（中國民航大學，前稱中國民航學院）and an EMBA degree from Guanghua & School of Management, Peking University（北京大學光華管理學院）. He is the holder of an FAA A&P license issued by the United States Bureau of Aeronautics. Mr. Chen had served the following positions in Hainan Airlines Co., Ltd（海南航空股份有限公司）: the general manager in the maintenance department, the assistant to the president, the senior assistant to the president, the general manager in the flight navigation department, the vice president, and the chairman of the board of Haikou Meilan Airport（海 口美蘭機場）.
Zhang Ling Mr. Zhang, aged 40, is a member of the board of directors of the Guarantor and the Deputy Chief Executive Officer of the Guarantor. He is also the deputy CEO of HNA Tourism Group Co., Ltd. He graduated from Central South University in 2000. Mr. Zhang has served the following positions in the Guarantor: the deputy general manager of the human resources department, the managing deputy general manager of the project development and management department, the director of office, the general manager of the information management department and the general manager of the international investment management department. He has also served as the special assistant to the chairman of HNA Infrastructure Company Limited, and the chairman of Hainan HNA Aviation Information System Co., Ltd.
Lu Ying Mr. Lu, aged 50, is a member of the board of directors of the Guarantor and the Chairman of HNA Industry Group Co., Ltd. He graduated from Nankai University with a master’s degree in politics in 2002 and also received a master’s degree in law. He got a doctorate in politics from Nankai University in 2008. He then served as the managing director and CEO of Tianjin Datong Construction Development Group Co., Ltd., the vice-chairman and chairman of Tianjin Airlines Co., Ltd., the vice chairman of HNA Property Holdings (Group) Co., Ltd. and the president and executive chairman of HNA Daji Investment and Development Co., Ltd.
Huang Qijun Mr. Huang, aged 40, is a member of the board of directors. He is also the president of the investment and development department and the chief financial officer of the Guarantor. Mr. Huang obtained a degree in economics from Wuhan University in 1999, a master degree in engineering from Dalian University of Technology in 2009 and a master degree in business administration from Sun Yat-sen University in 2014. He joined the Group in 1999. From 2000 to 2009, he held various positions within
35 the Group including deputy general manager and general manager, assistant general manager of the securities department, capital operations administration manager, and general manager of project development and management. In 2009, Mr. Huang was appointed the vice chairman of Nexis Securities Co., Ltd. where he served until 2011. Between 2011 and 2016, he served various positions in the Guarantor including the executive assistant to the president, the executive vice president and the senior executive vice president.
Xin Di Mr. Xin, aged 49, is a member of the board of directors of the Guarantor. Mr. Xin is also the chairman of the board and the chief executive officer of HNA Tourism. Mr. Xin obtained a master’sdegreein aeromechanics and fluid mechanics from the Nanjing University of Aeronautics and Astronautics. Mr. Xin worked in Hainan Airlines Group Co., Ltd. from March 1992 to March 2000 and served various positions such as the chief of the operations and production department, the general manager of the operations and control department, the general manager and vice chief operations officer of the aviation department. He has served as chairman of the board of E-Food Group Co., Ltd., the chairman of the board of Tianjin Airlines Co., Ltd. and chairman of the board of Hainan Airlines Group Co., Ltd.. Mr. Xin is a licensed member of the Federal Aviation Administration of the United States (FAA).
Tang Liang Mr. Tang, aged 43, is a member of the board of directors of the Guarantor. Mr. Liang is also the chairman of the board of HNA Capital Group Co., Ltd. Mr. Tang obtained an undergraduate degree in professional legal English from the Northwest University of Politics and Law in July 1999 and a MBA degree from Maastricht School of Management in the Netherlands in September 2008. Mr. Tang joined the Group in July 1999 and served as the secretary to the director and then vice general manager of the product development and management department. He was the vice president of Bohai Leasing Co., Ltd. from October 2006 to September 2010 and then the vice chairman of the board and general manager of HNA Finance Co., Ltd.（海航集團財務有限公司）from September 2010 to March 2015. Since April 2015, he served as the chairman of the board of Bohai Leasing Co., Ltd., and the chief executive officer, the vice chairman and chairman of the board of HNA Capital Group Co., Ltd. from April 2015 to present.
Tong Fu Mr. Tong Fu, aged 37, is a member of the board of directors of the Guarantor. Mr. Liang is also the chairman of the board of directors of HNA Logistics Group Co., Ltd.（海航科技物流集團有限公司）. Mr. Tong obtained an undergraduate degree from Peking University in 2004 and a MBA degree from Peking University in 2015. He joined the Group in July 2004, where he worked in the financial planning department of HNA Finance Co., Ltd. He was the vice general manager of financial planning department of the Group in November 2009, and became the spokesman and chief to the director’s office of the Group in February 2011. He then successively served as the general manger of the information management department, the general manager of the corporate responsibility department and the assistant to the chief executive officer of the Guarantor between April 2013 and February 2014. Mr. Tong was then the chief innovation officer of HNA Holdings Co., Ltd. and the chairman of the board of directors and chief executive officer of HNA Cloud Technology Co., Ltd.（海航雲科技有限公司）from January to December 2015. He successively served as the vice president, chief innovation officer of the Guarantor Group and the chief executive officer and the vice chairman to the board of directors of HNA EcoTech Group Co., Ltd（海航生態科技集團）from January to December 2016.
36 DESCRIPTION OF THE ISSUER GROUP
OVERVIEW
In order to expand globally and drive further growth and development, the Issuer was established in Hong Kong on 12 July 2010, with company registration number 1479207, to act as the Group’s offshore investment and foreign capital management platform. As at the date of this Supplement, the telephone number of the Issuer is +852 3196 0960. The Issuer plays a key role in the Group’sstrategyin becoming a global brand by being its platform for globalisation. Since its incorporation, the Issuer has, through capital investment and acquisitions, quickly formed and developed the Issuer Group that engages in various businesses in Hong Kong and overseas. The operating assets and revenue of the Issuer Group are diversified in currencies such as US dollars and Hong Kong dollars, reflecting the international nature of its investments and business. The Issuer Group earns fee income through managing offshore investments and foreign capital for the Group, as well as dividends and one-off gains from its investments. As at the date of this Offering Circular, the Issuer had 20,264,155,617 shares in issue, of which 18,458,158,537 shares are held by the Guarantor, constituting approximately 91.09% of the shares of the Issuer, and 1,805,997,080 shares are held by Hong Kong Airlines Limited, constituting approximately 8.91% of the shares of the Issuer.
Pursuant to a special resolution of the sole member of the Issuer passed on 22 September 2013, the name of the Issuer was changed from ‘‘HNA Group International Headquarter (Hong Kong) Co., Limited 海航集團國際總部（香港）有限公司’’ to ‘‘HNA Group (International) Company Limited 海航集 團（國際）有限公司’’.
A key strategy of the Issuer is to expand globally through strategic acquisitions. Crucial to the success of this strategy is the ability to identify suitable investments and to manage its investments wisely. The Issuer has established an investment department formed by experienced investment professionals from international financial institutions. The investment department is constantly on the lookout for investment opportunities. It is responsible for analysing the markets in which the Issuer’s businesses operate, tracking relevant government policies and working in conjunction with other external parties to seek appropriate investment opportunities for the Group. The Issuer has also developed good relationships with major financial institutions, further strengthening the Group’s ability to source investment targets worldwide.
The Issuer conducts extensive due diligence to evaluate investment opportunities. These include conducting site visits and meetings with management, employees, suppliers and customers of the investment target, as well as carrying out an in-depth analysis of the relevant industry and in respect of human resources, branding and products. Strategic investments will be decided at the Group’s or Issuer’s board level. Employing such analytical capabilities and resources, the Issuer has made various successful acquisitions overseas, including Seaco SRL (‘‘Seaco’’) in Barbados, TIP Trailer Services (‘‘TIP’’)inthe Netherlands, and NH Hoteles S.A. (‘‘NH Hoteles’’) in Spain, each of which has furthered the Group’s strategy to globalise, to grow in the relevant businesses, and to enrich the Issuer’s overall business portfolio.
RECENT FINANCIAL INFORMATION
As at 30 September 2017, the Issuer Group had total assets of approximately HK$92.459 billion. For the nine months ended 30 September 2017, the Issuer Group recorded a total revenue of approximately HK$3,894.9 million and a net profit of approximately HK$605.3 million. As at 31 December 2014, 2015 and 2016, the Issuer Group had total assets of approximately HK$41.823 billion, HK$48.793 billion and HK$81.875 billion, respectively. For each of the years ended 31 December 2014, 2015 and 2016, the Issuer Group recorded a total revenue of approximately HK$4,540.8 million, HK$4,761.9 million and HK$6,148.8 million, respectively and a net profit of approximately HK$692.8 million,
37 HK$542.3 million and HK$605.7 million, respectively. Details of the financial information of the Issuer Group are set out in the sections entitled ‘‘Index to the Audited Financial Statements’’ and ‘‘Capitalisation and Indebtedness of the Issuer Group’’ in this Offering Circular.
The Issuer Group believes that its key strengths are as follows:
Proven success of capitalising on investment opportunities The Issuer Group has secured consistent investment returns through the rigorous selection of strategically viable assets, targeting both short term and long term investments to achieve diversification. As part of its long term investments, in 2011 the Issuer acquired Seaco (formerly named GE Seaco), the world’s fifth largest container leasing company at the time, from GE Capital and its joint venture partner. Providing clear leadership and strategic direction, the Issuer nurtured and developed Seaco. When the Issuer subsequently sold Seaco to Bohai Leasing in 2013, it achieved a return of over HK$2.78 billion. Seaco now operates as a core business within the Group’s existing logistics and finance operations in the form of Bohai Leasing. According to a survey by Drewry Maritime Research regarding the global container leasing market in 2013, Bohai Leasing is the largest container leasing company in the world by number of cost equivalent units. After the acquisition of Cronos Limited in January 2015, Bohai Leasing remains the largest container leasing company in the world by number of cost equivalent units.
The Issuer has similarly enjoyed a good track record in capitalising on its short term investments:
• Silverlake Axis Ltd (‘‘Silverlake’’) – in 2014, the Issuer achieved a gain of SGD12.8 million when it sold 20 million shares of its shareholding in Silverlake, a market leading developer in core banking technologies. As at 31 December 2016, the Issuer’s holdings were valued at HK$408.2 million.
• Tsogo Sun Holdings Limited (‘‘Tsogo Sun’’) – in July 2014, the Issuer had invested in 48.3 million shares of Tsogo Sun, one of South Africa’s largest hotel chains, as its second largest shareholder with 5% ownership. During the year ended 2015, Issuer disposed of all its holdings and recognised a gain on disposal of HK$227.3 million.
• KVB Kunlun Financial Group Limited (‘‘KVB Kunlun’’) – in May 2012, the Issuer invested in KVB Kunlun prior to its IPO on the Growth Enterprise Market of the Hong Kong Stock Exchange, and is currently its third largest shareholder with 5.3% ownership. As at 31 December 2016, the Issuer held 106.6 million shares, valued at HK$62.8 million.
• Shengjing Bank Co., Ltd (‘‘Shengjing Bank’’) – in December 2014, the Issuer invested in the IPO of Shengjing Bank, the largest city commercial bank in Northeast China. As at 31 December 2016, the Issuer’s holdings were valued at HK$339.4 million.
• Wowo Ltd. – in April 2015, the Issuer invested in 500,000 shares of Wowo Ltd., which is listed on NASDAQ. As at 31 December 2016, the Issuer’s holdings were valued at HK$14.6 million.
• Kuoni Reisen Holding AG (‘‘Kuoni’’) – in November 2015, the Issuer invested in 125,249 shares of Kuoni, a travel company founded over 100 years ago in Switzerland. In 2013, the Kuoni Group was awarded ‘‘World’s Leader Luxury Tour Operator’’ at the Annual World Travel Award. As at 31 December 2015, the Issuer’s holdings were valued at HK$275.5 million, which were sold to another Group company during the first six months of 2016.
Value enhancement and strategic synergies for the Group The Issuer Group seeks to maintain a diversified portfolio of high quality businesses and a stable income source. Seeking to expand internationally with the support from Chinese policy banks, the Issuer Group has acquired interests in high quality businesses overseas with the goal of enhancing value and
38 providing strategic synergies for the Group. The Issuer Group enjoys strategic, financial and operational synergies with the HNA Group through its interests in the Europe-based TIP and NH Hoteles, and seeks to achieve vertical and horizontal integration in the aviation, logistics, finance as well as retail and logistics value chain businesses of the Group through other acquisitions.
After the acquisition of TIP by the Issuer Group from GE Capital in October 2013, the Group provided support in the management of TIP, enabling TIP to move out of its contractionary phase. The Issuer also received capital support from the Group by funding TIP’s acquisition plans in Europe. After the acquisition by the Issuer Group, TIP benefits substantially from the Group’s existing portfolio of leasing businesses to deliver holistic leasing and transportation solutions for users across various industries.
The Issuer also benefits from the strategic cooperation between NH Hoteles and the Group. In September 2014, NH Hoteles and the Group signed a memorandum of understanding pursuant to which the parties will set up a jointly owned company, which will take over the management of six of the Group’s hotels located in Beijing, Haikou, Sanya and Tianjin, encompassing 1,312 rooms. Such joint venture enabled NH Hoteles to manage the Group’s 3 to 4-star hotels in China. This move is in line with the Group’s approach to new acquisitions, allowing the Group to acquire, and to enjoy the synergies derived from the adoption of western management and corporate governance principles. The Group also intends to promote NH Hoteles by making them the preferred hotel choice in Europe for the Group’s travel agencies, with the goal of bringing more Chinese tourists to NH Hoteles. Since its acquisition by the Issuer, NH Hoteles’ market capitalisation has increased by 191%, from EUR631 million as at 30 April 2013 to EUR1,839 million as at 31 December 2016, illustrating the realisation of synergies.
The Issuer Group intends to leverage on the significant network and diversified business portfolio of the Group to further develop its business. Close cooperation with the Group enables the Issuer to capture business opportunities and deliver products and services to serve its customers globally.
Prudent financial management supported by sustainable funding sources As the Group’s offshore investment and foreign capital management platform, the Issuer has adopted prudent financial policies and has maintained a conservative debt profile. The average cost of debt to the Issuer is 1.81% as at 31 December 2016.
As at 31 December 2016, the Issuer’s debt is financed through cross-border standby letters of credit (‘‘SBLC’’), with the amount of SBLC-backed debt standing at U.S.$1.54 billion. As at 31 December 2016, the Issuer had U.S.$1.84 billion in offshore debt. As U.S.$1.54 billion of such debt is fully financed by cross-border SBLC, the actual debt level for the Issuer stood at only U.S.$303 million. As at 31 December 2016, the amount of the Issuer’s debt that is not backed by SBLC comprised only 22% of its total current assets, and 50% of its debt comprises short-term debt. The amount and tenor of such SBLC-backed debt obtained by the Issuer offshore match those of the SBLCs, presenting a very low risk. The Issuer’s SBLCs are issued by credible Chinese banks including Bank of China, Industrial and Commercial Bank of China and China Construction Bank. The SBLCs are 100% backed by cash deposits of the Guarantor onshore and are renewed annually. The Issuer does not currently have any priority debt.
Acting as the Group’s foreign capital management platform, the Issuer is responsible for lending money overseas for the Issuer Group companies. Since 2008, the Group has been utilising SBLCs to finance various offshore debts through the Issuer. The Issuer charges a 0.5% fee for deploying the SBLC-backed funds offshore, with such fees totalling U.S.$9.2 million in 2016. As the SBLCs are renewed on an annual basis, this income source is expected to remain stable. Apart from service charges for arranging offshore financing, the Issuer also derives its revenue from its investment companies, majority-owned subsidiaries and associated investment companies, as well as gains from opportunistic acquisitions and divestments of investment projects, providing a diversified and sustainable source of income.
39 Through its strong relationships with domestic and international financial institutions, the Issuer has access to substantial sources of funding through credit facilities. Key relationship banks and financial institutions providing facilities to the Issuer include Guotai Junan Securities, Bank of China, Industrial and Commercial Bank of China, China Construction Bank, China Merchants Securities, Standard Bank, Bank of Communications, The Export-Import Bank of China, Bank of Taiwan, Korea Exchange Bank, and Shanghai Pudong Development Bank. As at 31 December 2016, the Issuer had U.S.$2.7 billion worth of credit facilities with its relationship banks, with the total drawdown amount standing at U.S.$1,687 million and unused facilities at U.S.$1,034 million as at 31 December 2016. Apart from such facilities from banks and financial institutions, the Issuer has also maintained substantial cash reserves and available-for-sale financial assets which are available for its funding purposes. As at 31 December 2016, the Issuer had HK$8,565 million cash in reserves and HK$2,168 million in available- for-sale financial assets (including interests in listed entities), compared to cash reserves of HK$4,500 million and available-for-sale assets (including interests in listed entities) of HK$1,287 million held by the Issuer as at 31 December 2015.
Experienced management team The Issuer’s management team has extensive experience in the aviation industry as well as in strategic investments. Recent strategic investments identified by our management team demonstrate our commitment to focusing on fitting strategically with the Group’s business with strong and consistent profit margins. Management’s experience at the CAAC and its close relationship with the Hainan government authorities and other organisations provides the Issuer with a solid platform for growth and establishes significant barriers to entry for potential competitors.
PRINCIPAL BUSINESSES The Issuer holds interests in the following entities through which the Issuer’s principal business of financial services and travel services are conducted.
Interests held Business Entity by the Issuer
Financial services ...... TIP Trailer Services 100% Hong Kong International Aviation Leasing Company Limited 34% Hong Kong International Financial Services Limited 81% Travelservices...... NHHotelesS.A. 29.5%
For each of the years ended 31 December 2014 and 2015 and 2016, the Issuer Group recorded EBITDA of approximately HK$2,431.1 million, HK$1,888.1 million and HK$3,120 million, respectively.
The table below shows the percentage contribution to (i) the revenue and (ii) the EBITDA of the Issuer Group as at 31 December 2016 by the Issuer and other key subsidiaries.
As at 31 December 2016 Entity (i) Revenue (ii) EBITDA
Issuer...... 34.1% 60.0% HongKongInternationalFinancialServicesLimited...... 1.1% 3.2% TIPTrailerServices...... 56.5% 36.8% Others...... 8.3% 0.0% Total:...... 100.0% 100.0% i) Financial Services The Issuer Group engages in trailer leasing, aircraft leasing and general financial services.
40 Trailer Leasing Business The Issuer Group acquired 100% shareholdings in TIP in October 2013 from GE Capital. TIP is Europe’s largest trailer leasing company with over 40 years of experience. Headquartered in Amsterdam, TIP has more than 80 branches located throughout 16 countries across Europe and has over 6,000 customers. TIP provides transportation and logistics customers with leasing, rental, maintenance and other value-added solutions.
As at 31 December 2016, TIP had total assets of EUR1,341.9 million and its total revenue was EUR460.4 million for the year ended 31 December 2016. TIP recorded a net profit of EUR15.6 million for the year ended 31 December 2016.
Owning a fleet of over 64,000 trailers, TIP is one of the leading independent operating lease providers in Europe. TIP is also a leading provider of fleet management solutions, including fleet maintenance, to its own fleet and on a stand-alone basis to third parties. TIP provides stand-alone fleet management services through its own origination network, its relationships with European asset finance providers as part of the TIP Equipment Funding programme and its strategic partnerships with leading trailer and tire manufacturers.
TIP operates primarily in the trailer segment with a focus on sub-types commonly used by major transportation and logistics companies which cover a diverse range of end users. Other types of wide- range equipment includes trailers, drawbars, chassis and swap body units as well as the full range of large commercial trucks to light commercial vehicles.
TIP’s business model has historically been focused on providing high class operating leases and associated services to a diversified base of high quality customers. Among the large number of local and regional players in the trailer leasing market, TIP is a leading European provider of operating leases, and is a market leader in a number of countries in which it operates. Among all the operating lease providers, TIP has one of the most comprehensive offering of complementary services. TIP has an average fleet utilisation rate of 84% over the five-year period between 2012-2016, which drives a historically high EBITDA margin(1) of 44% on average over the five-year period between 2012-2016, which is one of the highest among pan-European or local/regional players in the trailer operating lease business.
Fleet TIP is a market leader in trailer leasing with a fleet of over 64,000 trailers.
TIP focuses on the following trailer types:
• Curtainsider: one of the most commonly used trailer types is the curtainsider, which is used for transportation of general goods requiring less security.
• Van: vans are used for general transport of goods requiring high security such as parcels.
• Reefer: goods that require environmental control, such as food, electronics and flowers are transported in a reefer, which allows for temperature-controlled transportation of goods.
• Tanker: a number of different tanker trailer types exist for transportation of liquids, powders and waste depending on whether the freight is food or industrial related.
Note:
(1) EBITDA margin is calculated as EBITDA divided by total revenue, expressed as a percentage. EBITDA consists of total revenue less total variable costs, employee benefit expenses, other operating expenses and bad debt expense.
41 • Chassis: a chassis allows for transportation of swap body units and containers.
• Swapbody: a swapbody is a freight container, which can be set on ‘‘legs’’ and does not require a crane to be loaded. It exists in different versions such as curtain sider, van, reefer and tanker.
• Tractor: a vehicle that can be driven on the roads with or without a trailer.
Main businesses TIP provides flexibility for customers by creating a bespoke service package to address all of their trailer needs. The key services provided by TIP are leasing, rental and maintenance.
Leasing and Rental Customers can choose to either purchase trailers outright or lease them through two primary lease options:
• Finance Lease: Leased vehicles become the property of the lessee for the duration of the lease in exchange for periodic payments over the term. The duration of financing and the expected service levels and costs differ between new and used trailers. While new trailers require a larger upfront capital commitment, they tend to have minimal near-term maintenance requirements. On the other hand, used trailers represent a more economic option for certain customers but will potentially require more ongoing maintenance.
• Operating Lease: Vehicles are leased for periodic rental payments that can include service components. The leased asset remains the property of the lessor. The advantages of having an operating lease include the ability of the lessees to secure valued-added services. Some of the value added services are maintenance and fleet management, flexibility to scale the fleet to match customer demand and elimination of residual value risk. TIP leases both new and used trailers – leases for new trailers are typically long-term, ranging from four to ten years, while leases for used trailers tend to have a shorter term, ranging from one to three years.
FleetOptions Branded as ‘‘FleetOptions’’, TIP provides a wide range of equipment with flexible financing options, including short-term rentals, long-term leases, sale and leaseback equipment sourcing through TEF and vehicle sales.
• Long-term leases: Contracts with a duration of 12 months or more are classified as long-term leases. TIP will originate a long-term lease on either a new trailer or equipment from its existing trailer fleet.
• Short-term rentals: Contracts with an initial duration of less than 12 months are classified as short‑term rentals. In practice, short-term trailers may remain on rent for longer periods due to renewals. Trailers utilised for short-term rental contracts are from TIP’s existing trailer fleet. As rental periods can be as short as several hours, rapid identification and deployment of available trailers from the rental fleet is critical to maximise returns. TIP’s integrated IT systems allow regional teams to identify available trailers by both type and location. This system enables TIP to efficiently redeploy its used trailer fleet in higher demand locations.
Maintenance services In additional to leasing and rentals, TIP provides the following maintenance and other ancillary services.
• FleetCare: Branded as ‘‘FleetCare’’, the TIP maintenance services are included in the majority of infleet trailer leases and are required for all short-term rentals, which enable TIP to control the quality of the maintenance and asset yet ensuring maximum uptime for customers. TIP leverages
42 on its in-depth understanding of maintenance needs throughout the trailer life cycle and its extensive service network that supports its own trailer fleet to an attractive flat rate contract management and maintenance option to fleet operators on a third-party basis.
• FleetProtect: Branded as ‘‘FleetProtect’’,TIP’s damage waiver offering provides for damage protection and tyre care and is frequently used with short-term rentals.
• FleetIntelligence: Branded as ‘‘FleetIntelligence’’, TIP offers IT solutions for fleet management, including real-time online fleet management tools and telematic services, which are made available to the majority of fleet operators.
Customer Base TIP has over 6,000 customers. Customers are generally global or regional logistics operators that operate a sizable trailer fleet for their intra-European road transportation activities. TIP maintains a high quality credit customer base and practices rigorous risk management system. Most of TIP’s top 20 customers have maintained business relationship with TIP for 10-15 years, and engage TIP for both operating lease and FleetCare services. In addition, the TIP sales team has been implementing a cross-selling strategy across its business segments. In order to strengthen customer relationships and further understand the changing customers demands from, TIP plays an active role on the Customer Advisory Board (CAB) and European Transport Board (ETB), where TIP has at least two comprehensive dialogues with many trailer operators annually.
Management Team TIP’s senior management team has an average of 15 years of experience at TIP and/or 20 years of experience at GE and the Group. The senior management team has a track record of delivering satisfactory results, and is considered to be one of the top quality management teams in the industry. Turnover for key client interaction and management positions is low with 75% of the sales force having been with TIP for five or more years.
Financial Results As at 31 December 2014, 2015 and 2016, Global TIP Holdings Two B.V., the holding company of TIP, had total assets of EUR932.7 million, EUR1,064.9 million and EUR1,341.9 million, respectively. For the years ended 31 December 2014, 2015 and 2016, its revenue amounted to EUR314.9 million, EUR347.3 million and EUR460.4 million, respectively. For the years ended 31 December 2014, 2015 and 2016, Global TIP Holdings Two B.V. earned net profit of EUR18.5 million, EUR24.6 million and EUR15.6 million, respectively.
TIP Trailer Services was acquired by the Issuer Group in October 2013, after which its results were consolidated with those of the Issuer’s.
Aircraft Leasing Business Hong Kong International Aviation Leasing Co., Ltd (‘‘HKIAL’’), founded in February 2007, specialises in aircraft and aviation equipment leasing and also engages in ship and yacht leasing. HKIAL became a subsidiary of the Issuer in June 2011.
HKIAL is one of the leading leasing companies in Hong Kong. HKIAL provides customers with financial leasing, operating leasing and sale-and-leaseback services.
As at 31 December 2014, 2015 and 2016, HKIAL had total assets of U.S.$2,983.4 million, U.S.$3,185.0 million and U.S.$3,247.4 million, respectively. For the years ended 31 December 2014, 2015 and 2016, HKIAL’s total revenue was U.S.$190.9 million, U.S.$227.5 million and U.S.$265.7 million, respectively. Its net profit for the same period was U.S.$11.2 million, U.S.$11.3 million and U.S.$14.0 million, respectively.
43 General Financial Services Business The Issuer Group conducts its general financial services business principally through Hong Kong International Securities Limited (formerly known as Mayfair Securities Limited) (‘‘Hong Kong International Securities’’) and Hong Kong International Futures Limited (formerly known as Mayfair Commodities Limited) (‘‘Hong Kong International Futures’’), which are wholly-owned subsidiaries of Hong Kong International Financial Services Limited (formerly known as Mayfair Finance Limited) (‘‘Hong Kong International Financial Services’’), a Hong Kong company acquired by the Issuer in December 2010. Through Hong Kong International Securities and Hong Kong International Futures, the Issuer Group is capable of providing a comprehensive range of financial services in Hong Kong, including stockbroking, securities and futures dealing, investment consulting and asset management, where asset management is carried out wholly incidental to the securities and/or futures dealing business.
Hong Kong International Securities was incorporated in Hong Kong in January 1988. Hong Kong International Securities is licensed and regulated by the Securities and Futures Commission of Hong Kong (the ‘‘SFC’’) (CE Reference: AAB856), with Hong Kong Stock Exchange Broker code ‘‘3960/ 3961/3962/3967/3968/3969’’, and Hong Kong Clearing House Code B01231. It is a licensed corporation under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (the ‘‘SFO’’) to carry on Type 1 (dealing in securities) regulated activities. Hong Kong International Securities engages in securities dealing and securities investment consulting and advises on corporate finance and asset management which are carried out wholly incidental to the securities dealing business. The securities trading services include opening cash and margin accounts for its customers.
Hong Kong International Futures was incorporated in Hong Kong in January 1988. Hong Kong International Futures is licensed and regulated by the SFC (CE Reference: ACT373), with Hong Kong Futures Exchange Broker code ‘‘MCL’’ andHongKongClearingHousecode‘‘CMCL’’. It is a licensed corporation under the SFO to carry on Type 2 (dealing in future contracts) regulated activities. Hong Kong International Futures engages in futures dealing, futures investment consulting and asset management which are carried out wholly incidental to the futures dealing business. It also engages in the local and international futures derivatives trading business, covering Europe, U.S., Singapore, Japan and other international exchanges of commodities futures and financial futures.
Both Hong Kong International Securities and Hong Kong International Futures provide customers with international mainstream e-trading systems, such as 2GOTrade and QianLong for securities and Sharppoint for futures trading, which allow customers to conveniently browse market information and place orders.
In April 2013, Hong Kong International Financial Services acquired Hong Kong International Securities Limited (formerly known as Cathay Asia Advisors Limited) (‘‘Hong Kong International Securities’’) which was incorporated in Hong Kong in March 1993. Hong Kong International Securities is licensed and regulated by the SFC (CE Reference: ABT748). It is a licensed corporation under the SFO to carry on Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities. Hong Kong International Securities engages in the business of financial consultancy and asset management services.
Financial Results As at 31 December 2014, 2015 and 2016, Hong Kong International Financial Services had total assets of approximately HK$224.1 million, HK$579.1 million and HK$785.4 million, respectively. For the years ended 31 December 2014, 2015 and 2016, the consolidated revenue of Hong Kong International Financial Services was HK$35.10 million, HK$28.16 million and HK$82.3 million, respectively.
44 ii) Travel Services In 2013, the Issuer Group acquired a 20% stake in NH Hoteles, which was increased to 24% in February 2014 and further increased to 29.5% in November 2014. The Issuer Group is currently the largest shareholder of NH Hoteles. NH Hoteles is a hotel chain based in Spain and listed on the Stock Exchange of Madrid. Operating almost 400 hotels with around 60,000 rooms in 29 countries across Europe, America and Africa, NH Hoteles is one of the top 25 hotel chains in the world.
According to rankings published by Hosteltur, NH Hoteles is the 6th largest European hotel chain and one of the top 25 worldwide. Its focus is on four-star business hotels, which constitute approximately 60% of the hotels operated by NH Hoteles. As at 31 December 2016, NH Hoteles self-owned 21% of its hotels, leased 56% of its hotels and managed 23% of its hotels. The occupancy rate of hotels operated by NH Hoteles amounted to 67.7%, 68.0% and 68.0% for the years ended 31 December 2014, 2015 and 2016, respectively. The average daily rate of hotels operated by NH Hoteles was EUR78.9, EUR87.1 and EUR90.6 for the years ended 31 December 2014, 2015 and 2016, respectively. The average revenue per available room achieved a 4.6% growth for the year ended 31 December 2016 compared to the year ended 31 December 2015.
Locations NH Hoteles has a wide presence in Europe and South America, operating almost 400 hotels located in 30 countries, including prime destinations such as Amsterdam, Barcelona, Berlin, Bogota, Brussels, Buenos Aires, Frankfurt, London, Madrid, Mexico City, Milan, New York, Paris, Rome and Vienna.
Brands NH Hoteles operates its hotels and resorts under four distinctive brands:
• NH Hotels: three and four-star urban hotels for business travellers or tourists seeking an excellent location with the best value for money. NH Hotels offers comfortable and functional rooms with services and facilities adapted to the needs of city travellers. NH Hotels also offers facilities for business meetings and business events (MICE).
• NH Collection: premium hotels located in the main capital across Europe and Latin America. Typically housed in unique and heritage buildings with local character preserved, the NH Collection hotels are carefully designed for guests who want to make the most of their stay. Excellent standards of comfort, a wide range of services on offer and customised service with all types of facilities to ensure guest satisfaction.
• NHOW: a select range of unique hotels featuring contemporary architecture and designed by prestigious architects and interior designers (Matteo Thun, Rem Koolhaas, Karim Rashid). NH Hoteles currently operates three hotels under the NHOW brand in the cosmopolitan cities of Milan, Berlin and Rome. Each hotel has its own personality, inspired by the city where it is located.
• Hesperia Resorts: contemporary holiday resorts situated in stunning locations, targeted towards couples and families who seek an ideal combination of rest and enjoyment. The Hesperia Resorts offer a wide range of services and leisure activities, as well as facilities for hosting events and business meetings.
Awards and Recognition In 2016, NH Hotels was awarded the ‘‘Best Invest-Worthy Hotel Brand of the Year’’ at the AHF Asia Hotel Awards during the 2016 AHF International Hotel Investment Summit and 3rd Hotel Asset Management Conference in Beijing. AHF Asia Hotel Awards are judged by a panel of top industry experts who reviewed each entry against the most rigorous selecting criteria, and are widely considered as one of the most influential hotel investment awards in the industry.
45 In 2015, 190 of NH Hoteles’ hotels were awarded the Certificate of Excellence by TripAdvisor, an award that acknowledges hospitality based on travellers’ reviews on the world’s largest travel website. The hotels which have received the Certificate of Excellence include, among others, NH Collection Eurobuilding in Madrid, the NH Collection Constanza in Barcelona, the NH Collection Porta Rossa in Florence, the NH Collection Palazzo Barocci in Venice, the NH Berlin Mitte and nhow Berlin in Berlin, the NH Kensington in London, the NH Amsterdam Centre in Amsterdam, the NH Collection Guadalajara in México and the NH 9 de Julio in Buenos Aires.
Other awards and recognition received by NH Hoteles and individual hotels under its brands in 2013 include:
• Agenttravel Prize awarded to the best hotel chain in terms of quality/price ratio, best city hotels and best business hotels in Spain;
• Second place in the Ranking of America’sTopCompanies;
• Best Company to Work For in the tourism sector, according to the MERCO Ranking;
• Green Star Diamond Prize and Best Resort Prize awarded to the NH Almenara hotel;
• Most Popular Hotel in the Dominican Republic Prize and Dominican Ecoservices Prize awarded to the Secrets Royal Beach Punta Cana Hotel; and
• Zoover Award awarded to the NH Jan Tabak, NH Atlantic and NH Schiphol Airport hotels for being among the 25 best hotels in the Netherlands.
In addition to providing excellent hotel services, NH Hoteles places great value on corporate responsibility and sustainability in its growth. In 2013, the Group was included in the prestigious FTSE4Good sustainability index. This index includes listed companies from around the world and is designed to help investors to integrate factors such as the environment, stakeholder relations, human rights and labour in their investments.
Business Initiatives NH Hoteles has launched numerous business initiatives over the years with an aim to improve the quality of its services, to meet the needs of its clients and to distinguish itself from other hotel brands. Such initiatives include:
• NH Group Rewards: NH Group Rewards is a loyalty programme that allows customers to accumulate points when they stay at NH hotels. Points allow customers to redeem rewards such as free stays at hotels and restaurant services. Other benefits enjoyed by customers who sign up to the rewards programme include exclusive room rates, better room choice, free wi-fi, early check-in, late check-out and express check-in. Currently, the NH Group Rewards loyalty programme has almost one million members.
• NH Stock Art: an ongoing commitment to young artists has provided NH Hoteles with a sizeable collection of over 4,000 pieces of contemporary art. Such works of art are displayed in hotels allowing guests the opportunity to enjoy them in their rooms and in the communal areas.
• Ecomeeting: NH Hoteles has launched Ecomeeting, which is a new concept for the organisation of events, conferences and conventions that accords to standards of sustainability and represents a respectful use of energy resources, as well as the use of fair trade products with low environmental impact.
• Sustainability Club NH: a creative laboratory for environmental innovation in the field of product and service development.
46 Other businesses In addition to the hotel business, NH Hoteles operates other travel services businesses such as a casino in Madrid, as well as gym clubs, beauty salons and fast food restaurants.
NH China Joint Venture In March 2016, the Group and NH Hoteles established a joint venture named NH China (Beijing NH Grand China Hotel Management Co., Ltd), which is 49% owned by NH Hoteles and 51% owned by the Group. The joint venture operates under the Chinese Brand name ‘‘Nuo Han’’, which represents a promise to meet guest expectations and bring them a brilliant future. The joint venture’s corporate purpose is to build a portfolio of NH Hotels and NH Collection brand hotels in the midscale and upscale segments in China owned by the Group or by third parties. The target is to develop 120 to 150 hotels by the year 2020.
Financial Results As at 31 December 2014, 2015 and 2016, NH Hoteles had total assets of EUR2,661 million, EUR2,711 million and EUR2,627 million, respectively. For the years ended 31 December 2014, 2015 and 2016, the total revenue of NH Hoteles was EUR1,295 million, EUR1,376 million and EUR1,447 million, respectively.
As at 31 December 2016, NH Hoteles’ market capitalisation was EUR1,347 million, recording a 113% increase compared to EUR631 million as at 30 April 2013 when the Issuer Group acquired its shares. iii) Others In addition to its principal businesses, the Issuer Group also makes other investments. The key investments of the Issuer Group include:
Long term investments • HNA Holding Group Co. Limited (formerly known as HNA International Investment Holdings Limited) (00521.hk) (‘‘HNA Holding’’) – the Issuer invested in HNA International Investment in July 2013 and held a 9.73% stake in HNA International Investment as at 30 June 2017. HNA International Investment has been listed on the Hong Kong Stock Exchange since 1988. The Issuer Group has successfully injected a quality golf hotel property business into HNA International Investment, which specialises in golf club management and provides hotel and leisure services. The addition of HNA International Investment into the Issuer Group has expanded the income source of the Issuer Group and greater efficiency has resulted from the increased synergy.
• Hawker Pacific Airservices Limited (‘‘Hawker Pacific’’) – in September 2014, the Issuer acquired a 65.8% shareholding in Hawker Pacific and is its largest shareholder. Hawker Pacific, a Hong Kong company, is one of the leading integrated aviation solutions providers including sales, support, supplies, aircraft management and associated services, with a presence across Asia Pacific and the Middle East. Hawker Pacific complements the Group’s existing aviation business, with its expertise in fixed base operations (FBOs), aircraft management, continuing airworthiness management organisation (CAMO) services, maintenance, repair and overhaul (MRO) and aircraft leasing. As at 31 December 2016, Hawker Pacific had total assets of U.S.$302.2 million. For the year ended 31 December 2016, its total revenue was U.S.$285 million.
• Comair Limited (‘‘Comair’’) – in May 2015, the Issuer acquired a 6.2% shareholding in Comair. Comair is an airline company based in South Africa and is the only domestic airline listed on the Johannesburg Stock Exchange (JSE:COM). Comair complements the Group’s existing aviation business, expanding the Groups’ presence in South Africa.
47 Short term investments • Silverlake – in 2014, the Issuer achieved a gain of SGD12.8 million when it sold 20 million shares of its shareholding in Silverlake, a market-leading developer in core banking technologies. As at 31 December 2016, the Issuer’s holdings were valued at HK$408.2 million.
• KVB Kunlun – in May 2012, the Issuer invested in KVB Kunlun prior to its IPO on the Growth Enterprise Market on the Hong Kong Stock Exchange, and is currently its third largest shareholder with 5.3% ownership. As at 31 December 2016, the Issuer’s holdings of 106.6 million shares were valued at HK$62.8 million.
• Shengjing Bank – in December 2014, the Issuer invested in the IPO of Shengjing Bank, the largest city commercial bank in Northeast China. As at 31 December 2016, the Issuer’s holdings were valued at HK$339.4 million.
• Wowo Ltd. – in April 2015, the Issuer invested in 500,000 shares of Wowo Ltd., which is listed on NASDAQ. As at 31 December 2016, the Issuer’s holdings were valued at HK$14.6 million.
Standby letter of credits Due to foreign exchange controls imposed by SAFE, Chinese multinationals would primarily disburse funds to offshore subsidiaries via cross-border trade finance. Therefore Chinese multinationals often adopt the payment method of SBLCs for their daily operating requirements and working capital financing of their offshore subsidiaries.
The SBLC is a form of credit line. Since 2008, the Issuer Group has been utilising SBLCs to finance various offshore debts. These SBLCs are backed by 100% cash deposits of the Issuer Group onshore and are issued by reputable Chinese banks. The Issuer will then use such SBLCs to obtain a loan from a bank offshore, with the loan amount and tenor matching that of the SBLC. The debts are shown on the Issuer’s balance sheet. However, this is low-risk borrowing for offshore banks as the offshore debts are fully secured by the SBLCs, which in turn are fully backed by 100% cash deposits from the Issuer Group. In the event of non-payment of the relevant loans, the relevant offshore banks can claim repayment against the SBLCs provided by the onshore banks.
In these transactions, the Issuer acts as the offshore investment and capital management platform and foreign capital pool management platform for the Issuer Group. It is responsible for overseas money lending for the Issuer Group companies. Its revenue is derived from service charges and dividends from its investment companies, majority-owned subsidiaries and associated investment companies, as well as gains from opportunistic acquisitions and divestments of investment projects. These SBLCs are renewed on an annual basis and therefore income is expected to remain stable.
As at 31 December 2016, the Issuer Group has a balance of U.S.$1.537 billion of SBLC-backed debt. As at the date of this Offering Circular, there has not been any default on such debt. As at 31 December 2015, the Issuer had U.S.$1.84 billion in offshore debt, of which U.S.$1.537 billion was fully financed by the cross-border SBLC and therefore the actual debt level for the Issuer stood at U.S.$303 million. The Issuer charges a 0.5% fee for deploying the SBLC backed funds offshore, with such fees totalling U.S.$9.2 million for the year ended 31 December 2016.
DIRECTORS
As at the date of this Offering Circular, the directors of the Issuer are Mr. Chen Feng, Mr. Wang Jian, Mr. Tan Xiangdong, Mr. Zhang Ling, Mr. Li Xiaoming, Mr. Wang Shuang and Mr. Chen Chao. See the section headed ‘‘Directors of the Issuer’’ in this Offering Circular for more detailed information.
48 EMPLOYEES
As at 31 December 2016, the Issuer Group had a total of approximately 5,500 employees, including the Issuer and its holding subsidiaries.
The Issuer Group has employment contracts with all of its full-time employees. The Issuer Group has not experienced any significant problems with its employees or disruption to its operations due to labour disputes. The Issuer Group recognises the importance of a good relationship with its employees and believes that it maintains a good working relationship with its employees.
LEGAL PROCEEDINGS
As at the date of this Offering Circular, the Issuer and its subsidiaries have not been involved in any legal or administrative proceedings or arbitration that could have a material adverse effect on their financial condition or results of operations, nor is the Issuer aware of any potential legal or administrative respective proceedings or arbitration involving the Issuer or any of its subsidiaries that would have a material adverse effect on the Issuer Group’s financial condition or results of operations. The Issuer and its subsidiaries, however, have from time to time been involved in certain pending or threatened legal or regulatory proceedings arising out of their ordinary course of business. Insofar as the Issuer and its subsidiaries are aware of, none of these proceedings, individually or in aggregate, has had any material adverse effect on the Issuer Group’s financial position or results of operations.
49 DESCRIPTION OF THE GROUP
OVERVIEW
The Group is a leading conglomerate and an integrated operator in the service industry with diversified businesses covering airport services, air transportation, real estate, hotel and catering, travel services, commercial retail, logistics and transportation, financial services and other businesses such as culture industry and network information technology. With its beginnings as an airline company, the Group has gradually transformed into a multi-business conglomerate focusing on air travel, modern financial services, modern logistics and other business along the relevant industry value chain. Through rapid‑development and benefiting from China’s economic growth and globalisation, the Group has built a quality portfolio of businesses and assets and established brand recognition within each of its core businesses. With respect to the Group’s air travel business, Hainan Airlines Co., Ltd. (‘‘Hainan Airlines’’) is one of nine global winners and the only PRC airline that has obtained 5-Star Airline certification from Skytrax, an independent airline benchmarking firm, which it received for a seventh consecutive year in June 2017. With respect to the Group’s leasing business, Bohai Capital is an industry leader in financial leasing and operating leasing and is the only leasing company publicly listed in China. With respect to the travel services and hotel businesses, the Group provides one-stop services and products to meet travellers’ needs.
Accordingtothe‘‘Fortune Global 500 Companies’’ list published by Fortune Magazine, the Group ranked 170th in 2017. According to the ‘‘Top 500 Companies in China in 2016’’ list published by the China Enterprise Confederation（中國企業聯合會）and the China Enterprise Directors Association（中國 企業家協會）, the Guarantor ranked 85th by total revenue in 2016. The Guarantor has maintained its position within the Top 500 Companies in China list since 2012. The Guarantor’s ranking was 112th, 108th, 120th, 99th and 85th, respectively in the years 2012 to 2016.
As at 31 December 2014, 2015 and 2016, and 30 June 2017 the Group had total assets of approximately CNY266.2 billion, CNY322.6 billion, CNY468.7 billion and CNY1,015.5 billion, respectively. The Group’s total consolidated operating revenue totaled approximately CNY67.5 billion, CNY100.9 billion and CNY195.6 billion for the years ended 31 December 2014, 2015 and 2016, respectively.
The Guarantor’s predecessor, Hainan Provincial Airlines Limited was established in September 1989 and began operations in 1993. It was established to foster the development of Hainan, which was then a newly established and the largest special economic zone in China. The Guarantor was established on 16 April 1998, (company registration number 460000000091806) under the laws of the PRC. Hainan Provincial Airlines Limited was consolidated into the Group in 2000 and was the key business of the Guarantor. Over the years, the Group has evolved from one single airline company to a leading conglomerate. In the first ten years of its history, with air passenger and cargo services as its principal business, the focus was on enhancing the quality of the service, expansion of business and operations as well as establishing the HNA brand name. The year 2000 was a milestone in the history of the Group. In January 2000, the State Administration of Industry and Commerce approved the establishment of the Guarantor in Hainan province as a platform for consolidation, integration and expansion of commercial operations in the province. Building on the established air passenger and cargo business of Hainan Provincial Airlines Limited, the following 10 years saw the development and growth of the key business segments of the Group, the enhancement of synergistic effects and the optimisation of the overall revenue structure.
50 Overtheyears,driveninpartbyeconomicgrowthinthePRCandthroughreorganisation,capital investment and acquisitions, the assets and revenue of the Group have significantly increased. The table below shows the consolidated total assets, revenue and net profit of the Group for the period specified below.
Year ended 31 December Income Statement (CNY million) 2016 2015
Totaloperatingrevenue...... 183,009 95,164 Operatingprofit...... 5,255 2,365 Netprofit...... 4,663 3,081
SHAREHOLDING STRUCTURE
As at the date of this Offering Circular, the Issuer is 91.09% owned by the Guarantor. As at 24 July 2017, the Issuer and Guarantor are indirectly owned by the Hainan Province Cihang Foundation, Hainan Cihang Charity Foundation, Inc., 12 individual shareholders and Hainan Airlines Holding Company Limited (600221). Hainan Province Cihang Foundation and Hainan Cihang Charity Foundation Inc. indirectly own 22.75% and 29.50% of the equity interest in the Guarantor, respectively.
The following chart is a simplified organisation chart showing the Group’s principal shareholders as at 24 July 2017 and indicates the Issuer and Guarantor under the Bonds. This chart has been prepared and provided solely for the convenience of the reader, and the chart necessarily omits certain details of the Group’s corporate structure.
Hainan Province Cihang Hainan Cihang Foundation 12 individual shareholders** Charity Foundation, Inc. 海南省慈航公益基金會 (New York) (China)
47.50%* 22.75%* 29.50%*
HNA Group Co., Limited 海航集團有限公司 (“Guarantor”) (China)
91.09% HNA Group (International) Company Limited 海航集團（國際） 有限公司 (“Issuer”) (Hong Kong)
* Indirect ultimate equity interest
** Of the 12 individual shareholders, Chen Feng and Wang Jian each indirectly own more than 10% of the Guarantor while no other individual shareholder owns more than 5% of the Guarantor. All 12 individual shareholders are co-founders, executives or directors of HNA Group and have pledged to donate all of their shares to the Hainan Province Cihang Foundation upon resignation or death.
BUSINESS SEGMENTS OF THE GROUP
HNA Tourism HNA Tourism provides a wide range of aviation and travel services and benefits from the domestic tourism market and the Group’s aviation and tourism businesses. HNA Tourism builds its air-travel platform through integration with the Group’s different business segments.
51 As of December 2016, total assets of HNA Tourism was over RMB390 billion. HNA Tourism consists of approximately 8,000 categories of high-end travel products through its approximately 750 aircraft, 1,100 rental cars, 3,200 domestic and international hotels with over 380,000 rooms and over 270 travel agencies. In 2016 it handled nearly 100 million passengers, logging over 9.7 million consecutive safe flight hours and operated 428 currency exchange branches.
HNA Capital HNA Capital acts as the main financial services subsidiary of the Group as a one-stop financial services platform.
As of December 2016, total assets of HNA Capital was over RMB340 billion. HNA Capital consists of approximately 1,200 global financial services branches operating approximately 550 leasing aircraft and nearly 30 member companies, including business networks covering over 100 cities including Beijing, Tianjin, Shanghai, Shenzhen, Hong Kong, Singapore, Sydney, Oslo, London, Dublin and New York.
HNA Holding HNA Holding mainly manages retail, property and infrastructure companies with HNA Infrastructure and CCOOP Group Co., Ltd as its HNA Holding’s core businesses.
As of December 2016, total assets of HNA Holding was over RMB350 billion and annual income was over RMB52 billion. It manages six listed companies, such as CCOOP Group Co., Ltd, HNA Investment Group Co. Ltd. and HNA Infrastructure Co. Ltd. HNA Holding also owns more than 250 shopping malls and supermarkets in the PRC and about 1,600 commercial retail stores. In 2015, HNA Infrastructure won the title of ‘‘National AAA Grade Credit Enterprise’’. More recently, HNA Investment won the ‘‘Annual Award for Outstanding Deal’’ presented by the 2016 Annual Meeting of China Securitization Forum.
HNA Technology Concentrated on high-tech industries, HNA Technology focuses on technology operations, investment, innovation and development. HNA Technology’s five major business platforms include high-tech industry operations, cutting-edge technology R&D, logistics, smart supply-chain management services and logistics finance.
As of December 2016, total assets of HNA Technology was over RMB180 billion. HNA Technology spans over five continents and more than 160 countries and regions. It has over 70,000 staff worldwide, of which almost 60,000 are overseas, and 25,000 are on the technology, research and development teams.
HNA Modern Logistics HNA Modern Logistics is a global logistics and solutions provider managing and operating 13 airports, including Haikou Meilan International Airport and Sanya Phoenix International Airport. HNA Modern Logistics focuses on five major businesses: warehouse management, airport management, air cargo, logistics finance and e-logistics.
As of December 2016, total assets of HNA Modern Logistics was over RMB218.92 billion, consisting of 30 member companies with over 80,000 employees.
HNA Innovation Finance HNA Innovation Finance is headquartered in Hong Kong and its main business covers bulk commodity trading, financial investment and consumer finance products and services. HNA Innovation Finance uses a ‘‘3+X’’ development model, which includes commodity trade, consumer finance and financial investment, providing a full range of financial support services to support ‘‘One Belt One Road’’.HNA Innovation Finance aims to create a complete financial industry chain, focusing on building three
52 business platforms: finance, consumer finance and financial investment. HNA Innovation Finance also focuses on upstream and downstream trading partners and their core assets, designs, develops supportive financial products and foreign exchange trading services and strives to expand in the financial markets and foreign exchange markets.
As of December 2016, total assets of HNA Innovation Finance was over RMB50 billion with six member companies and over 700 employees.
HNA Innovation Media & Entertainment HNA Innovation Media and Entertainment is responsible for the Group’s cultural business. Leveraging the industrial background of HNA Group, HNA Innovation Media and Entertainment strives to build the world’s largest media and entertainment industry chain and to develop into a world-class media and entertainment group headquartered in Beijing. HNA Innovation Media and Entertainment was established in March 2017.
KEY STRENGTHS
Having accumulated years of valuable experience in international markets and having an in-depth understanding of the industries in which it operates, the Group believes that its key strengths and core capabilities will allow it to continue to capture investment opportunities and benefit from the steady growth of the Chinese economy and the recovery of the world economy. The Group believes its key strengths are as follows:
Leading conglomerate with an established market position, strong industry reputation and brand recognition The Group is a leading conglomerate in the service industry with diversified businesses spanning across air transportation, airport services, real estate, hotel and catering, travel services, commercial retail, logistics and transportation, financial services and other businesses such as culture industry and network information technology. According to the ‘‘Fortune Global 500 Companies’’ list published by Fortune Magazine, the Group ranked 170th in 2017. According to the ‘‘Top 500 Companies in China in 2016’’ list published by the China Enterprise Confederation（中國企業聯合會）and the China Enterprise Directors Association（中國企業家協會）, the Guarantor ranked 85th by total revenue in China in 2016. The Guarantor has maintained its position within the Top 500 Companies in China list since 2012. The Guarantors’ ranking was 112th, 108th, 120th, 99th and 85th, respectively in the years 2012 to 2016.
The Group enjoys a leading market position in the many businesses which it engages in. Over the years, the Group has received numerous accolades, awards and recognition in different businesses, particularly in its air passenger and cargo, airports and travel services businesses. Please refer to the section titled ‘‘Description of the Group – Awards’’ for further detail.
Such accolades, awards and recognition reflect the Group’s stronger reputation in the relevant industries in which it operates and has enhanced customer loyalty, trust and confidence in the Group generally. They have also helped attract new business opportunities and customers. The Group believes that its leading market position in the relevant industries in which it operates has laid a solid foundation for further growth, integration and expansion of its businesses.
Business diversification through integrated business segments providing stable earnings Responding to the challenges posed by the SARS epidemic, the Group began to diversify its business after 2003 and successfully transformed itself from an airline company operating under a single-business model to a conglomerate engaging in businesses along the industry value chain such as air transportation, airport services, real estate, hotel and catering, travel services, commercial retail, logistics as well as transportation and financial services.
53 Its diversified business allows the Group to derive synergistic benefits. Diversification enables the Group to be less vulnerable to business cycles, mitigates business concentration risks and reduces volatility in the Group’s overall earnings and financial position. For example, operating efficiencies are achieved through the Group’s airports and airline businesses. Working with airports operated and owned by the Group and by utilising the Group’s airline-related businesses such as aircraft maintenance services, aircraft equipment and spare parts procurement and crew training programmes, the airlines under the Group’s air passenger and cargo business have been able to improve its operating efficiency to achieve better financial performance. The Group is also able to cross-market its various services, thereby widening its customer base and increasing business opportunities. For example, the HNA Easycard allows customers to purchase from a wide range of the Group’s travel business partners including hotels, car rental services and restaurants, which helps to encourage cross-selling and promote business across the Group’s various segments and businesses. The diversification of the Group’sbusinessalsoensures stability, consistency and reliability in the Group’s business performance and maintains a balanced revenue and earnings mix.
Successful track record in asset integration and value enhancement Striving towards the goal of becoming a Chinese conglomerate with a global presence, the Group has a successful track record in identifying suitable investments to further the Group’sstrategyandhas demonstrated its ability to manage investments prudently and wisely to enhance value. In 2010, the Group acquired the business and assets of Allco Aviation (subsequently rebranded as Hong Kong Aviation Capital Limited (‘‘HKAC’’), an Australian based aircraft leasing company which went into receivership. Through further investment and prudent management, HKAC enjoyed steady growth and provided a profitable return to the Group when the Group subsequently sold it to Bohai Capital in 2011. HKAC is currently ranked 23rd in the world by fleet value. Similarly, in 2011 the Issuer acquired Seaco (formerly named GE Seaco), the world’s fifth largest container leasing company at the time, from GE Capital and its joint venture partner. Seaco now operates as a core business within the Group’s existing logistics and finance operations in the form of Bohai Leasing. In January 2015, Bohai Capital acquired an 80% stake in Cronos Limited (‘‘Cronos’’) from Cronos Holding Company Ltd.. Cronos is one of the world’s leading cargo container lessors and an industry leader in specialised container leasing. After the acquisition of Cronos, Bohai Capital remains the largest container leasing company in the world by number of cost equivalent units.
The Group has accumulated substantial experience in making use of the equity markets to provide a profitable return on its investments and to increase the value of its assets. Since the listing of Hainan Airlines on the Shanghai Stock Exchange in 1997 and the listing of HNA Infrastructure on the Hong Kong Stock Exchange, the Group has successfully listed many Group companies and acquired stakes in listed companies, bringing its current investment portfolio to 20 listed companies. IPOs and the acquisition of stakes in listed companies provide the Group with means to monetise its investments in addition to increasing the value of its assets by providing greater sources of funding, improving corporate governance and increasing brand recognition.
Prudent financial policies with sustainable funding resources The Group has implemented prudent financial policies to ensure a healthy financial profile and stable cash flow. As a testament to the Group’s stability, the Guarantor was rated ‘‘AAA’’ by Dagong Global Credit Rating Co., Ltd in December 2015. The Guarantor was also rated ‘‘AAA’’ by Shanghai Brilliance Credit Rating & Investors Services Co., Ltd in April 2016. It has established diversified funding sources including equity financing and issuances of domestic corporate notes and commercial papers. As at 31 December 2016, the Group had listed stocks (Hong Kong-listed and PRC-listed only) with a total market value of approximately HK$223.1 billion.
Through the Group’s holdings in listed companies, it enjoys diversified funding channels including share placements. From time to time, the Group has successfully placed shares of its group members as a source of funding. Through effective management of liquidity and funding sources, the Group seeks to maximise returns and value for its businesses to ensure long term sustainable profitability and stability.
54 The Group has established good relationships with over 300 domestic and international financial institutions, including China Development Bank, The Export-Import Bank of China, Bank of China, Agriculture Bank of China, Industrial and Commercial Bank of China, Bank of Communications, China Everbright Bank and China Construction Bank. Currently, the Group’s largest lenders are China Development Bank, the Export-Import Bank of China and China Construction Bank. As at 31 December 2016, the total credit line for the Group stood at CNY611.4 billion, compared to CNY463.3 billion as at 31 December 2015. The Group’s relationship banks have extended more credit lines to the Group year- on-year, reflecting their positive views on the outlook of the Group. Relationships with financial institutions worldwide have also strengthened the Group’s investment capability. As at 31 December 2016, the unused credit limit of the Group was approximately CNY242.3 billion.
Strategic cooperation with provincial and municipal governments The Group believes that its success has been and will continue to be closely linked to the economic conditions and growth of the various provinces and cities in China. To this end, the Group has, over the years, entered into strategic cooperation framework agreements with various provincial and municipal governments and established or held interests in joint ventures together with entities controlled by various provincial and municipal governments. Due to the strategic nature of airlines and airports, the provincial and municipal governments are, in some cases, strategic shareholders and partners of the airlines and airports which are managed or operated by the Group.
As at 31 December 2016, the Group had entered into 120 strategic cooperation agreements with various provincial, municipal and local governments across 28 provinces. Of these, 12 agreements were entered into with provincial governments, including Beijing, Tianjin, Gansu, Shaanxi, Chongqing, Hubei, Hunan, Guizhou, Henan, Zhejiang, Heilongjiang and Guangxi. Under these strategic cooperation agreements, the Group benefits from arrangements such as preferential tax treatment, favourable policies for land and project development, subsidies, as well as assistance and/or support from the relevant governments, in return for which the Group agrees to contribute to the development of air transportation, logistics, tourism and other industries in the relevant provinces, municipalities and cities across China.
Experienced and savvy management team to capture growth opportunities The Group’s management team has extensive operating experience and an in-depth market understanding and knowledge of the Group’s businesses. They are commercially-oriented with a proven capability to capitalise on available opportunities to maximise profitability as well as improve cost efficiency and synergy within the Group. With a proven track record of sound decision-making, the Group’s current senior management team led the Group throughout the economic cycles since the commencement of the Group’s business operations in 1993 and helped transform the Group from a regional airline to a multi- business conglomerate.
The success of the Group’s businesses is attributable to the management style that advocates open- minded, creative, strong and effective management. Embracing cultural diversity, the Group has retained the original management team of the acquired entities in each of the overseas acquisition it completed. Such an approach allows for continued management by the personnel with the best knowledge of the local economy, culture and practices in which the businesses operate, providing a harmonious transition while at the same time allowing the Group to acquire, and be continually apprised of the latest western management and corporate governance principles, facilitating the growth of the Group into a modern and global enterprise.
STRATEGIES
The Group’s goals are to build a world-class Chinese brand, to achieve continual growth and to become a competitive global conglomerate. The Group seeks to achieve its goals through the following strategies:
55 Focus on and continue to develop the Group’scorebusinesses The Group enjoys leading market positions in many of its businesses such as air transportation, airports and travel services. The Group will continue to strengthen its management and operation efficiency and focus on strengthening and further developing each of the Group’s key businesses to improve profitability and to seize a greater market share in an ever competitive market in each business.
The Group seeks to adopt a focused and strategic development approach by streamlining its management structure. The Group aims to become more agile, efficient and effective by simplifying its internal approval processes and by decentralising business decisions to the level of each core business. The Group will also integrate new technology such as mobile internet, cloud and big data to achieve management and operational efficiency. The Group aims to further build and promote the HNA brand to achieve increased brand recognition both in the PRC and globally.
Continue to build upon the Group’s diversified business The Group seeks strong growth and wishes to expand while being specialised and focused. Accordingly, the Group continues to diversify whilst at the same time maintaining a high quality investment portfolio, providing the Group with stable income. Leveraging on the success of its core businesses since as air transportation, airports and travel services, the Group closely follows new trends and developments to explore and develop new businesses that complement the Group’s existing businesses to create further synergy. The latest addition to the Group’s diversified business mix include e-commerce, culture and health businesses. The Group seeks to integrate a range of digital services such as prepaid cards, third- party payment, social networking, internet logistics, cultural communications, online and consumer financing as well as internet entertainment with its other existing businesses such as air transportation, hotels, travel services and retail.
Continue to expand globally to strengthen global presence The Group aims to establish itself as a world-class brand with a global presence. The Group will seek to identify suitable acquisition targets which are complementary to its businesses and instrumental to the achievement of its goal to become a global brand. Utilising Hong Kong as a platform, the Group aims to drive further growth and development by expanding its foothold to Asia, Africa, Europe and North America. By making suitable acquisitions, the Group also seeks to expand the number of international routes of its air transportation business to reach more destinations.
The Group has established an investment department formed by experienced investment professionals to identify suitable acquisition targets. The investment department is responsible for analysing the markets in which the Group’s businesses operate, tracking relevant government policies and working in conjunction with other external parties to seek appropriate investment opportunities for the Group. Placing great emphasis on risk minimisation, the Group carries out extensive due diligence on any identified potential targets, such as conducting site visits and meetings with management, employees, suppliers and customers, and conducting an in-depth analysis of the relevant industry and in respect of human resources, branding and products.
Continue to increase capital raising and equity investments The Group will continue to explore means to increase its access to capital. From time to time, members of the Group will tap domestic and international capital markets to raise financing for the expansion and development of the business of the Group. As part of its development strategy, the Group will also make equity investments in companies whose businesses will help further the Group’s strategic goals. The Group will continually assess the availability of suitable investments or acquisition targets.
56 AWARDS
The Group has received numerous awards and recognition in each of its core industry sectors as set forth below.
Airport Services • In 2015, Sanya Phoenix was honoured three world-class awards, including 1st in the 2015 annual ‘‘ACI Global Airport Passenger Satisfaction’’ survey of 5-15 million passengers, second Asia- Pacific region airport in ‘‘World’sBestRegionalAirport’’ and the ‘‘World’s Best Airport’’ of the same region and scale.
• In 2015, Haikou Meilian International Airport was ranked 2nd place for ‘‘Best Airport by Size: 5- 15 Million Passengers’’ by Airport Council International.
• In 2015, Haikou Meilian International Airport was ranked 9th place for ‘‘Best Domestic Airport 2015’’ globally and 4th place for ‘‘Best Regional Airport in Asia 2015’’ by Skytrax.
• In 2014, Haikou Meilian International Airport ranked 4th in the 2014 ASQ Awards for a Best Airport in Asia-Pacific’’.
• In 2014, Haikou Meilan International Airport (partially owned and operated by the Group) won the Skytrax ‘‘(China) Regional Best Airport Award’’ andwasnamedbySkytraxthesecondbest‘‘5- Star Terminal’’ in China and 6th in the world in 2014.
• In 2014, Sanya Phoenix International Airport was ranked 2nd place for ‘‘Best Airport by Size: 5- 15 Million Passengers’’ by the Airports Council International.
• In 2014, Sanya Phoenix International Airport was ranked 5th place for ‘‘the Best Airport in Asia- Pacific’’ and 8th place for ‘‘Best Regional Airport in Asia 2015’’ by Skytrax.
• In 2012, Sanya Phoenix International Airport won the ASQ Award for ‘‘Best Improvement in Asia- Pacific’’ in the Airports Council International (ACI) Airport Service Quality (ASQ) awards, and was the fifth international airport in Asia to receive such an award.
Air Transportation • In 2015, Hainan Airlines was awarded ‘‘Asia’s Best Business Class’’, ‘‘Asia’s Excellent Cabin Service’’ and ‘‘Asia’s Best Business Class Cabin Crew’’ by the World Travel Awards.
• In 2015, Hainan Airlines ranked 8th globally for the World’s Safest Airline in JACDEC AIRLINE SAFETY RANKING 2015 awarded by Aero International.
• In 2015, Hainan Airlines was named a ‘‘5-star airline’’ by Skytrax for four consecutive years. It was also awarded ‘‘(China) Regional Best Airline’’ and ‘‘(China) Regional Best Staff Service’’ by Skytrax for four consecutive years, being the only mainland Chinese airline company to receive these awards.
• In 2015, Tianjin Airlines was recognised as the ‘‘top 100 Airlines globally’’ by Skytrax and was ranked 2nd and 6th ‘‘Best Regional Airline’’ in China and Asia respectively by Skytrax.
• In January 2013, Hainan Airlines ranked 8th in the World’s Safest Airlines published by the German aviation magazine, Aero International, ranking the highest among PRC airlines.
• In December 2013, Hainan Airlines was awarded the ‘‘Best Economy Class’’ honours by the 20th World Travel Awards.
57 • In 2011, Tianjin Airlines, a subsidiary of the Guarantor, was named ‘‘4-Star Airline’’ and won the ‘‘Best China Regional Airline’’ title awarded by Skytrax;
• In 2011, Deer Jet Co., Ltd. (now renamed as Beijing Capital Airlines Co., Ltd., ‘‘Capital Airlines’’), a subsidiary of the Guarantor, became the first Chinese business jet operator to attain an ARGUS Platinum Rating and IS-BAO rating;
Real Estate • In 2016, HNA Investment Group won the ‘‘Outstanding Trade of the Year’’ in the 2016 Annual Conference China Securitisation Forum.
• In 2015, CCOOP Group ranked 77th among the 100 strong retail businesses in China.
• In 2015, HNA Infrastructure won the title of ‘‘National AAA Grade Credit Enterprise’’.
• In 2013, the Group joined the ranks of the top 50 Chinese real estate enterprises, ranking 48th in terms of sales and 41st in terms of area sold.
• In November 2013, the Group was awarded ‘‘Brand Enterprise of the Year’’ by ‘‘Real Estate’’ magazine.
• In June 2013, HNA Real Estate received the ‘‘PRC Blue Chip Real Estate’’ award in the 10th PRC Blue Chip Annual Conference organised by the Economic Observer.
• In 2011, the Group was awarded ‘‘China Construction Luban Award for 2010-2011 (National High Quality Construction)’’ by the China Building Industry Association.
Hotel and Catering • In 2013, the Group ranked 69th (in terms of number of hotel rooms) in the list of ‘‘Hotels 325’’ published by Hotels Magazine.
• In 2012, Tangla Hotel Tianjin was awarded ‘‘International Six Star Diamond Award’’ by the American Academy of Hospitality Sciences.
Travel Services • In 2016, HNA Tourism was awarded the ‘‘World’s Best Tourism Investment Group’’ in the 2016 World Tourism Awards.
• In 2015, HNA Tourism Holding (Group) Co., Ltd. (‘‘HNA Tourism’’) was awarded the ‘‘World’s Leading Integrated Tourism Group’’ in the World Travel Awards.
• In 2014, HNA Tourism was awarded ‘‘Asia’s Leading Travel Management Company’’ and ‘‘China’s Leading Travel Management Company’’ in the World Travel Awards.
• In 2013, HNA Tourism won the title of ‘‘Top Brands Contributors – 2013 China’s Influential Brands’’ at the Business Leaders & Media Leaders Annual Conference & Top Brands Contributors Awards Ceremony.
• HNA Tourism was ranked 6th place in the ‘‘Top20PRCTourismGroups’’ by the China Tourism Academy in 2011, 2013 and 2014.
• In 2013, HNA Tourism won the ‘‘Gold Spectrum Award (Tourism Industry)’’ in the 7th Annual Chinese Brand Awards, and the ‘‘2013 Influential Chinese Brands Award’’ in the 2013 China Business Leaders & Media Leaders Annual Conference.
58 Business Retail • In 2014 and 2013, HNA Commercial Holdings Co, Ltd. was ranked top 10 and 22nd respectively in the ‘‘Top 100 PRC Chain Store Enterprises’’.
Logistics • In 2016, as the first internet exchange integrating aviation and shipping company, Qianhai Aircraft & Shipping Exchange was rated as ‘‘China Internet Financial Dark Horse’’.
• In 2015, as the first domestic cold chain logistics enterprise listed on the NEEQ, HNA Cold Chain was honoured ‘‘Top 100 Cold Chain Logistics Enterprises in China 2015’’ and ‘‘NEEQ Business Model Star 2016’’.
• In 2015, by creating the first whole-field network financial platform in China, HNA Usolv was selected as one of the ‘‘Top 50 Internet Financial Brands’’.
• In 2015, as China’s first in-flight connectivity and internet-related service provider and platform operator that entered the capital markets, Beijing Shareco Technologies Co., Ltd. won the ‘‘2015 Annual China Aviation IFEC Best Entertainment Experience’’ award.
• In 2014, Gopay Information Technology Co., Ltd. was awarded ‘‘Top 100 brand of China internet finance enterprise’’ organised by CIFC, Huaxia newspaper and He Xun Wang.
• In 2014, HNA Sinosun Logistics Co., Ltd. was awarded the top ten comprehensive logistics service providers ‘‘Golden Chain Award’’ of China cold chain by the China Federation of Logistics and Purchasing Cold Chain Logistics Committee.
Financial Services • In 2016, Bohai Capital was awarded best board of directors of listed companies in China.
• In 2016, Bohai Capital was on the ‘‘China 500’’ list by leading magazine Fortune.
• In 2014, Bohai Capital was awarded ‘‘2014 Most Influential Leasing Company’’ under the CBN Financial Value Ranking.
• In 2013, Bohai Capital won the ‘‘Best Management Trust Company in China’’ award at the China Wealth Management Summit and Best Wealth Management Institutions Awards Ceremony organised by Securities Times.
• In 2012, Bohai Capital won the ‘‘PRC Leasing Innovative Award’’ in the 2012 PRC Leasing Annual Conference.
• In 2012, Bohai Capital won the ‘‘Best Finance Leasing Company’’ award at the Ninth Chinese Enterprise Operation and Financial Strategic Management Summit organised by the China Association of Chief Financial Officers and China CFO Magazine.
RECENT DEVELOPMENTS
Acquisition of equity interest in Deutsche Bank In February 2017, the Group secured a stake of 3.04 per cent. in Deutsche Bank through C-Quadrat, the Group’s investment vehicle. The Group increased the stake to 4.76 per cent. in March 2017 and to 9.9 per cent. in May 2017, becoming the German bank’s biggest single investor.
59 Deutsche Bank, a leading global investment bank with operations in over 70 countries worldwide, provides banking services to corporations, governments, institutional investors, small and medium-sized businesses, and private individuals. Based in Germany, the bank has a strong position in Europe and a significant presence in the Americas and Asia Pacific.
Purchase of 245 Park Avenue In March 2017, the Group agreed to purchase 245 Park Avenue, a 1.8 million square-foot skyscraper in Manhattan, New York, for U.S.$2.21 billion from the sellers, Brookfield Property Partners LP and the New York State Teachers’ Retirement System. Completed in 1965, the 45-story building at 245 Park Avenue has financial tenants including Société Générale and Ares Capital Corp, and sits just north of Grand Central Terminal in the heart of midtown Manhattan’s traditional office corridor.
Purchase of Kai Tak land plot On 15 March 2017, Milway Development Limited, a subsidiary of the substantial shareholder of the Group, won the tender against 14 other bidders for a plot of development land in Hong Kong – New Kowloon Inland Lot No. 6563 at Kai Tak Area 1L Site 2, Kai Tak, Kowloon – on a 50-year land grant at a premium of HK$7.44 billion (U.S.$960 million). The site, located in the former Kai Tak airport, has an area of approximately 9,482 square metres and is designated for private residential purposes. The minimum gross floor area and the maximum gross floor area are 30,722 square metres and 51,202 square metres, respectively. The successful tender brought the Group’s total expenditure at Kai Tak to HK$27.2 billion, giving the Group a total of 398,268 square feet of land, which will be combined under one development project for the purpose of constructing a world-class integrated residential complex.
Establishment of China Cinda Asset Management Industry Buyout Fund On 24 March 2017, the Group signed a strategic agreement with China Cinda Asset Management to set up an industry buyout fund worth at least CNY20 billion (U.S.$2.91 billion). The two companies will team up in areas such as outbound acquisitions and financial leasing. China Cinda Asset Management, established in 1999, is one of China’s four state-backed bad-debt managers with 33 branches in 30 provinces, principally engaging in the provision of financial solutions and asset management services. Its three business segments include distressed asset management, financial investment and asset management, and financial services.
Purchase of Glencore plc Oil Storage Assets On 31 March 2017, HNA Innovation Finance Group Co., Ltd., a subsidiary of the Group, entered into a definitive agreement with Glencore plc (‘‘Glencore’’) to purchase a 51 per cent. equity interest in Glencore’s petroleum products storage and logistics business for U.S.$775 million in cash. The purchase, approved in October 2017 by the Ministry of Commerce of the PRC, will result in a newly incorporated company, HG Storage International Ltd., which will consolidate Glencore’s existing petroleum products storage and logistics businesses into a global portfolio of high-calibre assets. HG Storage International Ltd. will have an established presence in major trading hubs and strategically important locations across Europe, Africa and the Americas.
Glencore, a Switzerland-based company with more than 90 offices located in over 50 countries, is one of the world’s largest global diversified natural resource companies and a major producer and marketer of more than 90 commodities. Glencore’s operations comprise around 150 mining and metallurgical sites, oil production assets and agricultural facilities.
Acquisition of CWT On 9 April 2017, HNA Holding Group Co. Limited, a subsidiary of the Guarantor, announced the voluntary offer to acquire all 600,304,650 issued and paid-up shares of CWT Limited, valued at S$1,398,709,834.50. CWT Limited is a leading provider of integrated logistics solutions with interests in logistics services, commodity marketing, financial services and engineering services and operates in
60 more than 90 countries through its regional offices and network of service partners. Its Logistics Services and Commodity Marketing segments are managed on a worldwide basis and operate principally in Singapore, China, Taiwan, Malaysia, other parts of Asia Pacific, Europe, Africa and South America. Its financial services segment operates mainly in China, Singapore and North America. Its engineering services segment operates primarily in Singapore.
Acquisition of equity interest in Dufry On 26 April 2017, Hongkong Huihaisheng Investment Co. Ltd., a subsidiary of the Group, agreed with third parties to purchase 16.79% of the shares of Dufry AG (‘‘Dufry’’). In August 2017, the Group further acquired equity interest in Dufry, raising the Group’s stake to 20.92 per cent. The Group’sstake purchases in Dufry allow the Group, which operates across the aviation, hospitality, tourism, real estate, retail, finance, logistics, shipbuilding and eco-tech fields, to further consolidate its business in the tourism industry. The Group has invested over U.S.$1 billion in Dufry.
Founded in 1865, Dufry is a global travel retailer that operates around 2,200 shops in 63 countries, with a strategic focus on geographic diversification. The Swiss company offers a diversified portfolio of retail formats including duty-free, duty-paid, brand boutiques, specialised concepts and convenience stores. Its brands include ‘‘World Duty Free’’, ‘‘Nuance’’,and‘‘Hellenic Duty Free’’.
Acquisition of majority share of C-Quadrat Investment On 3 May 2017, HNA Group (International) Asset Management Co., Limited, a subsidiary of the Issuer, entered into share purchase agreements with San Gabriel Privatstiftung, T.R. Privatstiftung, Hallmann Holding International GmbH, Q-Cap Holdings Ltd. and Laakman Holding Ltd. (all together “the core shareholders”) for the acquisition of shares in C-Quadrat Investment AG (“C-Quadrat”). After the necessary regulatory approvals (i) the Group will contribute the C-Quadrat shares acquired from the core shareholders to Cubic (London) Limited (“Cubic”) and (ii) the core shareholders will contribute their remaining C-Quadrat shares to Cubic. Following necessary regulatory approvals, the Group will hold approximately 74.8% in Cubic, and Cubic will hold more than 98% in C-Quadrat. The Group announced that the share purchase would not entail any changes to C-Quadrat’s offices, employees, and business strategy.
C-Quadrat, established in 1991 in Vienna, is an international asset manager, specialising in absolute and total return strategies. The firm operates in more than 20 countries across Europe and Asia, with offices in Vienna, London, Frankfurt, Geneva and Yerevan. The overall assets under management of the company stand at EUR7.6 billion as at March 2017.
Agreement to Acquire Equity Interest in Rio de Janeiro Aeroportos SA InJuly2017,theGroupsignedanagreementtoacquirea60percent.stakeinRiodeJaniero Aeroportos SA, the controlling shareholder of Aeroporto International Antonion Carlos Jobim-Galeao (GIG Airport) from Odebrecht SA for approximately U.S.$18 million with additional concession fees. The acquisition provides opportunities for the Group to expand into Latin America.
Acquisition of Frankfurt-Hahn Airport In September 2017, the Group formally took over the controlling ownership of Frankfurt-Hahn Airport as part of the Group’s continued overseas expansion. In addition, the Group signed a deal to further cooperate on air cargo services with German officials. The acquisition was approved by European regulators earlier in 2017.
61 PRINCIPAL BUSINESSES
The principal businesses of the Group are airport services, air transportation, real estate, hotel and catering, travel services, business retail, logistics transportation, financial services and other businesses such as culture industry and network information technology.
The tables below show the respective contribution to (1) the operating revenue and (2) the gross profit of the Group by various business segments for the years ended 31 December 2015 and 2016.
(1) Operating Revenue Business Segment Operating Revenue (CNY) Year Ended Year Ended 31 December 31 December 2016 % of Total 2015 % of Total (million) (million) Airtransportation...... 26,396 14.4 21,251 22.3 Financialservices...... 31,945 17.5 17,253 18.1 Travelservices...... 10,624 5.8 8,172 8.6 Airportservices...... 1,928 1.1 1,104 1.2 Businessretail...... 14,384 7.9 10,078 10.6 Realestate...... 7,909 4.3 11,433 12.0 Hotelandcatering...... 12,681 6.9 11,698 12.3 Logistictransportation...... 29,305 16.0 11,892 12.5 Others...... 47,837 26.1 2,283 2.4
Total...... 183,009 100 95,164 100
(2) Gross profit Business Segment Gross Profit (CNY) Year Ended Year Ended 31 December 31 December 2016 % of Total 2015 % of Total (million) (million) Airtransportation...... 5,189 12.9 4,478 16.3 Financialservices...... 12,958 32.3 7,039 25.6 Travelservices...... 1,260 3.1 1,087 3.9 Airportservices...... 689 1.7 405 1.5 Businessretail...... 2,153 5.4 1,670 6.1 Realestate...... 2,824 7.0 2,573 9.3 Hotelandcatering...... 5,763 14.4 6,849 24.9 Logistictransportation...... 4,781 11.9 2,372 8.6 Others...... 4,463 11.3 1,054 3.8
Total...... 40,080 100 27,527 100 i) Air Transportation According to statistics published by the CAAC, the Group was ranked the fourth largest domestic airline group in China in 2016 in terms of total air traffic. In 2016, HNA Group had completed 1.39 million hours, achieved a total freight turnover of 14.21 billion ton-kilometres, an increase of 22.9% over the previous year, passenger traffic of 83 million, up 22.4% over the previous year and cargo traffic of 784,000 tons, up 0.8% over the previous year. The Group is engaged in trunk line and regional airlines, business jet, air cargo, helicopter and low-cost carrier businesses. Currently, it has a fleet of nearly 1,250 aircrafts, serves more than 800 domestic and international routes, flies to over 200 cities, and has served 77.4 million passengers annually.
62 As at the date of this Offering Circular, HNA operates the following 19 airline companies:
No. Airlines Company 1 Hainan Airlines 2 Tianjin Airlines 3 Capital Airlines 4 Hong Kong Airlines 5 Grand China Air Co., Ltd. 6 Hong Kong Express Airways Limited 7WestAirCo.,Ltd. 8 Lucky Air Co., Ltd 9 Changan Airlines Co., Ltd. 10 Shanxi Airlines Co., Ltd. 11 Yangtze River Express Airlines Co., Ltd. 12 China Xinhua Airlines Limited Liability Company 13 Shanghai Deer Jet Co., Ltd. 14 Africa World Airlines Limited 15 Aigle Azur 16 Urumqi Air 17 Fuzhou Airlines 18 Guangxi Beibu Gulf Airlines 19 Air Guilin
Among the airlines operated by the Group, the principal airlines are Hainan Airlines, Tianjin Airlines, Capital Airlines and Hong Kong Airlines.
Hainan Airlines As a leading provider of air passenger, air cargo and airline-related services in China, Hainan Airlines is the fourth-largest airline in China in terms of fleet size, revenue and number of passengers carried in 2016. As at 30 June 2017, Hainan Airlines provided scheduled domestic, regional and international services using a hub and spoke strategy on over 1,400 routes to 52 cities in 21 countries.
Hainan Airlines’ expanding network is based on its main route bases in Haikou and Beijing, its seven secondary route bases in Xi’an, Taiyuan, Urumqi, Guangzhou, Lanzhou, Dalian and Shenzhen, an extensive route system across China, as well as connecting locations in Asia-Pacific, Europe, Australia and North America.
The Group has been well-recognised globally for its high quality service and excellent safety record by independent awards and surveys of air travellers, in particular for its highly trained employees, advanced seat assignments, expedited check-in, attention to customer needs, frequent flyer programme, well- maintained aircraft and other amenities. For instance, Hainan Airlines is one of nine global winners and the only PRC airline that has obtained 5-Star Airline certification from Skytrax, which it received for a seventh consecutive year in June 2017. Hainan Airlines was also ranked as the ninth best globally for the World’s Best Airline at the Skytrax 2017 World Airline Awards in June 2017.
In addition to passenger services, the Group provides bellyhold cargo and mail services through its passenger aircraft. As at 30 June 2017, Hainan Airlines leased out a total of 24 aircraft to other HNA Group affiliated airline companies. The Group also provides other airline-related services, including property leasing, lodging, catering, ticketing and ground services in Beijing, Haikou, Xi’an and other locations through its subsidiaries.
The young and growing fleet of Hainan Airlines primarily comprises Boeing 737-800 aircraft, along with Boeing 737-700, Boeing 767-300, Boeing 787-9, Boeing 787-8, Airbus A330-300, Airbus A330- 200, Airbus A320, Airbus 319, Embraer E145, Embraer E190 and Embraer E195 aircraft for both passenger and cargo transportation. As at 30 June 2017, Hainan Airlines operated a fleet of 362 aircraft,
63 serving 140 domestic, three regional and 42 international destinations. In 2015, 2016 and the six-month period ended 30 June 2017, the fleet carried approximately 38.60 million, 47.02 million and 34.21 million passengers, an increase of 21.81% from 2015 to 2016. Hainan Airlines’ RPK in 2015, 2016 and the six-month period ended 30 June 2017 was 66,239.37 million, 82,951.27 million and 58,159.21 million, an increase of 25.23% from 2015 to 2016.
Tianjin Airlines Established in November 2006, Tianjin Airlines, a subsidiary of the Guarantor, is a regional airline operating domestic scheduled passenger and cargo flights out of Tianjin Binhai International Airport. Tianjin Airlines operates approximately 200 routes to over 100 domestic destinations, including Beijing, Chongqing, Dalian, Nanjing, Hailar, Shanghai, Xi’an and Wuhan, with an annual passenger throughput of over 11 million passengers. As at the end of 2015, Tianjin Airlines, fleet consisted of 95 aircrafts including 23 Embraer EMB 145, 50 Embraer ERJ 190s, two Embraer ERJ 195s and 20 Airbus 320s. In addition to scheduled air passenger services, Tianjin Airlines also provides charter flight services. Since the commencement of its operations, Tianjin Airlines has received recognition for its good quality performance. In 2009, Tianjin Airlines was named ‘‘Best China Regional Airline’’ at the Centre for Asia Pacific Aviation’s Annual Awards for Excellence in 2009. In 2011 and 2014, it was named a ‘‘4-Star Airline’’, and won the ‘‘Best China Regional Airline’’ awardbySkytrax.
Capital Airlines Capital Airlines, a subsidiary of the Guarantor, operates scheduled air passenger services with a fleet of 51 Airbus A319 and A320. It is the largest tourist charter flights operator in China. Since the commencement of its operations, it has established over 250 passenger routes to approximately 200 destinations in China including regional hubs such as Beijing, Guangzhou, Nanjing, Chongqing and Kunming. Deer Jet, another line of Capital Airlines’ businesses, is a leading provider of corporate and private charter services in China. It operates 74 corporate jets, including the Boeing Business Jet, Gulfstream G450/G550/GV/GIV/GIV-SP/G200, Hawker 900xp/850xp/800xp and Airbus 319. Deer Jet’s corporate and private jet charter offers efficient travel solutions with premium comfort and style. Its clientele includes government officials, top business executives and celebrities. In 2015, Deer Jet earned around 70% of the market share in China and won the ‘‘World’s Leading Private Jet Charter 2015’’ award at the World Travel Awards (WTA) ceremony on 12 December 2015.
Hong Kong Airlines Hong Kong Airlines, an associated company of the Guarantor, is the second largest airline group in Hong Kong in terms of market share and route network. Besides its international network, Hong Kong Airlines has an established passenger route network in PRC cities such as Beijing, Shanghai, Nanchang, Chengdu, Chongqing, Guiyang, Nanning, Haikou, Sanya, Tianjin, Hangzhou, Nanjing, Yancheng, Changchun, Fuzhou, Xuzhou, Taiyuan and Hohhot. It has entered into passenger codeshare agreements with Hainan Airlines, China Eastern Airlines, Shanghai Airlines, EVA Airways, Air India, Air Seychelles, Etihad Airways, Garuda Indonesia and Hong Kong Express to strengthen the frequency of its flight schedule and offer increased access to certain destinations for its passengers. Hong Kong Airlines operates one of the youngest fleets in the world. Currently, the average age of its fleet stands at just around four years. Hong Kong Airlines’ current operating fleet includes 34 aircraft, (nine Airbus A330-300s, nine Airbus A330-200s, and 11 Airbus A320s) and five freighters (Airbus A330-200Fs). With an up-to-date inflight entertainment system installed on all flights, Hong Kong airlines strives to make the travel experience more enjoyable for passengers.
The above airlines are participating airlines in the frequent flyer programme known as the Fortune Wings Club.
64 Recent Developments On 31 May 2016, HNA Aviation Group Co. Ltd (‘‘HNA Aviation’’), a division of the Guarantor, entered into a heads of agreement with Virgin Australia Holdings Limited (ASX: VAH) (the ‘‘Virgin Australia Group’’) to form a strategic commercial alliance. Under the alliance, the companies will look to introduce direct flights between Australia and China. The alliance will also involve co-operation on code-sharing, frequent flyer programs, lounge access and promotion of tourism and business travel.
In support of the alliance, HNA Aviation will make an equity investment in the Virgin Australia Group. The investment will be made in the form of shares placings. Following a top-up placement on 20 September 2016, HNA Aviation held approximately 19.2% equity in the Virgin Australia Group via its subsidiary, HNA Innovation Ventures (Hong Kong) Co. Ltd. HNA Aviation increased its shareholding to 19.8% by the end of 2016. HNA Aviation has also nominated a director to the Virgin Australia Group board.
In June 2016, HNA Aviation agreed to acquire an 80 per cent. stake in SR Technics from Abu Dhabi’s state investment and development vehicle Mubadala and the acquisition was completed in August 2017. SR Technics is a world leading maintenance, repair and operations (MRO) service provider for the civil aviation sector and it offers its customers comprehensive and fully customised solutions for the technical support and management of their aircraft fleets, engines and components. This is coupled with SR Technics’ extensive engineering knowhow, 24/7 component availability worldwide and broad technical training offerings. Headquartered at Zurich Airport, SR Technics provides services to over 500 airline customers through a network of international operations and sales offices in Europe, America, Asia and the Middle East.
The Group announced that the acquisition of a 23.7% stake in Azul Linhas Aereas Brasileiras SA (‘‘Azul’’) was completed on 4 August 2016 and upon completion of the acquisition the Group became the biggest individual shareholder in Azul and appointed three directors to the board of Azul. The companies will cooperate in the development of code sharing, new route development and the expansion of loyalty participation programmes.
Azul is the largest airline in Brazil by number of cities served and the third largest airline in Brazil by market share, offering more than 900 daily flights to 101 destinations. With a fleet of 140 aircraft and more than 10,000 crewmembers, Azul currently has a 32% share of departures of the Brazilian aviation market. Among other awards, Azul was named the best low-cost carrier in South America for the fifth consecutive time by Skytrax in 2015 and the best low-cost carrier in the world by CAPA in 2012. The airline also had the best on-time performance in Brazil in 2014 and was recognised by FlightStats as having the best on-time performance in South America in 2012. The acquisition of Azul will be a first foray into Latin America for the Group and the Group believes that the partnership will bring more choice and convenience to its customers traveling to and from Brazil.
On 21 October 2015, the Group entered into a civil aircraft engine and maintenance service agreement with Rolls-Royce Holdings Plc (‘‘Rolls-Royce’’), under which the Group’s new wide-body aircraft is to be powered by Rolls-Royce’s engines and maintenance services worth U.S.$2.4 billion.
HNA Group’s wide-body aircraft, regional aircraft and business jets have Rolls-Royce engines installed. The engines included in the agreement will power a total of 44 aircrafts that have already been ordered with Airbus by the Group’s airline subsidiaries, including Airbus A330s, A350-900s and A330 Freighters. After the delivery of HNA Group’s new wide-body aircraft order has been completed, the proportion is expected to further increase. Pursuant to the agreement, the Group may become one of the world’s largest companies operating an A330 aircraft fleet maintained and powered by Rolls-Royce’s engines.
65 The British-based Rolls-Royce Group is a world-renowned manufacturer of power systems and energy equipment. Its technology is widely used in the field of aviation, waterborne vessels and energy generation. In the field of civil aviation, Rolls-Royce has a wide range of engines and manufactures engines to power different models of wide-body aircraft, regional aircraft and business jets. In 2014, Rolls-Royce Group recorded a total operating income of £13.7 billion.
On 11 April 2016, the Guarantor and Gategroup Holding AG (‘‘Gategroup’’), a Company primarily engaged in the operation of airline catering and provisioning services worldwide, entered into a definitive transaction, pursuant to which HNA Aviation (Hong Kong) Air Catering Holding Co., Ltd., a subsidiary of the Guarantor launched an all cash public tender offer for all publicly held registered shares of Gategroup for U.S.$1.7 billion. The tender offer was completed on 7 July 2016 and the settlement of the offer was completed on 22 December 2016. All incumbent members of Gategroup’s board of directors resigned as of the settlement date. Gategroup is the leading independent global provider of products, services and solutions related to a passenger’s onboard experience. It specialises in catering and hospitality, provisioning and logistics and onboard products and services to companies that serve people on the move. The Guarantor believes that this deal will be helpful as the Group steps up the pace of its international expansion and strengthens its capacities in the field of air catering, bringing about synergy effects. ii) Financial Services The Group provides a range of financial services, including leasing, trusts and other financial services such as insurance, securities, futures, investment banking, funds, factoring, equity investments and guarantee provision.
Leasing The Group conducts its leasing business primarily through Bohai Capital.
Listed on the Shenzhen Stock Exchange, Bohai Capital (SHSE: 415) mainly engages in the finance lease, operating lease and financing guarantee businesses, specialising in aircrafts, ships, containers, infrastructure and high-end machineries. Its financing products and services include finance leases, operating leases, sale-leaseback, leveraged leasing, vendor leasing, aircraft prepayment financing, aircraft mortgage financing, financial advisory services and risk management services. It is the only listedleasingcompanyinChinawhichhasafullleasing license. Bohai Capital is the largest and most diversified container leasing company in the world by cost equivalent units and is also the world’s4th largest aircraft leasing service provider with a fleet of nearly 550 aircrafts.
As at 31 December 2016, Bohai Capital’s assets under lease and lease receivables amounted to CNY113 billion and CNY53 billion, respectively. For the year ended 31 December 2016, the operating revenue and operating profit of Bohai Capital was CNY24,258 million and CNY2,995 million, respectively.
Aircraft Leasing Bohai Capital had completed the acquisition of Avolon Holdings Ltd on 11 January 2016. Avolon is an international aircraft leasing company listed on the New York Stock Exchange. It is headquartered in Ireland, with regional offices in China, Dubai, Singapore and the United States. According to statistics from the aircraft magazine Airline Business, Avolon is the 11th largest aircraft leasing company in the world, based on the value of the fleet. Avolon provides aircraft leasing and lease management services. As at 31 December 2016, Avolon had owned, managed and a committed fleet of 435 aircrafts serving 85 customers in 40 countries. The book value of the aircraft assets has reached U.S.$6.36 billion. The acquisition of Avolon represents a strong complement to the Group’s existing investment in the aircraft leasing sector. The size of the fleet held by the Group is one of the largest in the world.
66 Acquired by the Group in January 2010, HKAC is an international aircraft leasing company headquartered in Hong Kong, with offices in Dublin and New York. It is mainly engaged in aircraft leasing and asset management. Customers of HKAC include Qantas, British Airways, Emirates Airlines, Ryanair and Wizz Air. According to Ascend Flightglobal Consultancy in 2016, HKAC was one of the top aircraft leasing companies globally in terms of fleet value.
On 6 October 2016, Avolon announced the signing of an agreement to acquire the aircraft leasing business of CIT Group Inc. (‘‘CIT Group’’). The transaction involves primarily the acquisition of the shares in C2 Aviation Capital, Inc., an indirectly wholly-owned subsidiary of CIT Group, after the injection of CIT Group’s aircraft leasing business into the target. Subject to adjustments before closing, the price of the target shares is approximately U.S.$10 billion. Bohai Capital, through Avolon, will acquire total assets of U.S.$11.1 billion as of 30 June 2016 and associated liabilities. The transaction is plannedtobefinancedbyacombinationofAvolon’s cash, new equity contributed by the Company, and acquisition debt financing provided by several financial institutions. The proposed transaction is expected to create a leading aircraft leasing business with an owned, managed and committed fleet of 910 aircraft valued at over U.S.$43 billion, doubling the scale of the Avolon business and creating the world’s third largest aircraft leasing platform.
Container Leasing The container leasing business of the Group is primarily conducted through Seaco, a subsidiary of Bohai Capital, and Cronos.
Seaco was a joint venture established by General Electric Capital Corporation and Sea Containers Ltd. (since renamed as Seaco Limited) in Barbados in 1998 and was originally named as GE Seaco SRL. Acquired by the Issuer in 2011 and sold to Bohai Capital in 2013, Seaco is now a core business within the Group’s existing logistics and finance operations in the form of Bohai Capital. It has an issued capital of U.S.$113.23 million. Seaco is headquartered in Singapore and has 14 sales and support offices worldwide. By working closely with container manufacturers and offering advanced container leasing services, Seaco is recognised worldwide as an industry leader. The majority of Seaco’s fleet is on long- term leases to a diverse group of the world’s leading liners, logistics companies and shippers, allowing Seaco to maintain a strong and stable cash flow. Seaco manages one of the most diversified container fleets amongst its industry peers, providing consistent cashflows throughout economic cycles. Following the integration of Cronos, Seaco is now the largest container leasing company in the world by CEU. Seaco also has an established track record in selling end-of-life assets worldwide, maximising asset value to shareholders.
Cronos is headquartered in San Francisco in the United States and has 20 leasing and sales offices in 18 locations worldwide. Cronos is one of the world’s leading cargo container lessors and an industry leader in specialised container leasing. Cronos leases dry, refrigerated, tank and specialised intermodal container equipment to users worldwide across a number of industries. Cronos also offers design and procurement services for companies needing specialised built-to-order container equipment. In addition, it manages equipment leasing investment programs on behalf of third-party equipment owners.
Trust The Group conducts its trust business primarily through Bohai International Trust Co., Ltd. (‘‘Bohai Trust’’). Bohai Trust was incorporated in October 1982. Pursuant to a restructuring in December 2006, Bohai Trust became a subsidiary of the Guarantor. Further to several rounds of capital increases, it currently has a registered capital of CNY3.6 billion. Based in Hebei, Bohai Trust has established various branch offices including in Beijing, Shanghai and Chengdu. Its products range from infrastructure trusts, securities trusts to real estate trusts.
Other Financial Services • Approved by the China Insurance Regulatory Commission, Min’an Property and Casualty Insurance Co., Ltd. (‘‘Min’an Insurance’’), a company in which the Guarantor has an interest, is an insurance company based in Shenzhen. Its businesses include home insurance, liability
67 insurance, credit insurance, health insurance, casualty insurance and re-insurance of the above insurances. It has a well-established sales and distribution network covering the whole of China with over 150 branch offices, including in Shenzhen, Hainan, Guangdong, Beijing, Shanghai, Sichuan, Hunan, Henan, Tianjin and Hong Kong.
• Lianxun Securities Co., Ltd. (‘‘Lianxun Securities’’), a company in which the Guarantor has an interest, was established in 1988. Its business includes security brokerage, fund retail, security investment consultation, financial advisory and security asset management. It has over 30 branches in China. Lianxun Securities is listed on the over-the-counter bulletin board in Shenzhen.
• Yingkou Coastal Bank Co., Ltd. (‘‘Yingkou Coastal Bank’’), a company in which the Guarantor has an interest, was established in December 2010 with a registered capital of CNY1.5 billion. Headquartered in Yingkou city of Liaoning province, Yingkou Coastal Bank is a newly-formed commercial bank jointly established by four urban credit cooperatives in Yingkou city. It is situated at a strategic location in the coastal economic zone of Liaoning province, and takes advantage of the economic development in the region and is a bank with expertise in logistics networks.
• On 15 April 2016, HNA Tourism Group Co., Ltd. (‘‘HNA Tourism’’), a subsidiary of the Guarantor, reached an agreement with UK-based Lenlyn Holdings Limited to buy 100% of British bureau-de-change operator International Currency Exchange (‘‘ICE’’). Founded in 1973 and headquartered in London, ICE is one of the world’s largest currency exchange retailers, with a network of over 350 branches and bureaux in 70 airports and multiple other locations in 19 countries. The acquisition is a valuable addition to the Group’s global coverage of financial services for overseas tourism, and provides important support to the acceleration of the pace of its internationalisation.
• On 11 January 2017, the Group acquired UDC Finance, the asset finance subsidiary of ANZ Banking Group at a consideration of NZD660 million. The Group believes that the acquisition of UDC offered significant growth opportunities in Australia and New Zealand and would create synergies in its leasing business. iii) Travel Services Operating under the core development strategy of ‘‘one card, one network, and one centre’’, the Group seeks to provide a one-stop solution for all the travel needs of its customers from travel planning and booking, financing, air travel, hotel accommodations, tour guides to shopping and entertainment, with integrated internet and e-commerce platforms.
The Group is one of the largest travel services groups in China. The Group’s travel services span from travel agencies, stored value smart card, to currency exchange, with companies (including Grand China MICE, Hainan HNA Yisheng Co., Ltd., Tianjin Bohai Huitong Currency Exchange and Yisheng Capital Fund Co., Ltd.) operating approximately 73 travel agencies, over 500 travel agency outlets, over 10,000 merchants established and almost 40 currency exchange outlets. Its service network covers Asia, Europe and the Americas, and it shares the joy with 3 million travelers every year. With ‘‘one card, one network, and one centre’’ as the core development strategy and creative business model, the Group aspires to become the largest domestic and one of the leading international providers of modern comprehensive and seamless travel services as well as to create, promote and lead a new lifestyle of travel and consumption as part of its key strategies.
The key subsidiaries of the Group engaged in travel services are Hong Thai Travel Services Co., Ltd. (‘‘Hong Thai’’) and Bohai E-Business Service (‘‘Bohai E-Business’’).
Grand China MICE A subsidiary of the Guarantor, Grand China MICE (‘‘MICE’’) provides marketing, incentives, conferences, and exhibitions solutions to numerous reputable Top 500 multinational corporations from the pharmaceutical, telecommunication, insurance, financial, car and information technology industries.
68 Its headquarter is located in Beijing with subsidiaries in Shanghai, Guangzhou and Chengdu targeting the eastern region, southern region and western region respectively. The company has approximately 200 employees and their average year of experience in MICE is over 5 years.
Hong Thai Acquired in 2011, Hong Thai, a subsidiary of the Guarantor, is one of the largest travel agencies in Hong Kong. Founded in 1966, it has sales outlets located in Hong Kong, Macau, Shenzhen, Guangzhou and Singapore. Over the years, it has received numerous awards and accolades for its achievements and market leader position.
Bohai E-Business Incorporated in Tianjin in December 2008, Bohai E-Business is a subsidiary of the Guarantor and its principal businesses and core business development directions are to develop and market the HNA Easycard as an electronic payment platform on the internet. Aspiring to become the Chinese version of the American Express card, the HNA Easycard is a rechargeable stored value card which the holders can use for payment at affiliated shops as well as sales and services outlets. The HNA Easycard allows customers to purchase from a wide range of the Group’s travel business partners including hotels, car rental services and restaurants and encourages cross-selling and promotes business across the Group’s various segments and businesses. The economic growth of Tianjin and its vicinity area together with the increase in personal wealth helped grow the HNA Easycard business significantly. In 2016, the sales of transactions completed through the HNA Easycard exceeded CNY1.6 million, the sales volume of the HNA Easycard reached 69,926, and the stored value on the cards exceeded CNY18.3 million. The HNA Easycard business mainly focuses on individual clients which are relatively scattered. It has partnered with outstanding enterprises like Tianjin Business Federation, China UnionPay, China Telecom, China Unicom, Hainan Airlines and Tianjin Airlines Co., Ltd. Bohai E-Business is also amongst the 269 enterprises and the first batch of enterprises which has been issued with the third party payment authorisation certificate by the People’sBankofChina. iv) Airport Services The Group is engaged in the businesses of airport investment, airport restructuring, airport operation as well as management and related ground and consultancy services, and owns and manages a portfolio of 13 airports across China.
The Guarantor has a stake in and manages the following airports in China:
No. Airport 1 Sanya Phoenix International Airport 2 Yichang Sanxia Airport 3 Weifang Nanyuan Airport 4 Dongying Yong’an Airport 5 Manzhouli West Skirts Airport 6 Yingkou Airport 7An’qing Tianzhushan Airport 8 Tangshan Sannuhe Airport 9 Haikou Meilan International Airport 10 Jinzhou Airport 11 Qionghai Boao Airport 12 Songyuan Chaganhu Airport 13 Gansu Airport Group
As at 30 September 2016, the total assets of the Group’s airports business amounted to approximately CNY72.3 billion. According to the information published by the CAAC, in the first ten months of 2016, the Group’s airports achieved total passenger throughput of approximately 31.91 million passengers and total cargo throughput of approximately 216,996 tonnes.
69 Sanya Phoenix International Airport is a modern airport located in Sanya, Hainan constructed to 4E standards with capacity to handle large aeroplanes like the Boeing 747-400. The airport was officially opened to air traffic in July 1994, it has a network of over 214 domestic and international routes to major international and domestic cities, including Singapore, Moscow, Bangkok, Tokyo, Osaka, Seoul, Hong Kong and Taiwan. As at 31 December 2016, it handled over 17.70 million passengers, making it the 19th busiest airport in terms of passenger traffic. Total cargo traffic handled for the same period reached approximately 6.55 tonnes.
Haikou Meilan International Airport, located in the southeast of Haikou, the capital city of Hainan province, was officially opened on 25 May 1999. It is the largest airport in Hainan, covering an area of 583 hectares. With modern facilities meeting the 4E standards as required by the International Civil Aviation Organisation, it serves both domestic and international passengers. After the expansion, its passenger terminal building has an area of 102,000 square metres, raising its capacity to handle passenger throughput of up to 9.3 million passengers annually. As at 31 December 2016, it handled approximately 188 million passengers, 135,523 flight movements and 148,814 million tonnes of cargo and was the 18th busiest airport in China in terms of passenger traffic. Haikou Meilan International Airport is operated by HNA Infrastructure, the shares of which are listed on The Stock Exchange of Hong Kong Limited (Stock Code:357).
Both located in Hainan, Sanya Phoenix International Airport and Haikou Meilan International Airport is well-positioned to play an important role in the development of Hainan as an international tourist destination, which is part of the 12th Five-Year Plan promulgated by the PRC National People’s Congress.
A number of these member airports of the Group are an exemplification of the strategic cooperation between the Group and various provincial and municipal governments in the PRC, including Haikou Meilan International Airport, Sanya Phoenix International Airport, Yichang Sanxia Airport, Tangshan Sannuhe Airport and Manzhouli West Skirts Airport.
Swissport
In 2016, the Guarantor completed its acquisition of Swissport International Ltd. (‘‘Swissport’’)fora total transaction value of CHF2.7 billion (approximately U.S.$2.8 billion). Based in Switzerland, Swissport is one of the world’s leading operators in ground handling and cargo services. It serves around 224 million passengers and handles 4.1 million tonnes of cargo a year on behalf of some 700 client- companies. With a workforce of around 60,000 personnel, Swissport is active in more than 270 stations in 48 countries across five continents. The Group believes that the acquisition will create opportunities for synergy with the Group’s existing airport services business, and further strengthen and complement the Group’s existing activities including aviation, airport management, logistics and tourism businesses globally. v) Retail Business The Group has retail businesses in Western China and is exploring the rest of the Chinese domestic market. The Group seeks to bring the concepts of ‘‘health, wealth, happiness and harmony’’ to its retail businesses and to adopt a business strategy that integrates real and virtual businesses, electronic commerce and financial services. The Group carries out its retail business through 16 companies with an established nationwide retail network of retail stores in locations including Shaanxi, Gansu, Tianjin, Shanghai and Beijing, comprising department stores, supermarkets and shopping malls.
70 The Group’s key retail operations include the following:
• Xi’an Minsheng Group Co., Ltd. (‘‘Minsheng Group’’), a subsidiary of the Guarantor, is a long- established brand name in Xi’an, Shaanxi province with a leading position in the retail market. Its shares have been listed on the Shenzhen Stock Exchange since 1994. As at 30 September 2016, Minsheng Group had 13 department stores across central cities in Shaanxi, and more than 60 supermarkets covering Shaanxi and eastern Gansu. It employs over 9,000 employees.
• Hunan Joindoor Supermarket is a large Hunan-based chain retail enterprise, operating over 65 stores, including hypermarkets, supermarkets and convenience stores as at 30 September 2016. Its stores were located in Changsha, Yueyang, Yiyang, Changde, Hengyang, Zhuzhou, Loudi, Xiangxiang. With a total operating area of 150,000 square meters, Hunan Joindoor Supermarket has over 4,800 employees.
• Haikou Seaview International Plaza, a mid-to-high-end shopping centre located in the business centre of Haikou, is the first and only commercial enterprise selected by the Ministry of Commerce as a ‘‘Jinding Department Store,’’ the highest grading accorded to stores. In 2011, it was among the first batch of designated tax rebate shops for foreign tourists in Hainan. In 2012, it won the title of Hainan’s Top Ten Consumer Goods Enterprise with its total score ranking first place in Hainan. In 2016, overall sales exceeded CNY1.2 billion.
• Qingdao HNA Wanbang Center is a complex of office buildings, apartments and commercial buildings located in the central business district of Qingdao. It comprises a 51-storey, 5A class intelligent office building, the highest in Qingdao, a 30-storey luxury apartment and a four-storey high-end commercial shopping mall. vi) Real Estate The Group has developed various types of luxury hotels, office buildings, urban complexes, high-end residences and large-scale eco-tourism scenic spots. As at 31 December 2016, the Group had real estate operations in over 40 cities in China, including Hainan, Beijing, Shanghai, Shenzhen, Tianjin, Chongqing, Qingdao and Dalian.
On 28 August 2015, HNA Investment Holding Co, Ltd, a subsidiary of the Guarantor entered into an agreement with KanAm Grund Group, a German real estate investment fund for the acquisition of 30 South Colonnade, Canary Wharf, London, United Kingdom (‘‘30 South Colonnade’’). 30 South Colonnade is a landmark office building at the centre of Canary Wharf, one of London’s major financial districts. The building extends over ten storeys, with a total area of 305,600 square feet and is the European headquarters for Thomson Reuters. Located near other notable tenants in Canary Wharf including Citigroup, HSBC, Northern Trust, and Morgan Stanley, it is prominently situated near the centre of the Canary Wharf estate and is regularly featured in the media with the Reuters digital ticker tape providing the backdrop. The acquisition marked the first real estate acquisition by the Group in Europe and represented a significant step in building the Group’s European portfolio.
On 18 April 2016, HNA Holding Group Co. Limited., a subsidiary of the Company, entered into a sale and purchase agreement to purchase a commercial property at 17 Columbus Courtyard, Canary Wharf, London (‘‘17 Columbus Courtyard’’) for a purchase price of £131 million. 17 Columbus Courtyard, is a commercial building situated in Canary Wharf estate in a waterside position overlooking North Dock to the east and Columbus Courtyard to the south. The total gross floor area of the property is about 195,400 sq.ft. of Grade A office and ancillary accommodation arranged over the quay level, ground and nine upper floors, with plant and machinery in the basement and roof level. The property has been let to an investment bank of international repute until November 2024 with a tenant option to renew for another 15 years.
71 vii) Hotel and Catering The Group owns 28 hotels, 15 of which are five-star hotels and eight are four-star hotels. These hotels are consolidated into the results of the Group. As at the end of October 2016, such hotels had a total of 4,897 guest rooms and received over 1.5 million guests during 2016. In 2016, the Group ranked fifth among hotels in China in terms of number of rooms operated. Through its subsidiary, HNA Hotel, the Group also operates and holds interests in over 60 hotels, including high-end business hotels, resorts hotels, condominiums, budget hotels, clubhouses and golf courses. The Group’s hotel operations are located in major cities and tourist destinations in the PRC as well as overseas, including Brussels, Hainan, Beijing, Guangzhou, Hangzhou, Xi’an, Qingdao, Nanchang, Kunming, Harbin, Changchun, Ningbo, Dalian and Baoji. The Group also cooperates with international hotel groups such as the Westin, Raffles and the Marriott for the management of over 20 hotels owned by the Group, including the Marriott Beijing Northeast, the Tianjin HNA Raffles and the Guangzhou HNA Westin.
The Group has developed two distinctive series of brands for different types of hotels, aiming to create a unique following and loyalty for each of such brands. The Tangla series of hotel brands is used for the Groups premium luxury hotels, including the Tangla Grand Place, Tangla Hotels & Resorts, the Tang Hotel and Gardenlane Select. The HNA series of hotel brands include the HNA Grand Hotel, the HNA Business Hotel and the HNA Express Inn. The Group uses advanced management concepts and systems and first-rate quality standards and methods to consolidate brands through standardised operations, expand brands through scale mergers and acquisitions, and seeks to become a world-class Chinese hotel brand enterprise.
On 11 October 2016, HNA Holding bought eight golf courses with a total of 180 golf holes and 1,887.32 acres of land in the state of Washington D.C., United States, for a consideration of U.S.$137.5 million. This move was driven by the HNA Holding’s target to boost its overseas portfolio. HNA Holding also entered into a lease with Oki Golf Management (‘‘Oki’’),wherebyOkiwillpayHNA Holding an annual rent of U.S.$7.1 million to use the eight golf courses for a period of five years.
On 27 April 2016, HNA Tourism entered into an agreement with Carlson Hospitality Group, for the acquisition of Carlson Hotels, Inc. (‘‘Carlson Hotels’’). Carlson Hotels is one of the world’slargest hotel groups and includes 1,400 hotels in operation and under development with more than 220,000 rooms and a footprint spanning 115 countries and territories. The Carlson Hotels portfolio includes the following global brands: Quorvus Collection, Radisson Blu®, Radisson®,RadissonRED,ParkPlaza®; Park Inn® by Radisson, Country Inns & Suites By CarlsonSM and Club CarlsonSM, the global hotel rewards program. Under the terms of the acquisition agreement, HNA Tourism Group acquired 100% of Carlson Hotels, including its approximately 51.3 per cent. majority stake in the Stockholm-listed Rezidor Hotel Group AB. Carlson Hotel’s master licensee is based in Brussels, with hotels in Europe, the Middle East and Africa. The Group believes that the combination of HNA Tourism Group and Carlson Hotels will have increased its ability to expand its hospitality footprint internationally, and accelerate the building of Radisson RED and other new brands. The acquisition of Carlson Hotels was completed on 7 December 2016.
On 24 October 2016, the Group announced that it will acquire approximately a 25% equity interest in Hilton Worldwide Holdings Inc. (‘‘Hilton’’) at a consideration of approximately U.S.$6.5 billion, establishing a long-term strategic investment in Hilton and Hilton’s planned spin-offs including of Park Hotels & Resorts and Hilton Grand Vacations.
The Group believes that this acquisition is consistent with the Group’s strategy to enhance its global tourism business by leveraging the respective strengths, expertise and tourism platforms of the Group and Hilton to provide travellers with more choice, value and world-class services.
In conjunction with its hotel business, the Group also operates restaurants at various hotels operated by the Group, offering a range of cuisines and dining options for its hotel guests.
72 viii) Logistics and Transportation The Group conducts the following principal areas of logistics businesses: shipping and marine engineering construction, marine transportation, bulk commodity trading and cold chain system logistics.
• Shipping and marine engineering construction. Jinhai Heavy Industry Co., Ltd., an affiliated enterprise of HNA Logistics Group Co., Ltd and among the top ten shipbuilding enterprises in China, is engaged in the businesses of shipbuilding, marine shipping equipment, marine engineering equipment and non-shipbuilding equipment manufacturing, and aims to become a world-class equipment manufacturer. It has equipped itself with the capacity and conditions to build various types of vessels for domestic and international customers, including large and medium container vessels, liquefied natural gas (LNG) carriers, liquefied petroleum gas (LPG) carriers, ro-ro vessels, floating storage tankers, refined oil tankers, crude oil tankers, bulk carriers, passenger ships and special working vessels.
• Marine transportation operation. The maritime operations under HNA Logistics Group Co., Ltd cover container transport, bulk cargo transport, tanker transport, ship and crew management and many other businesses. It has operated almost 40 vessels. It has also signed many long and mid- term cargo transport contracts with regular customers and operates foreign trade routes including the Oceania route, America route, Japan route, Korea route and Southeast Asia routes as well as a number of domestic routes.
• Bulk commodity trading. Gopay Information Technology Co., Ltd. under HNA Logistics Group Co., Ltd is a third-party payment company with full licenses including a licence for Internet payment, mobile phone payment, prepaid card and acquiring service. It operates in market segments such as bulk commodity trading, business-to-consumer (B2C) business, prepaid card, acquiring service and financial service. Relaying on its payment business, data processing technology and trade settlement platform, Gopay has integrated HNA’s industrial resources and by virtue of three major tools including internet of things, big data and cloud computing, it has created a new internet based financial mode and is striving to develop a leading comprehensive third-party payment platform.
• Cold chain system logistics. HNA Sinosun Logistics Co., Ltd. under HNA Logistics Group Co., Ltd specialises in cold chain transport operations, and is among the top 50 enterprises in China’s food cold chain logistics. Presently, it has established good business relationship with Nestle, Starbucks, KFC, IKEA, DHL and other brands, and is devoted to become the first integrated air and sea intermodal service provider throughout the cold chain logistics industry.
On 18 February 2016, Tianjin Tianhai Investment Company, Ltd. (‘‘Tianjin Tianhai’’), a listed subsidiary of the Guarantor on the Shanghai Stock Exchange, entered into of a definitive merger agreement with Ingram Micro Inc. (‘‘Ingram Micro’’), whereby Tianjin Tianhai acquired Ingram Micro for U.S.$38.90 per share in cash with an equity value of approximately U.S.$6.0 billion, representing a premium of approximately 39% over the average closing share price of Ingram Micro for the 30 trading days ended 16 February 2016. The proposed transaction was completed in December 2016. Ingram Micro is a technology, mobility, cloud, and supply chain solutions provider based in California, United States. It is the world’s largest IT distributor listed on the New York Stock Exchange and a Fortune 500 corporation. The company supports global operations through an extensive sales and distribution network throughout North America, Europe, Middle East, Turkey and Africa, Latin America and Asia Pacific. ix) Other Businesses The Group is also engaged in the businesses of culture, media and new energy.
73 EMPLOYEES
As at 31 December 2016, the Group had over 410,000 employees.
The Group believes that its employees are critical to its performance and success. Its human resources policy promotes motivation and innovation, which it believes help boost the efficiency of the Group and its competitive edge. Remuneration of its employees comprises a fixed basic salary, bonus (determined with reference to the relevant company’s results and the relevant employee’s performance) and allowances. The Group also provides its employees with welfare benefits in accordance with applicable laws and regulations, including but not limited to provident fund contributions, medical insurance schemes and insurance. The Group has further established a platform to facilitate dialogue and interaction between the employees’ representatives and the senior management of the Group. As social responsibility is one of the important values of the Group, community service events are organised from time to time to promote this value and to maintain a harmonious working environment for the employees of the Group.
The Group adheres to, and complies with, the relevant labour laws of the PRC in all material respects. It has not experienced any major strike or work stoppage, and there is currently no unresolved major labour dispute that could have a material adverse effect to the operation and performance of the Group.
CORPORATE GOVERNANCE
The Guarantor established a Management Consultancy Committee which oversees the operations of the Group and its subsidiaries (including the Issuer) and the implementation of its strategies, and liaises with various levels of governments. The Safety Management Committee monitors the potential safety hazards relating to each of the Group’s business segments, and issues relevant handbooks and guidelines. The Budget Management Committee controls investment decision making and the risk management process to ensure effective supervision during each stage of investment.
INSURANCE
The operations of the Group involve a number of inherent risks, such as mechanical failure, fatality, personal injury, property loss and damage, business interruption, hostilities and labour strikes. The Group is covered by insurance policies by reputable insurance companies in the relevant jurisdictions and with commercially reasonable deductibles and limits on coverage. It believes that the insurance coverage in place are in line with industry and market standards and is adequate and sufficient for the conduct of its businesses.
LEGAL PROCEEDINGS
As at the date of this Offering Circular, the Guarantor and its subsidiaries have not been involved in any legal or administrative proceedings or arbitration that could have a material adverse effect on their respective financial condition or results of operations, nor is the Guarantor aware of any potential legal or administrative proceedings or arbitration involving the Guarantor or any of its subsidiaries that would have a material adverse effect on the Group’s financial condition or results of operations. The Guarantor and its subsidiaries, however, may from time to time be involved in certain legal proceedings arising out of their ordinary course of business. The Group is currently involved in legal proceedings with Shagang Shipping involving disputed claims of U.S.$66.4 million and the Group believes that it has a legitimate defence in the lawsuit. The Group believes that none of these legal proceedings, individually or in aggregate, will have any material adverse effect on the Group’s financial position or results of operations.
74 PRC REGULATIONS
The heading of the existing section ‘‘Remittance of Reminibi into and outside the PRC and PRC Regulations on the Guarantee of the Notes’’ appearing on pages 160 to 163 of the Offering Circular is changed to ‘‘PRC Regulations’’. New sub-section headings ‘‘Remittance of Renminbi into and outside the PRC’’ and ‘‘Regulations on the Guarantee of the Notes’’ are inserted before the paragraph ‘‘CURRENT ACCOUNT ITEMS Under the applicable PRC foreign exchange control regulation, current account items refer to…’’ on page 160 and the paragraph ‘‘CROSS-BORDER SECURITY LAWS On 19 May 2014, the SAFE promulgated the Notice Concerning the Foreign Exchange Administration Rules on Cross-Border Security and the relating implementation guidelines…’’ on page 162, respectively. The existing sub-section headings ‘‘CURRENT ACCOUNT ITEMS’’ and ‘‘CAPITALACCOUNTITEMS’’ on page 160 are changed into secondary sub-section heading and the existing sub-section heading ‘‘Cross- Border Security Laws’’ on page 162 is cancelled.
Further, the following new sub-section is inserted after the paragraph ‘‘The Terms and Conditions of the Notes provide that the Guarantor will register, or cause to be registered, the Deed of Guarantee with SAFE…’’ on page 163.
PRE-ISSUE REGISTRATION AND POST-ISSUE FILING REQUIREMENTS
On 14 September 2015, NDRC promulgated the Circular on Promoting the Reform of the Filing and Registration System for Issuance of Foreign Debt by Enterprises（國家發展改革委關於推進企業發行外 債備案登記制管理改革的通知（發改外資[2015]2044號）,the‘‘NDRC Circular’’ ）, which came into effect on the same day. According to the NDRC Circular, enterprises domiciled within the territory of the PRC and their overseas subsidiaries and branches which issue debt securities or incur medium-to- long term loans outside the PRC shall procure the registration of the debt securities or loans with the NDRC prior to the issuance of the securities or drawings under the loans. Within five working days from the receipt of an application for registration, NDRC shall inform the applicant whether the application would be accepted for processing. In addition, NDRC shall issue an ‘‘Enterprise Overseas Debt Issuance Registration Certificate（企業發行外債備案登記證明）’’ within seven working days upon acceptance of the application for registration. The prospective issuer or obligor may proceed with the debt issuance or drawing with the registration certificate. Within 10 working days following the closing of the debt issuance or drawdown, a post-issue filing shall be made to NDRC. The information required to be filed with NDRC includes the name of the issuer or obligor, the major economic indicators of the issuer or obligor, the basic information of the debt securities or loans, etc.
According to the NDRC Circular, the term ‘‘Foreign Debts’’ is defined as RMB-denominated or foreign currency-denominated debt instruments with a maturity of more than one year which are issued overseas by PRC domestic enterprises or their controlled overseas enterprises or branches and the principal and interest of such debt instruments are repaid as agreed. Types of Foreign Debts include, among others, overseas bonds and international commercial loans of medium or long term. Therefore, if the maturity of any series of Notes is less than one year, and there are no conditions under the Terms and Conditions of the Notes which provide for an extension of maturity to more than one year, the Guarantor and the Notes will not be subject to the pre-issuance registration or post-issue filing requirements with the NDRC as otherwise required.
75 GENERAL INFORMATION
1. Listing Approval-in-principle has been received from the SGX-ST to list the Notes issued pursuant to the Programme on the SGX-ST.
2. Authorisation The Issuer has obtained all necessary consents, approvals and authorisations in connection with the issue of the Notes thereunder and performance of its obligations under the Notes, the Trust Deed, the Deed of Guarantee and the Agency Agreement. The issue of the Notes was authorised by a resolution of the board of directors of the Issuer passed on 16 March 2015.
The Guarantor has obtained all consents, approvals and authorisations in connection with the giving of the Guarantee of the Notes and the performance of its obligations under the Trust Deed, the Deed of Guarantee and the Agency Agreement. The giving of the Guarantee of the Notes was authorised by resolutions of the Guarantor passed on 19 September 2016.
3. Significant/Material Change Save as disclosed in this Offering Circular, there has been no material adverse change in the prospects of the Issuer, the Guarantor or the Group since 31 December 2016 and there has been no significant change in the financial or trading position of the Issuer, the Guarantor or the Group since 31 December 2016.
4. Directors, Supervisors and Management The business address of each of the directors, supervisors and senior management of the Issuer namedinthesection‘‘Directors and Senior Management of the Issuer’’ in this Supplement is 26/F, Three Pacific Place, 1 Queen’s Road East, Hong Kong.
The business address of each of the directors, supervisors and senior management of the Guarantor namedinthesection‘‘Directors of the Guarantor’’ in this Supplement is Haihang Building, 7 Guo Xing Road, Haikou City, Hainan Province, the PRC.
5. Disclosure of Interest As at the date of this Supplement, there are no potential conflicts of interest between any duties of the Issuer’s directors to the Issuer or the Guarantor’s directors to the Guarantor, and their private interests and/or other duties.
6. Legal and Arbitration Proceedings None of the Issuer, the Guarantor or any member of the Group is involved in any governmental, litigation or arbitration proceedings, which the Issuer, the Guarantor or the Group, as the case may be, believes may have, or have had during the 12 months period prior to the date of this Supplement Particulars a significant adverse effect on the financial position or profitability of the Issuer, the Guarantor or the Group and, so far as the Issuer or the Guarantor is aware, no such litigation or arbitration proceedings are pending or threatened.
76 7. Auditor The Issuer’s audited consolidated financial statements as at and for the years ended 31 December 2015 and 2016, which are included elsewhere in this Supplement, have been audited by Li, Tang, Chen & Co., independent auditor, in accordance with Hong Kong Standards on Auditing issued by HKICPA. The Issuer’s unaudited summary consolidated financial information as at and for the nine months ended 30 September 2017, which are included elsewhere in this Supplement, has been reviewed by Li, Tang, Chen & Co., independent auditor, in accordance with Hong Kong Standard on Review Engagements 2410 ‘‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’’ issued by HKICPA. Li, Tang, Chen & Co. is a member of the Hong Kong Institute of Certified Public Accountants.
The Guarantor’s audited consolidated financial statements as at and for the year ended 2015 and 2016, which are included elsewhere in the Offering Circular and this Supplement, have been audited by ZhongXingCai GuangHua Certified Public Accountants LLP, independent auditor, in accordance with PRC Accounting Standards. ZhongXingCai GuangHua Certified Public Accountants LLP is a member of the Chinese Institute of Certified Public Accountants.
8. Documents on Display Copies of the following documents will be available for inspection (in physical form) from the Issue Date at the specified office of the Issuer at 26/F, Three Pacific Place, 1 Queen’sRoadEast, Hong Kong during normal business hours, for so long as any Note is outstanding:
(i) the Articles of Association of each of the Issuer and the Guarantor;
(ii) the Issuer’s audited consolidated financial statements as at and for the years ended 31 December 2015 and 2016;
(iii) the Issuer’s unaudited summary consolidated financial information as at and for the nine months ended 30 September 2017;
(iv) the Guarantor’s audited consolidated financial statements as at and for the years ended 31 December 2015 and 2016;
(v) the Pricing Supplement;
(vi) a copy of this Supplement, together with any supplement to this Supplement and any other documents incorporated herein or therein referenced;
(vii) the Trust Deed; and
(viii) the Deed of Guarantee.
9. Third Party Information Market data and certain industry forecasts and statistics in this Supplement have been obtained from both public and private sources, including market research, publicly available information and industry publications. Each of the Issuer and the Guarantor confirms that third party information included in this Supplement has been accurately reproduced and, so far as the Issuer and the Guarantor are aware and have been able to ascertain from that published information, no facts have been omitted which would render the reproduced information inaccurate or misleading.
77 THE ISSUER THE GUARANTOR
HNA Group (International) Company Limited HNA Group Co., Limited 26/F, Three Pacific Place Haihang Building 1 Queen’sRoadEast 7 Guo Xing Road Hong Kong Haikou City Hainan Province PRC
THE TRUSTEE
The Bank of New York Mellon, London Branch One Canada Square London E14 5AL United Kingdom
PRINCIPAL REGISTRAR AND ISSUING AND PAYING AGENT AND TRANSFER AGENT CALCULATION AGENT
The Bank of New York Mellon The Bank of New York Mellon, (Luxembourg) S.A. London Branch Vertigo Building - Polaris One Canada Square 2-4 rue Eugene Ruppert London E14 5AL L-2453 Luxembourg United Kingdom
LEGAL ADVISERS
TotheIssuerastoHongKongLaw To the Guarantor as to PRC Law Linklaters King and Wood Mallesons 10/F, Alexandra House 40th Floor, Tower A Chater Road Beijing Fortune Plaza Hong Kong 7 Dongsanhuan Zhonglu Chaoyang Beijing, 100020 PRC
To the Joint Global Coordinators, To the Joint Global Coordinators, Joint Lead Managers and Joint Lead Managers and Joint Bookrunners Joint Bookrunners and the Trustee as to English Law as to PRC Law Deacons Global Law Office 5/F, Alexandra House 15&20F, Tower 1 Chater Road China Central Place Hong Kong No.81 Jianguo Road Chaoyang Beijing 100025 PRC
AUDITORS OF THE ISSUER AUDITORS OF THE GUARANTOR
Li, Tang, Chen & Co., CPA ZhongXingCaiGuangHua Sun Hung Kai Centre Certified Public Accountants LLP 30 Harbour Road 501 Xinda Commercial Building Wanchai 48 Guomao Avenue Hong Kong Haikou City Hainan Province PRC
SINGAPORE LISTING AGENT
Linklaters Singapore Pte. Ltd. One George Street #17-01 Singapore 049145 A.Plus International FINANCIAL PRESS LIMITED 171080591