IMPORTANT
If you are in any doubt about this prospectus, you should consult your stockbroker, bank manager, solicitor, professional accountant or other professional adviser.
寶 業 BAOYE 寶業集團股份有限公司 BAOYE GROUP COMPANY LIMITED* (a joint stock limited company incorporated in the People’s Republic of China with limited liability) PUBLIC OFFER AND INTERNATIONAL PLACING Number of Offer Shares : 180,684,000 H Shares (subject to the Over-allotment Option) Number of International Placing Shares : 162,612,000 H Shares (subject to reallocation and the Over-allotment Option) Number of Public Offer Shares : 18,072,000 H Shares (subject to reallocation) Offer Price : not more than HK$1.99 per H Share and expected to be not less than HK$1.25 per H Share Nominal Value : RMB1.00 per H Share Stock Code : 2355 Sponsor
FIRST SHANGHAI CAPITAL LIMITED Sole Bookrunner and Joint Lead Manager
FIRST SHANGHAI SECURITIES LIMITED Joint Lead Manager
GC Capital (Asia) Limited Co-Lead Managers CM-CCS Securities Limited CITIC Capital Markets Limited Worldwide Finance (Securities) Limited
The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this prospectus, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this prospectus. A copy of this prospectus, having attached thereto the documents specified in the paragraph headed “Documents delivered to the Registrar of Companies” in Appendix V to this prospectus, has been registered by the Registrar of Companies in Hong Kong as required by section 342C of the Companies Ordinance. The Securities and Futures Commission of Hong Kong and the Registrar of Companies in Hong Kong take no responsibility for the contents of this prospectus or the documents referred to above. The Company is established, and its businesses are located, in the PRC. Potential investors in the Company should be aware of the differences in the legal, economic, and financial systems between the PRC and Hong Kong and that there are different risk factors relating to investment in PRC- incorporated companies. Potential investors should note that the regulatory framework in the PRC is different from the regulatory framework in Hong Kong, and in assessing the Company, the differences in market nature should be taken into consideration. Such risk factors and differences are set out in the section headed “Risk factors” of this prospectus and in Appendix III to this prospectus respectively. Investors should also be aware that the companies and securities regulatory framework in the PRC to which the Company is subject has only recently been introduced. The Offer Price is expected to be determined by an agreement between the Company, First Shanghai Securities (as defined in this prospectus), on behalf of the Underwriters, and the Sponsor (as defined in this prospectus) on or before 5:00 p.m. on 20 June, 2003 or such later date as may be agreed by the Company, First Shanghai Securities (on behalf of the Underwriters) and the Sponsor but in any event no later than 5:00 p.m. on 24 June, 2003. If, for any reason, the Offer Price is not agreed between the Company, First Shanghai Securities (on behalf of the Underwriters) and the Sponsor on or before 5:00 p.m. on 24 June, 2003, the Offering will not become unconditional and will lapse. The Offer Price will not be more than HK$1.99 per Offer Share and is expected to be not less than HK$1.25 per Offer Share. First Shanghai Securities (on behalf of the Underwriters) and the Sponsor, with the consent of the Company may reduce the indicative Offer Price range below that stated in this prospectus at any time prior to the morning of the latest day for lodging applications. In such case, a notice of the reduction of the indicative Offer Price range will be published in South China Morning Post (in English) and Hong Kong Economic Times (in Chinese) not later than the morning of the latest day for lodging applications under the Public Offer. If applications for Public Offer Shares have been submitted prior to the day which is the latest day for lodging applications under the Public Offer, then even if the Offer Price is so reduced, such applications cannot be subsequently withdrawn. Pursuant to the force majeure provisions contained in the Public Offer Underwriting Agreement in respect of the Offering, First Shanghai Securities, on behalf of the Public Offer Underwriters, has the right in certain circumstances, subject to the reasonable opinion of First Shanghai Securities, to terminate the obligations of the Public Offer Underwriters pursuant to the Public Offer Underwriting Agreement at any time prior to 6:00 a.m. (Hong Kong time) on the date on which dealings in the H Shares first commence on the Stock Exchange (such first dealing date is currently expected to be 30 June, 2003). Further details of the terms of the force majeure provisions are set out in the section headed “Underwriting” of this prospectus.
* For identification purpose only 17 June, 2003 EXPECTED TIMETABLE
2003 (Note 1)
Application lists open (Note 2) ...... 11:45 a.m. on Friday, 20 June
Latest time to lodge white and yellow application forms ...... 12:00 noon on Friday, 20 June
Application lists close ...... 12:00 noon on Friday, 20 June
Expected Price Determination Time on or before ...... 5:00 p.m. on Friday, 20 June
Announcement of the Offer Price, the level of indication of interest in the International Placing, the results of applications and the basis of allocation of the Public Offer Shares to be published in South China Morning Post (in English) and Hong Kong Economic Times (in Chinese) on or before ...... Wednesday, 25 June
Despatch/collection of share certificates and/or refund cheques (Notes 3 to 5) ...... Thursday, 26 June
Dealings in the H Shares on the Stock Exchange expected to commence on ...... Monday, 30 June
Notes:
1. All times refer to Hong Kong local time, except as otherwise stated. Details of the structure of the Offering, including its conditions, are set out in the section headed “Structure of the Offering” of this prospectus.
2. If there is a “black” rainstorm warning or tropical cyclone warning signal number 8 or above in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Friday, 20 June, 2003, the application lists will not open on that day. Further information is set out in the paragraph headed “Effect of bad weather on the opening of the application lists” under the section headed “How to apply for the Public Offer Shares” of this prospectus.
3. Refund cheques will be issued in respect of wholly or partially unsuccessful applications.
4. Applicants for 1,000,000 H Shares or more and who have indicated in their application forms that they wish to collect refund cheques (where applicable) and share certificates (where applicable) personally may collect refund cheques (where applicable) and share certificates (where applicable) personally from the Company’s Hong Kong share registrar, Tengis Limited, at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong from 9:00 a.m. to 1:00 p.m. on Thursday, 26 June, 2003, or any other date notified by the Company in the newspapers as the date of despatch of share certificates/refund cheques. Applicants being individuals who opt for personal collection must not authorise any other person to make collection on their behalf. Applicants being corporations who opt for personal collection must attend by their authorised representatives bearing letters of authorisation from their corporations stamped with the corporations’ chop. Both individuals and authorised representatives must produce at the time of collection evidence of identity acceptable to Tengis Limited.
5. Uncollected share certificates and/or refund cheques will be despatched by ordinary post at the applicants’ own risk to the addresses specified in the relevant application forms shortly after 1:00 p.m. on Thursday, 26 June, 2003. For applicants who have applied for less than 1,000,000 H Shares or who have applied for 1,000,000 H Shares or more but have not indicated in the application form that he or she wishes to collect share certificates and/or refund cheques, their share certificates (if applying by using a white application form) and/or refund cheques will be sent to the address on the applicant’s application form after 1:00 p.m. on Thursday, 26 June, 2003, by ordinary post and at the applicant’s own risk. Share certificates for successful applicants who apply on yellow application forms will be deposited directly into CCASS for credit to the applicants’ CCASS investor participant stock accounts or the stock accounts of the applicants’ designated CCASS participants at the close of business on Thursday, 26 June, 2003. Further information is set out in the section headed “How to apply for the Public Offer Shares” of this prospectus. For further details of the Offering, please refer to the section headed “Information about this prospectus and the Offering” of this prospectus.
6. No temporary documents of title will be issued. Share certificates which will be issued on Thursday, 26 June, 2003 will only become valid certificates of title after 6:00 a.m. on Monday, 30 June, 2003 provided that (i) the Public Offer becomes unconditional and (ii) the right of termination as described in the paragraph headed “Grounds for termination” under the section headed “Underwriting” of this prospectus has not been exercised thereto. – i – CONTENTS
You should rely only on the information contained in this prospectus and the application forms to make your investment decision. The Company has not authorised anyone to provide you with information that is different from what is contained in this prospectus. Any information or representation not made in this prospectus must not be relied on by you as having been authorised by the Company, the Sponsor, the Underwriters, any of their respective directors, or any person or party involved in the Offering.
Page
Expected timetable ...... i
Summary ...... 1
Definitions ...... 13
Risk factors ...... 22
Information about this prospectus and the Offering ...... 34
Directors, Supervisors and parties involved in the Offering ...... 39
Corporate information ...... 44
Industry overview ...... 45
Corporate development ...... 59
Business Introduction ...... 65 Competitive strengths ...... 66 Licences, certificates and permits ...... 68 Business overview ...... 70 Construction Business ...... 70 Building Materials Business ...... 85 Real Estate Business ...... 89 Customers ...... 92 Suppliers ...... 92 Government grant ...... 93 Environmental protection ...... 93 Non-competition undertaking ...... 93 Connected transactions ...... 94
– ii – CONTENTS
Page
Directors, Supervisors, management and employees ...... 100
Promoters ...... 107
Substantial shareholders ...... 109
Share capital ...... 110
Financial information ...... 112
Future plans and prospects ...... 136
Use of proceeds ...... 140
Underwriting ...... 142
Structure of the Offering ...... 148
How to apply for the Public Offer Shares ...... 153
Appendix I – Accountants’ report ...... 163
Appendix II – Property valuation ...... 211
Appendix III – Summary of principal legal and regulatory provisions and Articles of Association ...... 313
Appendix IV – Statutory and general information ...... 378
Appendix V – Documents delivered to the Registrar of Companies and available for inspection ...... 404
– iii – SUMMARY
This summary aims to give you an overview of the information contained in this prospectus. As this is a summary, it does not contain all the information that may be important to you. You should read the whole document before you decide to invest in the H Shares. There may be risks associated with any investment in the Company. For certain risks associated with investing in the H Shares, please refer to the section headed “Risk factors” of this prospectus. It is important that you read the section in detail before making any decision on investing in the H Shares.
INTRODUCTION
The Group is one of the leading privately-owned construction groups in the PRC. According to 《中國大型建築企業－ 2001》(China Large Construction Enterprises 2001) published by the National Bureau of Statistics in 2001, the Company ranked eighth among 全國建築業500家利潤 領先企業 (Top 500 Most Profitable Construction Companies in the PRC) in 2000, with the first seven all being State-owned enterprises. The Group is principally engaged in (i) the undertaking and implementation of construction projects; (ii) research and development, production and sale of building materials; and (iii) real estate development.
During the Track Record Period, the Group completed 369 projects including 145 public buildings (such as office buildings, hotels and schools), 137 residential developments, 41 industrial plants and 46 infrastructure projects. The Directors believe that the Construction Business has established a solid business foundation in Zhejiang Province and Shanghai Municipality. Currently, the Construction Business is primarily conducted by Baoye Construction, which has 10 representative offices in Shaoxing City, Keqiao Township, Yiwu City, Hangzhou City, Jiaxing City, Taizhou City, Wenzhou City and Ningbo City, all within Zhejiang Province, and in Shanghai Municipality and Wuhan City, Hubei Province, respectively.
Some members of the Group have already obtained a series of operating licences and permits, including 房屋建築工程施工總承包特級證書 (Premium class certificate for general building construction contracting works), the highest qualification issued by the MOC. In addition, the Group has obtained certificates of 建築裝修裝飾工程專業承包一級證書 (First class certificate for fitting-out and decoration contracting works), 建築幕工程專業承包一級證書 (First class certificate for curtain walls construction contracting works) and 地基與基礎工程專業承包一級 證書 (First class certificate for foundations and basic construction contracting works), each being the highest qualification/recognition awarded by the MOC in the respective construction category.
The Group enjoys good reputation and recognition in the PRC construction industry. Six of the Group’s completed construction projects have received 中國建築工程魯班獎 (Lu Ban Award in the PRC Construction Engineering). The Group has also received two awards for 全國建築工 程裝飾獎 (National Construction Decoration Award) and two other awards for 建設部優質樣版 工程 (Ministry of Construction Superior Quality Model Construction Works), all of which are national awards for the construction industry in the PRC. In addition, the Group’s construction projects have received a total of 17 錢江杯 (Qianjiang Cup) and 8 白玉蘭杯 (Bai Yulan Cup), both honours in the construction industry awarded by the Zhejiang Provincial Government and Shanghai Municipal Government, respectively.
– 1 – SUMMARY
The Directors believe that the Group is well-positioned to leverage on the knowledge and experience and brand recognition of the Construction Business, and is able to vertically expand its business to develop both upstream building materials business and downstream real estate development business. The Directors believe that this strategy would create synergies for the Construction Business through enhancing the Group’s construction quality, reducing construction costs, shortening construction work cycle and reducing environmental impact.
The major building materials produced and sold by the Group include ready-mixed concrete, concrete piles, concrete ducts, large roofing sheathing and fire-proof materials. The real estate development projects that the Group has completed are mainly located in Shaoxing City, Zhejiang Province, the location of the Group’s headquarters. Since March 2002, the Group started to expand its real estate development business to other regions, including Hefei City, Anhui Province and Shanghai Municipality which the Group believes have growth potential. Since the commencement of the Real Estate Business in 1995 and up to the Latest Practicable Date, the Group had completed 10 real estate development projects with a total gross floor area of approximately 313,000 sq. m..
For each of the years ended 31 December, 2000, 2001 and 2002, the Group recorded turnover of approximately RMB981,896,000, RMB1,604,574,000 and RMB2,297,526,000, respectively. During the same periods, the Group’s profit attributable to shareholders were approximately RMB59,734,000, RMB122,053,000 and RMB141,075,000, respectively.
Historically, the majority of the turnover of the Group was derived from the Construction Business and the Directors expect that the Construction Business will continue to contribute a large portion of the Group’s turnover in the foreseeable future. The following table shows (i) the turnover; (ii) the percentages of contribution to the Group’s turnover; and (iii) the gross margins derived from the Construction Business, the Building Materials Business and the Real Estate Business, respectively, during the three years ended 31 December, 2002:
Year ended 31 December, 2000 2001 2002 Approximate Approximate Approximate percentage percentage percentage of total Gross of total Gross of total Gross Business Turnover turnover margin Turnover turnover margin Turnover turnover margin (RMB’000) (%) (%) (RMB’000) (%) (%) (RMB’000) (%) (%)
Construction 820,857 83.6 9.5 1,331,913 83.0 8.3 1,896,354 82.5 7.8 Building materials 59,588 6.1 26.7 123,532 7.7 30.4 148,696 6.5 28.1 Real estates 100,122 10.2 34.9 146,140 9.1 30.5 251,292 10.9 28.9 Others (Note) 1,329 0.1 85.9 2,989 0.2 92.7 1,184 0.1 100.0
981,896 100.0 1,604,574 100.0 2,297,526 100.0
Note: It represents the turnover of non-core business of the Group including property management, investment holding and property rental.
– 2 – SUMMARY
The Construction Business is largely conducted in Shaoxing City and some other areas of Zhejiang Province. Outside Zhejiang Province, the activities of the Construction Business are carried out primarily in Shanghai Municipality. The Group expects to expand the Construction Business gradually into neighboring provinces such as Beijing Municipality, Wuhan City, Anhui Province and Jiangxi Province if the market condition allows. During the three years ended 31 December, 2002, the Group completed 102, 129 and 138 construction projects, respectively and the following tables are the breakdowns of the completed projects by (i) project category; and (ii) project location, respectively:
Year ended 31 December, 2000 2001 2002 Number % Number % Number %
By project category Construction for public use (Note) 54 52.9 62 48.1 29 21.0 Residential 30 29.4 36 27.9 71 51.4 Industrial 8 7.9 10 7.8 23 16.7 Urban works and infrastructure 10 9.8 21 16.2 15 10.9
Total 102 100.0 129 100.0 138 100.0
Note: Including offices, hotels, sports stadiums and schools.
Year ended 31 December, 2000 2001 2002 Number % Number % Number %
By project location Shaoxing City/County 60 58.8 67 51.9 59 42.8 Other areas in Zhejiang Province 32 31.4 40 31.0 27 19.6 Shanghai Municipality and other areas in the PRC (Note) 10 9.8 22 17.1 52 37.6
Total 102 100.0 129 100.0 138 100.0
Note: Except the one construction project completed by the Group in 2001 and the two construction projects completed by the Group in 2002 were located in Wuhan City, Hubei Province, all other completed construction projects were located in Shanghai Municipality.
– 3 – SUMMARY
COMPETITIVE STRENGTHS
The Directors believe that the success of the Group is principally attributed to the following factors:
• The Group has obtained a number of operation qualifications and awards which enable the Group to generate business opportunities and enhance its ability to win contract tenders;
• The Group has been implementing stringent quality and cost control policies;
• The Group has established long-term relationships with its project managers;
• The Group employs an experienced and efficient management team;
• The Group has successfully established a solid business foundation in Zhejiang Province, one of the most economically developed and fast-growing areas in the PRC;
• The Group has adopted a vertical integration strategy, which is likely to create synergies for each of its business segments; and
• The Group is situated in a favourable geographical location which facilitates its delivery of building materials products.
– 4 – SUMMARY
TRADING RECORD
The table below sets out a summary of the consolidated results of the Group for the three years ended 31 December, 2002, which have been extracted from the accountants’ report as set out in Appendix I to this prospectus, except for information related to gross margin, pre-tax profit margin and net profit margin. The following summary shall be read in conjunction with the accountants’ report set out in Appendix I to this prospectus and the section headed “Financial information” of this prospectus.
Year ended 31 December, 2000 2001 2002 Notes RMB’000 RMB’000 RMB’000
Turnover 1 Construction Business 820,857 1,331,913 1,896,354 Building Materials Business 59,588 123,532 148,696 Real Estate Business 100,122 146,140 251,292 Others 2 1,329 2,989 1,184
981,896 1,604,574 2,297,526 Cost of sales (851,541) (1,409,366) (2,034,708)
Gross profit 130,355 195,208 262,818 Other revenues 3 6,028 42,420 40,053 Distribution costs (1,850) (4,607) (3,339) Administrative expenses (40,082) (42,670) (79,129) Other operating expenses (219) (4,658) (875)
Operating profit 94,232 185,693 219,528 Finance costs (6,290) (6,150) (5,502) Share of loss of a joint venture – – (1,016)
Profit before taxation 87,942 179,543 213,010 Taxation (28,565) (55,152) (64,369)
Profit after taxation 59,377 124,391 148,641 Minority interests 357 (2,338) (7,566)
Profit attributable to shareholders 59,734 122,053 141,075
Dividends – – –
Basic earnings per share 4 0.34 0.35 0.40
– 5 – SUMMARY
Notes:
1. Turnover principally represents the sum of (i) contract revenue recognised using the percentage of completion method with respect to the Construction Business; (ii) net invoiced value of building materials sold (excluding value-added tax), after allowances for returns and discounts; and (iii) contracted value of developed properties sold.
2. It represents the turnover of non-core business of the Group including property management, investment holding and property rental.
3. The Group received government grants from the Finance Bureau of Shaoxing County amounting to approximately RMB35,555,000 and RMB31,274,000 during the years ended 31 December, 2001 and 2002, respectively, which are classified as other revenues of the Group.
4. Basic earnings per share for the years ended 31 December, 2000, 2001 and 2002 is calculated based on the Group’s profit attributable to shareholders for the three years ended 31 December, 2002 and the weighted average number of 175,371,027, 350,742,053 and 350,742,053 shares in issue during the three years ended 31 December, 2002, respectively. In determining the weighted average number of shares in issue during the three years ended 31 December, 2002, it is assumed that the conversion of capital took place at the same time as when the registered capital was injected into the Company. The deemed number of shares before the capitalisation issue is adjusted for the proportionate change in the number of shares as if the capitalisation had occurred at the beginning of the earliest period presented.
OFFER STATISTICS
Except where otherwise indicated, the offer statistics have been prepared on the assumption that the Over-allotment Option will not be exercised. Offer statistics shown in Hong Kong dollars and the prospective earnings of the Group taken into account in the prospective price/earnings multiple have been translated from RMB into Hong Kong dollars at the rate of HK$1.00 = RMB1.0611, being the PBOC Rate prevailing on 30 April, 2003.
Based on Based on Offer Price of Offer Price of HK$1.25 HK$1.99 per H Share per H Share
Market capitalisation of the H Shares (Note 1) HK$226 million HK$360 million
Proforma historical earnings per Share (Note 2) RMB0.27 RMB0.27
Proforma historical price/earnings multiple (Note 3) 5.0 times 8.0 times
Proforma adjusted net tangible asset value per Share before taking into account of revaluation surplus (Note 4) HK$1.27 HK$1.51
Proforma adjusted net tangible asset value per Share (Note 5) HK$1.80 HK$2.03
Notes:
1. The market capitalisation of the H Shares is calculated on the basis of 180,684,000 H Shares in issue immediately upon completion of the Offering and does not take into account any H Shares which may be issued upon exercise of the Over-allotment Option.
2. The calculation of proforma historical earnings per Share is based on the profit attributable to shareholders of the Company for the year ended 31 December, 2002 and on the basis of an issued share capital average number of 531,426,053 Shares, being the aggregate of the number of Shares in issue and to be issued as mentioned in this prospectus. It does not take into account any Shares which may be issued upon the exercise of the Over-allotment Option.
– 6 – SUMMARY
3. The proforma historical price/earnings multiple is based on the Offer Price and the historical earnings per Share of approximately RMB0.27.
4. The proforma adjusted net tangible asset value per Share before taking into account of revaluation surplus has been arrived at after the adjustments referred to in the paragraph headed “Adjusted net tangible assets” under the section headed “Financial information” of this prospectus and on the basis of 531,426,053 Shares in issue immediately following the completion of the Offering and assuming the Over-allotment Option is not exercised.
5. The proforma adjusted net tangible asset value per Share has been arrived at after the adjustments referred to in the paragraph headed “Adjusted net tangible assets” under the section headed “Financial information” of this prospectus and on the basis of 531,426,053 Shares in issue immediately following the completion of the Offering and assuming that the Over-allotment Option is not exercised.
If the Over-allotment Option is exercised in full, the adjusted net tangible assets per Share will be increased while the earnings per Share on a fully diluted basis will be diluted correspondingly.
FUTURE PLANS AND PROSPECTS
Currently, the PRC construction industry has a low level of technological innovation and application of pre-fabricated building materials. Compared to the other more economically advanced countries, the PRC construction industry is labour-intensive.
According to the《關於推進住宅產業現代化提高住宅質量的若干意見》 (Certain Opinions Concerning the Promotion of Industrialisation of Building Materials to Improve Housing Quality) prepared by the MOC and endorsed by the State Council in August 1999, the State Council set a targeted time-frame to complete the initial phase of industrialisation and standardisation of the building materials industry by 2005. The State Council also specifically called for the acceleration of the use of advanced construction technology and techniques and encouraged the use of steel structures and concrete bricks in the construction industry.
In December 1999, the MOC, the SETC, the State Quality and Technology Supervisory Bureau and the SBBMI jointly issued a notice《關於在住宅建設中淘汰落後產品的通知》 (Notice Concerning the Elimination of the Use of Old-Fashioned Products in Residential Constructions) (the “Joint Notice”) which encouraged the building materials industry in the PRC to standardize and improve the quality of, and mass produce, building materials to allow more efficient use of resources and better protection of the environment.
The Directors believe that the Group would benefit from such new policy to:
• ensure product quality consistency;
• improve construction efficiency by reducing manual work components;
• shorten construction time period by using more pre-fabricated building materials;
• lower construction costs by using building materials which are manufactured on a large-scale basis; and
• reduce environmental impact through conservation of water on construction sites and by reducing the release of waste water and waste materials.
– 7 – SUMMARY
To capitalise on this development, the Group intends to invest an aggregate of approximately RMB220 million to establish a building materials industrialisation park (the “Building Materials Industrialisation Park”), which is called 寶業住宅產業（建材）園區 (Baoye Residential Industry (Building Materials) Park) in 柯西工業園 (Kexi Industrial Park), which is located in 柯橋經濟開 發區(Keqiao Economic Development Zone) in Shaoxing County, Zhejiang Province. As at the Latest Practicable Date, the Group paid an aggregate of approximately RMB91 million in establishing the Building Materials Industrialisation Park. The Building Materials Industrialisation Park will cover a maximum area of approximately 1 million sq.m., and will, upon completion, contain several plants to produce building materials, which the Directors believe will have growth potentials in the PRC construction market. Currently, the Directors plan to build the following production facilities in the Building Materials Industrialisation Park.
Establish concrete brick production lines
The Group plans to further invest approximately RMB41 million to establish two concrete brick production lines with an estimated annual capacity of approximately 400,000 cubic meters in the Building Materials Industrialisation Park, covering an estimated gross floor area of 6,540 sq.m.. The Directors intend to import the key equipment and machinery from the United States.
The Joint Notice specifically stated that the usage of mud bricks in the PRC will be prohibited and totally phased out by 30 June, 2003, or earlier in certain parts of the PRC. Compared to mud bricks, the usage of concrete bricks would reduce pollution by reducing the release of wastes, utilising industrial wastes such as industrial ash as a raw material in the manufacturing process and reducing damage to agricultural land. The Directors expect that the demand for concrete bricks will increase along with the growth in the Construction Business.
Establish a steel structure production line and a sandwich board production line
The Group plans to further invest approximately RMB32 million to establish a steel structure production line with an estimated annual capacity of approximately 10,000 tonnes and a sandwich board production line with an estimated annual capacity of approximately 200,000 sq.m. in the Building Materials Industrialisation Park, covering an estimated gross floor area of 32,762 sq.m.. The Directors intend to source the key equipment and machinery in the PRC.
Steel structure construction is also one of the building techniques and materials promoted in the Joint Notice. Compared to traditional concrete structures, steel structures help to reduce pollution, shorten construction period, reduce usage of water and damage to land, and may be recycled upon destruction of the buildings in the future.
Establish a curtain wall production line
The Group plans to further invest approximately RMB24 million to establish a curtain wall production line with an estimated annual capacity of approximately 400,000 sq.m. in the Building Materials Industrialisation Park, covering an estimated gross floor area of 17,028 sq.m.. The Directors intend to import the key equipment and machinery from Germany and Switzerland or other countries in the future.
As at the Latest Practicable Date, Baoye Curtain Wall is one of the few construction enterprises in Zhejiang Province which holds 建築幕牆工程設計專項資質甲級證書 (First class
– 8 – SUMMARY certificate for engineering design of curtain walls) and 建築幕牆工程專業承包一級證書 (First class certificate for curtain walls construction contracting works), both granted by the MOC. The Directors expect that the curtain wall production line would enable the Group to enhance production and installation efficiency for the Construction Business, reduce production costs and produce higher end heat insulation, sound-proofing and energy-saving products.
Establish a wooden door production line
The Group plans to further invest approximately RMB14 million to establish a production line to manufacture wooden doors with an estimated annual capacity of approximately 75,000 wooden doors in the Building Materials Industrialisation Park, covering an estimated gross floor area of 21,032 sq.m.. The Directors intend to source the equipment and machinery mainly in the PRC.
The majority of wooden doors used in the PRC construction industry are normally manufactured by hand at the construction sites. The Directors believe that the wooden door production line would enable the Group (i) to improve product quality, in particular, free from the defects of hand-made wooden doors such as deformation; (ii) to lower unit production costs through large-scale manufacturing; and (iii) to reduce the usage of harmful chemical adhesives through the use of environmental-friendly adhesives.
Establish a research and development centre for building materials
The Group plans to further invest approximately RMB18 million to establish a research and development centre (the “R&D Centre”) for building materials. The R&D Centre will be located in the Building Materials Industrialisation Park, in a building with a gross floor area of 25,680 sq.m.. The R&D Centre will include laboratories and test centres for building materials.
The Directors believe that, in order to maintain the Group’s competitive strengths and to compete successfully with construction and building materials companies from economically more advanced countries after the accession of the PRC to the WTO, utilisation of advanced construction technologies and techniques is one of the long-term requirements for the Group.
The Group was appointed by the MOC as one of 十間推廣及運用新科技及建築材料產 業化試驗公司 (Ten Pilot Companies for the Promotion and Application of New Technology and Building Materials Industrialisation) in the PRC, and is the only one chosen from Zhejiang Province.
USE OF PROCEEDS
The net proceeds of the Offering, assuming an Offer Price of HK$1.62 per H Share (being the mid-point of the stated range of the Offer Price between HK$1.25 and HK$1.99 per H Share) and after deduction of underwriting fees and estimated expenses payable by the Company in relation to the Offering (assuming that the Over-allotment Option is not exercised) are estimated to be approximately HK$258 million (HK$300 million if the Over-allotment Option is exercised in full). The Company currently intends to use the net proceeds from the Offering as follows:
• approximately RMB41 million (equivalent to HK$38.6 million) to invest in the establishment of production lines for concrete bricks with an estimated annual capacity of approximately 400,000 cubic meters;
– 9 – SUMMARY
• approximately RMB32 million (equivalent to HK$30.2 million) to invest in the establishment of production lines for steel structures and sandwich boards with an estimated annual capacity of approximately 10,000 tonnes and 200,000 sq.m., respectively;
• approximately RMB24 million (equivalent to HK$22.6 million) to invest in the establishment of production facilities for curtain walls with an estimated annual capacity of approximately 400,000 sq.m.;
• approximately RMB14 million (equivalent to HK$13.2 million) to invest in the establishment of production lines for wooden doors with an estimated annual capacity of approximately 75,000 sets;
• approximately RMB18 million (equivalent to HK$17.0 million) to invest in the establishment of a research and development centre for building materials;
• the balance, including the additional amount from the exercise of the Over-allotment Options.
The Directors currently do not intend to utilize the proceeds from listing to pay any amount of unpaid land premia of the lands to be acquired by the Group as set out in Appendix II to this prospectus.
Pending the use of the net proceeds from the Offering for the purposes described above, the Company intends to invest the net proceeds, to the extent permitted by relevant PRC laws and regulations, in short-term deposits with banks or money market instruments, other than securities. Under the PRC law, the Company will be entitled to retain the net proceeds of the Offering in Hong Kong dollars or convert the same into US dollars or other foreign currencies and to deposit such amounts in one or more foreign currency accounts at a bank or banks in the PRC that are permitted to engage in foreign exchange transactions. The Company will be entitled to use such proceeds for any legitimate purpose, such as purchase of equipment from overseas (if required) in accordance with the exchange control regulations in effect.
In the event that there is any material modification to the use of proceeds as described above, an announcement will be made by the Company in accordance with the Listing Rules.
In accordance with the accounting principles for a joint stock limited company in the PRC, the non-Renminbi proceeds obtained by the Company from the Offering will be translated at the PBOC Rate prevailing on the date on which the Company obtained the proceeds, and then credited to the financial statements of the Company.
REORGANISATION
In preparation for listing of the H Shares on the Stock Exchange, the Company was transformed into a joint stock limited company in the PRC on 30 August, 2002. For further particulars, see the paragraph headed “Reorganisation” in Appendix IV to this prospectus and the section headed “Corporate development” of this prospectus.
– 10 – SUMMARY
RISK FACTORS
The Directors believe that there are certain risks involved in the operations of the Group and in the investment in the H Shares. Prospective investors should read carefully the section headed “Risk factors” of this prospectus of major risks faced by the Group, which can be broadly categorised into (i) risks relating to the Group; (ii) risks relating to the industry; (iii) risks relating to the PRC; and (iv) risks relating to the offering of H Shares.
RISKS RELATING TO THE GROUP
• The Group’s business operation will be adversely affected should it fail to extend, renew or maintain any relevant licences or permits before their expiration
• The Group’s operations rely on certain key personnel
• The Group’s results of operations may vary significantly from period to period, and the Group cannot assure that the rapid growth during the Track Record Period can be maintained in the future
• The government grants awarded by Shaoxing County government to the Group during the Track Record Period may be revoked by higher level of government authorities and may not be continued in the future
• The Group filed, for tax reporting purposes, management accounts of the companies comprising the Group in the past, which were not prepared in strict compliance with PRC GAAP. This practice may subject the Group to tax penalties or require an additional amount to be provided for by the Group to cover the tax finally required to be paid
• The Group may be penalized as a result of the arrangement in relation to the establishment and capital increase of Baoye Construction
• A significant portion of the Group’s turnover from the Construction Business is derived from variation orders initiated by project owners voluntarily
• The Group will face increasingly intense market competition
• The Group’s profitability may be affected by default risk of trade and notes receivables and retention money and project deposits
• The Group’s results of operations or financial condition may be affected due to certain risks associated with the construction process
• The insurance policies maintained by the Group may not be sufficient to cover the risks involved in the business activities of the Group
• The Construction Business and the Real Estate Business are subject to claims under statutorily mandated quality warranties
• The Group may not be able to expand the Building Materials Business according to its plan
– 11 – SUMMARY
RISKS RELATING TO THE INDUSTRY
• The Construction Business and the Real Estate Business are susceptible to economic cyclicality
• The business activities of the Group are governed by extensive laws and regulations that may require substantial compliance costs
RISKS RELATING TO THE PRC
• The Group’s business may be affected by the political structure and economic conditions in the PRC
• Changes in foreign exchange regulations may materially and adversely affect the Group’s business, operations and financial conditions, while any devaluation of Renminbi may adversely affect the value of, and dividends payable on, the H Shares
• There are uncertainties regarding the interpretation and enforcement of PRC laws and regulations
• Holders of the H Shares may not enjoy the same level of shareholder protection as in other jurisdictions
• The exemption from withholding tax on dividends and capital gains tax currently available to the investors may not continue in the future
• The Articles of Association require holders of H Shares to submit disputes with the Company and certain other persons to arbitration
• It may be difficult to effect service of process upon the Company or its Directors, Supervisors or executive officers who live inside the PRC or to enforce against them in the PRC any judgments obtained from non-PRC courts
RISKS RELATING TO THE OFFERING OF H SHARES
• There has been no prior public market for the H Shares
• The price and trading volume of the H Shares following the Offering may be volatile
• Certain statistics published by the PRC Government and certain industry statistics contained in this prospectus may not be reliable
• Forward looking statements may be inaccurate
• As no profit forecast has been included in this prospectus, prospective investors should not rely on past performance when considering whether to invest in the H Shares
– 12 – DEFINITIONS
In this prospectus, unless the context otherwise requires, the following expressions have the meanings set out below.
“Articles of Association” or the articles of association of the Company, adopted on 3 “Articles” September, 2002 and as amended on 8 June, 2003
“associate(s)” has the meaning ascribed to it in the Listing Rules
“Baoye Construction” 浙江寶業建設集團有限公司 (Zhejiang Baoye Construction Group Co., Ltd.), a limited liability company established in the PRC on 15 February, 2001, which is owned by the Company as to approximately 99.0%, while the remaining approximately 1.0% is owned equally by three Promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin
“Baoye Curtain Wall” 浙江寶業幕牆裝飾有限公司 (Zhejiang Baoye Curtain Wall Decoration Co., Ltd.), a limited liability company established in the PRC on 1 December, 1999, which is owned by the Company, the Labour Union Committee of Zhejiang Baoye Curtain Wall Decoration Co., Ltd., Mr. Pang Baisong, Mr. Wang Jianguo, Mr. Xia Xiaomin, Mr. Sun Baoxian and Mr. Shen Muquan as to approximately 83.1%, 6.2%, 3.7%, 3.4%, 2.0%, 0.9% and 0.7%, respectively. Mr. Pang Baisong and Mr. Wang Jianguo are Promoters, while Labour Union Committee of Zhejiang Baoye Curtain Wall Decoration Co., Ltd., Mr. Xia Xiaomin, Mr. Sun Baoxian and Mr. Shen Muquan are Independent Third Parties
“Baoye Infrastructure” 浙江寶業交通建設工程有限公司 (Zhejiang Baoye Infrastructure Construction Co., Ltd.), a limited liability company established in the PRC on 16 March, 2001, which is owned by the Company and Baoye Construction as to 87.5% and 12.5%, respectively
“Baoye Investment” 浙江寶業實業投資有限公司 (Zhejiang Baoye Industrial Investment Company Limited), a limited liability company established in the PRC which was a subsidiary prior to the Reorganisation but was carved out from the Group during the Reorganisation
“Baoye Real Estate” 浙江紹興縣寶業房地產開發有限公司 (Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd.), a limited liability company established in the PRC on 24 January, 1995, which is owned by the Company and Baoye Construction as to 90.0% and 10.0%, respectively
“Baoye Union” 寶業建設控股集團有限公司工會委員會 (Labour Union Committee of Baoye Holdings)
“Board” the board of Directors
– 13 – DEFINITIONS
“Building Materials Business” the activities of research and development, production and sale of building materials conducted by the Group
“Building Materials 浙江寶業住宅產業股份有限公司 (Zhejiang Baoye Industrialisation Company” Building Materials Industrialisation Company Limited), a joint stock limited company established in the PRC on 8 July, 1999, which is owned by Baoye Construction, Mr. Pang, 浙江省建 築科學設計研究院 (Zhejiang Construction Science and Design Research Institute), Building Materials Industrialisation Research Institute and Mr. Hu Shaozeng as to 60.0%, 19.0%, 15.0%, 5.0% and 1.0%, respectively. Mr. Hu Shaozeng is a non-executive Director, while Zhejiang Construction Science and Design Research Institute is an Independent Third Party
“Building Materials 浙江住宅產業現代化設計研究所有限公司 (Zhejiang Industrialisation Research Building Materials Industrialisation and Design Research Institute” Institute Co., Ltd.), a limited liability company established in the PRC on 6 December, 1999, which is owned by the Company and 浙江省建設廳招待所 (the Reception Centre of Zhejiang Provincial Department of Construction), an Independent Third Party, as to 90.0% and 10.0%, respectively
“business day” any day (other than a Saturday) on which banks in Hong Kong are generally open for business
“CAGR” compound annual growth rate
“CCASS” the Central Clearing and Settlement System established and operated by HKSCC
“CFETC” 中國外㶅交易中心 (China Foreign Exchange Trading Centre)
“Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) (as amended)
“Company” 寶業集團股份有限公司 (Baoye Group Company Limited), the predecessor of which was initially set up as a collectively owned enterprise and known as 浙江寶業建工集團公司 (Zhejiang Baoye Construction Group Company) in June 1994 and, after various restructuring of the economic entity and changes in the company name, was transformed into a joint stock company in the PRC on 30 August, 2002, details of which please refer to the section headed “Corporate Development” in this prospectus
“Company Law” 中華人民共和國公司法 (the Company Law of the PRC), as enacted by the Standing Committee of the Eighth NPC on 29 December, 1993 and effective on 1 July, 1994, as amended, supplemented or otherwise modified from time to time
– 14 – DEFINITIONS
“Concrete Company” 紹興市商品混凝土有限公司 (Shaoxing Commodity Concrete Co., Ltd.), established in the PRC on 7 April, 1994 and was transformed to a limited liability company on 20 June, 2002. Concrete Company is now owned by the Company, 浙江環宇 建設集團有限公司 (Zhejiang Huanyu Construction Group Co., Ltd.) (formerly known as 紹興市建築安裝工程公司 (Shaoxing Construction and Installation Engineering Company)) and 紹 興市市政工程公司 (Shaoxing Municipal Infrastructure Company) as to approximately 51.5%, 25.8% and 22.7%, respectively. Zhejiang Huanyu Construction Group Co., Ltd. and Shaoxing Municipal Infrastructure Company are Independent Third Parties, save as disclosed in this prospectus
“Construction Business” the activities of undertaking and implementation of construction projects conducted by the Group
“CSRC” 中國證券監督管理委員會 (China Securities Regulatory Commission), a regulatory body responsible for the supervision and regulation of the PRC national securities markets
“Director(s)” the director(s) of the Company
“Domestic Shares” domestic shares of nominal value RMB1.00 each issued by the Company, and which are subscribed for in Renminbi
“Fireproof Materials Company” The predecessor of 紹興寶業建築防火材料有限公司 (Shaoxing Baoye Fireproof Materials Co., Ltd.) was established in the PRC on 11 March, 1996 which was transformed to Fireproof Materials Company as a limited liability company on 19 March, 2002. Fireproof Materials Company is now owned by the Company and Building Materials Industrialisation Company as to approximately 88.3% and 11.7%, respectively
“First Shanghai Capital” First Shanghai Capital Limited, the sponsor of the Offering, or “Sponsor” and a deemed licensed corporation to carry on a business in type 6 regulated activity (advising on corporate finance) under the SFO
“First Shanghai Securities” First Shanghai Securities Limited, the sole bookrunner and one of the joint lead managers of the Offering and a deemed licensed corporation to carry on business in types 1, 4, 6, 7, 9 regulated activities (dealing in securities, advising on securities, advising on corporate finance, providing automated trading services and asset management) under the SFO
“Foreign Shares” shares of nominal value RMB1.00 each issued by the Company, and which are subscribed for in a currency other than Renminbi
“GDP” gross domestic product
– 15 – DEFINITIONS
“Group” the Company and its subsidiaries at relevant times, and where the context so requires, in respect of the period before the Company became the holding company of its present subsidiaries, such subsidiaries, as if they were the subsidiaries of the Company at that time, and where the context so requires, in respect of a particular line of business the Company and/or one or several of the Company’s subsidiaries
“Guangyi Decoration” 浙江廣藝建築裝飾工程有限公司 (Zhejiang Guangyi Construction and Decoration Co., Ltd.), a limited liability company established in the PRC on 16 June, 1995, which is owned by the Company and Baoye Construction as to approximately 93.3% and 6.7%, respectively
“Hefei Baoye” 合肥輕紡城寶業房地產有限公司 (Hefei Qingfangcheng Baoye Real Estate Co., Ltd.), a limited liability company established in the PRC on 14 March, 2002, which is owned by the Company and 紹興中國輕紡城時代房地產有限公司 (Shaoxing China Qingfangcheng Shidai Real Estate Co., Ltd.), an Independent Third Party save as disclosed in this prospectus, in equal share
“H Shares” overseas listed Foreign Shares of nominal value RMB1.00 each in the registered capital of the Company, which are to be listed on the Stock Exchange, and subscribed for in HK dollars
“HK$” or “HK dollars” Hong Kong dollars and cents respectively, the lawful currency and “cents” of Hong Kong
“HKGAAP” accounting principles generally accepted in Hong Kong
“HKSCC” Hong Kong Securities Clearing Company Limited
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Independent Third Party(ies)” party(ies) who is (are) independent from and not connected with any of the promoters, directors, supervisors, chief executives and substantial shareholder of the Company or its subsidiaries or any of their respective associates
“International Placing” the conditional placing of 162,612,000 H Shares at the Offer Price pursuant to the terms and conditions as described in the section headed “Structure of the Offering” of this prospectus (subject to adjustments as a result of the exercise of the Over- allotment Option and reallocation)
“International Placing Shares” the H Shares being offered under the International Placing as described in the section headed “Structure of the Offering” of this prospectus
– 16 – DEFINITIONS
“International Placing the underwriters of the International Placing whose names Underwriters” appear in the paragraph headed “Underwriters” under the section headed “Underwriting” of this prospectus
“Latest Practicable Date” 13 June, 2003, being the latest practicable date prior to the printing of this prospectus for the purpose of ascertaining certain information contained in this prospectus
“International Placing the international placing underwriting agreement relating to Underwriting Agreement” the International Placing which is expected to be entered into among, inter alia, the Company and the International Placing Underwriters on the date the Offer Price is fixed
“Listing Rules” Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
“Mandatory Provisions” 到境外上市公司章程必備條款 (Mandatory Provisions for Articles of Association of Companies to be Listed Overseas), for inclusion in the articles of association of companies incorporated in the PRC to be listed overseas, which were promulgated by the CSRC and the State Restructuring Commission on 27 August, 1994, as amended and supplemented from time to time
“MOC” 中國建設部 (the Ministry of Construction of the PRC)
“MOF” 中國財政部 (the Ministry of Finance of the PRC)
“MOFTEC” 原中國對外貿易經濟合作部 (the former Ministry of Foreign Trade and Economic Cooperation of the PRC)
“Mr. Pang” Mr. Pang Baogen, the chairman and a Promoter of the Company
“Notice Relating to Foreign 關於境外上市企業外㶅管理有關問題的通知 (the Notice Exchange Control Matters Relating to Foreign Exchange Control Matters for Enterprises for Enterprises Listed Listed Overseas), issued by the CSRC and MOFTEC in January Overseas” 1994
“NPC” or “National People’s 全國人民代表大會 (the National People’s Congress of the Congress” PRC)
“Offer Price” the final offer price per Offer Share (exclusive of brokerage fee of 1%, SFC transaction levy of 0.005%, Stock Exchange trading fee of 0.005% and investor compensation levy of 0.002%) of not more than HK$1.99 and expected to be not less than HK$1.25, such price to be agreed upon by the Company, First Shanghai Securities (on behalf of the Underwriters) and the Sponsor at or before the Price Determination Time
– 17 – DEFINITIONS
“Offer Shares” the Public Offer Shares and the International Placing Shares, together, and where relevant, with any additional H Shares issued pursuant to the exercise of the Over-allotment Option
“Offering” the Public Offer and the International Placing
“Over-allotment Option” the over-allotment option to be granted by the Company to the Underwriters pursuant to the International Placing Underwriting Agreement to require the Company to allot and issue up to an aggregate of 27,102,000 additional H Shares (representing approximately 15.0% of the Offer Shares) at the Offer Price within 30 days after the date of this prospectus, solely to cover over-allocations in the International Placing, if any
“PBOC” 中國人民銀行 (the People’s Bank of China), the central bank of the PRC
“PBOC Notice” 關於進一步改革外㶅管理體制的公告 (the Notice of the People’s Bank of China Concerning Further Reform of the Foreign Currency Control System), issued in December 1993
“PBOC Rate” the exchange rate for foreign exchange transactions set daily by PBOC based on the previous day’s PRC interbank foreign exchange rates
“PRC” or “China” the People’s Republic of China. Except where the context requires, references in this prospectus to the PRC or China do not include Hong Kong, the Macau Special Administrative Region and Taiwan
“PRC GAAP” 企業會計準則(Accounting Standards for Business Enterprises) and 企業會計制度(Accounting Regulations for Enterprises) in the PRC
“PRC Government” the central government of the PRC including all governmental subdivisions (including provincial, municipal and other regional or local government entities) and instrumentalities thereof
“Price Determination Time” on or about 5:00 p.m. on 20 June, 2003 (Hong Kong time) on which the Offer Price is determined, or such later time as the Company, First Shanghai Securities (on behalf of the Underwriters) and the Sponsor may agree, but in any event not later than 5:00 p.m. on 24 June, 2003 (Hong Kong time)
“Promoter(s)” the 31 promoters of the Company, particulars of which are set out in the section headed “Promoters” of this prospectus or any one of them where the context so requires
– 18 – DEFINITIONS
“Public Offer” the offer for subscription of the Public Offer Shares in Hong Kong for cash, on and subject to the terms and conditions stated in this prospectus and in the application forms relating thereto
“Public Offer Shares” the 18,072,000 new H Shares being initially offered by the Company at the Offer Price for subscription under the Public Offer
“Public Offer Underwriters” underwriters of the Public Offer whose names appear in the paragraph headed “Underwriters” under the section headed “Underwriting” in this prospectus
“Public Offer Underwriting the underwriting agreement dated 16 June, 2003 relating to Agreement” the Public Offer entered into between, inter alia, the Company and the Public Offer Underwriters
“Real Estate Business” the business of development of real estate conducted by the Group
“Reorganisation” the reorganisation of some of the companies comprising the Group and the disposal by the Company of interests in some companies which were not engaged in the core business of the Group as more particularly described in the paragraph headed “Reorganisation” in Appendix IV to this prospectus
“RMB” or “Renminbi” Renminbi yuan, the lawful currency of the PRC
“SAFE” 中國國家外㶅管理局 (the State Administration for Foreign Exchange of the PRC)
“SBBMI” 中國國家建築材料工業局 (the State Bureau of the Building Materials Industry of the PRC)
“SETC” 原中國國家經濟貿易委員會 (the former State Economic and Trade Commission of the PRC)
“SFC” the Securities and Futures Commission of Hong Kong
“SFO” the Securities and Futures Ordinance (Cap.571 of the Laws of the Hong Kong)
“Shanghai Zibao” 上海紫寶房地產開發有限公司 (Shanghai Zibao Real Estate Development Co., Ltd.), a limited liability company established in the PRC on 26 December, 2002, which is owned by Baoye Real Estate, 上海紫德房地產開發有限公司 (Shanghai Zide Real Estate Development Co., Ltd.), Mr. Tong Yingqiang and Mr. Xu Jianjun as to 55%, 15%, 15% and 15% respectively
– 19 – DEFINITIONS
“Shaoxing Baoye” 紹興寶業新型建材有限公司(Shaoxing Baoye New Building Materials Co., Ltd.), a limited liability company established in the PRC on 25 May, 2002, which is owned by Building Materials Industrialisation Company and Baoye Construction as to 75.0% and 25.0%, respectively
“Shares” Domestic Shares and H Shares
“Special Regulations” 國務院關於股份有限公司境外募集股份及上市的特別規定 (the PRC Special Regulations on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies), issued by the State Council on 4 August, 1994, as amended, supplemented or otherwise modified from time to time
“State” the Central Government of the PRC
“State Council” 中國國務院 (the State Council of the PRC)
“State Development Planning 原中國國家發展計劃委員會(the former State Development Commission” Planning Commission of the PRC)
“State Plans” plans devised or approved and implemented by various authorities of the State relating to the economic and social development of the PRC
“State Restructuring 原中國國家經濟體制改革委員會 (the former State Commission” Commission for Restructuring the Economic Systems of the PRC)
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“subsidiary” has the same meaning as in section 2 of the Companies Ordinance
“Supervisor(s)” the member(s) of the supervisory committee of the Company
“Town Management Company” 紹興縣楊汎橋鎮集體資產經營管理公司 (Shaoxing County Yangxunqiao Township Collective Assets Management Company)
“Track Record Period” the period comprising the three years ended 31 December, 2002
“Underwriters” the Public Offer Underwriters and the International Placing Underwriters
“Underwriting Agreements” the Public Offer Underwriting Agreement and the International Placing Underwriting Agreement
“US Exchange Act” the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder
– 20 – DEFINITIONS
“US Securities Act” the US Securities Act of 1933, as amended
“US$” or “US dollars” United States dollars, the lawful currency of the United States
“US” or “United States” the United States of America
“WTO” the World Trade Organisation
“km” kilometre(s)
“m” metre(s)
“MPa” mega pascals, a unit of measurement of compressive strength
“sq.m.” square metre(s)
All times in this prospectus refer to Hong Kong time unless otherwise stated.
– 21 – RISK FACTORS
Potential investors should consider carefully all of the information set out in this prospectus and in particular, should evaluate the following risks in connection with an investment in the Company, certain of which are not typically associated with investing in equity securities of companies from Hong Kong or other economically advanced jurisdictions. For more information concerning the PRC laws and certain related matters discussed below, please refer to Appendix III to this prospectus.
The Directors believe that there are certain risks involved in the operations of the Group and in the investment in the H Shares. They can be broadly categorised into (i) risks relating to the Group; (ii) risks relating to the industry; (iii) risks relating to the PRC; and (iv) risks relating to the Offering of H Shares.
RISKS RELATING TO THE GROUP
The Group’s business operation will be adversely affected should it fail to extend, renew or maintain any relevant licences or permits before their expiration
Currently, the Group’s principal businesses include (i) the Construction Business; (ii) the Building Materials Business; and (iii) the Real Estate Business. To operate its businesses, the Group must possess certain licences and permits from the relevant PRC authorities. As mentioned in the paragraph headed “Licences and permits” under the section headed “Business” of this prospectus, the Group had obtained various types of licences and permits for its operation as at the Latest Practicable Date. Although some of the licences and permits have no expiry date or terms of validity, they are subject to annual inspections by the relevant PRC authorities. In addition, as for those licences and permits with limited terms of validity, the Group will need to apply to the relevant PRC authorities for an extension, renewal or maintenance of such licences or permits before their expiration. Although the Directors are not aware of any reason for the Group in encountering any material difficulty in passing the annual inspection or obtaining the extensions, renewals or maintenance, in the event that any of the relevant licences or permits cannot be extended, renewed or maintained for any reason, the operation of the Group may be materially and adversely affected and the Group’s financial condition and results of operations may materially suffer.
The Group’s operations rely on certain key personnel
The Directors believe that one of the factors attributable to the success of the Group is the expertise of the Group’s senior management team, including Mr. Pang, Mr. Gao Jiming, Mr. Gao Lin and Mr. Zhou Hanwan, all of whom are executive Directors and have been serving in senior management positions in the Group for a considerable period of time. The Group depends heavily on their experience, management expertise and relationships within the construction industry in the PRC. If any of such key senior management personnel ceases to work for the Group, the Group’s operation may be materially and adversely affected.
The Group’s results of operations may vary significantly from period to period, and the Group cannot assure that the rapid growth during the Track Record Period can be maintained in the future
For each of the three years ended 31 December, 2002, the turnover of the Group was approximately RMB981,896,000, RMB1,604,574,000 and RMB2,297,526,000, respectively, representing an annual growth rate of approximately 63.4% and 43.2%, respectively. During the same period, the profit attributable to shareholders of the Company amounted to approximately
– 22 – RISK FACTORS
RMB59,734,000, RMB122,053,000 and RMB141,075,000, respectively, representing an annual growth rate of approximately 104.3% and 15.6%, respectively. The Directors consider that the significant increase in turnover and profit attributable to shareholders resulted from, among other things, the Group’s reputation in the construction industry, the high quality of its works and services as well as greater demand for construction projects during the past several years in the areas where the Group conducts its businesses. However, the Group’s results of operations may fluctuate significantly in the future due to a combination of factors, including the general market or economic condition in the areas where the Group conducts its businesses. As a result, the Group cannot assure that such rapid growth during the Track Record Period can be maintained in the future.
The government grants awarded by Shaoxing County government to the Group during the Track Record Period may be revoked by higher level of government authorities and may not be continued in the future
In recognition of the Group’s strong operational and financial performance, the Finance Bureau of Shaoxing County awarded the Group government grants amounting to approximately RMB35,555,000 and RMB31,274,000 for the years ended 31 December, 2001 and 2002, respectively. The following table illustrates the pro forma net profit of the Group assuming that the Group had not received any government grants during the Track Record Period:
Year ended 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Profit attributable to shareholders 59,734 122,053 141,075 Government grants – (35,555) (31,274) Enterprise income tax impact – 11,733 10,321 Minority interests – 377 593
Pro forma net profit attributable to shareholders 59,734 98,608 120,715
The Directors confirmed that the government grants received by the Group did not involve any refund of taxes. The Company’s PRC legal adviser has given an opinion to the effect that none of these government grants has contravened any governmental regulations including《國務院關於 糾正地方自行制定稅收先徵後返政策的通知》 (Notice of State Council Concerning the Rectification of the Unauthorised Refund-after-Levy Policies Formulated by Local Governments) issued by the State Council on 11 January, 2000 which provides, inter alia, that the unauthorized refund-after-levy policies formulated by local government shall cease to be implemented as of 1 January, 2000.
However, while the Group believes neither of such grants has violated the policies of any other governmental agencies with authority to supervise the Shaoxing County government, there can be no assurance that such grants will not be revoked by a government authority of a higher level, nor can there be any assurance that the Group will continue to obtain any such grant in the future. In any of such events, the Group’s results of operations and financial position may be materially and adversely affected. In this regard, Mr. Pang has agreed and undertaken to indemnify the Group against all losses in the event that the government grants received by the Group during the Track Record Period are withdrawn.
– 23 – RISK FACTORS
The Group filed, for tax reporting purposes, management accounts of the companies comprising the Group in the past, which were not prepared in strict compliance with PRC GAAP. This practice may subject the Group to tax penalties or require an additional amount to be provided for by the Group to cover the tax finally required to be paid
It had been the Group’s practice to file management accounts of the companies comprising the Group (the “Group Companies”) for tax reporting purposes. The Company’s PRC legal adviser is of the view that audited statutory accounts are not required for tax reporting purpose under the 《中華人民共和國稅收徵收管理法》(Administrative Measures for the Levy of Taxation of the PRC) and《中華人民共和國稅收徵收管理法實施細則》 (Application Details on the Administrative Measures for the Levy of Taxation of the PRC). However, some management accounts of the Group Companies which had been initially filed to the Tax Bureau in Shaoxing County were not prepared in strict compliance with PRC GAAP. Certain audit adjustments were made in order to properly state the financial statements under PRC GAAP and the corresponding additional tax payable has been provided for in the financial statements of the Group Companies. The Group had applied for re-assessment of tax position based on the adjusted management accounts in September 2002. As of 31 December, 2002, the tax payable by the Group, after reflecting the above adjustments, amounted to approximately RMB100,763,000, which represented unsettled tax liabilities of approximately RMB87,962,000 and RMB12,801,000 in relation to 2002 and 2001 or before, respectively.
Notwithstanding that the Directors believe that the Group has made provisions sufficient to pay any additional taxes which may be levied by the tax authorities as a result of the re-assessment. Moreover, the Company’s PRC legal adviser has opined that the Group is not likely to subject to any material penalties in relation to: (i) the discrepancies between the management accounts previously filed and the adjusted management accounts as referred to above; and (ii) the reassessment as a result thereof, the Group’s cash in hand in the year of the payment will be negatively affected. In addition, the Group’s net income after tax and earning per share in that year may also be negatively affected and there can be no assurance that the reassessment will not result in any penalties and/or additional taxes higher than the amount currently provided for. In the event that the reassessment results in penalties on the Group and/or that the provisions made by the Group is not sufficient to cover the additional tax payment obligations, the Group’s financial condition and results of operations may be adversely affected. In this regard, Mr. Pang, the controlling shareholder of the Company, has agreed and undertaken to indemnify the Group to cover the potential tax liabilities and penalties that may have been imposed on the Group as a result of the tax reassessment.
The Group may be penalized as a result of the arrangement in relation to the establishment and capital increase of Baoye Construction
The Construction Business used to be carried out by the Company. In February 2001, Baoye Holdings (together with the Staff Shareholding Committee, 浙江寶業建築構件有限公司 (Zhejiang Baoye Construction Accessaries Co., Ltd (“Baoye Accessaries”)), Baoye Investment, Guangyi Decoration, Baoye Curtain Wall (the “Other Shareholders”)) established Baoye Construction with a registered capital of RMB100 million. According to the declarations all dated 20 April, 2003 (the “Declarations”) given by the Company, Baoye Construction, Baoye Union, Town Management Company, Guangyi Decoration, Baoye Curtain Wall and Baoye Investment, since the capital injected by the Other Shareholders comprised advances made by the Company, the Other Shareholders of Baoye Construction had an oral agreement with the Company that all of their shareholders’ rights (including but not limited to the voting rights and rights to dividend entitlement) belonged to the Company from the date of establishment of Baoye Construction, and would hold and exercise such
– 24 – RISK FACTORS rights on behalf of Baoye Holdings. In October 2001, Baoye Accessories and Staff Shareholding Committee (with the consent of the Company) transferred their equity interests in Baoye Construction to Baoye Union which then held the underlying rights of the relevant equity interest on behalf of the Company.
In November 2001, the registered capital of Baoye Construction increased to RMB300 million. The increased portion of the registered capital was contributed by Baoye Union and Town Management Company, from advances provided by Baoye Construction at the instruction of the Company according to the Declarations and was ultimately repaid by the Company. Accordingly, the shareholders’ rights underlying such increased portion of registered capital belonged to the Company. The then registered shareholders of Baoye Construction resolved to rectify the aforesaid arrangement for the capital injection in April 2002 by formally registering the interests of the Company and introduction of 3 natural persons to hold approximately 1% interests, over which Shaoxing County Administration for Industry and Commerce had given consent in June 2002. To complete the formalities, a share transfer agreement dated 13 June, 2002 was entered into, among others, between the Company, Baoye Construction, Baoye Union, Town Management Company, Guangyi Decoration, Baoye Curtain Wall and Baoye Investment, after completion of which approximately 99% interests in Baoye Construction was held by the Company and approximately 1% interests by three other natural persons, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
Since the establishment of Baoye Construction, Shaoxing County Administration for Industry and Commerce has not taken any action against Baoye Construction, nor any of its shareholders in respect of the aforesaid capital injection arrangement. According to the PRC legal advisers to the Company, the oral agreement mentioned above constitutes a legally binding agreement between the Company and the Other Shareholders, Baoye Union and Town Management Company who held all of their shareholders’ rights at all material times on behalf of the Company. In addition, the PRC legal advisers confirmed that the formalities for registering the interests of the Company in Baoye Construction had been completed, and they are not aware of any possibilities of claims by the Other Shareholders, Baoye Union and Town Management Company against the Company. Mr. Pang, the controlling shareholder of the Company, has agreed and undertaken to indemnify all costs and expenses that may be suffered by the Group arising from or in connection with the capital injection arrangement. However, there is no assurance that the above arrangement for capital injection will not subject the Company or Baoye Construction to penalty or actions taken against the Company or Baoye Construction by the PRC government authorities.
A significant portion of the Group’s turnover from the Construction Business is derived from variation orders initiated by project owners voluntarily
It is common in the construction industry that the project owner has subsequent modifications or amendments to the design or structure of the construction object. The project owner would then request its contractor to alter the original specifications of the construction object which have been stipulated and agreed in the relevant construction contract. The contractor would charge the project owner for these variation orders for the additional materials and labour costs incurred. During the Track Record Period, the Group’s turnover resulting from variation orders amounted to approximately RMB50,865,000, RMB180,281,000 and RMB280,044,000, respectively and accounted for approximately 6.2%, 13.5% and 14.8% of the total turnover of the Construction Business and approximately 5.2%, 11.2% and 12.2% of the Group’s total turnover during the respective periods. As the amount of the variation orders was unknown at the time of entering into the construction contracts and are beyond the control, significant decrease in variation orders may adversely and materially affect the profitability of the Group.
– 25 – RISK FACTORS
The Group will face increasingly intense market competition
The construction, building materials and real estate industries in the PRC, historically dominated by large state-owned enterprises, are highly competitive with respect to price, quality and service for projects undertaken. Over the last decade, as these industries have undergone reforms, a large number of private construction companies or real estate developers have emerged in the PRC. In addition, as a result of the PRC’s accession to the WTO in late 2001 and the great demand for infrastructure and other construction projects in the PRC, a number of foreign real estate developers have expanded their operations into the PRC and a growing number of overseas construction and building materials companies may expand their operations in the PRC. Some of these competitors may have larger business scale, stronger financial positions and more marketing and development experience than the Group. Increased competition from existing competitors or new entrants may result in a decline in construction contract prices, an increase in operating expenses, and a resultant erosion of profit margins, which would adversely affect the financial condition and results of operations of the Group.
The Group’s profitability may be affected by default risk of trade and notes receivables and retention money and project deposits
As of 31 December, 2000, 2001 and 2002, the balances of trade and notes receivables of the Group amounted to approximately RMB59,615,000, RMB133,729,000 and RMB157,078,000, respectively, representing approximately 27.5%, 39.5% and 34.0%, respectively of the Group’s total net assets as of the same date.
It is customary in the PRC construction industry that construction contractors are required to provide project deposits to the project owners prior to the commencement of the construction works. In addition, a portion of the construction contract price will be retained by the project owners as retention money after completion of the construction projects. Retention money and project deposits were recorded at approximately RMB53,473,000, RMB121,435,000 and RMB230,379,000, respectively as of 31 December, 2000, 2001 and 2002, accounting for approximately 24.7%, 35.8% and 49.9%, respectively of the Group’s total net assets as of the same date. All of these balances were primarily attributed to the Construction Business.
In general, trade and notes receivables are paid in accordance with the terms of relevant construction contracts and other sales contracts, while retention moneys are usually released to the Group one to five years after completion of the projects. Project deposits are released to the Group shortly following completion and acceptance of the projects. In the event that the customers of the Group default on these receivables, the profitability and cashflows of the Group may be materially and adversely affected.
The Group’s results of operations or financial condition may be affected due to certain risks associated with the construction process
Normally, construction projects take a substantial amount of time from contracting to completion, which ranges from several months to over one year. Since construction projects often require substantial expenditure prior to and during the course of construction, the Group’s customers may fail to make payments for the construction works in a timely manner due to changes in their financial or credit conditions. In addition, construction process may be interrupted due to various factors, including adverse weather conditions, construction accidents, natural disasters, unforeseen engineering, design, environmental and geographical problems, delays in receiving requisite licences or permits and unanticipated cost increases, any of which could give rise to delays or cost overruns.
– 26 – RISK FACTORS
Construction delays or failure to complete the construction projects according to its planned specifications or schedule as a result of the reasons discussed above may adversely affect the Group’s financial condition and results of operations.
The insurance policies maintained by the Group may not be sufficient to cover the risks involved in the business activities of the Group
Construction and property development activities involve a number of risks such as the risk of substantial personal injury, loss of life and property damage. The Construction Business and the Real Estate Business may be adversely affected to the extent that typhoons, storms, earthquakes, droughts, floods, fires or other natural or man-made disasters or similar events occur in an area where the Group’s projects are underway.
Normally, the Group will purchase insurance policies to cover certain construction risks for the construction projects that the Group is involved in. However, the insurance policies the Group carries may prove insufficient, in terms of both coverage and maximum limit, to cover certain unanticipated losses. If an uninsured loss or a loss in excess of the Group’s insured limits is incurred in connection with any of the Group’s construction projects, the Group may have to bear such uninsured loss, which could adversely affect its financial condition and results of operations.
The Construction Business and the Real Estate Business are subject to claims under statutorily mandated quality warranties
Under 《建設工程質量管理條例》(Regulations on the Administration of Quality of Construction Works), all construction enterprises and real estate development enterprises in the PRC, including the Group, are subject to certain quality warranties for the properties they construct or sell. Therefore, the Group is required to provide warranties, in the case of the Group being a construction contractor, to real estate developers, or in the case of the Group being a real estate developer, to purchasers of the properties developed by the Group. The Group may sometimes receive quality warranties from third party contractors the Group hires to construct its projects. If a significant number of claims lodged against the Group as a construction contractor or as a real estate developer under these warranties and if the Group is not able to obtain reimbursement for such claims from third party contractors in a timely manner or at all, or, in the case of the Group being a construction contractor, if the retention money retained by a project owner is not sufficient to cover the Group’s payment obligations under the quality warranties, the Group could be required to incur significant unexpected costs to resolve such claims or face delays in rectifying such defects, which could in turn harm the Group’s reputation and have a material adverse effect on the Group’s businesses, financial condition and results of operations.
The Group may not be able to expand the Building Materials Business according to its plan
A majority of the proceeds from the Offering will be used to construct several production lines for certain building materials which the Directors believe have growth potential in the construction industry of the PRC. However, the Building Materials Business has not been the primary focus of the Group in the past. Although the Group possesses extensive experience in the construction industry and a certain level of familiarity with the building materials market, the Group cannot assure that the expansion of the Building Materials Business can be carried out according to the plan and such expansion can be as profitable as the Group currently expects. The Group’s plan may be adversely affected by a combination of several factors, such as the marketability and profitability of the building material products the Group plans to produce and the Group’s ability in developing and marketing such products, as well as the general demand and market conditions of the construction industry in the PRC. – 27 – RISK FACTORS
RISKS RELATING TO THE INDUSTRY
The Construction Business and the Real Estate Business are susceptible to economic cyclicality
The construction and real estate industries are cyclical in nature and tend to fluctuate due to changes in general economic conditions and fixed capital investment supplies. Revenues from the construction industry and the real estate industry may be adversely affected if the economic development slows down or enters into recession or fixed capital investment reduces. No assurance can be made that the Group’s businesses may not be materially and adversely affected if the PRC economy slows down or fixed capital investment reduces, including any reduction in infrastructure investment by the PRC Government.
The business activities of the Group are governed by extensive laws and regulations that may require substantial compliance costs
The Group’s operations require a substantial number of governmental approvals and is subject to a wide range of laws and regulations governing various matters. Any of these laws or regulations or changes in them may limit the Group’s ability to conduct its business and could have material adverse effect on its financial condition and results of operations. In addition, complying with such laws and regulations may give rise to unexpected compliance costs that could have an effect on the Group’s financial condition and results of operations. On the other hand, the Group’s failure to comply with such laws and regulations could also result in fines, penalties or lawsuits. To the best knowledge of the Directors, the Group’s operations during the Track Record Period were in full compliance with the relevant laws and regulations in all material respects. However, there is no assurance that any new laws or regulations or any changes to the existing laws and regulations will not require substantial compliance costs and adversely affect the Group’s operations and business environment.
RISKS RELATING TO THE PRC
The Group’s business may be affected by the political structure and economic conditions in the PRC
Currently all of the Company’s assets are located in the PRC and its businesses are located in the PRC. As a result, the Group’s businesses, operations and financial conditions are subject to the economic, political, social and legal conditions in the PRC. The economy of the PRC differs from the economies of most developed countries in a number of respects, including:
• structure;
• level of government involvement;
• level of development;
• level of capital reinvestment;
• control of capital reinvestment;
• control of foreign exchange; and
• allocation of resources.
– 28 – RISK FACTORS
Before its adoption of the economic reform and open door policies beginning in 1978, the PRC was primarily a planned economy. Since that time, the PRC Government has been reforming the PRC economic system, and it has also begun reforming the government structure in recent years. These reforms have resulted in significant progress in its economic growth and social development. Although the PRC Government still owns a significant portion of the productive assets in the PRC, economic reform policies since the late 1970s have emphasised autonomous enterprises and the utilisation of market mechanisms. The Directors believe these reforms to the PRC’s political, economic and social conditions, laws, regulations and policies will have a positive effect on the Group’s overall and long-term development. However, there can be no assurance that the PRC Government may continue to pursue its current course of reforms and that any adverse changes to China’s political, economic, legal and social policies and conditions will not have any adverse effect on the Group’s current or future businesses, operations and financial conditions.
Changes in foreign exchange regulations may materially and adversely affect the Group’s business, operations and financial conditions, while any devaluation of Renminbi may adversely affect the value of, and dividends payable on, the H Shares
The Group currently receives all of its revenue and makes all of its purchases in Renminbi.
Renminbi is currently not a freely convertible currency. The value of Renminbi is subject to changes in the PRC Government’s policies and depends to a large extent on PRC’s domestic and international economic and political developments, as well as the supply and demand in the local market. Since 1994, the official exchange rate for the conversion of Renminbi to US dollars has generally been stable, and Renminbi has appreciated slightly against US dollar. However, given the economic instability and currency fluctuations in Asia in recent years, there is no assurance that the value of Renminbi will continue to remain stable against US dollar or any other foreign currency. Any devaluation of Renminbi may adversely affect the value of, and dividends payable on, H Shares in foreign currency terms since the Group will receive all of its revenues and express its profits in Renminbi.
Under the existing foreign exchange regulations in the PRC, following the completion of the Offering, the Group may undertake current account foreign exchange transactions, including payment of dividends, without prior approval from SAFE, by producing commercial documents evidencing such transactions, provided that they are processed through Chinese banks licensed to engage in foreign exchange transactions. The PRC Government has stated publicly that it intends to make Renminbi freely convertible in the future. However, it is uncertain that whether the PRC Government may restrict access to foreign currency for current account transactions if foreign currency becomes scarce in the PRC.
Foreign exchange transactions under the capital account continue to be subject to limitations and require the prior approval of SAFE. These limitations could affect the Group’s ability to obtain foreign currency through debt financing or to obtain foreign currency for capital expenditures. If, due to these limitations on foreign exchange, the Group cannot obtain the required foreign currency in a timely manner, the Group’s businesses, operations and financial conditions could be adversely affected.
– 29 – RISK FACTORS
There are uncertainties regarding the interpretation and enforcement of PRC laws and regulations
The PRC legal system is based on statutory law. Under this system, prior court decisions may be cited as persuasive authority but do not have binding precedential effect. Since 1979, the PRC government has been developing a comprehensive system of commercial laws and considerable progress has been made in the promulgation of laws and regulations dealing with economic matters, such as corporate organisation and governance, foreign investment, commerce, taxation and trade. For example, at present, the regulatory framework for the securities industry in the PRC is at an early stage of development. The CSRC is responsible for administering and regulating the national securities markets and drafting regulations for the regulation of the national securities markets. Regulations of the State Council and the relevant implementing measures of the CSRC apply to listed companies in general without being confined to companies listed on any particular stock exchange. Hence these provisions apply to the Group. As these laws, regulations and legal requirements are relatively new, with a limited volume of published cases and judicial interpretations and the non-binding nature of prior court decisions, the interpretation and enforcement of these laws, regulations and legal requirements involve some uncertainties. In addition, as the PRC legal system develops, changes in such laws and regulations, their interpretation or enforcement may lead to additional restrictions on the Group’s business or additional compliance costs for the Group.
Holders of the H Shares may not enjoy the same level of shareholder protection as in other jurisdictions
As all of the Group’s business is conducted in the PRC, its operations are governed principally by the laws of the PRC. As a PRC company offering and listing its shares outside the PRC, the Company is subject to, among other things, the Special Regulations and to the Mandatory Provisions. The Mandatory Provisions contain certain provisions that are required to be included in the articles of association of PRC companies to be listed abroad and are intended to regulate the internal affairs of those companies. The Company Law and the Special Regulations, in general, and provisions for the protection of shareholders’ rights and access to information, in particular, are less developed than those applicable to companies incorporated in Hong Kong, the United Kingdom, the United States and other economically developed countries or regions.
The Company Law is different in certain important aspects from company laws in the United States, Hong Kong and other common law countries or regions, particularly with regard to investor protection, including areas such as derivative actions by minority shareholders and other minority protections, restrictions on directors, financial disclosure, variations of class rights, procedures at general meetings and payments of dividends.
The limited nature of investor protection under the Company Law is compensated for, to a certain extent, by the introduction of the Mandatory Provisions and certain additional requirements that are imposed by the Listing Rules with a view to reducing the scope of differences between Hong Kong company law and the Company Law. The Mandatory Provisions and those additional requirements must be included in the articles of association of all PRC companies applying to be listed in Hong Kong. The Articles of Association have incorporated the provisions required by the Mandatory Provisions and the Listing Rules. Despite the incorporation of those provisions, there can be no assurance that investors will enjoy protections that they may be entitled to in other jurisdictions.
– 30 – RISK FACTORS
The exemption from withholding tax on dividends and capital gains tax currently available to the investors may not continue in the future
Under current PRC tax laws, regulations and rulings, dividends paid by the Company to holders of H Shares who are foreign individuals not resident in the PRC or which are foreign enterprises with no permanent establishment in the PRC are not currently subject to PRC withholding tax. In addition, gains realised by individuals or enterprises upon the sale or other disposition of H Shares are not currently subject to PRC capital gains tax. There can be no assurance, however, that withholding or capital gains taxes will not become applicable to those dividends or gains in the future. In such event, a foreign individual holding H Shares could become subject to a withholding tax on dividends, which is currently imposed at the rate of 20% or to a capital gains tax, which may be imposed at the rate of 20%, unless it is reduced or eliminated by an applicable taxation treaty between the PRC and the country in which such foreign individual resides.
The Articles of Association require holders of H Shares to submit disputes with the Company and certain other persons to arbitration
The Articles of Association require a holder of H Shares having a claim against or a dispute with the Company, a Director, a Supervisor or a manager or officer of the Company or a holder of the Company’s Domestic Shares relating to any rights or obligations conferred or imposed by the Articles of Association, the Company Law and other PRC laws or administrative regulations and relating to the Company’s affairs, to submit the dispute or claim to the China International Economic and Trade Arbitration Commission or to the Hong Kong International Arbitration Centre for arbitration. The Articles of Association further provide that the arbitrator’s award shall be final and binding on all parties.
The PRC is a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), which historically has permitted reciprocal enforcement in the PRC of awards of arbitral bodies located in other New York Convention signatory countries. Following the resumption of sovereignty over Hong Kong by the PRC on 1 July, 1997, the New York Convention no longer applies to the enforcement of Hong Kong arbitration awards in other parts of the PRC. On 21 June, 1999, an arrangement was made between Hong Kong and the PRC for the mutual enforcement of arbitration awards. This new arrangement was approved by the Supreme People’s Court of the PRC and the Hong Kong Legislative Council, and became effective on 1 February, 2000. As far as the Directors are aware, no action has been brought in the PRC by any public shareholder of a Chinese company to enforce an arbitration award granted in Hong Kong since 1 February, 2000, and the outcome of enforcing such an arbitration award in the PRC under the new arrangement is therefore uncertain.
It may be difficult to effect service of process upon the Company or its Directors, Supervisors or executive officers who live inside the PRC or to enforce against them in the PRC any judgments obtained from non-PRC courts
The Company is a joint stock limited company incorporated in the PRC. Substantially all of its Directors, Supervisors and executive officers reside within the PRC, and all of its assets and substantially all of the assets of those persons are located within the PRC. It may not be possible for investors to effect service of process upon the Company or those persons inside the PRC or to enforce against them in the PRC any judgments obtained from non-PRC courts. The PRC does not have treaties or arrangements providing for the recognition and enforcement of judgments of the courts of the United States, the United Kingdom or most other Western countries or Hong Kong, and therefore recognition and enforcement in the PRC of judgments obtained in those jurisdictions may be difficult. – 31 – RISK FACTORS
RISKS RELATING TO THE OFFERING OF H SHARES
There has been no prior public market for the H Shares
Prior to the Offering, there was no public market for the H Shares. The determination of the Offer Price for the H Shares was the result of negotiations between the Company and First Shanghai Securities, on behalf of the Underwriters, and the Offer Price may differ significantly from the market price for the H Shares following the Offering. The Company has applied to list and deal in the H Shares on the Stock Exchange. However, being listed on the Stock Exchange does not guarantee that an active trading market for the H Shares will develop following the Offering.
The price and trading volume of the H Shares following the Offering may be volatile
The price and trading volume of the H Shares may be highly volatile. Factors such as variations in the Company’s revenues, earnings and cash flows and announcements of new investments, strategic alliances and/or acquisitions, fluctuations in market prices for the Group’s products and services or fluctuations in market prices for similar companies could cause the market price of the H Shares to change substantially. Any such developments may result in large and sudden changes in the volume and price at which the H Shares will trade. There is no assurance that these developments will not occur in the future. In addition, shares of other PRC companies listed on the Stock Exchange and shares of other similar companies have experienced substantial price volatility in the past, and it is possible that the H Shares will be subject to changes in price that may not be directly related to the Company’s financial or business performance.
Certain statistics published by the PRC Government and certain industry statistics contained in this prospectus may not be reliable
Statistical and other information relating to the construction, building materials and real estates development industries in the PRC, and the Group’s competitors contained in this prospectus have been compiled from various publicly available official sources generally believed to be reliable. However, the Company cannot guarantee the quality of such source materials. Moreover, statistics derived from different sources may not be prepared on a comparable basis. Although the Company has taken reasonable care to ensure that the information relating to the industries or third parties are accurately reproduced from these sources, neither the Company nor the Underwriters have verified the accuracy of the source information. The Company makes no representation as to the accuracy of such information which may not be consistent with other information compiled within or outside the PRC. Accordingly, the industry information and statistics contained herein may not be accurate and should not be unduly relied upon.
Forward looking statements may be inaccurate
Included in this prospectus are various forward looking statements, in which forward looking terminologies such as “expect”, “believe”, “anticipate”, “estimate”, “may”, “require”, “must”, “have to” or “will” are used. These statements contain, among other things, the discussions relating to the Group’s planning, objectives, strategies, expectations and intentions about certain issues (such as the future operations, profitability, cash flow and capital resources of the Group). Share subscribers should note that relying on any forward-looking statement is subject to risks and uncertainties. Although the Directors believe that the assumptions behind the forward-looking statements are reasonable, any part or all of the assumptions in respect of the statements may be inaccurate and the forward-looking statements based on such assumptions may therefore be
– 32 – RISK FACTORS inaccurate. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus may not occur and the Group’s actual results could differ materially from those anticipated in these forward-looking statements. Accordingly, undue reliance shall not be placed on these forward-looking statements.
As no profit forecast has been included in this prospectus, prospective investors should not rely on past performance when considering whether to invest in the H Shares
For each of the three years ended 31 December, 2002, the Group recorded profit attributable to shareholders of approximately RMB59.7 million, RMB122.1 million and RMB141.1 million, respectively.
Based on the Group’s unaudited management accounts for the four months ended 30 April, 2003, the Group recorded a turnover of approximately RMB896.8 million and profit attributable to shareholders of approximately RMB41.9 million, respectively, representing an increase of approximately 15.7% and 2.0%, respectively, as compared to the same period in the previous financial year. The Construction Business, the Building Materials Business and the Real Estate Business accounted for approximately 89%, 9% and 2% of the total turnover of the Group for the four months ended 30 April, 2003. As at 30 April, 2003, the total amount of contracts and orders on hand of the Group was approximately RMB3,845 million. The average accounts receivable turnover, average inventory turnover and average accounts payable turnover for the four months ended 30 April, 2003 were approximately 19 days, 25 days and 32 days, respectively.
The Company and the Sponsor do not consider that it is appropriate to include in this prospectus a profit forecast for the year ending 31 December, 2003 since (i) the Group’s unaudited management accounts are made up only to 30 April, 2003; and (ii) a majority of the Group’s turnover is derived from the Construction Business which is highly dependent on the progress of the construction contracts undertaken by the Group. In addition, the duration of a construction contract ranges from several months to over one year and there are certain risks associated with the construction process, details of which are set out in the paragraph headed “The Group’s results of operations or financial condition may be affected due to certain risks associated with the construction process” in this section which make it difficult to accurately forecast the financial results of the Group. Prospective investors should be aware that there is no assurance that the Group’s historical revenue or profitability can be maintained or relied upon in assessing the Group’s future performance.
– 33 – INFORMATION ABOUT THIS PROSPECTUS AND THE OFFERING
DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS
This prospectus contains particulars given in compliance with the Companies Ordinance, the Securities (Stock Exchange Listing) Rules 1989 (as amended) and the Listing Rules for the purpose of giving information to the public with regard to the Group. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this prospectus and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement in this prospectus misleading.
The Offer Shares are offered for subscription solely on the basis of the information contained and representations made in this prospectus. No person is authorised in connection with the Offering to give any information, or to make any representation, not contained in this prospectus, and therefore any information or representation not contained herein must not be relied upon as having been authorised by the Company, the Sponsor, the Underwriters, any of their respective directors or any other persons involved in the Offering.
CONSENT OF THE CSRC
On 3 January, 2003, the CSRC gave its consent to the Company for the Offering and applying for the listing of the H Shares on the Stock Exchange. In granting such consent, the CSRC accepts no responsibility for the financial soundness of the Company nor the accuracy of any of the statements made or opinions expressed in this prospectus or in the application forms.
APPLICATION FOR LISTING ON THE STOCK EXCHANGE
The Company has applied to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the H Shares to be issued pursuant to the Offering (including the additional H Shares which may be issued pursuant to the exercise of the Over-allotment Option). Save as disclosed in this prospectus, no part of the share or loan capital of the Company is listed on or dealt in on any other stock exchange and at present, no such listing or permission to list is being or proposed to be sought pursuant to the Offering.
STRUCTURE OF THE OFFERING
Details of the structure of the Offering, including its conditions, are set out in the section headed “Structure of the Offering” of this prospectus.
UNDERWRITING
This prospectus is published solely in connection with the Offering for which First Shanghai Capital is the sponsor and First Shanghai Securities is the sole bookrunner and joint lead manager. The Offering comprises the Public Offer of initially 18,072,000 H Shares and the International Placing of initially 162,612,000 H Shares, both at the Offer Price (subject, in each case, to reallocation on the basis described in the section headed “Structure of the Offering” of this prospectus). The International Placing is to be fully underwritten by the International Placing Underwriters pursuant to the International Placing Underwriting Agreement to be entered into on or about 20 June, 2003 and the Public Offer is fully underwritten by the Public Offer Underwriters pursuant to the Public Offer Underwriting Agreement. For further information about the Underwriters and the underwriting arrangements, please refer to the section headed “Underwriting” of this prospectus.
– 34 – INFORMATION ABOUT THIS PROSPECTUS AND THE OFFERING
DETERMINATION OF THE OFFER PRICE
The Offer Shares are being offered at the Offer Price which will be determined by First Shanghai Securities (on behalf of the Underwriters), First Shanghai Capital and the Company on or before 5:00 p.m. on 20 June, 2003 (Hong Kong time), or such later date or time as may be agreed by First Shanghai Securities, First Shanghai Capital and the Company but in any event no later than 5:00 p.m. on 24 June, 2003.
If First Shanghai Securities (on behalf of the Underwriters), First Shanghai Capital and the Company are unable to reach an agreement on the Offer Price by 5:00 p.m. on 24 June, 2003, or such later date or time as may be agreed by First Shanghai Securities (on behalf of the Underwriters), First Shanghai Capital and the Company, the Offering will not become unconditional and will lapse.
RESTRICTIONS ON OFFER AND SALE OF THE H SHARES
No action has been taken to permit a public offering of the Offer Shares or the distribution of this prospectus in any jurisdiction other than Hong Kong. Accordingly, this prospectus may not be used for the purpose of, and does not constitute, an offer or invitation in any jurisdiction or in any circumstances in which such an offer or invitation is not authorised or to any person to whom it is unlawful to make such an offer or invitation.
The Public Offer Shares are offered solely on the basis of the information contained and representations made in this prospectus and the related application forms. The Company has not authorised anyone to provide any information or to make any representation not contained in this prospectus, and any information or representation not contained herein must not be relied upon as having been authorised by the Company, the Sponsor, the Underwriters, any of their respective directors, or any other person involved in the Offering.
Each person subscribing for or acquiring the Offer Shares will be required to, or be deemed by his subscribing for or acquisition of Offer Shares to confirm that, he is aware of the restrictions on offers of the Offer Shares described in this prospectus.
United States
The Offer Shares have not been and will not be registered under the US Securities Act and may not be offered, sold, pledged or transferred within the United States, or to, or for the account or benefit of, U.S. persons.
United Kingdom
This prospectus has not been approved by an authorised person in the United Kingdom and has not been registered with the Registrar of Companies in the United Kingdom. The Offer Shares may not be offered or sold in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995, as amended. In addition, no person may upon receipt of any
– 35 – INFORMATION ABOUT THIS PROSPECTUS AND THE OFFERING invitation for issue or sale of any Offer Shares or any inducement for engaging in investment activities (within the meaning of Article 21 of the Financial Services and Market Act (“Financial Services and Market Act”) pass to any other persons such information, except for circumstances under which Article 21(1) of the Financial Services and Market Act does not apply to the Company.
Singapore
This prospectus has not been and will not be registered as a prospectus with the Registrar of Companies and Businesses in Singapore. Accordingly, the Offer Shares may not be offered or sold, nor may this prospectus or any offering document or material relating to the Offer Shares be issued, circulated or distributed directly or indirectly, to the public or any member of the public in Singapore other than (i) to an institutional investor or other person specified in Section 274 of the Securities and Futures Act 2001 of Singapore (the “Singapore Securities Act”), (ii) to a sophisticated investor, and in accordance with the conditions, specified in Section 275 of the Singapore Securities Act, or (iii) otherwise pursuant to, and in accordance with the conditions of, any applicable provisions of the Singapore Securities Act.
PRC
This prospectus may not be circulated or distributed in the PRC and the Offer Shares may not be offered or sold, directly or indirectly or offered or sold to any person for re-offering or resale, directly or indirectly, to any resident of the PRC.
HONG KONG H SHARE REGISTER AND STAMP DUTY
All of the H Shares issued pursuant to the Offering will be registered on the Company’s H Shares register of members to be maintained in Hong Kong.
Dealings in the H Shares registered in Hong Kong will be subject to Hong Kong stamp duty. Further information is set out in Appendix IV to this prospectus.
Unless determined otherwise by the Company, dividends payable in respect of the H Shares will be paid to the shareholders on the register of the Company, by ordinary post at the shareholders’ risks to the registered address of each shareholder.
PROFESSIONAL TAX ADVICE RECOMMENDED
Potential shareholders are recommended to consult their professional advisers if they are in any doubt as to the taxation implications of subscribing for, purchasing, holding and dealing in the H Shares. None of the Company, the Sponsor, the Underwriters, any of their respective directors or any other person or party involved in the Offering accepts responsibility for any tax effects on, or liabilities of, any person resulting from the subscription, purchase, holding or dealing in the H Shares.
– 36 – INFORMATION ABOUT THIS PROSPECTUS AND THE OFFERING
PROCEDURES OF APPLYING FOR THE PUBLIC OFFER SHARES
Procedures of applying for the Public Offer Shares are set out in the section headed “How to apply for Public Offer Shares” of this prospectus and in the relevant application forms.
REGISTRATION OF SUBSCRIPTION, PURCHASE AND TRANSFER OF H SHARES
The Company has instructed Tengis Limited, its Hong Kong share registrar, and Tengis Limited has agreed, not to register the subscription, purchase or transfer of any H Shares in the name of any particular holder unless and until the holder delivers a signed form to the share registrar in respect of those H Shares bearing statements to the effect that the holder:
(i) agrees with the Company and each shareholder of the Company, and the Company agrees with each shareholder, to observe and comply with the Company Law, the Special Regulations, and the Articles of Association;
(ii) agrees with the Company, each shareholder of the Company, Director, Supervisor, manager and officer of the Company, and the Company acting for itself and for each Director, Supervisor, manager and officer of the Company agrees with each shareholder of the Company to refer all differences and claims arising from the Articles of Association or any rights or obligations conferred or imposed by the Company Law or other relevant laws and administrative regulations concerning the affairs of the Company to arbitration in accordance with the Articles of Association, and any reference to arbitration shall be deemed to authorise the arbitration tribunal to conduct hearings in open session and to publish its award, which arbitration shall be final and conclusive;
(iii) agrees with the Company and each shareholder of the Company that H Shares in the Company are freely transferable by the holders thereof; and
(iv) authorises the Company to enter into a contract on his behalf with each Director and officer of the Company whereby such Directors and officers undertake to observe and comply with their obligations to shareholders as stipulated in the Articles of Association.
STABILISATION
In connection with the Offering, First Shanghai Securities, as stabilising manager, or any person acting for it, may over-allocate the H Shares and may cover such over-allocations by exercising the Over-allotment Option no later than 30 days after the date of this prospectus or making open market purchases in the secondary market. The number of the H Shares over-allocated will not be greater than the number of the H Shares which may be issued upon exercise of the Over-allotment Option, being 27,102,000 H Shares, which is approximately 15.0% of the H Shares initially available under the Offering. First Shanghai Securities may also, on behalf of the Underwriters, effect transactions which stabilise or maintain the market price of the H Shares. Such transactions may be effected in all jurisdictions where it is permissible to do so, in each case in compliance with all applicable laws and regulatory requirements. Such transactions, if commenced, may be discontinued at any time. Should stabilising transactions be effected in connection with the distribution of the H Shares, they will be done at the absolute discretion of First Shanghai Securities.
– 37 – INFORMATION ABOUT THIS PROSPECTUS AND THE OFFERING
Stabilisation is a practice used by underwriters in some markets to facilitate the distribution of securities. To stabilise, the underwriters may bid for, or purchase, the newly issued securities in the secondary market, during a specified period of time, to retard and, if possible, prevent a decline in the initial public offer prices of the securities. In Hong Kong and certain other jurisdictions, activity aimed at reducing the market price is prohibited, and the price at which stabilisation is effected is not permitted to exceed the Offer Price.
Stabilisation is not a practice commonly associated with the distribution of securities in Hong Kong. In Hong Kong, such stabilisation activities on the Stock Exchange are restricted to cases where underwriters genuinely purchase shares on the secondary market solely for the purpose of covering over-allocations in an offering. The relevant provisions of the SFO prohibits market manipulation in the form of pegging or stabilising the price of securities in certain circumstances.
EXCHANGE RATE CONVERSION
Except as otherwise noted, this prospectus contains translations of Renminbi amounts into Hong Kong dollars at the rate of HK$1.00 = RMB1.0611, the PBOC Rate prevailing on 30 April, 2003 for certain financial information of the three years ended 31 December, 2002, for reference only. No representation is made that the Renminbi amounts set out in this prospectus could have been or could be converted into Hong Kong dollars, as the case may be, at any particular rate on such date or any other date or at all. Risks associated with the restriction on foreign exchange conversion and the fluctuation of Renminbi exchange rate are set out in the paragraph headed “Risks relating to the PRC – Changes in foreign exchange regulations may materially and adversely affect the Group’s business, operations and financial conditions, while any devaluation of Renminbi may adversely affect the value of, and dividends payable on, the H Shares” under the section headed “Risk factors” of this prospectus.
– 38 – DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE OFFERING
DIRECTORS
Name Address Nationality
Executive Directors
Mr. PANG Baogen Group 2, Residential Committee Chinese Xinan Village Yangxunqiao Township Shaoxing County Zhejiang Province The PRC
Mr. GAO Jiming Group 1, Residential Committee Chinese Gaojia Village Yangxunqiao Township Shaoxing County Zhejiang Province The PRC
Mr. GAO Lin Group 2, Residential Committee Chinese Gaojia Village Yangxunqiao Township Shaoxing County Zhejiang Province The PRC
Mr. ZHOU Hanwan Group 8, Residential Committee Chinese Gaojia Village Yangxunqiao Township Shaoxing County Zhejiang Province The PRC
Non-executive Directors
Mr. WU Weimin 2 Wener Road Chinese Shihuiqiao Xincun Xihu District Hangzhou Zhejiang Province The PRC
Mr. HU Shaozeng Room 302 Chinese 65 Kaiyuan Road Shangcheng District Hangzhou Zhejiang Province The PRC
Independent Non-executive Directors
Mr. WANG Youwei Room 402, Door 1 Chinese 5th Floor 9 Xiaohuangzhuang Road Chaoyang District Beijing The PRC
– 39 – DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE OFFERING
Name Address Nationality
Mr. YI Deqing Room 11 Chinese No. 33, Block 20 Huanxi Xincun Xiacheng District Hangzhou Zhejiang Province The PRC
Mr. XU Yangsheng Flat 12F, Block 11 American Vista Paradiso Maonshan New Territories Hong Kong
Mr. KWOK Lam Kwong, Larry 79 Palm Drive Australian Redhill Peninsula Tai Tam Hong Kong
SUPERVISORS
Mr. SUN Guofan Group 2, Residential Committee Chinese Shangsun Village Yangxunqiao Township Shaoxing County Zhejiang Province The PRC
Mr. XIE Qisheng Baoye Group Workers’ Quarters Chinese Yangxunqiao Township Shaoxing County Zhejiang Province The PRC
Mr. SUN Machuan Group 3, Residential Committee Chinese Sunjiaqiao Village Yangxunqiao Township Shaoxing County Zhejiang Province The PRC
Mr. CHEN Xingquan Room 105, Unit 3 Chinese Block 18 Wanghuafan (East) Shaoxing County Zhejiang Province The PRC
Mr. YU Zengmin 16-2-502 Chinese Guodu Apartment Hangzhou Zhejiang Province The PRC
– 40 – DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE OFFERING
PARTIES INVOLVED IN THE OFFERING
Sponsor First Shanghai Capital Limited 19th Floor Wing On House 71 Des Voeux Road Central Hong Kong
Sole Bookrunner and First Shanghai Securities Limited Joint Lead Manager 19th Floor Wing On House 71 Des Voeux Road Central Hong Kong
Joint Lead Manager GC Capital (Asia) Limited 6501-06 The Center 99 Queen’s Road Central Hong Kong
Co-Lead Managers CM-CCS Securities Limited 26th Floor World Wide House 19 Des Voeux Road Central Hong Kong
CITIC Capital Markets Limited 26th Floor CITIC Tower 1 Tim Mei Avenue Central Hong Kong
Worldwide Finance (Securities) Limited Flat A, 16th Floor Guangdong Investment Tower 148 Connaught Road Central Hong Kong
– 41 – DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE OFFERING
Co-Managers CAF Securities Company Limited 13th Floor Fairmont House 8 Cotton Tree Drive Central Hong Kong
Guotai Junan Securities (Hong Kong) Limited 27th Floor, Low Block Grand Millennium Plaza 181 Queen’s Road Central Hong Kong
Phillip Securities (HK) Limited 11th-12th Floor United Centre 95 Queensway Hong Kong
SBI E2-Capital Securities Limited Room 4301-09, 43th Floor Jardine House One Connaught Place Central Hong Kong
Shenyin Wanguo Capital (H.K.) Limited 28th Floor Citibank Tower Citibank Plaza 3 Garden Road Hong Kong
Sun Hung Kai International Limited Level 12 One Pacific Place 88 Queensway Hong Kong
– 42 – DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE OFFERING
Legal advisers to the Company as to Hong Kong law: Kwok & Yih 37th Floor Gloucester Tower The Landmark Central Hong Kong
as to PRC law: Jingtian & Gongcheng 15th Floor The Union Plaza 20 Chaoyang Menwaidajie Beijing 100020 The PRC
Legal advisers to the as to Hong Kong law: Underwriters Herbert Smith 23rd Floor Gloucester Tower 11 Pedder Street Central Hong Kong
Auditors and reporting PricewaterhouseCoopers accountants Certified Public Accountants 22nd Floor Prince’s Building Central Hong Kong
Property valuers Vigers Hong Kong Limited Room 1607-12 Miramar Tower 132 Nathan Road Tsim Sha Tsui Kowloon Hong Kong
Receiving banker Standard Chartered Bank 15th Floor, Standard Chartered Tower 388 Kwun Tong Road Kwun Tong Kowloon Hong Kong
– 43 – CORPORATE INFORMATION
Registered address and head office Yangxunqiao Township Shaoxing County Zhejiang Province The PRC
Place of business in Hong Kong 3705-6, 37th Floor Gloucester Tower The Landmark Central Hong Kong
Company secretary Ms. Chung Oi Yin, Irene ACS, ACIS
Audit committee Mr. Wang Youwei Mr. Yi Deqing Mr. Xu Yangsheng
Authorised representatives Mr. Pang Baogen Mr. Gao Jiming (Mr. Zhou Hanwan as alternate authorised representative)
Hong Kong share registrar and Tengis Limited transfer office Ground Floor Bank of East Asia Harbour View Centre 56 Gloucester Road Wanchai Hong Kong
Principal bankers Agriculture Bank of China Shaoxing City Yuezhong branch 1 Ren Ming Zhong Road Shaoxing City Zhejiang Province The PRC
Bank of Communications Qingfangcheng branch 232 Keqiao Da Road Keqiao Township Shaoxing County Zhejiang Province The PRC
China Construction Bank Shaoxing County branch 27 Jianhu Road Keqiao Township Shaoxing County Zhejiang Province The PRC
– 44 – INDUSTRY OVERVIEW
CONSTRUCTION INDUSTRY
Overview
The key characteristics of the construction industry in the PRC include: (i) existence of a large number of small to medium-sized construction players but lack of dominant nationwide players; (ii) construction works being highly labour-intensive; and (iii) low level of technological innovation and application of pre-fabricated building materials.
Construction industry at national level
In the Ninth-Five-Year-Plan (1996-2000), the PRC Government designated the construction industry as a “pillar industry” in China and indicated that it would invest substantial funds in supporting construction projects. As a result, the total output value of the PRC construction industry increased at a CAGR of approximately 10.8% from approximately RMB828 billion in 1996 to approximately RMB1,250 billion in 2000. The total output value of the PRC construction industry further increased by approximately 23.2% to approximately RMB1,540 billion in 2001.
Figure 1: Total output value of the PRC construction industry during 1996 to 2001
RMB billion
1,800
YoY:+23.2% 1,600 CAGR:+13.2%
YoY:+12.1% 1,200 YoY:+10.8% YoY:+10.3% YoY:+10.2% 800
400
0
1996 1997 1998 1999 2000 2001
Source: National Bureau of Statistics
– 45 – INDUSTRY OVERVIEW
The growth in the PRC construction industry has been closely related to, and largely driven by, continuous improvement in the country’s economic performance and increased investment in fixed assets.
Table 1: Other major industry indicators of the PRC construction industry during 1996 to 2001
1996 1997 1998 1999 2000 2001
The weighting of construction industry as percentage of GDP (%) 6.7 6.5 6.7 6.7 6.6 6.7
Government’s investment in construction and installation (RMB billion) 1,511 1,561 1,787 1,880 2,054 2,295 Government’s investment in fixed assets (RMB billion) 2,291 2,494 2,841 2,985 3,292 3,721 Investment in construction & installation as percentage of investment in fixed assets (%) 65.9 62.6 62.9 63.0 62.4 61.7 Number of construction enterprises State-owned enterprises 9,109 9,650 9,109 9,394 9,030 8,264 Urban and rural collectives 29,044 29,872 26,970 25,443 22,905 17,276 Rural construction teams 67,191 51,939 45,292 49,414 49,745 50,481 Others 3,211 4,495 9,555 12,397 15,583 20,353
Total 108,555 95,956 90,926 96,648 97,263 96,374
Number of construction workers State-owned enterprises (’000) 8,560 8,290 7,380 6,910 6,360 5,910 Urban and rural collectives (’000) 11,710 11,480 10,090 9,350 8,230 6,730 Rural construction teams (’000) 8,700 7,030 7,490 7,400 7,470 7,620 Others (’000) 950 1,250 2,830 4,010 5,360 8,470
Total 29,920 28,050 27,790 27,660 27,410 28,730
Source: China Statistical Yearbook 2002
During the period from 1996 to 2001:
1. The total output value of construction industry has increased at a faster rate than the GDP
The PRC’s GDP increased from approximately RMB6,780 billion in 1996 to approximately RMB9,590 billion in 2001, representing a CAGR of approximately 7.2%, lower than the CAGR of the total output value of the construction industry of approximately 13.2% recorded during the same period. Percentage contribution of the construction industry to the PRC’s GDP remained steady within the range of approximately 6.5% to 6.7%.
– 46 – INDUSTRY OVERVIEW
2. The total output value of construction industry has increased at a faster rate than the Government’s investment in fixed assets
The PRC Government’s total fixed assets investment increased at a CAGR of approximately 10.2% from approximately RMB2,291 billion in 1996 to approximately RMB3,721 billion in 2001 while its total investment in construction and installation increased at a CAGR of approximately 8.7% from approximately RMB1,511 billion in 1996 to approximately RMB2,295 billion in 2001. Both CAGRs were lower than the total output value of the construction industry’s CAGR of approximately 13.2% recorded during the same period. This was in spite of the decrease in the PRC Government’s investment in construction and installation as a percentage of the PRC Government’s investment in fixed assets from approximately 65.9% in 1996 to 61.7% in 2001.
3. In 2001, “urban and rural collectives” accounted for approximately 17.9% of the total number of construction enterprises and employed approximately 23.4% of the total construction workforce
In contrast, “state-owned enterprises” accounted for approximately 8.6% of the total number of construction enterprises and employed approximately 20.6% of the total construction workforce while the “rural construction teams” accounted for approximately 52.4% of the total number of construction enterprises and employed only approximately 26.5% of the total construction workforce.
4. The average number of construction workers per construction enterprise has increased from 1996 to 2001
The number of construction workers generally decreased from approximately 29.9 million in 1996 to approximately 28.7 million in 2001 and the number of construction enterprises generally decreased from 108,555 in 1996 to 96,374 in 2001. However, the average number of construction workers per construction enterprise generally increased from approximately 276 workers in 1996 to approximately 298 workers in 2001.
– 47 – INDUSTRY OVERVIEW
Construction industry at regional level
Northeast
Beijing
Northwest North
Shanghai East Hangzhou Southwest Central
Zhejiang Province
South
“Central China” – the area of the PRC made up of the provinces of Henan, Hunan and Hubei
“Eastern China” – the area of the PRC made up of Shanghai Municipality and the provinces of Zhejiang, Jiangsu, Shandong, Jiangxi, Anhui and Fujian
“Northeastern China” – the area of the PRC made up of the provinces of Liaoning, Jilin and Heilongjiang
“Northern China” – the area of the PRC made up of Beijing Municipality, Tianjin Municipality, Hebei Province, Shanxi Province and Inner Mongolia Autonomous Region
“Northwestern China” – the area of the PRC made up of Shaanxi Province, Gansu Province, Qinghai Province, Ningxia Autonomous Region and Xinjiang Autonomous Region
“Southern China” – the area of the PRC made up of Guangdong Province, Guangxi Zhuang Autonomous Region and Hainan Province
“Southwestern China” – the area of the PRC made up of Chongqing Municipality, Sichuan Province, Guizhou Province, Yunnan Province and Tibet Autonomous Region
– 48 – INDUSTRY OVERVIEW
Eastern China has the highest GDP, population and per-capita GDP among all regions in the PRC.
Table 2: Total GDP, population and per-capita GDP in 2001 by region
Per-capita Total GDP Population GDP RMB billion million RMB
East 4,037 366 11,037 North 1,359 147 9,222 Northeast 1,063 107 9,935 Northwest 500 92 5,439 South 1,342 134 10,043 Southwest 947 200 4,715 Central 1,429 221 6,456
Zhejiang Province 675 46 14,629
Source: China Statistical Yearbook 2002
In 2001, Eastern China, where Zhejiang Province is situated, led the PRC construction industry and accounted for over 40% of the industry’s total output value, total profit before tax or total profit after tax.
Table 3: The PRC construction industry in 2001 by region
Total output value Profit Before Tax Profit After Tax RMB million %1 RMB million %1 RMB million %1
East 625,580 40.7% 32,226 40.6% 13,480 45.8% North 228,079 14.8% 12,040 15.2% 3,881 13.2% Northeast 140,757 9.2% 6,937 8.7% 2,387 8.1% Northwest 82,591 5.4% 2,732 3.4% 163 0.6% South 134,769 8.8% 9,056 11.4% 4,025 13.7% Southwest 177,250 11.5% 8,992 11.3% 3,168 10.8% Central 147,130 9.6% 7,360 9.3% 2,336 7.9% National total 1,536,156 100.0% 79,343 100.0% 29,439 100.0%
Zhejiang Province 176,845 11.5% 10,091 12.7% 4,585 15.6%
Source: China Statistical Yearbook 2002
Note:
1. Percentage of National Total
Northern China ranked second and accounted for less than 16% of the industry’s total output value, total profit before tax and total profit after tax. Zhejiang Province alone accounted for over 10% of the PRC’s total output value and over 15% of total profit after tax (which was more than the profit after tax of each of Southern China, Northern China, Southwestern China, Northeastern China, Central China and Northwestern China).
– 49 – INDUSTRY OVERVIEW
Construction Industry at Provincial Level
Zhejiang Province is among the provinces with the highest GDP and per-capita GDP in the PRC. Zhejiang Province’s GDP increased from approximately RMB414.6 billion in 1996 to approximately RMB674.8 billion in 2001, representing a CAGR of approximately 10.2% (higher than the national average of approximately 7.2% CAGR during the same period). In 2001, Zhejiang Province had (i) a total GDP ranked the fourth in the PRC behind Guangdong, Jiangsu and Shandong Provinces; and (ii) a per-capita GDP of approximately RMB14,629, which ranked the fourth next to Shanghai, Beijing and Tianjin in the PRC.
Total output value of the construction industry in Zhejiang Province increased from approximately RMB83.6 billion in 1996 to approximately RMB176.8 billion in 2001, representing a CAGR of approximately 16.2%, which was higher than the approximately 13.2% CAGR recorded by the overall construction industry in the PRC during the same period.
Figure 2: Total Output Value of the Zhejiang Province Construction Industry during 1996-2001
RMB billion
200
YoY:+27.7%
Y CAGR:+16.2%
150 YoY:+22.6%
YoY:+19.7%
100 YoY:+7.4% YoY:+4.9%
50
0
1996 1997 1998 1999 2000 2001
Source: China Statistical Yearbook 2002
– 50 – INDUSTRY OVERVIEW
Zhejiang Province ranked second by output value and has the most profitable construction industry by operation among the 31 provinces and municipalities in the PRC in 2001.
Table 4: The PRC construction industry ranking in 2001
By output value By profit before tax By profit after tax Province/municipality %1 Province/municipality %1 Province/municipality %1
1 Jiangsu 11.9 Zhejiang 12.8 Zhejiang 15.6 2 Zhejiang 11.5 Guangdong 10.1 Guangdong 12.7 3 Guangdong 7.4 Jiangsu 9.3 Shandong 8.9 4 Shandong 6.4 Shandong 7.1 Jiangsu 8.8 5 Beijing 5.8 Beijing 5.9 Shanghai 6.5 6 Sichuan 5.4 Sichuan 5.2 Beijing 6.4
Source: China Statistical Yearbook 2002
Note:
1. Percentage of National Total
The construction industry in Zhejiang Province has a well-established and successful history. In 2001, the total output value of the construction industry in Zhejiang Province reached approximately RMB176.8 billion, an increase of approximately 27.7% over 2000 and ranked second overall in the PRC; profit before tax in 2001 reached approximately RMB10.1 billion, an increase of approximately 36.5% over 2000 and ranked top in the PRC; the percentage contribution of the construction industry to Zhejiang Province GDP stood at approximately 5.4% in 2001; total number of construction labour was approximately 1.6 million.
During the period of the Ninth-Five-Year-Plan, 35 construction projects in Zhejiang Province received 中國建築工程魯班獎 (Lu Ban Award in the PRC Construction Engineering), the highest award in the PRC construction industry, and six construction projects undertaken by the Group received such awards. In addition, 337 and 192 construction projects received the highest awards granted by the Zhejiang Provincial and Shanghai Municipality Governments, respectively, of which 17 and 8, respectively, were awarded to the Group.
Industry prospects
The Directors believe that:
1. The construction industry in the PRC would continue to grow at a fast pace due to increasing investment in fixed capital by the PRC Government, continuous urbanisation and PRC’s accession into WTO, among others;
2. Rules and regulations governing the construction industry would become more market- oriented and sophisticated that would encourage establishment and enhance competition of larger scale companies;
3. Strong brand name would become a key success factor to secure and expand market share;
– 51 – INDUSTRY OVERVIEW
4. Market segmentation would be required in order to meet varying demand for different products and services; and
5. The labour-intensive business model in the construction industry will transform gradually into the capital-intensive business model supported by better technology and management.
Regulations on the construction sector
The MOC was established in late 1980s to take the leading role of implementing new strategies for developing the construction industry. MOC’s comprehensive responsibilities include formulating policies and regulations, preparing development programmes, monitoring implementation, training personnel, improving construction technology and managing standards, surveys, design and construction institutions.
The MOC and its departments, bureaus and offices at the local government level shall, pursuant to 《中華人民共和國建築法》(Construction Law of the PRC) and other relevant laws and regulations, administer and supervise the construction activities within the PRC.
The MOC grants four classes of registration to the PRC construction enterprises including, Premium, First, Second and Third, each of which can undertake design or construction of buildings of different sizes and complexity. According to China Statistical Yearbook 2002, there has been approximately 100,000 construction enterprises in the PRC. As at 31 December, 2002, MOC awarded 43 construction enterprises with Premium class certificate for 房屋建築工程施工總承 包 (general building construction contracting works), the highest grade awarded in the PRC construction industry. Four construction enterprises (including the Baoye Construction) based in Zhejiang Province were granted the Premium class certificate.
A construction enterprise engaged in construction activities shall, pursuant to《建築業企業 資質管理規定》(Provisions on the Administration of the Qualifications of Construction Enterprises), apply to the government at or above the county level in the locality where the enterprise is incorporated for recognition of qualifications. The First class enterprises undertaking general construction, and the First class enterprises undertaking specific construction shall, upon examination and verification by, and consent of, the governmental authorities at the provincial level, be reviewed and approved by the MOC, and the MOC shall award a corresponding《建築業企業資質證書》 (certificate of construction enterprise qualifications) to such enterprises accordingly. The MOC and its departments, bureaus and offices at local government level implement a system of annual inspection on construction enterprises.
The State has adopted various regulations in respect of construction works reporting, quality monitoring and administration, construction works permit, quality responsibility and quality warranty and repairs and maintenance.
In accordance with《工程建設項目實施階段程序管理暫行規定》 (Interim Provisions on the Implementation Phases of Construction Projects), construction projects include the following phases: preparation phase, construction phase, and completion phase. The preparation phase includes the reporting of engineering construction project, appointment of construction works supervisors, invitation for tenders, and signing of construction contracts. The construction phase includes the application for construction works permit, and the execution of the construction works. The completion phase includes inspection and acceptance upon completion, and repairs and maintenance during the relevant period.
– 52 – INDUSTRY OVERVIEW
The construction enterprises shall, upon receiving the approval for the feasibility report on a construction project, report the commencement of the construction works to the local authority pursuant to《工程建設項目報建管理辦法》 (Measures for the Administration of the Reporting of Engineering Construction Projects). After a report is made for the construction works, procedures shall be carried out for quality supervision in accordance with 《建設工程質量管理條例》 (Regulations on the Administration of the Quality of Construction Works).
With the exception of certain special engineering construction projects for which it is not suitable to invite any tender, the construction works for any other projects shall be awarded by way of tender in accordance with《中華人民共和國招標投標辦法》 (The PRC Law of Tenders and Invitation for Tenders) and《建設工程招標投標暫行規定》 (Interim Provisions on Invitation for Tenders and Tendering for Construction Projects), and administration and supervision of the tendering process shall be carried out by the relevant authorities designated by the PRC Government at various levels.
Construction enterprises and project developers shall enter into a construction contract in accordance with 《建設工程招標投標暫行規定》(Interim Provisions on Invitation for Tenders and Tendering for Construction Projects) and《建設工程施工合同管理辦法》 (Measures for the Administration of Contracts for Construction Projects), and shall, for the above purpose, use the specimen contract jointly prescribed by the State Administration for Industry and Commerce and the MOC.
Pursuant to 《建設工程施工現場管理規定》(Provisions on the Administration of the Construction Site), a construction works permit issued by the PRC Government is required in respect of construction works. The project developer is responsible for applying and obtaining a construction works permit.
Construction enterprises are required to carry out construction works pursuant to the relevant laws and regulations and in strict compliance with the design document, contract for construction works and the prevailing standards prescribed by the PRC Government. Upon completion of the construction works, an inspection shall be promptly organised in accordance with《建設項目（工 程）竣工驗收辦法》(Measures for Inspection and Acceptance upon Completion of Construction Projects). Save for special circumstances or otherwise specified in relevant contracts, construction enterprises must provide project owners with quality warranties and are liable for the quality of a project. Construction enterprises are responsible for repairing any defect in quality occurring after completion and acceptance of the construction that is within the warranty period. The warranty periods may vary according to particular item or problem, and include the following:
• a period of reasonable use for the building foundation and the main structure of the building;
• five years against leaks;
• two years for heat supply and air-conditioning; and
• two years for electricity tube and wires, water pipes, equipment installation and decoration.
– 53 – INDUSTRY OVERVIEW
The warranty for repairs and maintenance and follow-up repairs shall be implemented in accordance with the provisions of《建設工程質量管理條例》 (Regulations on the Administration of the Quality of Construction Works).
BUILDING MATERIALS INDUSTRY
In 2000, the total output value of the PRC’s building materials industry amounted to approximately RMB579.6 billion.
According to the National Bureau of Statistics, Eastern China ranked first and accounted for RMB223.6 billion or 38.6% of the total output value of building materials industry in 2000. Southwestern China ranked second and accounted for RMB76.0 billion or 13.1%, Northern China ranked third and accounted for RMB71.7 billion or 12.4%, Central China accounted for RMB61.6 billion or 10.6%, Southern China accounted for RMB59.3 billion or 10.2%, Northeastern China accounted for RMB56.7 billion or 9.8% and Northwestern China accounted for the remaining RMB30.8 billion, or 5.3%.
Zhejiang Province alone accounted for RMB78.3 billion or 13.5% of the total national output value of building materials in 2000.
The top six provinces in terms of total sales value of building materials in 2000 were set out below:
1. Zhejiang Province
2. Jiangsu Province
3. Guangdong Province
4. Sichuan Province
5. Shandong Province
6. Hubei Province
Steel, cement and timber were the most common building materials, which accounted for approximately 28.0%, 16.8% and 6.2%, respectively, of the total sales value of building materials in 2000.
SBBMI, an agency under the State Council, is responsible for regulating the building materials industry. SBBMI mainly administers the manufacture and mining of building materials, such as cement, bricks, tiles, lime and glass, etc.
In August 1999, the State Council of the PRC endorsed a notice prepared by the MOC on 《關於推進住宅產業現代化提高住宅質量的若干意見》(Certain Opinions Concerning the Promotion of Industrialisation of Building Materials to Improve Housing Quality), in which the State Council set a targeted time-frame to complete the initial phase of industrialisation and standardisation of the building materials industry in the PRC by 2005. The State Council also specifically called for the acceleration of the use of advanced construction technology and techniques and encouraged the use of steel structures and concrete bricks in the construction industry.
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In December 1999, the MOC, the SETC, the State Quality and Technology Supervisory Bureau and the SBBMI jointly issued the Joint Notice which encouraged the industrialisation of building materials to allow more efficient use of resources and better protection of environment.
REAL ESTATE DEVELOPMENT INDUSTRY
Overview
During the period between 1991 and 2001, the net per capita income of households in rural areas in the PRC increased from approximately RMB709 to RMB2,366, representing a CAGR of approximately 12.8%, while the net per capita income of households in urban areas increased from approximately RMB1,701 to RMB6,860, representing a CAGR of approximately 15.0%.
Figure 3: Net per capita income of households in rural areas and urban areas of the PRC during 1991-2001
(RMB) 7,000
6,000
5,000
4,000
3,000
2,000
1,000
0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Net per capita income of Net per capita income of households in rural areas households in urban areas
Source: China Statistical Yearbook 2002
As income increases, so does the purchasing power. The housing needs of Chinese people also increase gradually. The per capita gross floor area of residential housing in urban areas increased from 16.3 sq.m. in 1995 to 20.8 sq.m. in 2001 and the per capita gross floor area of residential housing in rural areas also increased from 21.0 sq.m. in 1995 to 25.7 sq.m. in 2001. The aggregate completed area of residential properties in the PRC increased from approximately 202.6 million sq.m. in 1991 to approximately 977.0 million sq.m. in 2001.
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Figure 4: Completed area of residential properties in the PRC during 1991-2001
(million sq.m.) 1,000 900 800 700 600 500 400 300 200 100 0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Source: China Statistical Yearbook 2002
According to《中國建設信息》 (Information of China Construction) of 2000, urban residents who intended to purchase houses within the next five years accounted for 21.9% of the total urban population under survey. The study indicated that of the households who already have their own housing, 23.3% expected to purchase additional houses within the next five years and 20.1% expect to purchase additional houses within next year.
Rural housing is also gradually developed in the direction towards unified planning, provision of good ancillary facilities and self-sufficiency. The proportion of newly constructed housing to total rural housing increased from approximately 50.0% in 1995 to approximately 64.3% in 2000.
Regulations on the real estate sector
According to《中華人民共和國城市房地產管理法》 (Law of the PRC on the Administration of Real Estate in Urban Areas), 《城市房地產開發經營管理條例》(Regulations on the Administration of Real Estate Development and Operation in Urban Areas) and《城市房地產開 發管理暫行辦法》(Interim Measures for the Administration of Urban Real Estate Development), real estate developers are required to apply for land use rights for the purpose of real estate development.
The governmental authorities in charge of the administration of real estate development shall, in accordance with《房地產開發企業資質管理規定》 (Provisions on the Administration of the Qualifications of Real Estate Development Enterprises), determine the qualification grade of real estate development enterprises, and shall issue, after verification,《房地產開發企業資質等 級證書》(Certificate on the Qualification Grade of Real Estate Development Enterprises). Real estate development enterprises shall, in accordance with the grade determined for them respectively, undertake the corresponding real estate development projects.
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Under current PRC laws and regulations, all land in the PRC is owned by the State or by collectives, which are public ownership entities. In 1990, the State Council promulgated《中華人 民共和國城鎮國有土地使用權出讓和轉讓暫行條例》(Provisional Regulations of China Concerning the Grant and Assignment of the Right to Use State-owned Land in Urban Areas) to formalize the process of the grant and transfer of state-owned land use rights at a consideration. Under this system, the State retains the ultimate ownership of the land. However, the right to use the land can be granted by the State and local governments in their capacities as land owners for a maximum period of 70 years for property development, upon payment to the government of a land premium for the grant of the land use right. Land owned by collectives, which is mostly arable land, must first be resumed by the State before it can be granted for urban property development. Historically, there have been three basic mechanisms, namely, by agreement, auction or tender, that a local government may use to grant land use rights. Most land use rights granted in China have been granted by agreement between the relevant local authority and the party or parties seeking the rights to use the land. However, pursuant to《關於加強國有土地資產管理的通知》 (Notice Concerning the Strengthening of Management of State-owned Land) issued by the State Council in 2001, any land used for commercial real estate development must be granted by way of tender or public auction if more than two potential land users have shown interest in acquiring a plot of land. In addition, pursuant to《招標拍賣掛牌出讓國有土地使用權規定》 (Measures for the Tender, Auction and Bidding of State-owned land use rights) issued by the Ministry of Stated-owned Land Resources effective on July 1, 2002, any State-owned land, if used for business purposes such as commerce, tourism, entertainment and merchandise housing, must be granted by way of tender, auction or bidding. In addition to a direct grant from the government, a real estate development enterprise or other party may acquire land use rights by entering into a contract for transfer of land use rights with an existing holder of land use rights.
Regulations on the real estates development sector
Upon finalisation of a real estate development plan, an application shall be made to the governmental authorities in charge of urban real estate planning to obtain《建設用地規劃許可 證》(The Planning Permit of Construction Land). A planning and design proposal in respect of a real estate development project shall, in accordance with the laws and regulations on urban planning and administration, be submitted to the authority in charge of urban real estate planning. In addition, under 《城市房屋拆遷管理條例》 (Administrative Regulations on Site Clearance and Removal of Urban Buildings) issued by the State Council with effect from 1 November, 2001, a real estate development enterprise must reimburse existing occupants for the cost of their relocation and must either provide alternative accommodation or must reimburse the current occupants for the costs of securing alternative accommodation. In return, the existing occupants must move off the site within a prescribed time period. In practice, relocation and site clearance fees are generally negotiated by the real estate development enterprise with existing land users contemporaneously with the real estate development enterprise obtaining land use rights. Applicable regulations state that the real estate development enterprise must appoint a qualified real estate valuation agency to evaluate the market price of the building to be demolished. The valuation is to be used as a basis for determining the total amount of relocation expenses to be paid.
Real estate enterprises are required to carry out real estate development and construction in accordance with the provisions of relevant laws and regulations, and the quality and safety standards of construction works, and shall be responsible for the quality of the real estate projects developed by them.
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In accordance with the provisions of《城市商品房預售管理辦法》 (Administrative Measures for the Pre-sale of Urban Commodity Buildings), a permit is required for the pre-sale of commodity buildings. A real estate development enterprise which carries out commodity buildings pre-sale shall register with the municipal and county land administration authorities, obtain a《商品房預 售許可證》(Permit for Pre-sale of Commodity Buildings), enter into a pre-sale contract with the purchaser, and file the transaction for record keeping purposes with the local governmental authorities in charge of real estate development and land administration. In order for a real estate development enterprise to obtain the permit for pre-sale of commodity buildings, the following conditions should be satisfied:
• the land premium must have been paid in full and a land use rights certificate must have been obtained;
•a《建設工程規劃許可證》 Planning Permit of Construction Project and《施工許可 證》 Commencement of Work Permit must be held;
• at least 25% of the total investment for the project development and construction of the units under pre-sale must have been incurred; and
• the construction schedule and the date of project completion and delivery must have been determined.
In addition, certain documents have to be delivered to the relevant regulatory authorities in the PRC which include (i) the land use right certificate of the project location; (ii)《建設工程規 劃許可證》(Planning Permit of Construction Project) and《施工許可證》 (Commencement of Work Permit); (iii) the business licence and operating licence of the real estate development enterprise; (iv) the construction contract; and (v) the plan for pre-sale of commodity buildings.
Under current PRC laws and regulations, real estate development enterprises must provide purchasers with warranties on quality and are liable for the quality of a project, similar to the warranties provided by construction enterprises.
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SHAREHOLDING STRUCTURE AFTER THE OFFERING
The following chart sets out the corporate structure of the Group and the shareholding structure of the Company immediately after the completion of the Offering, assuming that the Over-allotment Option is not exercised:
Mr. Pang Other Promoters Public Shareholders (Note 1) (Note 1)
37.4% 28.6% 34.0%
The Company (PRC) (Investment holding)
99.0%83.1% 51.5% 90.0% 50%
Baoye Baoye Concrete Building Materials Construction Curtain Wall Company Industrialisation Hefei Baoye Research (PRC) (PRC) (PRC) (PRC) Institute (PRC) (Note 6) (Note 2) (Note 3) (Note 4) (Note 5)
6.7% 12.5% 5.0% 10.0% 93.3% 87.5% 60.0% 90.0% Building Guangyi Baoye Materials Baoye Decoration Infrastructure Industrialisation Real Estate (PRC) (PRC) Company (PRC) 25.0% (PRC) (Note 7) 75.0% 88.3% 11.7% 55%
Fireproof Shaoxing Shanghai Materials Baoye Zibao Company (PRC) (PRC) (PRC)
Principally engaged in the Construction Business
Principally engaged in the Building Materials Business
Principally engaged in the Real Estates Business
Notes:
1. Please refer to the section headed “Promoters” of this prospectus for details of the Promoters and their shareholding structure in the Company immediately after completion of the Offering.
2. Baoye Construction is owned as to approximately 99% by the Company, while the remaining approximately 1% is owned equally by three Promoters, Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
3. Baoye Curtain Wall is owned as to approximately 83.1%, 6.2%, 3.7%, 3.4%, 2.0%, 0.9% and 0.7% by the Company, 浙江寶業幕牆裝飾有限公司工會委員會 (Labour Union Committee of Zhejiang Baoye Curtain Wall Decoration Co., Ltd.), Mr. Pang Baisong, Mr. Wang Jianguo, Mr. Xia Xiaomin, Mr. Sun Baoxian and Mr. Shen Muquan, respectively.
4. Concrete Company is owned as to approximately 51.5%, 25.8% and 22.7% by the Company, 浙江環宇建 設集團有限公司 (Zhejiang Huanyu Construction Group Co., Ltd.) (formerly known as 紹興市建築安裝 工程公司 (Shaoxing Construction and Installation Engineering Company)) and 紹興市市政工程公司 (Shaoxing Municipal Infrastructure Company), respectively.
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5. Building Materials Industrialisation Research Institute is owned as to 90% and 10% by the Company and 浙江省建設廳招待所 (the Reception Centre of Zhejiang Provincial Department of Construction), respectively.
6. Hefei Baoye is owned as to 50% and 50% by the Company and 紹興中國輕紡城時代房地產有限公司 (Shaoxing China Qingfangcheng Shidai Real Estate Co., Ltd.) (“Shaoxing Qingfangcheng”), respectively. Shaoxing Qingfangcheng is owned as to 70% by 浙江中國輕紡城集團股份有限公司 (Zhejiang China Qingfangcheng Group Company Limited), whose A shares are listed on the Shanghai Stock Exchange, and as to 30% by an Independent Third Party.
7. Building Materials Industrialisation Company is owned as to 60%, 19%, 15%, 5% and 1% by Baoye Construction, Mr. Pang, 浙江省建築科學設計研究院 (Zhejiang Construction Science and Design Research Institute), Building Materials Industrialisation Research Institute and Mr. Hu Shaozeng, respectively.
HISTORY AND DEVELOPMENT
Construction Business
The Company
The following table summarises certain background information of the predecessors of the Company since the establishment in 1975 to 1994:
Year Event
1975 紹興縣楊汛橋建築工程隊 (Shaoxing County Yangxunqiao Construction Team) (“Construction Team”), the predecessor of the Company, was established as a collectively-owned enterprise which was principally engaged in construction works.
1986 The Construction Team was renamed as 楊汛橋建築工程公司 (Yangxunqiao Construction Company) (“Yangxunqiao Construction”).
1989 Yangxunqiao Construction was renamed as 紹興縣第六建築工程公司 (Shaoxing County No. 6 Construction Company) (“No. 6 Construction”).
1994 No. 6 Construction was restructured into 浙江寶業建工集團公司 (Zhejiang Baoye Construction Group Company) (“Construction Company”), a collectively-owned company.
In May 1998, Construction Company was converted into a limited liability company and renamed as 浙江寶業建工集團有限公司(Zhejiang Baoye Construction Works Group Co., Ltd.) (“Baoye Works”). Upon establishment, the registered capital of Baoye Works was RMB50,000,000, and was held as to approximately 14.5% by Mr. Pang, approximately 38.1% by 浙江寶業建工集 團公司職工持股會 (Staff Shareholding Committee of Zhejiang Baoye Construction Works Group Company) (“Staff Shareholding Committee”), approximately 20.0% by Town Management Company and approximately 27.4% by an aggregate of 19 other natural persons. Of the above, Mr. Pang held approximately 11.7% attributable interest through the Staff Shareholding Committee and Town Management Company held 10.0% interest in Baoye Works on behalf of Mr. Pang. Therefore, Mr. Pang held an aggregate of approximately 36.2% attributable interest in Baoye Works and was the single largest and controlling shareholder.
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In May 2000, an agreement was signed between Town Management Company and the Staff Shareholding Committee, pursuant to which Town Management Company transferred a RMB2,000,000 equity interest (or 4%) in the registered capital of Baoye Works to Staff Shareholding Committee for the same amount of cash consideration. The interest acquired by the Staff Shareholding Committee was allocated under Mr. Pang’s entitlement. Upon completion of the transfer, the shareholding percentages of Town Management Company and Staff Shareholding Committee in Baoye Works were approximately 16.0% and 42.1%, respectively. Through the latter Mr. Pang held approximately 15.7% attributable interests in Baoye Works. As such, Mr. Pang held an aggregate of 40.2% direct and attributable equity interest in Baoye Works, being the single largest and controlling shareholder.
In order to restructure the internal businesses of the Group and enlarge its share capital base, Baoye Works was renamed as 寶業建設控股集團有限公司(Baoye Construction Holdings Group Co., Ltd.) (“Baoye Holdings”) in November 2000 and at the same time, the Staff Shareholding Committee increased its holding in the registered capital of Baoye Holdings by acquiring additional equity interest in the sum of RMB60,000,000 (or approximately 54.5% of the enlarged registered capital), including a contribution of approximately RMB35,796,320 (or approximately 32.5% of the enlarged share capital) from Mr. Pang, so that the registered capital of Baoye Holdings was increased to RMB110,000,000. After the capital increase, Baoye Holdings was held as to approximately 6.6% directly by Mr. Pang, approximately 73.7% by the Staff Shareholding Committee, approximately 7.3% by Town Management Company and approximately 12.4% by an aggregate of 19 other natural persons. Taking into account an approximate 6.6% interest in Baoye Holdings held in his own name, his approximately 39.6% interest held through the Staff Shareholding Committee and an approximate 4.6% interest held on his behalf by Town Management Company, Mr. Pang beneficially owned an aggregate of approximately 50.8% of Baoye Holdings.
In March 2001, Town Management Company transferred a RMB3,000,000 equity interest (or approximately 2.7%) held in the registered capital of Baoye Holdings to Mr. Pang for the same amount of cash consideration. Upon completion of the transfer, equity interest of Baoye Holdings was held as to approximately 9.3% directly by Mr. Pang, approximately 73.7% by Staff Shareholding Committee, approximately 4.6% by Town Management Company and approximately 12.4% by an aggregate of 19 other natural persons. Taking into account approximately 9.3% direct interest in Baoye Holdings and his approximately 39.6% and 4.6% interests held through Staff Shareholding Committee and on his behalf by Town Management Company, respectively, Mr. Pang beneficially owned approximately 53.5% of Baoye Holdings.
In December 2001, Shaoxing County Yangxunqiao Township People’s Government and Town Management Company jointly confirmed in writing that the RMB5,000,000 (or approximately 4.6%) held by Town Management Company in the registered capital of Baoye Holdings was held on behalf of Mr. Pang, the interest in share capital should be attributable to Mr. Pang since the establishment of Baoye Works, and approved the documentation for the return of such interest to Mr. Pang at no consideration. In addition, on 6 July, 2001, the legal person status of the Staff Shareholding Committee was cancelled pursuant to relevant provisions in the PRC regulations, and the Staff Shareholding Committee ceased to be eligible as a shareholder. As such, the Staff Shareholding Committee transferred all of its 73.7% interest in the registered capital of Baoye Holdings (including the 39.6% interest held for Mr. Pang) to Baoye Union for holding on its behalf, which was confirmed in a members’ meeting of the Staff Shareholding Committee on 16 December, 2001. Upon completion of the transfer referred to above by Town Management Company, the equity interest in Baoye Holdings was held as to approximately 13.9% directly by Mr. Pang, approximately 73.7% by Baoye Union and approximately 12.4% by an aggregate of 19 other natural persons. Therefore, taking into account of approximately 13.9% in Baoye Holdings held in his own name and his interest of approximately 39.6% held through Baoye Union, Mr. Pang beneficially owned approximately 53.5% in Baoye Holdings.
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In February 2002, pursuant to the resolution of members of the Staff Shareholding Committee dated 16 December, 2001, Baoye Union agreed to transfer the equity interest of RMB81,043,900 (or approximately 73.7%) in the registered capital of Baoye Holdings held on behalf of the Staff Shareholding Committee to Mr. Pang and other Promoters, a total of 31 natural persons, for a cash consideration of RMB81,043,900, which was distributed by Baoye Union to all members of Staff Shareholding Committee in proportion to their respective shareholdings. The transfer was completed in May 2002. Apart from his approximate 53.5% interest in Baoye Holdings, Mr. Pang acquired an additional RMB3,449,575 equity interest (or approximately 3.2%) in the registered capital of Baoye Holdings from other members of the Staff Shareholding Committee at the same amount of cash consideration. Upon completion, shares of Baoye Holdings were held as to approximately 56.7% and 43.3% by Mr. Pang and the other 30 Promoters, respectively.
Baoye Holdings obtained an approval from 浙江省人民政府 (People’s Government of Zhejiang Province) for its conversion into a joint stock limited company and on 30 August, 2002, the relevant business licence was issued. At the same time, Baoye Holdings was renamed as 寶業 集團股份有限公司(Baoye Group Company Limited), and Baoye Holdings capitalized its net assets value, including all of its retained earnings and reserves, in an aggregate amount of RMB350,742,053 as at 31 March, 2002, as paid-up capital of the Company. As a result, upon the establishment of the Company at 30 August, 2002, the Company’s registered capital amounted to RMB350,742,053 of 350,742,053 Domestic Shares of RMB1.00 each.
Baoye Construction
Before the establishment of Baoye Construction in February 2001, the Construction Business was mainly conducted through Baoye Holdings, the predecessor of the Company. After the establishment of Baoye Construction, in order to rationalise the corporate structure, Baoye Holdings transferred all its construction operations to Baoye Construction. Baoye Construction is principally engaged in construction and decoration works, and is the main subsidiary of the Company which conducts the Group’s Construction Business. Baoye Construction is a company with limited liability established in the PRC on 15 February, 2001. Upon establishment, Baoye Construction had a registered capital of RMB100 million and was held by Baoye Holdings (the predecessor of the Company), the Staff Shareholding Committee, Guangyi Decoration, Baoye Curtain Wall, 浙江寶 業建築構件有限公司 (Zhejiang Baoye Construction Accessories Co., Ltd.) (“Baoye Accessories”) and Baoye Investment as to 50%, 30%, 6%, 5%, 5% and 4% respectively. According to a capital verification report dated 13 February, 2001, the registered capital of RMB100 million was duly injected. In October 2001, the Staff Shareholding Committee and Baoye Accessories transferred their respective interests in Baoye Construction to Baoye Union. In November 2001, Baoye Construction resolved to increase its registered capital from RMB100 million to RMB300 million and the increased portion of capital was injected by Baoye Union and Town Management Company. The increased portion of capital was duly injected according to a capital verification report dated 13 November, 2001. The then registered capital was held by Baoye Holdings, Baoye Union, Town Management Company, Guangyi Decoration, Baoye Curtain Wall and Baoye Investment as to approximately 16.7%, 55%, 23.3%, 2%, 1.7% and 1.3%, respectively.
According to the declarations (“Declarations”) dated 20 April, 2003 of the Company, Baoye Construction, Baoye Union, Guangyi Decoration, Baoye Curtain Wall, Baoye Investment and Town Management Company, there were verbal agreements between each of the shareholders of Baoye Construction with Baoye Holdings. According to these verbal agreements, since the registered capital injected into Baoye Construction by them was financed by advances from Baoye Holdings and/or Baoye Construction (at the instruction of Baoye Holdings), all the shareholders of Baoye Construction (other than Baoye Holdings) agreed that all their shareholders rights from the date of establishment of Baoye Construction belonged to Baoye Holdings and they would hold and exercise such rights on behalf of Baoye Holdings.
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Pursuant to the resolutions in the shareholders’ meeting of Baoye Construction dated 1 April, 2002, and the Declarations, Baoye Holdings was entitled to dividends received by other shareholders of Baoye Construction on its behalf, Baoye Holdings would repay the advances made by Baoye Construction, and approximately 1% interests in Baoye Construction would be transferred to three individual shareholders, namely Wang Liequan, Chen Baorong and Xia Weimin. The adjustment and rectification of the shareholding structure of Baoye Construction was confirmed by Shaoxing County Administration for Industry and Commerce. To implement the adjustment in the shareholding structure and to complete the rectification formalities, an agreement dated 13 June, 2002 was entered into among Baoye Union, Town Management Company, Guangyi Decoration, Baoye Curtain Wall, Baoye Investment, Baoye Holdings, Wang Liequan, Chen Baorong and Xia Weimin, pursuant to which Baoye Union, Town Management Company, Guangyi Decoration, Baoye Curtain Wall and Baoye Investment transferred an aggregate of approximately 82.3% interests to Baoye Holdings at nil consideration, and an aggregate of approximately 1% interests to Wang Liequan, Chen Baorong and Xia Weimin for a consideration of RMB3 million.
Guangyi Decoration, Baoye Curtain Wall and Baoye Infrastructure
Guangyi Decoration, Baoye Curtain Wall and Baoye Infrastructure are limited liability companies established on 16 June, 1995, 1 December, 1999 and 16 March, 2001, respectively, and currently with registered capital amounting to RMB15,000,000, RMB10,800,000 and RMB30,000,000, respectively. Guangyi Decoration is principally engaged in construction decoration and renovation works. Baoye Curtain Wall is principally engaged in the production and installation of curtain wall and steel structures. Baoye Infrastructure is principally engaged in the construction of roads, municipal infrastructure and bridge works.
Building Materials Business
Concrete Company
After years of operations in the construction industry, the Group decided to capitalise on its knowledge in the quality requirement and market trend of building materials and expand to the Building Materials Business. On 7 April, 1994, the predecessor of the Concrete Company, 紹興市 商品混凝土公司 (Shaoxing Commodity Concrete Company), was established in the PRC as a state and collective jointly-owned enterprise (全民所有制與集體所有制聯營企業), and was converted to a limited liability company on 20 June, 2002 and renamed as 紹興市商品混凝土有 限公司 (Shaoxing Commodity Concrete Co., Ltd.). It currently has a registered capital of RMB21,500,000. The Concrete Company is principally engaged in the production and sales of concrete and building materials. According to the confirmation from Shaoxing Municipal Statistics Bureau, the Concrete Company is currently the only company in Shaoxing County which engages in the production and sale of concrete with the annual sale amount exceeding RMB10 million in 2002.
Building Materials Industrialisation Company, Building Materials Industrialisation Research Institute and Fireproof Materials Company
To further expand the scale of operations and product range of building materials, the Building Materials Industrialisation Company, the Building Materials Industrialisation Research Institute and the Fireproof Materials Company were established in the PRC on 8 July, 1999, 6 December, 1999 and 11 March, 1996, respectively, and currently with registered capital amounting to RMB60,600,000, RMB6,000,000 and RMB3,000,000, respectively. The Building Materials
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Industrialisation Company is a joint stock limited company principally engaged in the production and sale of concrete products and building materials, such as ready-mixed concrete, concrete piles, concrete ducts and large roof sheathings. The Building Materials Industrialisation Research Institute is a limited liability company principally engaged in construction and decoration design works. The Fireproof Materials Company is a limited liability company principally engaged in the production and sales of steel and wooden fire-proof doors.
Shaoxing Baoye
Shaoxing Baoye was established in the PRC as a limited liability company on 25 May, 2002 with a registered capital of RMB2,000,000. Shaoxing Baoye is principally engaged in the production and sale of concrete products and building materials. Upon the establishment of Shaoxing Baoye, the Group transferred its business in the production and sale of concrete piles, concrete ducts and large roof sheathings to Shaoxing Baoye, while Concrete Company and Building Materials Industrialisation Company will be engaged in the production and sale of ready-mixed concrete in Shaoxing County and Keqiao District.
Real Estate Business
Baoye Real Estate
To capitalise on the general recognition of its project quality and its knowledge in the real estate market in Shaoxing City, Zhejiang Province, the Group decided to expand into the downstream real estate development business in 1995. On 24 January, 1995, Baoye Real Estate was established in the PRC as a limited liability company, and currently has registered capital of RMB20,000,000. The business of Baoye Real Estate focuses mainly on the real estate sales in Shaoxing City.
Hefei Baoye
Hefei Baoye was established in the PRC as a limited liability company on 14 March, 2002, and currently with a registered capital of RMB30,000,000. The Group intends to develop real estate projects at Hefei City, Anhui Province, a neighbouring province of Zhejiang Province, through Hefei Baoye. For further details of the project at Hefei City, please refer to the paragraph headed “Real Estate Business” in the section headed “Business” of this prospectus.
Shanghai Zibao
Shanghai Zibao was established in the PRC as a limited liability company on 26 December, 2002 with a registered capital of RMB18,000,000. The Group intends to develop real estate projects at Shanghai Municipality in the future.
The Company’s PRC legal adviser has given an opinion that the transfer of shares and assets and the establishment of companies as mentioned in this section headed “Corporate development” are in compliance with all applicable laws, rules and regulations in the PRC.
Please refer to the paragraph headed “Reorganisation” in Appendix IV to this prospectus and the section headed “Promoters” of this prospectus for details of the Reorganisation and the Promoters, respectively.
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INTRODUCTION
The Group is one of the leading privately-owned construction groups in the PRC. According to 《中國大型建築企業－2001》(China Large Construction Enterprises 2001) published by the National Bureau of Statistics in 2001, the Company ranked eighth among 全國建築業500家利潤 領先企業 (Top 500 Most Profitable Construction Companies in the PRC) in 2000, with the first seven all being State-owned enterprises. The Group is principally engaged in (i) the undertaking and implementation of construction projects; (ii) research and development, production and sale of building materials; and (iii) real estate development.
During the Track Record Period, the Group completed 369 projects including 145 public buildings (such as office buildings, hotels and schools), 137 residential developments, 41 industrial plants and 46 infrastructure projects. The Directors believe that the Construction Business has established a solid business foundation in Zhejiang Province and Shanghai Municipality. Currently, the Construction Business is primarily conducted by Baoye Construction, which has 10 representative offices in Shaoxing City, Keqiao Township, Yiwu City, Hangzhou City, Jiaxing City, Taizhou City, Wenzhou City and Ningbo City, all within Zhejiang Province, and in Shanghai Municipality and Wuhan City, Hubei Province, respectively.
Some members of the Group have already obtained a series of operating licences and permits, including 房屋建築工程施工總承包特級證書 (Premium class certificate for general building construction contracting works), the highest qualification issued by the MOC. In addition, the Group has obtained certificates of 建築裝修裝飾工程專業承包一級證書 (First class certificate for fitting-out and decoration contracting works), 建築幕工程專業承包一級證書 (First class certificate for curtain walls construction contracting works) and 地基與基礎工程專業承包一級 證書 (First class certificate for foundations and basic construction contracting works), each being the highest qualification/recognition awarded by the MOC in the respective construction category.
The Group enjoys good reputation and recognition in the PRC construction industry. Six of the Group’s completed construction projects have received 中國建築工程魯班獎 (Lu Ban Award in the PRC Construction Engineering). The Group has also received two awards for 全國建築工 程裝飾獎 (National Construction Decoration Award) and two other awards for 建設部優質樣版 工程 (Ministry of Construction Superior Quality Model Construction Works), all of which are national awards for the construction industry in the PRC. In addition, the Group’s construction projects have received a total of 17 錢江杯 (Qianjiang Cup) and 8 白玉蘭杯 (Bai Yulan Cup), both honours in the construction industry awarded by the Zhejiang Provincial Government and Shanghai Municipal Government, respectively.
The Directors believe that the Group is well-positioned to leverage on the knowledge and experience and brand recognition of the Construction Business, and is able to vertically expand its business to develop both upstream building materials business and downstream real estate development business. The Directors believe that this strategy would create synergies to the Construction Business through enhancing the Group’s construction quality, reducing construction costs, shortening construction work cycle and reducing environmental impact.
The major building materials produced and sold by the Group include ready-mixed concrete, concrete piles, concrete ducts, large roofing sheathing and fire-proof materials. The real estate development projects that the Group has completed are mainly located in Shaoxing City, Zhejiang Province, the location of the Group’s headquarters. Since March 2002, the Group started to expand
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For each of the years ended 31 December, 2000, 2001 and 2002, the Group recorded turnover of approximately RMB981,896,000, RMB1,604,574,000 and RMB2,297,526,000, respectively. During the same periods, the Group’s profit attributable to shareholders were approximately RMB59,734,000, RMB122,053,000 and RMB141,075,000, respectively.
COMPETITIVE STRENGTHS
The Directors believe that the success of the Group is principally attributed to the following factors:
• The Group has obtained a number of operation qualifications and awards which enable the Group to generate business opportunities and enhance its ability to win contract tenders
As at 31 December, 2002, there were approximately 100,000 construction enterprises in the PRC, of which only 43 had been awarded Premium class certificates for general building construction contracting works, which the MOC began to issue in June 2002. The Group is one of the recipients. These premium construction enterprises are allowed to undertake building construction projects of any scale and complexity in the PRC. In addition, the Group has won various engineering quality awards, which include 中國建築工程魯班 獎 (Lu Ban Award in the PRC Construction Engineering) appraised by 中國建築業協會 (The China Construction Industry Association) for six times during the period from 1996 to 2002, the number of such honours awarded to the Group is the highest in Zhejiang Province. Furthermore, during the period from 1994 to the Latest Practicable Date, the Group had won 17 錢江杯 (Qianjiang Cup) and 8 白玉蘭杯 (Bai Yulan Cup), being honours in the construction industry awarded by the Zhejiang Provincial Government and Shanghai Municipal Government, respectively. The Directors believe that the operating qualifications and the awards received by the Group would enable the Group to generate business opportunities, enhance its ability to win contract tenders and undertake any construction projects within the scope of its qualification recognitions.
• The Group has been implementing stringent quality and cost control policies
The quality control system adopted for the Construction Business operates in compliance with the ISO 9002:94 accreditation. The Directors believe that part of the success of the Group is attributable to a strict quality control system adopted by the Group which enables the Group to control construction quality and construction costs. In addition, the Directors believe that the establishment and implementation of a series of stringent quality and cost control measures would enable the Group to differentiate itself from most of the other construction enterprises in the PRC and rendered it one of the most profitable privately- owned construction enterprises in 2000.
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• The Group has established long-term relationships with its project managers
The Group’s project managers are full-time employees of the Group, a majority of whom have been in service of the Group for more than five years. Project managers are usually responsible for the supervision of day-to-day construction works in the PRC construction industry. The Directors believe that the project managers of many of the Group’s competitors are not full-time employees and hence have high turnover rates, which make it difficult for those competitors to retain construction experience, build brandnames and maintain construction quality over the long-term. In contrast, the Group’s long-term and stable relationships with its project managers have enabled (i) its project managers to possess a thorough understanding of the Group’s stringent requirements over construction procedures and quality control; and (ii) the Group to maintain quality for its construction projects.
• The Group employs an experienced and efficient management team
The Company is a privately-owned enterprise. The chairman, Mr. Pang, and all executive Directors have extensive experience in the PRC construction industry, each of them having more than 15 years of industry experience. They form the core senior management team for the Group’s businesses. The aggregate interests of Mr. Pang and other executive Directors will account for approximately 43.2% of the share capital of the Company immediately after the completion of the Offering (assuming the Over-allotment Option is not exercised) and are subject to a lockup period until 30 August, 2005 in accordance with Article 147 of the Company Law. This will ensure the interests of the senior management and the Group are aligned.
• The Group has successfully established a solid business foundation in Zhejiang Province, one of the most economically developed and fast-growing areas in the PRC
After almost 30 years of operating history in the construction industry, the Group has become one of the most well-known and largest construction groups in Zhejiang Province. Zhejiang Province is one of the most economically-advanced provinces in the PRC. According to the National Bureau of Statistics, in 2001, Zhejiang Province achieved (i) GDP of approximately RMB670 billion and ranked fourth in the PRC; (ii) per-capita GDP of approximately RMB14,550 and ranked fourth in the PRC, after Shanghai Municipality, Beijing and Tianjin. In addition, Zhejiang Province also commands a leading position in the PRC construction industry. According to the Zhejiang Provincial Department of Construction, profit before taxation of construction enterprises in Zhejiang Province in 2001 amounted to approximately RMB8,700 million, ranking first among all the provinces in the PRC. In the same year, the total construction turnover recorded by construction enterprises in Zhejiang Province amounted to approximately RMB164,700 million, being the second highest in the PRC after Jiangsu Province. The Directors believe that the Group has successfully established its brand and secured a leading position in the fast-growing construction industry in the economically-advanced Zhejiang Province. The Directors believe that the Group’s solid foundation will facilitate the Group’s expansion of each of its businesses in the future.
• The Group has adopted a vertical integration strategy, which is likely to create synergies for each of its business segments
The Group has accumulated many years of experience in the PRC construction industry. As the Group is familiar with the features, properties and market demand of different kinds of building materials, the Group is able to leverage on its experience in the construction
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industry to develop and produce a series of high quality building materials. The Directors believe that the Building Materials Business not only provides a source of income to the Group, but is also able to ensure and maintain the supply and quality of certain raw materials required by the Construction Business.
In addition, the Group intends to leverage on its construction workmanship to develop high-quality real estate projects. This would enable the Group to participate in real estate projects with high development potential to enhance shareholders’ value, and demonstrate the Group’s high-quality construction works, which may create future business opportunities for the Group.
• The Group is situated in a favourable geographical location which facilitates its delivery of building materials products
The Group is located in Shaoxing County, Zhejiang Province, approximately 200 km away from Shanghai Municipality, and approximately 30 km away from Hangzhou, is situated within 滬杭甬經濟技術開發區 (Shanghai-Hangzhou-Ningbo Economic and Technology Development Zone). The Group is close to National Highway 104, Zhejiang Expressway and several other national highways. The Group is situated approximately 10 km from Hangzhou Xiaoshan International Airport, approximately 5 km from Hangzhou-Ningbo Canal and within approximately 1 km from Shanghai-Ningbo Railway. The Directors believe that the Group’s geographical location and easy access to transportation network would enable the Group to develop its businesses, particularly to facilitate delivery of building materials.
LICENCES, CERTIFICATES AND PERMITS
In the PRC, enterprises participating in construction, building materials and real estate development businesses are required to obtain certain licences and/or permits before the commencement of operations. To the best knowledge of the Directors, the Group has complied with the relevant laws and regulations at the State, provincial and local levels in all material respects and obtained the relevant licences and permits. The major operating licences and permits held by the Group’s different businesses are summarised as follows:
Relevant Name of Issuing business of operating licences, certificates authority the Group Holder or permits Class Date of issue
MOC Construction Baoye 房屋建築工程施工總承包 特級 28 June, 2002 Business Construction (General building construction (Premium) contracting works) (Note 2)
MOC Construction Baoye 地基與基礎工程專業承包 一級 28 June, 2002 Business Construction (Foundations and basic (First) construction contracting works) (Note 2)
MOC Construction Baoye 建築裝修裝飾工程專業承包 一級 28 June, 2002 Business Construction (Fitting-out and decoration (First) contracting works) (Note 2)
MOC Construction Baoye 機電設備安裝工程專業承包 一級 28 June, 2002 Business Construction (Electrical and electronic (First) equipment installation (Note 2) contracting works)
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Relevant Name of Issuing business of operating licences authority the Group Holder and permits Class Date of issue
MOC Construction Baoye 建築幕牆工程設計專項資質 甲級 25 June, 2001 Business Curtain Wall (Engineering design of (First) curtain walls) (Note 2)
MOC Construction Baoye 建築幕牆工程專業承包 一級 15 April, 2002 Business Curtain Wall (Curtain walls construction (First) contracting works) (Note 2)
Zhejiang Provincial Construction Baoye 消防設施工程專業承包 二級 28 June, 2002 Department of Business Construction (Fire-proof facilities construction (Second) Construction contracting works)
Zhejiang Provincial Construction Baoye 市政公用工程施工總承包 二級 28 June, 2002 Department of Business Construction (Urban and public construction (Second) Construction contracting works)
Zhejiang Provincial Construction Baoye 鋼結構工程專業承包 二級 28 June, 2002 Department of Business Construction (Steel structural construction Second) Construction contracting works)
Zhejiang Construction Baoye 港口與航道工程施工總承包 二級 4 January, 2002 Provincial Business Infrastructure (Ports and sea channels (Second) Department of construction contracting Construction works)
Zhejiang Provincial Building Concrete 預拌混凝土生產 二級 30 January, 1997 Department of Materials Company (Production of ready-mixed (Second) Construction Business concrete) (Note 3)
Zhejiang Provincial Building Building Materials 混凝土預製構件專業承包 二級 26 April, 2002 Department of Materials Industrialisation (Pre-fabricated concrete devices (Second) Construction Business Company contracting works)
Zhejiang Provincial Real Estate Baoye Real 房地產開發企業資質證書 二級 12 October, 2000 Department of Business Estate (Qualification certificate (Second) (Note 4) Construction for real estate development enterprises)
Notes:
1. Except for 房地產開發企業資質證書 (Qualification certificate for real estate development enterprises) as referred to in note 4 below, all other certificates/permits as set out above have no expiry date but are subject to annual inspection by the relevant authorities.
2. This is the highest qualification recognition issued in the PRC for the respective category.
3. This is the highest qualification recognition issued in Zhejiang Province.
4. The expiry date of this certificate is 11 October, 2003.
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BUSINESS OVERVIEW
The Group is principally engaged in (i) the undertaking and implementation of construction projects; (ii) research and development, production and sale of building materials; and (iii) real estate development.
Historically, the majority of the turnover of the Group was derived from the Construction Business and the Directors expect that the Construction Business will continue to contribute a large portion of the Group’s turnover in the foreseeable future. The following table shows (i) the turnover; (ii) the percentages of contribution to the Group’s turnover; and (iii) the gross margins derived from the Construction Business, the Building Materials Business and the Real Estate Business, respectively, during the three years ended 31 December, 2002:
Year ended 31 December, 2000 2001 2002 Approximate Approximate Approximate percentage percentage percentage of total Gross of total Gross of total Gross Business Turnover turnover margin Turnover turnover margin Turnover turnover margin (RMB’000) (%) (%) (RMB’000) (%) (%) (RMB’000) (%) (%)
Construction 820,857 83.6 9.5 1,331,913 83.0 8.3 1,896,354 82.5 7.8 Building materials 59,588 6.1 26.7 123,532 7.7 30.4 148,696 6.5 28.1 Real estates 100,122 10.2 34.9 146,140 9.1 30.5 251,292 10.9 28.9 Others (Note) 1,329 0.1 85.9 2,989 0.2 92.7 1,184 0.1 100.0
981,896 100.0 1,604,574 100.0 2,297,526 100.0
Note: It represents the turnover of non-core business of the Group including property management, investment holding and property rental.
CONSTRUCTION BUSINESS
Introduction
The Group is principally engaged in general contracting for urban public works, industrial and civil construction works, as well as other specialised construction projects, such as indoor and outdoor decoration works, electrical and electronic equipment installation, fire equipment installation, production and installation of different kinds of curtain walls.
In late June 2002, the Group obtained a Premium class certificate for general building construction contracting works, being the highest qualification awarded by the MOC in the PRC. The Group also received a First class certificate for foundations and basic construction contracting works, a First class certificate for fitting-out and decoration contracting work, a First class certificate for electrical and electronic equipment installation contracting works in late June 2002 and a First class certificate for curtain walls construction contracting works in mid-April 2002, which are the highest qualification issued by the MOC in the respective category. In addition, the Group has also received a Second class certificate for urban and public construction contracting works and a Second class certificate for fire-proof facilities construction contracting works, both awarded by the Zhejiang Provincial Department of Construction.
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The Group undertook and acted as main contractor of numerous large-scale construction projects including, Jiaxing Xiuzhou Administrative Centre (嘉興秀州區行政中心), Shaoxing Electricity Regulation and Communications Centre (紹興市電力調度通訊中心), Shaoxing Drainage Treatment Plant (紹興市污水處理廠), Shaoxing Administrative Centre (紹興縣行政中心) and Taizhou Stadium (台州體育中心). The Group also undertook the indoor decoration works for the People’s Great Hall of Zhejiang (浙江人民大會堂).
For the three years ended 31 December, 2002, turnover from the Construction Business was approximately RMB820,857,000, RMB1,331,913,000 and RMB1,896,354,000, respectively representing approximately 83.6%, 83.0% and 82.5% of the turnover of the Group, respectively.
Business strategy
The Directors have implemented the following strategies in the Construction Business:
– to undertake strict quality control measures on all construction projects through the establishment and enforcement of internal rules and regulations, and periodic checks and random inspections;
– to undertake award-winning construction projects in different regions, in order to extend the influence of the “Baoye” brand name and attract new customers through high-quality work;
– to assess carefully potential customers, including reviewing customers’ credit records and financial resources, aiming to establish long-term business relationship with high- quality customers;
– to control strictly construction costs through the establishment and enforcement of internal rules and regulations, so as to maximize profit; and
– through vertical integration of construction, building materials and real estate development businesses, to develop the building materials and real estate development businesses by leveraging on the Group’s expertise and experience in the construction business, so as to ensure further improvement of construction quality and to maximize profit.
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Operation processes
Major procedures involved in the Construction Business include (i) obtaining information for tendering; (ii) tendering; (iii) preparation work before launching projects; (iv) project construction; (v) acceptance check; and (vi) after-sales services.
Obtaining Preparation work Project Acceptance After-sales information Tendering before launching construction check services for tendering projects
Obtaining information for tendering
All the construction projects of the Group are obtained through participation in tendering. The Group’s major source in obtaining tendering information is from the publications of project owners. In addition, the Group obtains tendering information through invitations from project owners. The Directors believe that the following factors have enabled the Group to be included in the final tendering list and win the bid: (i) the Group has established a good brand name, reputation and an extensive local branch network, and has established a good relationship with its existing customers, especially where the existing project owners and the new project owners serve under the same government system; (ii) the Group has obtained several of the highest class qualifications in their respective categories awarded by the MOC; and (iii) the Group has completed a number of construction projects which won awards at the national level or provincial level.
Tendering
After being invited for tender, an internal tender examination team (the “Tender Examination Team”) will examine and determine whether or not to participate in the tendering. Members of the Tender Examination Team comprise the general manager and deputy general managers, senior management members of the chief engineering office, operations department, engineering department, finance department of the subsidiaries participating in the tendering and senior management of the branch office where the project is located (the “Branch Office”).
The major factors that the Tender Examination Team will consider include: (i) credit history and financial strength of the project owners, particularly the sources of funding for the project; (ii) estimated profit to be derived from the project; (iii) construction timetable and required resources for the project; (iv) influences and public awareness of the project; (v) methods and criteria for selecting the winner of the tender; and (vi) potential competitors and their ways of tendering.
The chief engineering offices, operations departments of the relevant subsidiaries and Branch Offices are responsible for drafting tender documents, which are subject to different levels of approval, based on the contract amount and importance of the project, by the relevant approval teams in the Group. Major procedures of preparatory work include: (i) cost analysis and estimation; (ii) organisation and design of construction techniques, which include selection and organisation of project groups and organisation of equipment and machinery; and (iii) the final approval of the tender document.
(i) Cost analysis and estimation
Cost analysis and estimation of the project is an important component in preparing the tender document.
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The following table shows the pricing structure of a construction project as stipulated by the MOC:
Direct expenses (Note 1) Direct construction Other direct expenses (Note 2) costs On-site expenses (Note 3)
Corporate management expenses (Note 4) Indirect Finance expenses (Note 5) expenses Other expenses (Note 6) Cost of construction/ installation works
Profit
Business tax (Note 7) Total expenses of Urban and rural maintenance construction/ Labour insurance funds Tax and construction installation works tax (Note 8) Education levy (Note 9)
Unexpected expenses Provisions Pricing index
Notes:
1. Comprising expenses incurred in construction works and various expenses incurred in the construction process, including wages, materials and usage of equipment and machinery
2. Other expenses in addition to direct expenses incurred in the construction process
3. Comprising temporal facilities expenses and on-site management expenses
4. Management expenses incurred in organising construction and production activities
5. Comprising various expenses incurred in fund raising by enterprises, including loan interest, exchange losses, financial institution fees and other finance expenses incurred in fund raising
6. Assessment fees and management fees required to be paid to construction costs auditing departments as stipulated by the PRC Government
7. Calculated on 3% on the total construction/installation works
8. Calculated on 1 to 7% on the total construction/installation works, based on the location of the project
9. Calculated on 0.09 to 4% on the total construction/installation works, based on the location of the project
In respect of construction/installation works within Zhejiang Province, the budgeting and cost settlement are based on the guidelines for construction works and indicative price guidelines for building materials issued by the Zhejiang Provincial Department of Construction. Projects outside Zhejiang Province are based on similar guidelines set by the local governmental department of construction. The Group has to estimate the actual costs based on its industry experience, project management experience and ability to control cost.
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(ii) Organisations and designs of construction techniques
The policy of the Group is to select one to two project managers based on the requirements as stipulated in the tender invitation letter. The qualification and experience of the project manager(s) will be examined by the project owner and the local construction industry government department. Normally, the project owner will choose one or more project managers to be included in the final tender document.
As provided by the MOC, project managers can be classified into four levels: grade-one, grade-two, grade-three and grade-four. Project managers of different grades may undertake projects of different amount and complexity. Criteria of grading project managers include academic background, qualifications and project management experience. Qualifications of grade-one project managers shall be approved by the MOC. Qualifications of grade-two project managers shall be approved by the governmental department of construction at provincial level, whereas grade-three and grade-four project managers shall be approved by municipal construction bureaus.
As at 31 December, 2002, the Group employed a total of 122 project managers. The following table is an analysis of the Group’s project managers by grade and by years of employment with the Group: Years of relationship with the Group Below Within Within Over Grade 5 years 6 to 10 years 11 to 15 years 15 years Total
One 41015635 Two20265 859 Three 19 9 – – 28
122
The Group has its own major machinery and equipment required for construction works. The Group’s construction machinery and equipment could simultaneously undertake a total construction gross floor area of 4,000,000 sq.m..
(iii) Final approval of the tender document
In accordance with the Group’s internal regulations, the tender document is subject to the final approval of the Tender Examination Team before it is despatched to project owners.
Preparation work before launching projects
After winning the tender, the Group is required to complete the formalities with the local industry administrative authorities, which include the issue of a public notice and signing of a general construction undertaking or a specific construction undertaking contract with the project owners based on the relevant contents of the final tender documents. Construction contracts are normally based on a standard form contract stipulated by the MOC and the State Administration for Industry and Commerce, with modifications which the contracting parties deem necessary or appropriate with respect to a particular project. The main clauses of the contracts normally include responsibilities of the relevant parties, construction period, contracted prices, payment methods, the quality requirements of the project and warranties to be provided by the Group to the project owners.
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Other preparation work before launching projects primarily includes: (i) application for construction permit from the relevant governmental authorities; and (ii) requiring the project owner to obtain the relevant certificates and permits, such as planning permit, construction permit and land use right certificate.
In addition, the Group is required from time to time to provide project deposits as performance bonds to the project owner prior to the commencement of the construction works. The project deposit normally accounts for between 5% and 10% of the construction contract price. Generally, project deposits are released by the project owners within 30 days after the completion and acceptance of the construction project.
Project construction
The actual construction work is implemented by the engineering department or the Branch Offices of the Group. As required by the relevant laws and regulations in the PRC, a construction project should appoint, inter alia, a project manager. The project manager named in the tender document and the project management team headed by him are responsible for implementation of the overall construction work of the project.
According to the Group’s internal provisions, the relevant subsidiaries and project managers are required to sign《建設工程項目內部承包合同》 (Internal Undertaking Contract of Construction Projects). These contracts form part of the employment contracts, and require all project managers to implement their works strictly in compliance with the design paper and construction drawings provided by the project owner and in accordance with the prevailing《中華人民共和國建築法》 (Construction Law of the PRC),《中華人民共和國建設工程質量管理條例》 (Regulations of the PRC on Administration of the Quality of Construction Works), and 《工程施工管理條例》 (Regulations on Management of Construction Works), and the Group’s internal quality handbook, procedural document and other related documents, which provide clear guidelines in respect of the quality assurance, safety records and timely reporting requirements, and the corresponding system of rewards and penalties. Usually, the Group requires a project manager to undertake to control costs and produce an agreed upon level of profit for the Group for a particular project. The project manager may receive financial rewards or penalties on a project-by-project basis depending whether or not he has generated the required level of profit and met the quality, safety and time requirements provided for in the contract upon the completion of a project. In addition, a project manager is normally required to make a deposit with the Group. Depending on the financial condition of a project manager and the project price, the amount of the deposit made by a project manager with the Group may match or represent a portion of the project deposit made by the Group with the project owner. The deposit may be applied by the Group against any damages or liabilities caused by a default committed by the project manager. Any unused portion of the deposit will be returned to the project manager, usually within one month after the acceptance of the construction project by the project owner.
(i) Procurement of raw materials and ancillary materials
Major raw materials used for construction of projects include concrete, reinforcing steel bar, sand and cement. The Group procures major raw materials for its construction business on a project-by-project basis. The Group has established channels for the procurement of regular building materials and has formed a long-term cooperation relationships with its suppliers of raw materials and generally enjoys bulk-purchase discounts.
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Procurement plans for ancillary materials such as glass and paint are prepared by the project department of the Branch Offices or the engineering department of the relevant subsidiary of the Company and approved by the general manager of the Branch Offices or such engineering departments.
(ii) Organisation of human resources
Unless the Group does not have the specific qualification required such as qualifications for the construction and installation of elevators, for the construction works of projects undertaken by the Group, the Group usually will not appoint a sub-contractor which, if appointed, will be an Independent Third Party. The engineering department and personnel department of the Group are responsible for organising human resources for the projects, and the manpower plans shall be approved by the general manager of the Branch Office. Normally, project management team members (including technicians, quality controllers, safety officers, materials procurers and cost assessment personnel) and principal technical workers are staff members of the Group, and site workers are sourced from outside. In selection of site workers and determination of their wages, the Group normally considers the experience and the availability of licences/permits to perform the specific tasks. The Group has established a long-term relationship with the labour service teams in different regions where the Group provides construction services. The Group did not encounter any disruption of its operations due to the shortage of site workers.
(iii) Quality control
The Directors believe that stringent quality control of construction projects forms an important part of the core competitiveness of the Group. Baoye Construction was awarded ISO 9002:94 and ISO 9001:2000 certificates in December 2001 and January 2003, respectively.
The Group has formulated internal procedures in respect of quality control, including《質 量手冊》(Quality Handbook) and 《工程施工管理條例》(Regulation on Management of Construction Works), and requires project managers to strictly comply with the relevant regulations of the construction industry in the PRC and the internal rules of the Group. As at 31 December, 2002, the Construction Business of the Group had a total of 114 full-time quality inspection employees. In addition, in accordance with the provisions of the MOC, for each construction project, the project owner is required to appoint a project supervisor, responsible for the quality supervision of the project on behalf of the owner. The Group’s quality control system has the following aspects:
• Construction – Full-time quality inspection personnel are assigned to each construction project. Together with the quality inspection personnel of the Branch Office or engineering department, they will conduct regular on-site inspection of every project to ensure that projects progress on schedule and meet quality standard.
• Raw material inspection – Full-time raw material inspection personnel are assigned for each project. When raw materials are delivered by a supplier to the warehouse on the construction site, the material inspection personnel will conduct a sample check on the raw materials to ensure quality compliance. After completion of checking and before warehousing, the materials will be inspected by the building material inspection centre established by the local government and by the project supervisor appointed by the project owner to ensure quality compliance.
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• Financial analysis – a project manager has to submit a project progress report and analysis of raw materials usage to the Branch Office which is responsible for the project on a regular basis. The financial personnel of the Branch Office will, based on the progress report submitted by the project manager, input the relevant information into the computerized analytical system of the Group. The system will calculate the estimated costs of raw materials to ascertain the project progress and compare with the usage of raw materials as reported by the project manager in order to monitor the pace and quantity of raw material consumption and make sure that the project has used sufficient raw materials to ensure project quality.
• Selection and management of subcontractor – in case the Group needs to engage a subcontractor for a project, the major factors to be considered by the Group in the selection of such subcontractor include the qualifications of the subcontractor, past service quality and financial condition. During construction of every project by the subcontractor, the Group will designate full-time personnel to monitor the progress of the subcontractor and project quality to ensure that the subcontractor has strictly observed the progress and quality requirements as specified in the subcontracting agreement.
• Construction and safety training – upon commencement of every construction project, the Group will provide training to construction site workers, which include: briefing on construction plans, quality requirements and safety measures, to ensure that construction site workers have a certain degree of understanding of construction and safety requirements. In addition, the Group will offer regular training sessions for the management, engineers and technical personnel, which mainly covers the latest development of the laws and regulations for the construction industry, methods of construction and latest technical standards so that they would have understanding of the latest development of regulations and technologies of the industry.
The Directors believe that the Group’s stringent monitoring and control system not only enables it to maintain a consistent quality of construction work, but also ensures the projects being progressed on schedule. The Group has not experienced any material claims associated with the delays in completing its construction projects. In addition, the Group has been the most frequent winner of the award in Zhejiang Province. Moreover, the Group has won the highest awards for the construction industry in Zhejiang Province and Shanghai Municipality – 錢江杯 (Qianjiang Cup) 17 times and 白玉蘭杯 (Baiyulan Cup) 8 times, respectively.
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Furthermore, prior to the Latest Practicable Date, the Group has received the following commendation for its status and outstanding achievements in the PRC construction industry:
Name of commendation Issuing body Date of issue
一九九八年浙江省 浙江省計劃與經濟委員會 July 1998 「行業最大」 (Zhejiang Provincial Planning (The largest in the industry and Economic Commission); in Zhejiang Province in 1998) 浙江省統計局 (Zhejiang Provincial Statistics Bureau); 浙江省經濟體制改革委員會 (Zhejiang Provincial Economic System Reform Commission); and 浙江企業評價中心 (Zhejiang Enterprise Appraisal Centre)
一九九九年浙江省 Zhejiang Provincial Planning July 1999 「行業最佳經濟效益」 and Economic Commission; (Best financial results Zhejiang Provincial Statistics Bureau; in the industry in Zhejiang Provincial Economic Zhejiang Province System Reform Commission; and in 1999) Zhejiang Enterprise Appraisal Centre
浙江省建築業重點骨幹企業 Zhejiang Provincial Department of December 1999 (Key Enterprise in the Construction Construction Industry in the Zhejiang Province)
二零零零年度浙江省 浙江省人民政府駐上海辦事處 January 2000 進滬施工先進單位 (Representative Office of the (Advanced Zhejiang Zhejiang Provincial People’s construction units in Government in Shanghai) Shanghai 2000)
全國建設技術創新工作 MOC December 2000 先進單位 (State advanced unit in construction technology innovation)
二零零零年全國工程建設 中國建築業協會 December 2000 質量管理優秀企業 (The China Construction (State outstanding enterprise Industry Association) in construction quality control 2000)
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Name of commendation Issuing body Date of Issue
二零零一年國優工程銀獎 國家工程建築質量審定委員會 May 2001 (Silver medal of the State (The Appraisal Committee of outstanding construction PRC Construction and project in 2001) Engineering Quality
二零零一年上海市用戶滿意 上海市用戶滿意住宅工程評選 December 2001 住宅工程 委員會 (User satisfaction award for (The Appraisal Committee of residential projects of Shanghai Shanghai User Satisfaction Project) in 2001)
二零零一年度全國建築 中國建築裝飾協會 December 2001 工程裝飾獎 (The China Construction Decoration (State construction Association) decoration award 2001)
二零零一年度全國優秀 中國施工企業管理協會 May 2002 施工企業 (The China Construction Enterprise (State outstanding construction Management Association) enterprise award in 2001)
全國用戶滿意施工企業 中國施工企業管理協會 March 2003 (User satisfaction award (The China Construction Enterprise for construction enterprises Management Association) in the PRC)
(iv) Safety and Insurance
The Group places great emphasis on construction safety and has implemented relevant internal policies which require employees and site workers to strictly adhere thereto. In January 2003, Baoye Construction obtained certification from Zhejiang Quality Audit Co Ltd which certifies the occupational health and safety management system of Baoye Construction in compliance with GB/T28001-2001 standard. In addition, before hired by the Group, construction site workers have to undertake general safety training and specific safety training for the industry. There are usually one to two full-time safety officers and several part-time safety officers for every project. The full- time safety officers of the Group conduct monthly inspection and random inspection over construction safety of various projects, and issue awards and penalties in accordance with the Group’s internal safety rules and regulations. As at the 31 December, 2002, there were a total of 75 full-time safety officers. The Group provides annual training to the management to reinforce the Group’s emphasis on safety.
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As a result of the Group’s emphasis on construction safety, it has been awarded the safety prize by the PRC Government for several times. Baoye Construction has won the title of 二零零二 年度全國優秀施工企業(2002 Nationwide Outstanding Construction Enterprise) awarded by 中 國施工企業管理協會(The China Construction Enterprise Management Association), the 一九九 九年建築安全獎 (1999 Construction Safety Prize) awarded by the MOC and the title of 二零零 一年度浙江省「安康杯」安全生產競賽優勝企業(2001 “Ankang Cup” Safety Production Competition Winner) in Zhejiang Province awarded jointly by 浙江省總工會(Zhejiang Provincial Labour Union) and 浙江省經濟貿易委員會(Economic and Trade Commission of Zhejiang Province). Moreover, the Group has been awarded 文明標化工地(Civilised and Procedurised Construction Site) accreditation by the Zhejiang Provincial Department of Construction, for eight times. As at the Latest Practicable Date, the Group had not received any notice from the relevant regulatory authorities in relation to breach of applicable safety standards.
The Group maintains insurance coverage with respect to construction projects in accordance with the practice of PRC construction industry. The types of project insurance maintained by the Group in respect of each construction project include: third party insurance, casualty and injury insurance and property insurance. The Directors confirmed that the Group has maintained sufficient insurance policies and has not encountered any material safety problems and material compensation claims in relation to the Construction Business.
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Acceptance check
As required by MOC, all construction projects must undergo stringent acceptance check upon completion. The checking team of a construction project comprises project owners, contractors, project designers, project supervisors and representatives from the local government’s geological prospecting department. In addition, according to《中國消防法》 (The Law of Fire Protection of the PRC), all completed projects must be examined by the local fire services departments and be granted a certificate. A project must have gone through the checks of all the above parties before acceptance. The quality and progress of a construction project are closely and regularly monitored by, among others, the project owner and the contractor. Any variation or amendment will be made at that time. As such, the Group did not encounter any material difficulties at the final acceptance of each construction project.
It is common in the construction industry that the project owner has subsequent modifications or amendments to the design or structure of the construction object. The project owner would then request the Group to alter the original specifications of the construction object which have been stipulated and agreed in the relevant construction contract. In such cases, the Group will charge the project owner for the additional materials and labour costs incurred due to these variation orders. During the Track Record Period, the turnover resulted from variation orders amounted to approximately RMB50,865,000, RMB180,281,000 and RMB280,044,000, respectively and accounted for approximately 6.2%, 13.5% and 14.8% of the total turnover of the Construction Business and approximately 5.2%, 11.2% and 12.2% of the Group’s total turnover during the respective periods.
After-sale services
According to the Group’s internal policies, the Group pays visit to the projects after their completions and handovers at least once within the warranty period as stipulated in each construction contract for the purpose of collecting feedback from the customers.
During the visit, maintenance services may be provided by the Group, free of charge if the services are within the scope of quality warranties stipulated in the construction contract; otherwise, the Group will provide maintenance services for charges. The free maintenance services to be provided by the Group varies with respect to different parts of the construction works according to the construction contract. Normally, the warranty period for the outer layer of the structure (including waterproof works) is three to five years after completion of the project, while maintenance in relation to water pipes and electricity tubes and wires and heating system lasts for six months to two years. The Directors believe that regular after-sale services can facilitate formation of a long- term relationship between the Group and its clients, and help improve its construction quality.
Methods of collection
Fee collection methods for each construction project vary depending on the terms of the construction contracts. A construction contract usually provides for a contract price, subject to adjustment on occurrence of certain events including changes in costs due to changes to the design or materials to be used, or delay of construction, or price adjustments made by the competent governmental authorities as to certain building materials. The price adjustment is normally determined by the contracting parties after completion and before the acceptance of the project. Normally, the Group will receive 15% to 20% of the total contract sum as the prepaid materials fees from the project owner after the signing of the contract, but before the commencement of construction works. After the construction work officially commences, the Group’s project
– 81 – BUSINESS management team will submit a progress report by the end of each month whereby fees will be charged according to the progress completed and the contract value. The report will be examined and approved by the project supervisors appointed by the project owner. Such fees shall normally be paid in the following month. Normally, as the construction progresses and reaches 50% of completion of that project, the materials fees prepaid by the project owner usually will be applied to the payment of the progress fees. At the time of completion, the project owner normally pays up to 85% to 90% of the contract value of the project, with the balance to be settled after the final contract price adjustment is mutually determined by the Group and the project owner. The Group usually receives about 95 to 99% of the contract sum upon the acceptance of projects, with the remaining 1 to 5% of the contract price to be retained by the project owner as retention money for the free maintenance services to be provided by the Group under the warranty provisions in the construction contract. The retention money will be returned to the Group after the expiration of the applicable warranty period. For details of warranty periods, please refer to the sub-paragraph headed “After-sale services” in the paragraph headed “Operation processes” above.
Completed Projects
The Construction Business is largely conducted in Shaoxing City and some other areas of Zhejiang Province. Outside Zhejiang Province, the activities of the Construction Business are carried out primarily in Shanghai Municipality. The Group expects to expand the Construction Business gradually into neighboring provinces such as Beijing Municipality, Wuhan City, Anhui Province and Jiangxi Province if the market condition allows. During the three years ended 31 December, 2002, the Group completed 102, 129 and 138 construction projects, respectively and the following tables are the breakdowns of the completed projects by (i) project category; and (ii) project location, respectively:
Year ended 31 December, 2000 2001 2002 Number % Number % Number %
By project category Construction for public use (Note) 54 52.9 62 48.1 29 21.0 Residential 30 29.4 36 27.9 71 51.4 Industrial 8 7.8 10 7.8 23 16.7 Urban works and infrastructure 10 9.8 21 16.3 15 10.9
Total 102 100.0 129 100.0 138 100.0
Note: Including offices, hotels, sports stadiums and schools.
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Year ended 31 December, 2000 2001 2002 Number % Number % Number %
By project location Shaoxing City/County 60 58.8 67 51.9 59 42.8 Other areas in Zhejiang Province 32 31.4 40 31.0 27 19.6 Shanghai Municipality and other areas in the PRC (Note) 10 9.8 22 17.1 52 37.6
Total 102 100.0 129 100.0 138 100.0
Note: Except the one construction project completed by the Group in 2001 and the two construction projects completed by the Group in 2002 were located in Wuhan City, Hubei Province, all other completed construction projects were located in Shanghai Municipality.
Projects in progress
As at 31 December, 2002, the Group had 269 construction projects in progress, with an aggregate contract sum of approximately RMB3,609 million. The following table sets out the status of the works in progress:
At 31 December, 2002 Number %
By project category Residential 74 27.5 Construction for public use 118 43.9 Industrial 23 8.6 Urban works and infrastructure 54 20.0
Total 269 100.0
By project location Shaoxing City/County 102 37.9 Other areas in Zhejiang Province 112 41.6 Other areas in the PRC 55 20.5
Total 269 100.0
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Competition
The Construction Business is carried on mainly in Zhejiang Province. Accordingly, the Group’s competitors consist of a large number of construction enterprises that base their operations in Zhejiang Province.
In late June 2002, the MOC approved for the first time a total of 43 construction enterprises as having the premium class of qualification recognition for building constructions, of which four, including the Group, are located in Zhejiang Province.
For the year ended 31 December, 2000, the Company ranked first amongst the construction enterprises in Zhejiang Province in terms of profit before taxation. The following table sets out the top five construction enterprises in terms of profits before taxation and total output value in 2000, respectively in Zhejiang Province according to “China Large Construction Enterprises 2001”.
By profits before By total output Ranking taxation in 2000 value in 2000
1 the Company* 浙江省龍元建設集團股份有限公司* (Zhejiang Longyuan Construction Group Company Limited)
2 浙江省紹興市大明實業公司 浙江中成建工集團有限公司* (Zhejiang Shaoxing Daming (Zhejiang Zhongcheng Construction Industry Company) Group Co., Ltd.)
3 杭州電力發展集團有限公司 the Company* (Hangzhou Electricity Development Group Co., Ltd.)
4 浙江省火電建設公司 浙江舜杰建築集團股份有限公司* (Zhejiang Thermal Power (Zhejiang Shunjie Construction Construction Company) Group Company Limited)
5 浙江省龍元建設集團股份 浙江中天建設工程集團有限公司 有限公司* (Zhejiang Zhongtian Construction (Zhejiang Longyuan Construction Engineering Group Co., Ltd.) Group Company Limited)
* Indicates privately-owned construction enterprise at the relevant times
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BUILDING MATERIALS BUSINESS
Introduction
The Group engages in the research and development, production and sale of a wide range of building materials, including ready-mixed concrete, concrete piles, concrete ducts, big roof sheathing, plastic spiral ducts and fire-proof materials. With approximately 30 years of operations in the construction industry, the Group started to capitalise on the extensive experience in the construction industry and expand to the business of building materials by establishing the Concrete Company in 1994. The establishment of the Building Materials Industrialisation Company, the Building Materials Industrialisation Research Institute and the Fire-proof Materials Company during the period from 1996 to 1999 helped the Group develop a diversified range of building materials and the Group successfully extended its geographical presence from Shaoxing City to other areas of Zhejiang Province, including Hangzhou City, Jiaxing City and Taizhou City.
For the three years ended 31 December, 2002, the Group’s turnover from the Building Materials Business were approximately RMB59,588,000, RMB123,532,000 and RMB148,696,000, respectively, which represented 6.1%, 7.7% and 6.5% of total turnover of the Group during the corresponding periods, respectively.
Major Products
Ready-mixed concrete
The Group engages in the production and sale of ready-mixed concrete through the Concrete Company. According to the confirmation from the Shaoxing Municipal Statistical Bureau, the Concrete Company is the only company in Shaoxing City engaging in the production and sale of ready-mixed concrete which had obtained an annual sale amount exceeding RMB10 million in 2002. The turnover of Concrete Company for the year ended 31 December, 2002 amounted to over RMB50 million. Because ready-mixed concrete has a relatively short shelf life due to its tendency of readily solidifying, it is not suitable for long-distance delivery, and the delivery distance is usually within a radius of only 50 to 60 km.
Cement, aggregates, yellow sand, pebbles and chemical admixtures are the principal raw materials used for ready-mixed concrete production. Ready-mixed concrete has a very wide range of application in the construction industry including the construction of commercial and residential buildings, infrastructure, other construction materials and civil engineering works. The Group produces ready-mixed concrete in a range of different compressive strengths up to 100 MPa.
The Directors believe that the ready-mixed concrete products of the Group have the following characteristics: superior performance, good strength and long durability. The Group’s ready-mixed concrete products were awarded the Certificate for Confirmation of Technology Achievements (科 學成果鑒定證書) in 1999 by the Zhejiang Provincial Department of Construction in recognition of its product quality and performance. The Group has been the supplier of ready-mixed concrete to a number of core construction projects in Zhejiang Province, including the construction of the departure lounge of Hangzhou Xiaoshan International Airport and Shaoxing Drainage Treatment Plant.
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Concrete piles
The Group engages in the production and sale of concrete piles through Building Materials Industrialisation Company. Concrete piles have a wide range of applications, and are principally used in the construction of the structural foundation of buildings.
The Group produces concrete piles of different lengths and diameters in accordance with customers’ specifications. In June 2001, the Group’s concrete piles products were awarded the Certificate for the Promotion of Construction Technology Achievements (建設科技成果推廣證 書) by the Zhejiang Provincial Department of Construction in recognition of their quality.
Concrete ducts
The Group is engaged in the production and sale of concrete ducts through the Building Materials Industrialisation Company. Concrete ducts are principally used for drainage and for pollution treatment.
The Group has been the supplier of concrete ducts to a number of core construction projects in Shaoxing, including Shaoxing Keqiao Economic Technology Development Zone (紹興柯橋經 濟技術開發區), Shaoxing Paojiang Industrial Development Zone (紹興砲江工業開發區) and Shaoxing Binhai Industrial Development Zone (紹興濱海工業開發區).
Large roof sheathings
The Group engages in the production and sale of large roof sheathings through the Building Materials Industrialisation Company. Large roof sheathing is principally used in the construction of roof-tops of major industrial buildings.
Fire-proof materials
The Group engages in the production and sale of fire-proof materials and its major products being fire-proof doors through Fireproof Materials Company. In 2002, the Ministry of Public Security issued three Certificates of Product Type Approval (產品型式認可證書) in connection with the Group’s fire-proof doors to the Group.
Production facilities and repairs and maintenance
The Group has several production facilities of building materials primarily situated in Shaoxing City, Zhejiang Province. The following table summarises the relevant information on the Group’s production plants in the Building Materials Business.
Current annual 2002 utilised Corresponding product production capacity production capacity
Ready-mixed concrete (Note 1) 1,000,000 cubic meters 304,293 cubic meters Concrete piles 500,000 m 381,232 m Concrete ducts 200 km 143 km Large roof sheathing (Note 2) 70,000 pcs 39,905 pcs Fire-proof doors 20,000 sq.m. 15,590 sq.m.
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Notes:
1. The Group increased the annual production capacity for ready-mixed concrete from 500,000 cubic meters in 2001 to 1,000,000 cubic meters in 2002.
2. The Group increased the annual production capacity of large roof sheathing from 25,000 pieces in 2001 to 70,000 pieces in 2002.
The Group has specifically assigned employees to provide repair and maintenance services to the plant and machinery of the Building Materials Business. The Group has regular repairs and maintenance plan to ensure the normal operation of its plant and equipment. Up to the Latest Practicable Date, the Group had never experienced any major problems in the repairing, maintenance or operation of its plant and equipment.
The Group will invest in the Building Materials Industrialisation Park, which shall be equipped with various production facilities to further enhance the Building Materials Business. The Group is also in the course of acquiring a piece of land near to the Building Materials Industrialisation Park for extending the Building Materials Business with an initial deposit amounting to RMB10 million already paid. The Directors currently do not intend to utilize the proceeds from listing to pay for the rest of the land cost.
Purchase of Raw Materials
The major raw materials used by the Group in the Building Materials Business are purchased by entering into one-year supply contracts with the suppliers selected through tenders. Such supply contracts are used to stablise the purchase price of raw materials in the following year, thus reducing the risks associated with fluctuation in raw materials prices. Prices and quality of raw materials, quality of services and the supply capacity are the main factors in selecting suppliers. At the end of the contract period, the Group will select suppliers again through tenders.
Generally, the building materials production staff of the Group will liaise with the warehouse staff of the Group to ascertain whether the stock of raw materials is sufficient to meet the production requirement of the following month. When the stock falls below the required level, the warehouse staff will request the production staff to place purchase orders of raw materials with suppliers. Most suppliers grant a credit period of 2 to 3 months to the Group.
The Group’s purchases of raw materials are made in Renminbi and accordingly, there is no significant risk of foreign exchange fluctuations. During the Track Record Period, the Group did not experience any difficulty in securing raw material supplies.
Sales and Marketing
Normally, owing to transportation costs, building materials are not suitable for long-distance delivery. Therefore, during the Track Record Period, most of the building materials were sold to customers in Shaoxing City.
As at 31 December, 2002, the Group employed a total of 39 sales and marketing staff. The sales and marketing staff expect to capitalise on the many years of experience the Group accumulated from, and the network it has built, in the construction industry in Zhejiang Province to identify opportunities in promoting its products.
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Quality Control
The Group has adopted a quality control system throughout its business operation, from the selection of suppliers, factory pre-entry screening of raw materials during the production processes, to final product inspection and after-sale services. The quality control system of the Building Materials Business meets the ISO 9002 standard. As at 31 December, 2002, the Building Materials Business had 13 employees who were specially assigned to administer the quality assurance of building materials. The quality control system comprises the following:
• Selection of suppliers – Through invitation for tenders, the Group evaluates a number of factors, including the price and quality of raw materials supplied by the bidding suppliers, supply capacity and timeliness of delivery.
• Factory pre-entry screening of raw materials – Random quality checks are performed on raw materials before entering the warehouse. Any raw materials failing the quality check will immediately be returned to the supplier.
• Production process – Major production procedures are monitored by specially assigned supervisors in order to ensure that all important production processes are carried out and completed in accordance with the Group’s internal standards.
• Final product inspection – Random quality checks will be performed on final products to ensure that overall product quality meets the required standards.
• After-sale services – quality assurance services after sales include collection of customers’ opinions, market research on products and handling of clients’ complaints in an appropriate manner.
As far as the Directors are aware, for the three years ended 31 December, 2002, the Group did not receive any major complaint regarding the quality of its building materials products. In order to maintain and further improve its product quality, the Group will continue to improve the equipment employed in the Building Materials Business, and will provide training to the staff in the Building Materials Business.
Research and Development
The Directors believe that, in order to continually enhance the Group’s competitive strengths in the Building Materials Business, the Group should continue to improve the performance and quality of its existing products and to develop new products. For this reason, the Group established the Building Materials Industrialisation Research Institute in December 1999 to focus on the research and development of building materials. As at 31 December, 2002, the Building Materials Business had 23 professional researchers. The researchers hold technology exchange meetings with the management of the Group’s construction and real estate development businesses, in order to improve the Group’s building materials products, and set direction for developing new products.
During the three years ended 31 December, 2002, the Group’s research and development expenses were approximately RMB266,000, RMB953,000 and RMB1,058,000, respectively.
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REAL ESTATE BUSINESS
Introduction
The Group started to engage in real estate development in 1995 with the establishment of Baoye Real Estate. Since the commencement of the Real Estate Business in 1995 to the Latest Practicable Date, the Group completed 10 real estate projects with a total gross floor area of approximately 313,000 sq.m. and currently has two projects under construction with an estimated total gross floor area of about 194,000 sq.m. and one property held for development. For the three years ended 31 December, 2002, the Group’s real estate development business recorded turnover of RMB100,122,000, RMB146,140,000 and RMB251,292,000, respectively, representing approximately 10.2%, 9.1% and 10.9%, respectively, of the Group’s total turnover during the same periods.
The cost of a real estate development project primarily consists of the cost of land and the costs of materials and labour. Normally, it is the policy of the Group to finance approximately 70% of the cost of land by bank borrowings while the remaining cost of land and the costs of materials and labour are financed by working capital generated by the Group’s operations.
The Group’s real estate development strategy is to first establish a business foundation in the real estate market of Shaoxing City and then expand its geographical presence to districts outside Shaoxing City and outside Zhejiang Province with high growth potential. The Group’s other elements of its real estate development strategy include:
• to capitalise on the Group’s well-known brand in the construction industry;
• to consistently strive for high quality and ensure good quality for every project developed by the Group; and
• to adopt an advanced concept in organising and planning for each project and ensure the high quality of project ancillary facilities.
Quality and cost control are fundamental concerns to the Group. The Group carries out the construction works for its self-developed real estate projects, in order to ensure a high quality of construction. In order to focus the Group’s resources to develop the Construction Business and the Building Materials Business, it is the current intention of the Directors to maintain the percentage of the turnover from the Real Estate Business to the Group’s total turnover at a level of below 25%.
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Completed Projects
Since the commencement of the Real Estate Business in 1995 to 31 December, 2002, all projects completed by the Group were located in Shaoxing City. Information on completed projects were summarised as follows:
Approximate Project Category No. of projects gross floor area (sq.m.)
Residential 9 272,000 Commercial 1 41,000
10 313,000
Projects under construction
The Group is currently undertaking development of two residential real estate projects, both of which are located in Shaoxing County, Zhejiang Province.
Keqiao City Garden Phase III (柯橋城市花園三期)
Keqiao City Garden is located in Keqiao Township, Shaoxing County, the location of Shaoxing County Government. It is a residential quarter in Shaoxing County with a planned area of more than 100,000 sq.m. The project has been carried out in two phases. Keqiao City Garden Phase I and II (“Project Phase I and II”) was completed by the end of 2001 and 2002, respectively. Keqiao City Garden Phase III (“Project Phase III”) is expected to be completed in June 2004. The main part of Keqiao City Garden will house several tens of multi-storey residential buildings and ancillary facilities including a kindergarten.
Project Phase III is adjacent to Project Phase I and II. Project Phase III will be carried out in two stages. The first stage is to demolish the existing buildings and relocate the existing inhabitants. The demolition and relocation work commenced in early 2003, and is envisaged to be completed by the first half of 2003. The second stage is to develop the site and carry out construction works thereon. Construction works for Project Phase III are expected to be commenced in the first half of 2003 and completed in June 2004. The project is intended to house multi-storey residential buildings with a gross floor area of approximately 54,000 sq.m. and the total investment of Project Phase III is expected to be about RMB93,000,000. As at 31 December, 2002, the cost of investment of Project Phase III amounted to approximately RMB23,501,000. The Group expects that the remaining investment amount will financed through a combination of internal resources and short-term bank loans.
Guazhu Fengqing (瓜 風情)
The location of Guazhu Fengqing is adjacent to Guazhu Lake in Keqiao Township of Shaoxing County. The site comprises two parcels of land with an aggregate area of approximately 93,400 sq.m. The project consists of two phases. The construction works of the project commenced in October 2002, and the first phase is expected to be completed in December 2003 and the second phase is expected to completed in June 2004. The aggregate area of land used for the project is
– 90 – BUSINESS approximately 81,000 sq.m. and the total gross floor area is approximately 140,000 sq.m. It is expected that the project will mainly comprise residential units and shops. Total amount of investment of this project is estimated at approximately RMB252,690,000. The investment amount as at 31 December, 2002 was approximately RMB71,105,000. The Group expects that the remaining investment amount will be financed through a combination of internal resources and short-term bank loans.
Land Reserve
Hefei Baoye, the equity interest of which is owned in equal shares by the Company and Shaoxing China Qingfangcheng Shidai Real Estate Co., Ltd. (紹興中國輕紡城時代房地產有限 公司), has obtained the land use rights in two parcels of land located in on the two sides of Heping Road (和平路) in Hefei City, Anhui Province, with a total site area of about 254,730 sq.m. Construction works are expected to commence in the third quarter of 2003 and be completed by late 2005. The project will mainly comprise residential units and shops. The investment amount of the project is estimated at around RMB650,000,000. The Group expects that the investment amount will be financed through a combination of internal resources and short-term bank loans.
The Group intended to acquire three pieces of land with locations in Shaoxing City, Hefei City and Shanghai Municipality. As at the Latest Practicable Date, the Group paid part of the land premia for these lands. For particulars of these lands, please refer to Appendix II to this prospectus.
Strategy for property sale and method of fee collection
In accordance with the relevant laws and regulations of the PRC, a real estate development company must first obtain a Permit for Pre-sale of Commodity Buildings (《商品房預售許可證》) before it can commence any pre-sale activities. So far as the Directors are aware, the Group has complied and will comply with the relevant laws and regulations when it launches any property pre-sale activities, and expect to assess the overall situation of the real estate market in order to formulate appropriate sale and promotion strategies, including: (i) to determine the promotion strategy for a project based on market research; (ii) to appoint professional real estate planning organisation to formulate an overall marketing plan; (iii) to conduct promotional activities before the commencement of sale of properties; and (iv) to continually adjust, after the commencement of sale of properties, publicity and pricing strategies in light of change in market environment and feedback received.
The sales of the properties developed by the Group are denominated and paid in Renminbi. There are generally three methods of payment arrangements, comprising lump sum payments, installment payments and payment by bank mortgages.
It is customary for a PRC property development company to provide guarantees to banks for customers purchasing its property during pre-sale to assist customers in obtaining mortgages on such property. The bank will release such guarantee only upon the building ownership certificate of such property is delivered to the bank as security. Building ownership certificate will only be available upon completion of the construction of the property and inspection by the relevant authorities. As the property development company has received the sale proceeds on the property sold and holds the legal title of the property until the building ownership certificate is available, the Directors consider that the risk involved in the arrangement is not material. The aggregate amount of guarantee, provided by the Group was approximately RMB9,248,000 as at 31 December, 2002 was shown as contingent liabilities in the financial statements of the Group. In addition, the Group has not suffered from any losses from such arrangement during the Track Record Period.
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CUSTOMERS
The customers of the Construction Business and the Building Materials Business primarily consist of property developers, governmental bodies and schools, while the customers of the Real Estate Business are mainly individual natural persons. Save for the sale to certain connected persons as set out in the paragraph headed “Connected Transactions” below, to the best knowledge of the Directors, all customers of the Group are Independent Third Parties. The payments by customers for the Construction Business and Real Estate Business are paid to the Group in accordance with the terms of contracts or agreements governing such transactions, while the Group normally grants a credit term of one to 12 months to its customers of the Building Materials Business. All of the payments received by the Group are in Renminbi. It is the Group’s policy to make provision against receivable to the extent that they are considered to be doubtful.
The Group’s five largest customers for the year ended 31 December, 2002 have established business relationships with the Group of 2 years. All of them are customers of the Construction Business. For the three years ended 31 December, 2002, the turnover generated from the Group’s five largest customers accounted for an aggregate of approximately 14.7%, 14.0% and 12.8%, respectively, of the Group’s total turnover, and the turnover generated from the Group’s largest customer accounted for approximately 3.7%, 3.3% and 4.3%, respectively, during the same periods.
So far as the Directors are aware, immediately after the completion of the Offering, none of the Directors, their respective associates or shareholders who own 5% or more issued share capital of the Company has any interests in any of the five largest customers of any of the Company and its subsidiaries during the three years ended 31 December, 2002.
SUPPLIERS
The major suppliers to the Group are building materials and raw materials vendors and manufacturers. Normally, the Group is granted with a credit term of two to three months by its suppliers. The Group’s inventory policy is to account inventories at the lower of cost and net realisable value, while net realisable value is determined on the basis of anticipated sales proceeds less estimated selling expenses.
So far as the Directors are aware, all of the Group’s suppliers are Independent Third Parties. For the three years ended 31 December, 2002, the Group did not experience any shortage or discontinuity in the supply of raw materials or building materials. As at 31 December, 2002, the business relationship between the Group and its five largest suppliers ranged from 6 to 11 years.
For the three years ended 31 December, 2002, the Group’s five largest suppliers accounted for an aggregate of approximately 18.3%, 11.0% and 9.8%, respectively, of the Group’s total purchases, and the Group’s largest supplier accounted for approximately 5.7%, 2.8% and 2.6%, respectively, of the Group’s total purchases. As far as the Directors are aware, immediately after the completion of the Offering, none of the Directors, their respective associates or any shareholders who own 5% or more issued share capital of the Company has any interests in any of the five largest suppliers of any of the Company and its subsidiaries for the three years ended 31 December, 2002.
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GOVERNMENT GRANT
In recognition of the Group’s strong operational and financial performance, the Group was qualified as one of the Mini Giant (小型巨人) enterprises. As such, the Finance Bureau of Shaoxing County awarded the Group government grants amounting to approximately RMB35,555,000 and RMB31,274,000 for the years ended 31 December, 2001 and 2002, respectively. The Directors confirmed that the government grants received by the Group did not involve any refund of taxes. The Company’s PRC legal adviser has given an opinion that the government grants do not contravene the Notice of State Council Concerning the Rectification of the Unauthorised Refund-after-Levy Policies Formulated by Local Governments (《國務院關於糾正地方自行制定稅收先徵後返政 策的通知》) issued by the State Council on 11 January, 2000 or any other applicable PRC laws and regulations. In addition, Mr. Pang has agreed and undertaken to indemnify the Group against all losses in the event that the government grants received by the Group during the Track Record Period are withdrawn.
ENVIRONMENTAL PROTECTION
The operation of the Group is subject to the laws and regulations on environmental protection promulgated by the national and local environmental protection authorities in the PRC. In January 2003, Baoye Construction was awarded ISO 14001:1996 accreditation. The Directors believe that the Group has complied and will comply with the requirements of all environmental laws and regulations in the PRC in all material respects.
For the three years ended 31 December, 2002, the Group has not received any notification for any violation of environmental protection laws and regulations.
NON-COMPETITION UNDERTAKING
Mr. Pang, the controlling shareholder of the Company, has confirmed that he is not currently engaged in any business, which directly or indirectly competes with the Group’s business. In accordance with the non-competition undertaking executed by Mr. Pang on 8 June, 2003, Mr. Pang undertook unconditionally, inter alia, that:
(i) during the period in which he remains a controlling shareholder of the Company, he will not and will procure his associates not to invest or participate in any other business which may compete with the business that the Group is or will engage in; and
(ii) if there is any project or new business which is related to the construction industry, building materials industry and real estate development, such projects or business should be offered to the Group on a preferential basis.
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CONNECTED TRANSACTIONS
After the listing of H Shares on the Stock Exchange, certain transactions that certain member companies of the Group have entered into or will continue to conduct, will constitute connected transactions under the Listing Rules.
1. Concrete Supply
Concrete Company, an approximately 51.5% owned subsidiary of the Company, has been supplying concrete to its substantial shareholders, Shaoxing Municipal Infrastructure Company (紹興市市政工程公司) (“Municipal Infrastructure”) and Zhejiang Huanyu Construction Group Co., Ltd. (浙江環宇建設集團有限公司) (“Zhejiang Huanyu”) (formerly known as Shaoxing Construction and Installation Engineering Company (紹興市建築安裝 工程公司)), which own approximately 22.7% and 25.8% of the equity interest of Concrete Company, respectively, on normal commercial terms and in the ordinary course of business. The prices at which concrete is supplied by Concrete Company to Municipal Infrastructure and Zhejiang Huanyu are agreed by the parties by reference to the market price as provided by Shaoxing City Management Authority of Construction Industry (紹興市建築業管理 局), an Independent Third Party, and the quantity and quality of concrete. The supply of concrete by Concrete Company to Municipal Infrastructure and Zhejiang Huanyu in the three years ended 31 December, 2002 are set out as follows:
Year ended 31 December, % to the % to the % to the turnover turnover turnover 2000 of Building % to the 2001 of Building % to the 2002 of Building % to the Sales Materials Group’s Sales Materials Group’s Sales Materials Group’s amount Business turnover amount Business turnover amount Business turnover RMB’000 (%) (%) RMB’000 (%) (%) RMB’000 (%) (%)
Municipal Infrastructure 642 1.1 0.1 1,417 1.1 0.1 71 0.1 0.1 Zhejiang Huanyu 8,646 14.5 0.9 4,214 3.4 0.3 16,685 11.2 0.7
The amounts due from Municipal Infrastructure were approximately RMB1,178,000, RMB1,948,000 and RMB3,734,000 as at 31 December, 2000, 31 December, 2001 and 31 December, 2002, respectively, whereas the amounts due from Zhejiang Huanyu as at the respective dates were nil, approximately RMB1,049,000 and RMB10,992,000, respectively.
So far as the Directors are aware and to their best knowledge, the substantial increase in the sale of concrete to Zhejiang Huanyu for the year ended 31 December, 2002 was due to the increase in demand of Zhejiang Huanyu because of the increased number of successful biddings in construction projects by Zhejiang Huanyu.
Concrete Company will continue to supply concrete (the “Concrete Supply”) to Municipal Infrastructure and Zhejiang Huanyu after the listing of H Shares. The Directors are of the opinion that the supply of concrete referred to above are carried out:
(i) in its ordinary and usual course of business of the Group; and
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(ii) on normal commercial terms or (where there is no available comparison), on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole.
The Directors expect that the supply will be maintained at a similar level as in the previous years and with some growth in the respective demand of Municipal Infrastructure and Zhejiang Huanyu. Since Municipal Infrastructure and Zhejiang Huanyu are substantial shareholders of Concrete Company, the supply of concrete to them by Concrete Company constitutes connected transactions under the Listing Rules. Since the amount of supply of concrete to each of Municipal Infrastructure and Zhejiang Huanyu is expected to exceed the higher of HK$10,000,000 or 3% of the net tangible assets value of the Group in each financial year, the supply of concrete to Municipal Infrastructure and Zhejiang Huanyu is subject to the disclosure and shareholders approval requirements under the Listing Rules.
2. Guarantees
Members of the Group will from time to time require bank financing for their business operations. It is a common practice for banks in the PRC in granting financing to require guarantees from corporations with good reputation. Accordingly there are in existence intra- group guarantees to secure such banking financing, which are expected to continue or be renewed after listing of H Shares on the Stock Exchange.
Set out below is the information on the intra-group guarantees which will continue after listing of H Shares.
Total Outstanding Expiry Date Guarantor Borrower Loan Amount of Guarantee (RMB’000)
(a) The Company Baoye Real Estate 110,000 At various dates between 19 July, 2003 to 20 March, 2004
(b) The Company Concrete Company 2,000 27 January, 2004
(c) The Company Baoye Construction 200,000 At various dates between 27 September, 2003 to 28 October, 2003
(d) The Company Building Materials 90,000 At various dates Industrialisation between 24 August, Company 2003 to 16 February, 2004
(e) Baoye Real Estate Baoye Construction 30,000 30 September, 2003
(f) Baoye Construction Baoye Real Estate 5,000 15 October 2003
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Total Outstanding Expiry Date Guarantor Borrower Loan Amount of Guarantee (RMB’000)
(g) Baoye Construction Building Materials 38,000 29 October 2003 Industrialisation Company
(h) Baoye Construction Concrete Company 4,000 3 July 2003
The Directors advise that after the expiry of the above guarantees nos. (e) to (h), the Company will provide guarantees to secure the bank loans of the relevant subsidiaries.
The guarantees provided to Baoye Real Estate and Concrete Company (i.e. guarantees nos. (a), (b), (f) and (h) above) fall within the Rule 14.25(2)(a) of the Listing Rules because no connected person to the Company is a shareholder of the relevant borrower (other than by virtue of a substantial shareholding in the relevant borrower). Details of the transactions will be disclosed in the next published annual report and accounts of the Company.
With regard to other intra-group guarantees (the “Guarantees”), they do not fall within the requirement of Rule 14.25(2)(a) of the Listing Rules because shareholder of the related borrowers include connected persons of the Company. The Directors are of the view that the Guarantees are on normal commercial terms (or better), and fair and reasonable to the Group, and are of practical importance to the day to day operation of members of the Group. The Directors expect that the Guarantees will be subject to the following respective caps in the three financial years ending 31 December 2005:
Caps 2003 2004 2005 (RMB’000) (RMB’000) (RMB’000)
Guarantees nos. (c) and (e) to Baoye Construction 300,000 320,000 350,000 Guarantees nos. (d) and (g) to Building Materials Industrialisation Company 140,000 140,000 140,000
The caps are referring to the amount of borrowings secured by the Guarantees at any relevant point of time. The caps determined after taking into account both of the existing amount of loan and the future anticipation of capital requirements by the Directors.
3. Other intra-group transactions
As disclosed in the Prospectus, members of the Group are developing business both upstream and downstream and are engaged in three principal business activities, namely (a) the undertaking and implementation of construction projects, (b) research and development, production and sale of building materials, and (c) real estate development, which create synergy to the core business of the Group. In such circumstances, there are intra-group transactions. Accordingly, there will be trade receivables and payable between them.
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The parties involved in the intra-group transactions are non-wholly subsidiaries of the Company. The Directors confirm that these transactions are carried on normal commercial terms. Such intra-group transactions (other than those concerning Building Materials Industrialisation Company (“BM Transactions”)) should be exempt from disclosure and shareholders’ approval requirements pursuant to Rule 14.24(4) of the Listing Rules, because they are on normal commercial terms, in the ordinary and usual course of business of the companies concerned, and no connected person (other than by virtue of his substantial shareholding in the non wholly owned subsidiary) is or are together a substantial shareholder in any of the non wholly owned subsidiaries concerned.
Building Materials Industrialisation Company is owned by Baoye Construction, Mr. Pang, Zhejiang Construction Science and Design Research Institute, Building Materials Industrialisation Research Institute and Mr. Hu Shaozeng as to 60%, 19%, 15%, 5% and 1% respectively. Since Mr. Pang is a promoter and a controlling shareholder of the Company, and is holding 19% interests in Building Materials Industrialisation Company, and Mr. Hu Shaozeng is a non-executive Director holding 1% in Building Materials Industrialisation Company, the BM Transactions are not exempt under Rule 14.24(4) of the Listing Rules.
BM Transactions involve sale of materials by Building Materials Industrialisation Company to members of the Group (“BM Sales”) and contracting out of construction works by Building Materials Industrialisation Company to members of the Group (“BM Contracting”). The Directors expect that the BM Sales in each of the three financial years ending 31 December 2005 will not exceed RMB32,000,000, RMB38,000,000 and RMB43,000,000 respectively; and (ii) the BM Contracting will not exceed RMB20 million for each of the two financial years ending 31 December 2004. The caps for BM Transactions are determined by reference to the historical amount together with the anticipated growth in the future by the Directors.
As the Concrete Supply, Guarantees and BM Transactions (the “Transactions”) will continue in the normal course of business, the Directors consider that compliance with the disclosure and shareholders’ approval requirements would be cumbersome and impracticable when each of such transaction arises. The Directors have accordingly applied to the Stock Exchange for a waiver from the disclosure and shareholders’ approval requirements on the following conditions:
(a) the Transactions are entered into in the ordinary and usual course of business of the Group, on normal commercial terms or (where there is no available comparison), on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole and in accordance with the terms of the agreements (if any) governing such transactions;
(b) (i) in the financial year ending on 31 December, 2003, 31 December, 2004 and 31 December, 2005, the annual aggregate amount of Concrete Supply to Municipal Infrastructure and Zhejiang Huanyu will not exceed RMB22 million, RMB24 million and RMB27 million respectively;
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(ii) in the financial year ending on 31 December, 2003, 31 December, 2004 and 31 December, 2005, the Guarantees will be subject to the following caps:
Caps 2003 2004 2005 (RMB’000) (RMB’000) (RMB’000)
Guarantees nos. (c) and (e) to Baoye Construction 300,000 320,000 350,000 Guarantees nos. (d) and (g) to Building Materials Industrialisation Company 140,000 140,000 140,000
(iii) in the financial year ending on 31 December, 2003, 31 December, 2004 and 31 December, 2005, the annual aggregate amount of BM Sales will not exceed RMB32,000,000, RMB38,000,000 and RMB43,000,000 respectively; and
(iv) the aggregate amount for the BM Contracting will not exceed RMB20 million for each of the two financial years ending 31 December 2004.
(c) the Company’s independent non-executive Directors shall examine the contracts and performance thereof relating to the Transactions every financial year and make their confirmation in the Company’s annual report and accounts that the Transactions were conducted in the manner as stated in paragraphs (a) and (b);
(d) the Company’s auditors shall review the contracts and performance thereof relating to the Transactions every financial year and confirm in writing (with a copy provided to the Stock Exchange) to the Board in respect of the following matters:
(i) the Transactions have been approved by the Board;
(ii) the Transactions have been entered into in accordance with the terms of the agreements governing such transactions or, if there are no such agreements, on terms no less favourable than those available to or from independent third parties; and
(iii) the aggregate amounts of the relevant Transactions have not exceeded the respective cap amount set out in paragraph (b) above;
(e) brief details of the Transactions as required under Rule 14.25(1)(A) to (D) of the Listing Rules shall be disclosed in the next and each published annual reports and accounts of the Company for the relevant financial year together with a statement of opinion of the independent non-executive Directors referred to in paragraph (c) above; and
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(f) each of the connected persons of the Company, where required, shall provide an undertaking to the Stock Exchange that during the waiver period it shall provide the auditors of the Company with full access to the relevant records for the purpose of reviewing the Transactions as referred to in paragraph (d) above.
If any terms of the Transactions are altered, or the cap as mentioned above is exceeded, the Company shall comply with the provisions of the Listing Rules unless it applies for and obtain a separate waiver from the Stock Exchange. In addition, if the Transactions will continue after the expiry of the waiver ending on 31 December, 2005, the Company will comply with the provisions of Chapter 14 of the Listing Rules in relation to such supply of concrete, unless the Company obtains another waiver from the Stock Exchange in relation thereto.
Based on the information (including historical figures) and documents provided by the Company relating to the connected transactions for which a waiver is sought, and in relying upon confirmations and representations made by the Company and the Directors, the Sponsor is of the view that the terms of the connected transactions referred to above are fair and reasonable as far as the Company’s shareholders are concerned. It should be noted that the Sponsor has, in reaching its opinion above, assumed and relied upon the accuracy and completeness of such information, documents, representations and confirmations at the time they were supplied, and on their continuing accuracy and completeness as at the date of this prospectus. The Sponsor’s opinion above represents its view as at the date of this prospectus and such view is necessarily based on, and assumes no change in, economic, market and other conditions in effect on, and the accuracy and completeness of information made available to the Sponsor for the purposes hereof and as at, the date of this prospectus.
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The Board consists of ten Directors, four of whom are independent non-executive Directors. The Directors are elected at a shareholders’ meeting of the Company for a term of three years, renewable upon re-election and re-appointment. An independent Director shall not concurrently act as a Supervisor, manager or financial controller of the Company. The functions and duties of the Board include: convening shareholders’ meetings and reporting its work to the shareholders’ meetings, implementing the resolutions of the shareholders’ meetings, determining the Company’s business plans and investment plans, preparing the Company’s annual budget and final accounts, making proposals to the Company on distribution of dividend and bonus and increase or reduction of share capital, as well as exercising other powers, functions and duties as conferred by the Articles of Association.
The Company Law requires a joint stock company with limited liability to establish a supervisory committee and this requirement is reflected in the Articles of Association. The supervisory committee is responsible for monitoring the Company’s financial matters and overseeing the activities of the Board and the management personnel of the Company. The supervisory committee consists of five supervisors, of whom one is the representative of shareholders who is elected, and may be removed, by the shareholders in a general meeting, and one is the representative of employees and is elected by the employees. Of these five Supervisors, two are also employees of the Company. The term of office of the Supervisors is three years, renewable upon re-election and re-appointment. The functions and duties conferred on the supervisory committee include: attending Board meetings, examining the Company’s financial affairs, balance sheets, income statements, business reports, dividend distribution proposals and other financial information tabled at the shareholders’ general meetings by the Directors from time to time, and overseeing the activities of the Board and other members of the senior management of the Company in carrying out their duties. In the event of any conflict of interests between the Company and any of its Directors, the supervisory committee shall confer with, or initiate legal proceedings against, such Directors on behalf of the Company.
DIRECTORS
Executive Directors
PANG Baogen, aged 45, the chairman and general manager of the Company and the founder of the Group. He is responsible for formulating the overall strategy and development of the Group. Mr. Pang has engaged in construction business for over 22 years, Mr. Pang has extensive experience in the operation and management of a construction enterprise. He was awarded Excellent Manager of the National Construction Enterprises (全國優秀建築企業經理) and Entrepreneur with Outstanding Contributions to Zhejiang Province (浙江省突出貢獻經營者). In addition, Mr. Pang has served as the representative of the Third Shaoxing City People’s Congress (紹興市第三屆人 民代表大會) and the deputy director of The Construction Academic Committee of Zhejiang Civil Engineering Association (浙江省土木工程委員會). He is currently the deputy chairman of Zhejiang Provincial Association of Construction Entrepreneur (浙江省建築企業家協會), the vice chairman of Zhejiang Construction Association (浙江省建築業協會), the vice chairman of Shaoxing City Entrepreneurs Association (紹興市企業家協會), the committee member of the Twelfth Shaoxing County People’s Congress (紹興縣第十二屆人民代表大會) and the representative of the Fifth Shaoxing City People’s Congress (紹興市第五屆人民代表大會).
GAO Jiming, aged 40, director and deputy general manager of the Company. Mr. Gao joined the Group in December 1978 and was appointed as a Director in August 2002. He is responsible for the management of daily operation of the Group. Mr. Gao graduated from Zhejiang
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Yu Cai Workers’ University (浙江育才職工大學) in 1992 specialising in industrial and residential construction and holds a senior engineer qualification. Mr. Gao has about 24 years’ experience in construction enterprise management.
GAO Lin, aged 32, director and deputy general manager of the Company and general manager of Baoye Construction. Mr. Gao joined the Group in July 1987 and was appointed as a Director in August 2002. He is responsible for the management and operation of Baoye Construction. Mr. Gao graduated from Zhejiang Yu Cai Workers’ University in 1996 specialising in industrial and residential construction and holds an engineer qualification. He has been engaging in the construction industry for more than 15 years.
ZHOU Hanwan, aged 48, director and deputy general manager of the Company. Mr. Zhou joined the Group in June 1984 and was appointed as a Director in August 2002. He is responsible for the financial management functions of the Group. Mr. Zhou graduated from Zhejiang Yu Cai Workers’ University in 1995 and holds a senior engineer qualification. He has been engaging in the construction business for more than 18 years.
Non-executive Directors
WU Weimin, aged 36, non-executive director of the Company and non-executive director of Building Materials Industrialisation Company. He has been a non-executive Director since September 2002. Mr. Wu graduated from Wuhan Institute of Water and Electricity (武漢水利及電力學院) in 1987 specialising in water and electricity engineering, and obtained his Master’s degree from University of Zhejiang (浙江大學) in 1992 majoring in civil engineering. He is qualified as a senior engineer and has extensive experience in the research of construction industry. Mr. Wu has worked with Zhejiang Research Institute of Construction, Science and Design (浙江省建築科學 設計研究院) to carry out researches and has been the Dean of the institute since April 2001.
HU Shaozeng, aged 67, non-executive director of the Company. He has been a non-executive Director since September 2002. Mr. Hu graduated from Tongji University of Shanghai (上海同濟 大學) in 1958 specialising in industrial and residential construction and holds a senior engineer qualification. He has extensive experience in the construction industry and has held the positions as the Dean of Construction Committee of Zhejiang Province (浙江省建築委員會) and the Dean and deputy chief engineer of Zhejiang Provincial Department of Construction. Mr. Hu is currently the vice-chairman of The China Construction Industry Association (中國建築業協會) and vice- chairman and secretary of Zhejiang Construction Industry Association (浙江省建築業協會).
Independent non-executive Directors
WANG Youwei, aged 57, independent non-executive director of the Company. Mr. Wang was appointed as an independent non-executive Director in September 2002. He graduated from Tongji University of Shanghai in 1968 specialising in underground construction and holds the qualification of researcher. Mr. Wang has worked with The Third Division of the headquarters of China Construction Company (中國建築總公司第三局) and The China Construction Science and Research Institute (中國建築科學研究院), and has extensive experience in the fields of research and technology promotion of construction. He has held the positions as the director of The Office of New Technology Promotion and Application (新技術促進應用辦公室) of the MOC and the committee member of The National Committee for the Appraisal of Industrial Laws and Regulations (國家級工業法規評定委員會). Mr. Wang is currently the deputy dean of The China Construction Science Research Institute (中國建築科學研究院), the consultant of The Expert Consulting Team
– 101 – DIRECTORS, SUPERVISORS, MANAGEMENT AND EMPLOYEES of the Government of Beijing City (北京市政府專家顧問團), the director of The China Construction Academic Association (中國建築學會), the managing director of The China Construction Fireproof Research Association (中國建築防火研究會), the managing director of The China Fireproof Association (中國消防協會), the director of National Research Centre of Construction Engineering (國家建築工程研究中心), the committee member of National Committee of Building Materials Industry Science Committee (國家建材工業科教委員會) and the chief editor of The Construction Structure Journal (建築結構學報).
YI Deqing, aged 67, independent non-executive director of the Company. Mr. Yi was appointed as an independent non-executive Director in September 2002. He graduated from Zhejiang University in 1956 specialising in civil engineering, and holds the qualifications of National Chartered First-class Structural Engineer and professor-level senior engineer. Mr. Yi is the chief engineer of Zhejiang Research Institute of Construction, Science and Design (浙江省建築科學設 計研究院) and has engaged in the design of construction structure for many years with extensive experience. He has been awarded The Master of China Engineering Design (中國工程設計大師) and High Technology Practitioner (先進科技工作者) of the MOC. Mr. Yi is currently a director of The China Civil Engineering Association (中國土木工程學會), the committee member of The Committee of Construction Structure of the China Construction Academic Association (中國建築 學會建築結構學術會員會), the vice managing director and chief secretary of Zhejiang Civil Engineering Construction Association (浙江省土木建築學會) and the senior consultant of Zhejiang Observation Design Association (浙江省勘察設計協會).
XU Yangsheng, aged 45, independent non-executive director of the Company. Prof. Xu was appointed as an independent non-executive Director in September 2002. He graduated from Zhejiang University in 1982 with a bachelor degree in mechanical engineering and subsequently obtained a master degree in mechanical engineering therefrom in 1984. Prof. Xu obtained his doctorate degree from the University of Pennsylvania of the USA in 1989. Since 1989, he has taught in Carnegie Mellon University of the USA where he is currently an adjustment professor. Prof. Xu has been a professor and the head of the department of Automation and computer-aided engineering of the Chinese University of Hong Kong since 1997. Prof. Xu is a fellow of Eurasian Academy of Sciences, a fellow of Institute of Electrical and Electronics Engineers, a fellow of Hong Kong Institute of Engineers, a council member of Chinese Association of Automation, a council member of Hong Kong Productivity Council and a member of Hong Kong Research Grants Council of Engineering Board.
KWOK Lam Kwong, Larry, aged 47, independent non-executive director of the Company. Mr. Kwok was appointed as independent non-executive Director in June 2003. He is a practising solicitor in Hong Kong and is also qualified to practise as a solicitor in Australia, England and Singapore. Mr. Kwok is also qualified as an accountant in Hong Kong and Australia. He graduated from the University of Sydney, Australia with bachelor’s degrees in economics (major in accounting and economics) and laws respectively as well as a master’s degree in laws in 1986. Mr. Kwok is currently the Vice-Chairman of the Consumer Council, a member of the Hospital Governing Committee of the Princess Margaret Hospital, a member of the Criminal & Law Enforcement Injuries Compensation Boards and a member of the Trade and Industry Advisory Board in Hong Kong and a member of the Review Body on Bid Challenges under the WTO Agreement on Government Procurement. He is also a member of the Political Consultative Committee of Guangxi of the People’s Republic of China.
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SUPERVISORS
SUN Guofan, aged 40, supervisor, assistant manager of the finance department and deputy director of the financial supervisory office of the Company. Mr. SUN joined the Group in August 1988 and is responsible for financial management functions of the Group. He graduated from Hangzhou College of Commerce (杭州商學院) in 1997 specialising in finance and accounting, and is qualified as an accountant. Mr. SUN has more than 14 years’ of experience in the field of finance and accounting.
XIE Qisheng, aged 26, supervisor and is the supervisor representative chosen by the staff union of the Company. Mr. XIE joined the Group in August 1996 and is responsible for the deployment, repair and maintenance of equipment of the Group. He graduated from Nanjing Construction Engineering College (南京建築工程學院) in 1996 specialising in industrial equipment installation and is qualified as an assistant engineer. Mr. XIE has been engaging in the construction industry for 6 years.
SUN Machuan, aged 48, independent supervisor of the Company. He graduated from Zhejiang University in 1999 specialising in economics and is qualified as an engineer. Mr. SUN has been engaging in the construction industry for 12 years.
CHEN Xinquan, aged 73, independent supervisor of the Company. Mr. CHEN has worked in an accounting firm and has engaged in auditing and related managing function. He is a certified public accountant of the PRC and possesses over 50 years of experience in the field of finance and accounting.
YU Zengmin, aged 63, independent supervisor of the Company. Mr. YU is the deputy general manager and chief engineer of a construction group in the PRC. He graduated from the Zhejiang University in 1966 specialising in civil engineering, and holds the qualification of professor- level senior engineer. Mr. YU has been a professor of Zhejiang University and has extensive experience in the construction industry.
SENIOR MANAGEMENT
WEI Falin, aged 35, deputy general manager of the Company, secretary to the Board and general manager of the Building Materials Industrialisation Company. Mr. WEI joined the Group in March 2002 and is responsible for the management of daily operations of Building Materials Industrialisation Company. He graduated from Zhejiang Forestry College (浙江林學院) in 1989 specialising in economics and civil engineering, and graduated from Central Party School (中央黨 校) in 2001 specialising in economic management. Mr. WEI has been the mayor and secretary of the People’s Government of Jian Hu Township of Shaoxing County (紹興縣鑒湖鎮) and the deputy director of the office of Foreign Affairs of the People’s Government of Zhejiang Province, respectively.
GAO Jiqian, aged 37, deputy general manager of Baoye Construction. Mr. GAO joined the Group in July 1980 and is responsible for the engineering and management functions of Baoye Construction and heads the operations of Baoye Construction in Jiaxin. He graduated from Zhejiang Yu Cai Workers’ University in 1991 specialising in industrial and residential construction and holds a senior engineer qualification. Mr. GAO has approximately 22 years of experience in the construction industry.
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XU Jianbiao, aged 34, deputy general manager of Baoye Construction. Mr. XU joined the Group in August 1986 and is responsible for the construction and management functions of Baoye Construction and heads the operations of Baoye Construction in Shanghai. He graduated from Zhejiang Broadcasting and Television University (浙江廣播電視大學) in 1992 specializing in industrial and residential construction and is qualified as an engineer. Mr. XU has been engaging in the construction industry for about 16 years.
WANG Rongfu, aged 48, deputy general manager and chief engineer of Baoye Construction. Mr. WANG joined the Group in February 1976 and is responsible for the quality control and safety of the Construction Business. He graduated from Zhejiang Yu Cai Workers’ University in 1993 specialising in industrial and residential construction and holds a senior engineer qualification. Mr. WANG has over 25 years of experience in the construction industry.
LOU Zhonghua, aged 34, deputy general manager of Baoye Construction. Mr. LOU joined the Group in July 1986 and is responsible for the construction and management functions of Baoye Construction and heads the operations of Baoye Construction in Hangzhou. He graduated from Zhejiang Yu Cai Workers’ University in 1996 specialising in industrial and residential construction and is qualified as an engineer. Mr. LOU has approximately 16 years of experience in the construction industry.
WANG Jianguo, aged 36, general manager of Baoye Curtain Wall. Mr. WANG joined the Group in August 1986 and is responsible for the management of daily operations of Baoye Curtain Wall. He graduated from Zhejiang Yu Cai Workers’ University in 1998 specialising in industrial and residential construction and holds an engineer qualification. Mr. WANG has approximately 16 years of experience in the construction industry.
JIN Jixiang, aged 35, general manager of Guangyi Decoration. Mr JIN joined the Group in July 1982 and is responsible for the management of daily operations of Guangyi Decoration. He graduated from Zhejiang Industrial University (浙江工業大學) in 1999 specialising in industrial and residential construction and is qualified as an engineer. Mr. JIN has approximately 20 years of experience in the construction industry.
WANG Liequan, aged 39, deputy general manager of Baoye Construction. Mr. WANG joined the Group in November 1979 and is responsible for the construction and management functions of Baoye Construction. One of the construction projects supervised by Mr. WANG has been awarded with Lu Ban Award. He graduated from Tongji University of Shanghai in 1996 specialising in industrial and residential construction and holds an engineer qualification. Mr. WANG has been engaging in the construction industry for approximately 23 years.
GAO Jun, aged 30, general manager of Baoye Real Estate. Mr. GAO joined the Group in September 1987 and is responsible for the management of daily operations of Baoye Real Estate. He graduated from Zhejiang Yu Cai Workers’ University in 1995 specialising in industrial and residential construction and subsequently graduated from Shaoxing Wenli Institute (紹興萬理學 院 ) specializing in economics management in 2000. Mr. GAO has approximately 15 years of experience in the real estate development industry and holds an engineer qualification.
– 104 – DIRECTORS, SUPERVISORS, MANAGEMENT AND EMPLOYEES
COMPANY SECRETARY
CHUNG Oi Yin, Irene, aged 32, company secretary of the Company. Ms. Chung was appointed as company secretary of the Company on 8 June, 2003. She has more than 10 years of experience in the field of company secretaryship. Ms. Chung is an associate member of the Institute of Chartered Secretaries and Administrators in the United Kingdom and The Hong Kong Institute of Company Secretaries. She has been an employee of Kwok & Yih since July 1999.
RULE 8.12 AND RULE 19A.17 REQUIREMENTS
Pursuant to Rule 8.12 and Rule 19A.17 of the Listing Rules, an issuer must have sufficient management presence in Hong Kong, and, normally, at least two of the issuer’s executive directors must be ordinarily resident in Hong Kong. Since the operation of the Group is in the PRC, the Group does not and, in the foreseeable future, will not have management presence in Hong Kong. Accordingly, the Company has applied to the Stock Exchange for a waiver under Rule 8.12 and Rule 19A.17 of the Listing Rules. The Company will put in place certain internal arrangements to maintain effective communication between the Company and the Stock Exchange.
AUDIT COMMITTEE
The Company established an audit committee on 8 June, 2003 with written terms of reference in compliance with the Code of Best Practice as set out in Appendix 14 to the Listing Rules. The primary duties of the audit committee are to review and supervise the financial reporting process and internal control system of the Group and provide advice and comments to the Board. Currently, the audit committee has three members comprising, Mr. Wang Youwei, Mr. Yi Deqing and Mr. Xu Yangsheng, all of which are independent non-executive directors of the Company.
EMPLOYEES
The total number of employees of the Group as at 31 December, 2000, 31 December, 2001 and 31 December, 2002 were 580, 717 and 867, respectively.
All of the 867 full-time employees of the Group as at 31 December, 2002 were in the PRC. The table below respectively sets forth a breakdown of the Group’s full-time employees by department. Total number Department of employees
Technical and engineering 311 Project management 122 Quality control 114 Production 79 Administration and management 57 Finance and accounting 59 Sales and marketing 39 Transportation 33 Research and development 23 Others 30
Total 867
– 105 – DIRECTORS, SUPERVISORS, MANAGEMENT AND EMPLOYEES
Staff benefits
According to the relevant PRC regulations, the Group is required to make specified contributions on a monthly basis to the State-sponsored pension scheme (養老保險金) at the rate of 19% to 20% of the employees’ monthly basic salaries during the three years ended 31 December, 2002. The Group has no obligation for the payment of retirement and other post-retirement benefits of employees other than the monthly contributions described above. For the three years ended 31 December, 2002, the contributions to the State-sponsored retirement scheme made by the Group amounted to approximately RMB395,000, RMB372,000 and RMB1,094,000, respectively.
During the Track Record Period, the Group provided certain discount to market price for its senior management in acquiring property units in Baoye Garden, a completed property development project. The selling price of the property units to each of the senior management was below HK$1,000,000.
The Group does not maintained any medical insurance and retirement benefit scheme save for mentioned above.
The Group’s operations are conducted in the PRC. The Directors have confirmed that it has complied and will continue to comply with all the relevant laws, regulations and requirements of the PRC relating to child protection, labour standards and working conditions in respect of its employees.
Relationship with employees
The Directors consider that the Group has maintained a good relationship with its employees. The Group has not, in the past, experienced any disruption of its operations due to strikes, major labour disputes or labour shortages.
– 106 – PROMOTERS
In accordance with Article 147 of the Company Law, the transfer of shares by the Promoters, Directors, Supervisors or general manager of the Company shall be subject to the following restrictions:
(i) none of the Promoters may transfer his or her promoter shares (as defined in the Company Law) during a period of three years from the date of establishment of the Company, and such three-year period shall expire on 30 August, 2005; and
(ii) each of the Directors, Supervisors and general manager of the Company is required to notify the Company of the Shares which he/she owns during such time as he/she remains in office and shall not transfer any of such Shares during the same period.
Set out below is a summary of the Promoters, their shareholding interests in the Company immediately before and after the completion of the Offering:
Approximate Approximate percentage percentage of total of total registered registered Approximate capital after capital after percentage the Offering the Offering of total assuming no assuming full registered exercise of the exercise of the Number of capital before Over-allotment Over-allotment Promoters Domestic Shares the Offering Option Option (%) (%) (%)
Mr. Pang 198,753,054 56.7 37.4% 35.6% Mr. Gao Jiming 13,024,647 3.7 2.5% 2.3% Mr. Sun Guofan 11,705,283 3.3 2.2% 2.1% Mr. Gao Jiqian 11,602,611 3.3 2.2% 2.1% Mr. Sun Yongxiang 10,677,864 3.0 2.0% 1.9% Mr. Gao Lin 9,544,775 2.7 1.8% 1.7% Mr. Zhou Hanwan 8,233,510 2.4 1.5% 1.5% Mr. Xu Jianbiao 7,524,884 2.2 1.4% 1.3% Mr. Wang Rongfu 7,147,039 2.0 1.3% 1.3% Mr. Wu Xianfu 7,141,108 2.0 1.3% 1.3% Mr. Pang Baisong 5,942,846 1.7 1.1% 1.1% Mr. Gao Jun 5,794,259 1.7 1.1% 1.0% Mr. Lou Zhonghua 5,633,172 1.6 1.1% 1.0% Mr. Wu Zhanglin 5,500,592 1.6 1.0% 1.0% Mr. Wang Jianguo 5,250,290 1.5 1.0% 0.9% Mr. Yuen Ajin 4,803,572 1.4 0.9% 0.9% Ms. Tang Liping 3,621,316 1.0 0.7% 0.6% Mr. Hu Jilian 3,304,596 0.9 0.6% 0.6% Mr. Xia Weimin 3,214,391 0.9 0.6% 0.6% Ms. Xia Yahong 3,056,111 0.9 0.6% 0.5% Mr. Wang Rongbiao 2,647,911 0.8 0.5% 0.5%
– 107 – PROMOTERS
Approximate Approximate percentage percentage of total of total registered registered Approximate capital after capital after percentage the Offering the Offering of total assuming no assuming full registered exercise of the exercise of the Number of capital before Over-allotment Over-allotment Promoters Domestic Shares the Offering Option Option (%) (%) (%)
Mr. Jin Jixiang 2,440,527 0.7 0.5% 0.4% Mr. Sun Guoxun 2,202,022 0.6 0.4% 0.4% Mr. Xie Baojin 1,972,127 0.6 0.4% 0.4% Ms. Xia Huihua 1,918,240 0.5 0.4% 0.3% Mr. Wang Jianhua 1,641,473 0.5 0.3% 0.3% Mr. Wang Liequan 1,641,473 0.5 0.3% 0.3% Mr. Chen Baorong 1,498,370 0.4 0.3% 0.3% Mr. Chen Lianlu 1,395,953 0.4 0.3% 0.2% Mr. Feng Yunfa 1,206,553 0.3 0.2% 0.2% Mr. Qiu Shuifu 701,484 0.2 0.1% 0.1%
Total 350,742,053 100.0 66.0% 62.8%
– 108 – SUBSTANTIAL SHAREHOLDERS
Immediately following the completion of the Offering but without taking into account any Shares which may be taken up under the Offering (assuming the Over-allotment Option is not exercised), Mr. Pang will be the only shareholder that will directly or indirectly own 5% or more of the relevant share capital (as defined in the SFO) of the Company:
Approximate percentage Number of of direct Domestic interest in the Shares share capital Name directly held of the Company (%)
Mr. Pang 198,753,054 37.4
If the Over-allotment Option is exercised in full, Mr. Pang’s interest in the issued share capital of the Company will be as follows:
Approximate percentage Number of of direct Domestic interest in the Shares share capital Name directly held of the Company (%)
Mr. Pang 198,753,054 35.6
Immediately after the completion of the Offering, the Promoters will own an aggregate of 66.0% of the Shares, assuming that the Over-allotment Option is not exercised, or approximately 62.8% of the Shares, assuming that the Over-allotment Option is exercised in full.
– 109 – SHARE CAPITAL
Assuming the Over-allotment Option is not exercised, the share capital of the Company immediately after the Offering will be as follows: Approximate percentage of the issued RMB share capital (%) Authorised, issued or to be issued, fully paid or credited as fully paid after the completion of the Offering:
(Share)
350,742,053 Domestic Shares in issue 350,742,053 66.0
H Shares offered pursuant to the Offering 162,612,000 – to be issued pursuant to the International 162,612,000 30.6 Placing (subject to reallocation)
18,072,000 – to be issued pursuant to the Public Offer 18,072,000 3.4 (subject to reallocation)
531,426,053 531,426,053 100.0
Assuming the Over-allotment Option is exercised in full, the share capital of the Company immediately after the Offering will be as follows: Approximate percentage of the issued RMB share capital (%)
Authorised, issued or to be issued, fully paid or credited as fully paid after the completion of the Offering:
(Share)
350,742,053 Domestic Shares in issue 350,742,053 62.8
H Shares offered pursuant to the Offering 162,612,000 – to be issued pursuant to the International 162,612,000 29.1 Placing (subject to reallocation)
27,102,000 – to be issued if the Over-allotment Option 27,102,000 4.9 is exercised in full
18,072,000 – to be issued pursuant to the Public Offer 18,072,000 3.2 (subject to reallocation)
558,528,053 558,528,053 100.0
– 110 – SHARE CAPITAL
RANKING
Domestic Shares and Foreign Shares are both ordinary shares in the share capital of the Company. However, Foreign Shares, in the form of H Shares, may only be subscribed for by, and traded in Hong Kong dollars between, legal or natural persons of Hong Kong, Macau, Taiwan or any country other than the PRC. Domestic Shares, on the other hand, may only be subscribed for by, and transferred between, legal or natural persons of the PRC (other than Hong Kong, Macau and Taiwan) and must be subscribed for, and transferred in Renminbi. All dividends in respect of the H Shares are to be declared in Renminbi and paid by the Company in HK dollars whereas all dividends in respect of Domestic Shares are to be paid by the Company in Renminbi.
All the existing Domestic Shares are held by the Promoters as promoter shares (as defined in the Company Law). Promoter shares may not be transferred within a period of three years from the date of incorporation of the Company. This period will expire on 30 August, 2005. As at the date of this prospectus, the Promoters have not sold any Domestic Shares held by them. The Domestic Shares are not admitted for listing on any stock exchange and no arrangement has been made for the Domestic Shares to be traded or dealt with on any other authorised trading facility in the PRC.
Except as described above and in relation to the despatch of notices and financial reports to shareholders, dispute resolution, registration of Shares on different parts of the register of shareholders, the method of Share transfer and the appointment of dividend receiving agents, (which are all provided for in the Articles of Association and summarised in Appendix III to this prospectus), the Domestic Shares and the H Shares will rank pari passu with each other in all respects and, in particular, will rank equally for all dividends or distributions declared, paid or made after the date of this prospectus. However, the transfer of Domestic Shares is subject to such restrictions as PRC law may impose from time to time.
Save for the Offering, the Company does not propose to carry out a public or private issue or to place securities simultaneously with the Offering or within the next six months from the date on which the dealings of the H Shares commenced in the Stock Exchange. The Company has not approved any share issue plan other than the Offering.
The Company has given certain undertakings in respect of the issue of Shares and other securities. For further details, please refer to the paragraph headed “Undertakings” under the section headed “Underwriting” of this prospectus.
– 111 – FINANCIAL INFORMATION
The Company’s books and records are presented in Renminbi. Unless otherwise specified, this prospectus contains translations for reference only of Renminbi amounts into Hong Kong dollars at the rate of HK$1.00 to RMB1.0611, being the PBOC rate prevailing on 30 April, 2003. No representation is made that the Renminbi amounts could have been or could now or in the future be converted into Hong Kong dollars at any particular rate or at all.
CAPITALISATION
The following table sets forth the Group’s short-term debt and capitalisation as at 30 April, 2003 and as adjusted to give effect to the issue of the H Shares offered hereby (at an Offer Price of HK$1.62 per H Share, being the mid-point of the stated range of the Offer Price of between HK$1.25 and HK$1.99 per H Share, and assuming no exercise of the Over-allotment Option).
As at 30 April, 2003 As adjusted (RMB’000) (RMB’000)
Short-term debt: Short term bank loans 521,000 521,000
Long-term debt: Long term bank loans – –
Minority Interests 62,016 62,016
Total shareholders’ equity: Share capital Domestic Shares of RMB1.00 per share in the form of 350,742,053 domestic shares 350,742 350,742 Foreign Shares of RMB1.00 per share in the form of 180,684,000 H Shares offered under the Offering – 180,684
Reserves 150,025 255,760
Subtotal of shareholders’ equity 500,767 787,186
Total long-term capitalisation 562,783 849,202
– 112 – FINANCIAL INFORMATION
INDEBTEDNESS
Borrowings
As at the close of business on 30 April, 2003, being the last practicable date for the purpose of this indebtedness statement prior to the printing of this prospectus, the Group had indebtedness of outstanding borrowings of approximately RMB521 million, all of which were short term and unsecured bank loans and guaranteed by companies within the Group. As at 30 April, 2003, the Group had approximately RMB120 million unutilised bank facilities available. In so far as the Directors are aware, as at 30 April, 2003, there is no indebtedness of the Group guaranteed by the Company’s controlling shareholder, Mr. Pang.
Commitments and Contingent liabilities
As at 30 April, 2003, the Group had operating lease commitments of approximately RMB0.2 million. As at the same date, the Group had capital commitments of approximately RMB605 million. At 30 April, 2003, the Group had issued performance guarantees amounting to RMB12.4 million in respect of mortgage facilities granted by certain banks relating to the mortgage loans arranged for certain purchasers of property projects developed by the subsidiaries of the Company. Pursuant to the terms of the performance guarantees, upon default in mortgage payments by these purchasers, the Group is responsible to repay the outstanding mortgage owed by the default purchasers to the banks. The bank will release such guarantee only upon the building ownership certificate of such property is delivered to the bank as security. In addition, the Group had provided guarantee to a bank in respect of a bank loan granted to Hefei Baoye, a joint venture of the Company, amounting to RMB20 million.
Disclaimers
Save as aforesaid or otherwise disclosed herein, and apart from the normal trade payable and bank borrowings, the Group did not have, at the close of business on 30 April, 2003, any outstanding debentures, mortgages, charges, bank overdrafts, liabilities under acceptance or other similar indebtedness, hire purchase commitment, finance lease commitments, guarantees or other material contingent liabilities.
The Directors have confirmed that there have been no material changes in the indebtedness or contingent liabilities of the Group since 30 April, 2003.
Foreign exchange
Since the Group currently receives all of its revenue and makes substantially all of its payments in Renminbi, except those overseas purchases which involve foreign currency, the Directors do not consider that the Company is exposed to any material foreign currency exchange risk. The Directors believe that the Group will have sufficient foreign exchange to meet its foreign exchange requirements.
PRACTICE NOTE 19 OF THE LISTING RULES
The Directors have confirmed that as at 30 April, 2003, they were not aware of any circumstances which would give rise to a disclosure requirement under Practice Note 19 of the Listing Rules.
– 113 – FINANCIAL INFORMATION
LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE
As at 31 December, 2002, the Group had approximately RMB251.4 million of cash and bank balances. In the past, each subsidiary of the Company in the Group has financed its operations and business expansions primarily from a combination of sources, including cash flow generated from operations, shareholder advances, short-term borrowings and long-term borrowings, but not debt securities or equity securities. Cash flow generated from operations and short-term loan facilities have been and are expected to continue to be such subsidiary’s principal source of liquidity. To the extent such funding is not sufficient, such subsidiary is expected to receive additional capital contribution made by the Company. The Company expects to finance its future operations from dividend payments from its subsidiaries and external financings it may engage in the future.
At 31 December, 2002, the Group held cash and bank balances amounting to approximately RMB251.4 million as compared with approximately RMB208.3 million at 31 December, 2001 and approximately RMB98.5 million at 31 December, 2000. All of these liquid funds were in Renminbi. The increase of the liquid funds between the year ended 31 December, 2002 and the year ended 31 December, 2001 was primarily due to the increase of the cash flow generated from operations in the year ended 31 December, 2002. The increase of the liquid funds between 2000 and 2001 was primarily due to additional borrowings in 2001. In addition, certain deposits with banks amounting to approximately RMB3 million, RMB18.4 million and RMB14.4 million as at 31 December, 2000, 31 December, 2001 and 31 December, 2002, respectively, had been pledged to guarantee the performance of construction contracts work and notes payable of the Group.
As at 31 December, 2002, total credit facilities and overdraft facilities available to the Group having maturities of less than one year amounted to approximately RMB323 million, of which approximately RMB144 million had been drawn down by that date. The weighted average annual effective interest rate for these borrowings was 5.2 per cent. as of 31 December, 2002, and ranged from 5.0 per cent. to 7.0 per cent. annually between 1 January, 2002 and 31 December, 2002. As at 31 December, 2002, the Group’s obligations under these short-term loan facilities are unsecured. The financial market stability and individual banks’ funding position may affect the availability of uncommitted portion of the short-term credit facilities.
As at 31 December, 2002, the Group had no outstanding long-term bank loans. As at 31 December, 2002, the Group does not maintain any credit facilities having maturities of more than one year.
The Group’s capital expenditures for the year ended 31 December, 2002 was approximately RMB103.1 million, which consisted primarily of expenditures for fixed assets and land use rights. The Group’s capital expenditures were approximately RMB24.3 million in 2001, an decrease of approximately RMB54.6 million from 2000. The capital expenditures in 2001 primarily consisted of fixed assets. The Group’s capital expenditures in 2000 was approximately RMB78.9 million, primarily consisting of fixed assets.
The Group makes capital expenditures in connection with the expansion of its businesses. As at 30 April, 2003, the Group expected its capital expenditures to be approximately RMB479.1 million for the remaining months of 2003, primarily to invest in the establishment of production facilities for curtain walls, production lines for concrete bricks and property development costs of project at Guazhu Fengqing and Keqiao City Garden Phase III. The Group may adjust the amount of the capital expenditure upward or downward based on cash flow from operations, the progress of the Group’s expansion plans, and market conditions.
– 114 – FINANCIAL INFORMATION
Set forth below are the aggregate amounts, as of 31 December, 2002, of the Group’s future cash payment obligations under the Group’s existing debt, lease, guarantee, undertaking and indemnity arrangements:
Payments Due by Period Less than After Contractual Obligations Total 1 year 1-3 years 4-5 years 5 years (in RMB millions)
Short-term borrowings 144.0 144.0 – – – Long-term debt – – – – – Lease obligations 0.4 0.4 – – –
Total contractual cash obligations 144.4 144.4 – – –
Amount of Commitment Expiration Per Period Other Commercial Less than After Commitments Total 1 year 1-3 years 4-5 years 5 years (in RMB millions)
Performance guarantee (Note) 9.2 9.2 – – – Loan guarantee given to a joint venture 20.0 20.0 – – –
Total Other Commercial Commitment 29.2 29.2 – – –
Note: The Group had issued above performance guarantees in respect of mortgage facilities granted by certain banks relating to the mortgage loans arranged for certain purchasers of property projects developed by the subsidiaries of the Group. The bank will release such guarantee only upon the building ownership certificate of such property is delivered to the bank as security.
Net current assets
Based on the Group’s unaudited management accounts as at 30 April, 2003, the Group had net current assets of about RMB15.1 million. Current assets as at 30 April, 2003 amounted to about RMB1,326.7 million. Current assets comprised cash and bank balances of approximately RMB356.8 million, inventories of approximately RMB9.6 million, completed properties held for sale of approximately RMB14.6 million, properties under development of approximately RMB80.9 million, trade receivables and others of approximately RMB634.5 million, amount due from related parties of approximately RMB15.1 million and amount due from customers on construction contracts of approximately RMB215.2 million.
As at 30 April, 2003, the Group’s current liabilities were approximately RMB1,311.6 million, comprising trade and other payables and accruals of approximately RMB449.9 million, amount due to customers on construction contracts of approximately RMB224.0 million, amount due to related parties of approximately RMB13.0 million, taxes payable of approximately RMB103.7 million and unsecured bank loans of approximately RMB521.0 million.
– 115 – FINANCIAL INFORMATION
Capital Structure
The gearing ratio1 of the Group was approximately 11.9%, 16.1% and 10.4%, respectively as at 31 December, 2000, 31 December, 2001 and 31 December, 2002. The increase of gearing ratio from 31 December, 2000 to 31 December, 2001 was due to the increase in bank borrowings arranged to finance the real estate development segment. The decrease in gearing ratio in 2002 was due to decrease in bank borrowings. Total owners’ equity increased from approximately RMB216.6 million as at 31 December, 2000 to approximately RMB461.9 million as at 31 December, 2002 primarily due to profit generated since 2000. The borrowings of the Group as at 31 December, 2000, 2001 and 2002 were approximately RMB104.0 million, RMB210.6 million and RMB144.0 million, respectively. The increase in borrowings in 2001 was to finance the real estate development segment. In 2002, as a result of increase of cash flow from real estate segment business and construction business, the Group settled a significant part of loan.
Note 1: Gearing ratio – Total Debts/Total Assets
Working capital
The Directors are of the opinion that, after taking into consideration of the existing financial resources available to the Group, the expected internally generated funds, the available unutilized banking facilities and the estimated net proceeds of the Offering, the Group has sufficient working capital for its present requirements.
TRADING RECORD
The table below sets out a summary of the consolidated results of the Group for the three years ended 31 December, 2002, which have been extracted from the accountants’ report as set out in Appendix I to this prospectus except for information related to gross margin, pre-tax profit margin and net profit margin. The following summary should be read in conjunction with the accountants’ report set out in Appendix I to this prospectus.
– 116 – FINANCIAL INFORMATION
Year ended 31 December, 2000 2001 2002 Notes RMB’000 RMB’000 RMB’000
Turnover 1 Construction Business 820,857 1,331,913 1,896,354 Building Materials Business 59,588 123,532 148,696 Real Estate Business 100,122 146,140 251,292 Others 2 1,329 2,989 1,184
981,896 1,604,574 2,297,526 Cost of sales (851,541) (1,409,366) (2,034,708)
Gross profit 130,355 195,208 262,818 Other revenues 3 6,028 42,420 40,053 Distribution costs (1,850) (4,607) (3,339) Administrative expenses (40,082) (42,670) (79,129) Other operating expenses (219) (4,658) (875)
Operating profit 94,232 185,693 219,528 Finance costs (6,290) (6,150) (5,502) Share of loss of a joint venture – – (1,016)
Profit before taxation 87,942 179,543 213,010 Taxation (28,565) (55,152) (64,369)
Profit after taxation 59,377 124,391 148,641 Minority interests 357 (2,338) (7,566)
Profit attributable to shareholders 59,734 122,053 141,075
Dividends – – –
Basic earnings per share 4 0.34 0.35 0.40
Gross margin 13.3% 12.2% 11.4%
Pre-tax profit margin 9.0% 11.2% 9.3%
Net profit margin 6.1% 7.6% 6.1%
Notes:
1. Turnover principally represents the sum of (i) contract revenue recognised using the percentage of completion method with respect to the Construction Business; (ii) net invoiced value of building materials sold (excluding value-added tax), after allowances for returns and discounts; and (iii) contracted value of developed properties sold.
– 117 – FINANCIAL INFORMATION
2. It represents the turnover of non-core business of the Group including property management, investment holding and property rental.
3. The Group received government grants from the Finance Bureau of Shaoxing County amounting to approximately RMB35,555,000 and RMB31,274,000 during the years ended 31 December, 2001 and 2002, respectively, which are classified as other revenues of the Group.
4. Basic earnings per share for the years ended 31 December, 2000, 2001 and 2002 is calculated based on the Group’s profit attributable to shareholders for the three years ended 31 December, 2002 and the weighted average number of 175,371,027, 350,742,053 and 350,742,053 shares in issue during the three years ended 31 December, 2002, respectively. In determining the weighted average number of shares in issue during the three years ended 31 December, 2002, it is assumed that the conversion of capital took place at the same time as when the registered capital was injected into the Company. The deemed number of shares before the capitalisation issue is adjusted for the proportionate change in the number of shares as if the capitalisation had occurred at the beginning of the earliest period presented.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND TRADING RECORD
The following discussion and analysis should be read in conjunction with the consolidated financial information of the Group included in the accountants’ report and the notes thereto set out in Appendix I to this prospectus. The consolidated financial information has been prepared in accordance with the HKGAAP.
Overview
The Group is one of the leading privately owned construction enterprises in the PRC. Baoye Construction, the Group’s principal operating entity of the Construction Business, ranked the eighth in 2000 by the National Bureau of Statistics among the “Top 500 Most Profitable Construction Companies in the PRC in 2000”, with the first seven all being State-owned enterprises. The Group is principally engaged in three major business sectors, including (i) the Construction Business, (ii) the Building Materials Business and (iii) the Real Estate Business. Historically, a majority of the Group’s turnover has been derived from the Construction Business. For the year ended 31 December, 2002, the turnover of the Construction Business amounted to approximately RMB1,896 million, representing approximately 82.5 per cent. of the Group’s total turnover; and the turnover of the Building Materials Business and the Real Estate Business amounted to approximately RMB149 million and RMB251 million, respectively, representing approximately 6.5 per cent. and 10.9 per cent., respectively, of the Group’s total turnover.
The earliest predecessor of the Group’s construction business commenced its operations in 1975. The Construction Business is carried out mainly in Zhejiang Province, the PRC. As at 31 December, 2002, approximately 62.4 per cent. of the Group’s completed construction projects and approximately 79.5 per cent. of the Group’s construction projects in progress, in terms of the number of construction projects, were located in Zhejiang Province. The Directors expect that the Construction Business continues to be the Group’s primary business focus in the near future. The Group expects to continue to expand its Construction Business beyond Zhejiang Province in the future, mainly to Shanghai Municipality and other provinces, such as Anhui, Jiangxi and Hubei Provinces along the Yangtze River and to Beijing Municipality.
In addition, building on the Group’s experience in the Construction Business, the Group began diversifying its business to some other businesses closely related to the Construction Business, namely, the Building Materials Business and the Real Estate Business in 1994 and 1995, respectively. The Group believes that a vertical integration strategy will benefit the Group for further revenue growth and create additional profits to the Company’s shareholders because of the synergies that are likely to be created for each of its business segments, and the increasing trend of the construction
– 118 – FINANCIAL INFORMATION industry in the PRC to use higher margin pre-fabricated construction materials. The gross margin for the Construction Business for the year ended 31 December, 2002 was approximately 7.8 per cent., slightly decreased as compared to the gross margin of the same business for 2001 and 2000, respectively. The gross margins of both the Building Materials Business and the Real Estate Business are higher than that of the Construction Business and each had exceeded 26 per cent. for each of 2000, 2001 and 2002. The Group plans to apply a large portion of the net proceeds of the Offering to expand its Building Materials Business. For more details, please refer to the sections headed “Future plans and prospects” and “Use of proceeds” of this prospectus.
Market conditions
All three businesses of the Group are closely related to the overall economic performance of the PRC. In general, the Directors believe that the Building Materials Business may benefit from the development and growth of the construction industry. The Construction Business are largely related to investment of the PRC Government in the construction and installation industry and the development and growth of the real estate industry, as construction for public works and residential housing properties has historically constituted and is expected to continue to constitute a majority of construction works of the Group. The Directors believe that the construction industry in the PRC would continue to grow due to increasing investments in public infrastructure and other public construction projects by the PRC Government, the continuing trend of urbanization in the PRC and the continuing growth of the PRC economy in the coming years. In addition, the Directors believe that the real estate industry in the PRC would also continue to grow due to the continuing growth of the PRC’s economy, the continuing trend of urbanization and the continuing increase of the net per capita income and purchasing power of households in urban and rural areas in the PRC. However, there are uncertainties about whether the PRC economy would continue to grow at a high rate as it has experienced in the last decade, especially in a situation where the global economy is in slump and its recovery is affected by many uncertain factors such as the threat of war imposed by the United States against Iraq and the growing threats of the terrorism to the world economy. In addition, in some areas in the PRC including Zhejiang Province and Shanghai Municipality real estate and construction projects may become saturated in the coming years. The Directors consider that the Group may need to expand its businesses to other markets beyond Zhejiang, at which the Group does not have previous presence and lack local knowledge and ability to compete.
Reorganisation and Earlier Corporate Restructuring
In preparation for the listing of H Shares on the Stock Exchange, the Company had undertaken the Reorganisation from the end of 2001 to August 2002. The Reorganization consisted of two respects: (i) streamlining the corporate structure of the Group; and (ii) carving-out of non-core businesses which were operated by the Group before the Reorganisation. As a result of the Reorganization, the Company was established as a joint stock limited company on 30 August, 2002 and as a holding company, operate its business primarily through its subsidiaries. For more details, please refer to the section headed “Corporate development” of this prospectus and the paragraph headed “Reorganisation” as set out in Appendix IV to this prospectus.
In the Company’s earlier corporate history, the Company has gone through several corporate restructuring processes, in which:
• the predecessor of Company has transformed its corporate form from a collectively owned enterprise to a limited liability company and to a joint stock limited company, the current corporate form of the Company.
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• the Company increased its paid-in/share capital from RMB50,000,000 in 1998, to RMB110,000,000 in November 2000, and to RMB350,742,053 in August 2002.
• the increase in the share capital in August 2002 in the amount of RMB240,742,053 was made through the recapitalisation of all of the retained earnings and reserves of the Company’s predecessor as at 31 March, 2002.
• Mr. Pang, acting by himself or through several intermediaries, has acquired the Company’s or its predecessors’ equity interests mostly at par since 1998 and currently is the Company’s largest shareholder.
Please refer to the section headed “Corporate development” of this prospectus for a more detailed description of the Company’s earlier corporate developments.
In addition, in preparation for the listing of the H Shares on the Stock Exchange, the Company and some of its current subsidiaries had disposed of their equity interests in several companies which were not engaged in the core businesses of the Group. The Group’s audited consolidated financial statements as at and for the years ended 31 December, 2000, 2001 and 2002, included the financial position and results of operations of those companies disposed of. The assets and the turnover of the companies that have been disposed of, individually or in aggregate, were not material to the Group during the Track Record Period. For further information, please refer to the paragraph headed “Reorganisation” in Appendix IV to this prospectus.
Project deposits, warranties and liabilities under construction contracts
The Group is required from time to time to provide project deposits to the project owner prior to commencement of the construction works. The project deposit normally accounts for between 5 per cent. and 10 per cent. of the project price. In general cases, the project deposit will be released by the project owner within 30 days after the completion and acceptance of the construction project.
In addition, the Group normally provides warranties in a construction contract for maintenance and repair work for a certain period of time after completion and acceptance of the construction project. The project owner may retain 1 to 5 per cent. of the contract price for such warranty purposes. Any unused portion of such retention money will be returned by the project owner to the Group within a certain period of time after the expiration of the applicable warranty period.
The amounts of the project deposits outstanding as at 31 December, 2000, 31 December, 2001, and as at 31 December, 2002 were approximately RMB47,874,000, RMB106,839,000 and RMB211,138,000, respectively, while the amounts of retention money were approximately RMB5,599,000, RMB14,596,000 and RMB19,241,000 at the respective dates. The significant increase in project deposits and retention money was due to increase in operation scale of the Construction Business.
Further, the Group is liable for any property damages and personal injuries or death caused by the project, which could be attributable to the Group as construction contractor during the reasonable life of use of the project. The Group usually maintains insurances during the construction period of a project in accordance with the practice of the industry, however, the Group does not maintain insurance with respect to the project after the acceptance of the project by the project owner.
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Contracts with project managers
As a customary practice in the PRC construction industry, the Group normally appoints one or several project managers for the implementation of construction works. Unlike many other construction enterprises in the PRC, the project managers that work for the Group are also employees of the Group. The project manager may receive financial rewards or penalties on a project-by- project basis depending on his performance. However, a project manager is also required to place a deposit with the Group which may be applied by the Group against any damages or liabilities caused by a default committed by the project manager. Any unused portion of the deposit will be returned to the project manager after the acceptance of the construction project by the project owner. For further information, please see the paragraph headed “Operation processes – project construction” under the section headed “Business” of this prospectus.
Government grants
In recognition of the Group’s strong operational and financial performance, the Finance Bureau of Shaoxing County awarded the Group government grants amounting to approximately RMB35,555,000 and RMB31,274,000 for the years ended 31 December, 2001 and 2002, respectively. The following table illustrates the pro forma net profit of the Group assuming that the Group had not received any government grants during the Track Record Period:
Year ended 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Profit attributable to shareholders 59,734 122,053 141,075 Government grants – (35,555) (31,274) Enterprise income tax impact – 11,733 10,321 Minority interests – 377 593
Pro forma net profit attributable to shareholders 59,734 98,608 120,715
The Directors confirmed that the government grants received by the Group did not involve any refund of taxes. The Company’s PRC legal adviser has given an opinion to the effect that none of these government grants has contravened any governmental regulations including《國務院關於 糾正地方自行制定稅收先徵後返政策的通知》 (Notice of State Council Concerning the Rectification of the Unauthorised Refund-after-Levy Policies Formulated by Local Governments) issued by the State Council on 11 January, 2000 which provides, inter alia, that the unauthorized refund-after-levy policies formulated by local government shall cease to be implemented as of 1 January, 2000.
However, while the Group believes neither of such grants has violated the policies of any other governmental agencies with authority to supervise the Shaoxing County government, there can be no assurance that such grants will not be revoked by a government authority of a higher level, nor can there be any assurance that the Group will continue to obtain any such grant in the future. In any of such events, the Group’s results of operations and financial position may be adversely affected. In this regard, Mr. Pang has agreed and undertaken to indemnify the Group against all losses in the event that the government grants received by the Group during the Track Record Period are withdrawn.
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Provision for bad debt and provision for warranty
The following set forth the Group’s policy for the provision for bad debt and provision for warranty:
Provision for bad debt
Provision for bad debt is made against receivables to the extent they are considered to be doubtful.
Specific provision was provided based on the collectability review of each receivable. Accounts receivables aged over 2 years have been fully provided since the recoverability of these accounts receivables are doubtful, taken into account that the age of these debts are well beyond the normal credit terms.
General provision was provided based on 2% of the total receivables less the specific provision.
Provision for warranty
The provision of warranty is based on 0.15% of total construction contract sum of completed construction projects. Such percentage is estimated based on the historical pattern and estimation made by the Directors.
PRINCIPAL INCOME STATEMENT COMPONENTS
Turnover
The results of the Group comprise mainly the results of the Construction Business, the Building Materials Business and the Real Estate Business. The turnover of the Construction Business is derived from the undertaking and implementation of construction projects. The turnover of the Building Materials Business is derived from the sale of building materials such as ready-mixed concrete, concrete pipes and concrete ducts. The turnover of the Real Estate Business is derived from the sale of developed properties.
As to the Construction Business, when the outcome of a construction contract can be estimated reliably, contract revenue is recognized using the percentage of completion method, measured by reference to the contract costs incurred to date to estimated total contract costs for the contract. When the outcome of a construction contract cannot be estimated reliably, revenue is recognized only to the extent of contract costs incurred which is probable to be recoverable.
As to the Building Materials Business, revenue from the sale of building materials is recognized on the transfer of risks and rewards of ownership, which generally coincide with the time when the goods are delivered to customers and title has passed.
As to the Real Estate Business, revenue from sales of completed properties held for sale is recognized upon execution of the sales agreements. When a development property is sold in advance of completion, revenue is only recognized upon completion of the development. Deposits and installments received on properties sold prior to the date of revenue recognition are included in the balance sheet under “trade and other payables”.
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Cost of sales
The cost of sales of the Construction Business mainly comprises: (i) the cost of raw materials such as concrete, reinforcing steel bar, sand and cement; (ii) labour costs; and (iii) overheads including depreciation.
The cost of sales of the Building Materials Business mainly consists of: (i) the cost of raw materials such as concrete and sand; (ii) labour costs; and (iii) overheads including depreciation.
The cost of sales of the Real Estate Business is composed of: (i) the cost of land use rights; (ii) the cost of raw materials; and (iii) labour costs.
Operating expenses
The Group’s operating expenses comprise distribution costs, administrative expenses and other operating expenses. Distribution costs include advertising expenses and transportation expenses. Administrative expenses are mainly staff costs, doubtful debts provision and depreciation. Other operating expenses mainly consist of loss on dilution of equity interest in subsidiaries and sundry expenses.
Finance costs
Finance costs are mainly interest expenses.
Other revenue
Other revenue consists of (i) rental income from investment properties; (ii) gain on disposal of other investments; (iii) interest income; (iv) gain on disposal of subsidiaries; and (v) government grant.
Taxation
The PRC taxes and levies applicable to the Group include: (i) value-added tax imposed on Building Materials Business; (ii) sales tax of 3 to 5% imposed on the Construction Business and Real Estate Business; (iii) urban development levy of 5 to 7% calculated on the basis of sales tax and value-added tax; (iv) education surcharge of 3% calculated on the basis of sales tax and value- added tax; and (v) land appreciation tax calculated based on 30%-60% of the appreciation value on the Real Estate Business.
Under the Provisional Regulations of the PRC on Land Appreciation Tax which came into effect on 1 January, 1994 and its implementation rules, which was promulgated on 27 January, 1995, land appreciation tax (the “LAT”) applies to both domestic and foreign investors, irrespective of whether they are corporate entities or individuals. The tax is payable by a taxpayer on the balance of his income derived from the transfer of land use rights, buildings or premises, or related facilities on such land, buildings or premises after deducting the “allowable deductions” which include the following items:
(i) payment made to acquire land use rights;
(ii) costs and charges incurred in connection with land development;
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(iii) construction costs and charges in the case of newly constructed buildings and facilities or assessed value in the case of old buildings and structures;
(iv) taxes in connection with the transfer of real estate; and
(v) other deduction items stipulated by the Ministry of Finance.
The tax rate is progressive and ranges from 30% to 60% of the appreciation value (i.e. the aforesaid balance), depending on the appreciation value as compared with the “allowable deductions”.
The appreciation value LAT rate %
For the portion: not exceeding 50% of allowable deductions 30 over 50% but not more than 100% of allowable deductions 40 over 100% but not more than 200% of allowable deductions 50 over 200% of allowable deductions 60
Developers who construct common standard residential property for sale are exempted from this tax where the appreciation value derived from the sale of the property does not exceed 20% of the “allowable deductions”.
The companies comprising the Group are subject to PRC Enterprise Income Tax at a rate of 33%.
The Group’s effective income tax rate for each of the three years ended 31 December, 2002 were approximately 32.5%, 30.7% and 30.2%, respectively. The relatively lower effective income tax rate for the three year ended 31 December, 2002 when compared with that of the normal rate of 33% was mainly due to approved tax concession in relation to fixed assets purchase and the social expenditure.
Operating results of the Group for the year ended 31 December, 2000
Turnover
For the year ended 31 December, 2000, the turnover of the Group was approximately RMB981,896,000. The Construction Business, the Building Materials Business and the Real Estate Business recorded turnover of approximately RMB820,857,000, RMB59,588,000 and RMB100,122,000, respectively, representing approximately 83.6%, 6.1% and 10.2%, respectively, of the Group’s turnover during the same period respectively.
Cost of sales and gross margin
Cost of sales of the Group for the year ended 31 December, 2000 amounted to approximately RMB851,541,000. The cost of sales of the Construction Business, the Building Materials Business and the Real Estate Business were approximately RMB742,533,000, RMB43,681,000 and RMB65,139,000, respectively, representing approximately 87.2%, 5.1%, and 7.7% of the cost of sales of the Group, respectively, during the same period. The gross margins of the Construction Business, the Building Materials Business and the Real Estate Business were approximately 9.5%, 26.7%, and 34.9%, respectively.
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Operating expenses
The Group’s total operating expenses, represented distribution costs, administrative expenses and other operating expenses amounted to about RMB42,151,000 for the year ended 31 December, 2000. Total operating expenses as a percentage of the Group’s turnover was approximately 4.3%. Distribution costs, administrative expenses and other operating expenses were approximately RMB1,850,000, RMB40,082,000 and RMB219,000 respectively.
Other revenue
Other revenue of the Group for the year ended 31 December, 2000 was approximately RMB6,028,000. The amount mainly consisted of interest income on bank deposits of approximately RMB1,577,000, gain on disposal of other investments of approximately RMB1,385,000, rental income from investment properties, net of business tax, of approximately RMB1,106,000, gain on dilution of equity interest in a subsidiary of approximately RMB1,460,000, respectively.
Operating profit
As a result of foregoing, operating profit of the Group, including other revenues, was approximately RMB94,232,000 for the year ended 31 December, 2000.
Finance cost
Finance costs were approximately RMB6,290,000 for the year ended 31 December, 2000.
Taxation and profit attributable to shareholders
For the year ended 31 December, 2000, taxation amounted to approximately RMB28,565,000, while profit attributable to shareholders was approximately RMB59,734,000.
Comparison between the operation results of the Group for the year ended 31 December, 2001 and those for the year ended 31 December, 2000
Turnover
In 2001, the Group’s turnover increased by approximately 63.4% from approximately RMB981,896,000 in 2000 to RMB1,604,574,000. The increase in the turnover of the Group was a result of the increase in turnover of all its three major businesses as discussed below:
Construction Business: In 2001, turnover increased by approximately 62.3% from approximately RMB820,857,000 in 2000 to approximately RMB1,331,913,000. The increase was mainly due to: (i) the increase in the number of construction projects on hands because of the increasing recognition of the quality of construction works of the Group; and (ii) the geographical expansion of the Construction Business to Wuhan City, Hubei Province and Ningbo City, Zhejiang Province. The contribution of the Construction Business to the Group’s turnover decreased slightly from approximately 83.6% in 2000 to approximately 83.0% in 2001.
Building Materials Business: In 2001, turnover increased by approximately 107.3% from approximately RMB59,588,000 in 2000 to approximately RMB123,532,000, which was mainly attributable to the expansion of the scope of manufacturing business in response to the increased demand for construction projects, including: (i) an increase in gross sales of concrete by
– 125 – FINANCIAL INFORMATION approximately 14.3% from approximately RMB52.5 million in 2000 to approximately RMB60.0 million in 2001; and (ii) the commencement of sales of concrete piles, concrete ducts and other concrete products in 2001. The Building Materials Business’ contribution to the Group’s turnover increased from approximately 6.1% in 2000 to approximately 7.7% in 2001.
Real Estate Business: In 2001, turnover increased by approximately 46.0% from approximately RMB100,122,000 in 2000 to approximately RMB146,140,000, which was mainly attributable to: (i) the increase in the number of units of properties sold by approximately 28.1% from 342 units with a total gross floor area of 53,666 sq.m. in 2000 to 438 units with a total gross floor area of 73,108 sq.m. in 2001; and (ii) the increase in average selling price per sq.m. of the gross floor area of the property units sold from RMB1,866 per sq.m. to RMB1,999 per sq.m. The contribution of the Real Estate Business to the Group’s turnover decreased from approximately 10.2% in 2000 to approximately 9.1% in 2001, while the absolute numbers of contribution of the Real Estate Business to the Group increased between these two years.
Cost of sales and gross margin
The cost of sales of the Group increased by approximately 65.5% from approximately RMB851,541,000 in 2000 to approximately RMB1,409,366,000 in 2001. The gross margin of the Group decreased from approximately 13.3% in 2000 to approximately 12.2% in 2001, which was principally due to the decreases in gross margins of both the Construction Business and the Real Estate Business, being partially offset by the increase in gross margin of the Building Materials Business.
Construction Business: Cost of sales increased by approximately 64.5% from approximately RMB742,533,000 in 2000 to approximately RMB1,221,581,000 in 2001 mainly because of the increase in turnover. The gross margin decreased from approximately 9.5% in 2000 to approximately 8.3% in 2001. The gross margin decreased slightly between these two years because of comparably lower margin contract on hand in 2001.
Building Materials Business: Cost of sales increased by approximately 96.8% from approximately RMB43,681,000 in 2000 to approximately RMB85,955,000 in 2001 mainly because of the increase in turnover. The gross margin increased from approximately 26.7% in 2000 to approximately 30.4% in 2001. A higher gross margin in 2001 was primarily due to the introduction of building materials products such as concrete pipes and concrete ducts in 2001 which are of higher gross margins.
Real Estate Business: Cost of sales increased by approximately 56.0% from approximately RMB65,139,000 in 2000 to approximately RMB101,613,000 in 2001 mainly because of the increase in turnover. The cost of sales increased at a rate higher than the increase in turnover mainly because the majority of properties sold in 2001 were residential properties, which carried lower gross margins than commercial properties, whereas the majority of properties sold in 2000 were commercial properties. Accordingly, gross profit margin decreased from approximately 34.9% in 2000 to approximately 30.5% in 2001.
Operating expenses
The Group’s total operating expenses, represented distribution costs, administrative expenses and other operating expenses, increased by approximately 23.2% from approximately RMB42,151,000 in 2000 to approximately RMB51,935,000 in 2001. Total operating expenses as a percentage of the Group’s turnover decreased from approximately 4.3% in 2000 to approximately 3.2% in 2001 due to the improved efficiency in the deployment of the Group’s resources.
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Distribution costs increased by approximately 149.0% from approximately RMB1,850,000 in 2000 to approximately RMB4,607,000 in 2001 due to an increase in advertising expenses for the promotion of a real estate development project, namely Keqiao City Garden Phase I and transportation expenses. Although the Group experienced a substantial increase in turnover by approximately 63.4% between these two years, the Group’s administrative expenses only increased by approximately 6.5% from approximately RMB40,082,000 in 2000 to approximately RMB42,670,000 in 2001 due to the Group’s effective control of expenses, including limiting the expansion of the Group’s administrative function in 2001. Other operating expenses increased from approximately RMB219,000 in 2000 to approximately RMB4,658,000 in 2001 due to the loss incurred as a result of the Company’s reducing its equity interests in Building Materials Industrialization Company from 100% to 64.5% and Baoye Infrastructure from 100% to 97.2% during 2001. The loss on disposal of equity interest in Building Materials Industrialization Company was RMB4,536,000 and the gain on disposal of equity interest in Baoye Infrastructure was approximately RMB32,000.
Other revenue
In 2001, other revenue increased substantially from approximately RMB6,028,000 in 2000 to approximately RMB42,420,000. The substantial increase of other revenue in 2001 was mainly attributable to a government grant of approximately RMB35,555,000 from the Finance Bureau of Shaoxing County as a result of the Group’s strong operational and financial performance in the area. In addition, rental income from investment properties, net of business tax, increased from approximately RMB1,106,000 in 2000 to approximately RMB2,681,000 in 2001. In addition, interest income in 2001 increased from approximately RMB1,577,000 in 2000 to approximately RMB1,812,000 due to the increase in interest-bearing bank deposits in 2001.
Operating profit
As a result of foregoing, operating profit of the Group, including other revenues, increased by 97.1% from approximately RMB94,232,000 in 2000 to approximately RMB185,693,000 in 2001.
Finance cost
Finance costs decreased by approximately 2.2% from approximately RMB6,290,000 in 2000 to approximately RMB6,150,000 in 2001, as a result of the increase of interest on bank loans which were capitalized in respect of properties under development.
Taxation and profit attributable to shareholders
Taxation increased by approximately 93.1% from approximately RMB28,565,000 in 2000 to approximately RMB55,152,000 in 2001, while profit attributable to shareholders increased by approximately 104.3% from approximately RMB59,734,000 in 2000 to approximately RMB122,053,000 in 2001.
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Comparison between the operating results of the Group for the year ended 31 December, 2001 and those for the year ended 31 December, 2002
Turnover
The Group’s turnover increased by approximately 43.2% from approximately RMB1,604,574,000 in 2001 to approximately RMB2,297,526,000 in 2002. The increase in the turnover of the Group in 2002 was mainly attributable to the increase in turnover of all its three major businesses as discussed below:
Construction Business: Turnover increased by approximately 42.4% from approximately RMB1,331,913,000 in 2001 to approximately RMB1,896,354,000 in 2002. The increase was mainly attributable to the rapid expansion of their construction business in Shanghai market. The contribution of the Construction Business to the Group’s turnover decreased from approximately 83.0% in 2001 to approximately 82.5% in 2002.
Building Materials Business: In 2002, turnover increased by approximately 20.4% from approximately RMB123,532,000 in 2001 to approximately RMB148,696,000, which was mainly attributable to launching of new building materials products and increase in demand of building materials in the construction market. The Building Materials Business’ contribution to the Group’s turnover decreased from approximately 7.7% in 2001 to approximately 6.5% in 2002.
Real Estate Business: In 2002, turnover increased by approximately 72.0% from approximately RMB146,140,000 in 2001 to approximately RMB251,292,000, which was mainly attributable to the increase in the number of units of properties sold from 438 units with a total gross floor area of 73,108 sq.m. in 2001 to 1,004 units with a total gross floor area of 108,667 sq.m.. Due to the higher growth rate of turnover, the contribution of the Real Estate Business to the Group’s turnover increased from approximately 9.1% in 2001 to approximately 10.9% in 2002.
Cost of sales and gross margin
The cost of sales of the Group increased by approximately 44.4% from approximately RMB1,409,366,000 in 2001 to approximately RMB2,034,708,000 in 2002. The gross margin of the Group decreased from approximately 12.2% in 2001 to approximately 11.4% in 2002 which was due to the decreases in gross margins of all segments of the Group.
Construction Business: Cost of sales increased by approximately 43.2% from approximately RMB1,221,581,000 in 2001 to approximately RMB1,749,194,000 in 2002 because of the increase in the turnover. The gross margin decreased slightly from approximately 8.3% in 2001 to approximately 7.8% in 2002 which was due to higher proportion of lower margin contracts on hand in 2002.
Building Materials Business: Cost of sales increased by approximately 24.4% from approximately RMB85,955,000 in 2001 to approximately RMB106,941,000 in 2002 because of the increase in turnover. The gross margin decreased from approximately 30.4% in 2001 to approximately 28.1% in 2002 due primarily to the fact that the Group focused on the manufacture and sale of certain products with higher margins before 2002. However, in 2002 the Directors considered that all of the building materials products produced by the Group are actually profitable, though certain products may carry lower gross margins. Thus, the Group started to expand the manufacture and sale of other products which were profitable but with lower margins in 2002.
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Real Estate Business: Cost of sales increased by approximately 75.7% from approximately RMB101,613,000 in 2001 to approximately RMB178,573,000 in 2002 because of the increase in turnover. The gross margin decreased slightly from approximately 30.5% in 2001 to approximately 28.9% in 2002 because a majority of properties sold in 2002 were residential properties which carried lower gross margins than commercial properties.
Operating expenses
The Group’s total operating expenses, represented distribution costs, administrative expenses and other operating expenses, increased by approximately 60.5% from approximately RMB51,935,000 in 2001 to approximately RMB83,343,000 in 2002. Total operating expenses as a percentage of the Group’s turnover increased slightly from approximately 3.2% in 2001 to approximately 3.6% in 2002.
Distribution costs decreased by approximately 27.5% from approximately RMB4,607,000 in 2001 to approximately RMB3,339,000 in 2002 due to the decrease by approximately RMB1,061,000 in advertising expenses for the promotion of real estate development projects. Administrative expenses increased by approximately 85.4% from approximately RMB42,670,000 in 2001 to approximately RMB79,129,000 in 2002 because of (i) the rapid expansion on all businesses of the Group; (ii) the increase in provision of land appreciation tax by about RMB17,923,000 because upon the issuing of a tax notice by National Tax Bureau in 2002, tax bureaus reinforce that the collection of land appreciation tax should be executed and as such, in 2002, the Group provided for land appreciation tax on the sold properties in 2002 and prior years; and (iii) the increase in bad debt expenses by about RMB6,789,000.
Other revenue
Other revenue decreased by approximately 5.6% from approximately RMB42,420,000 in 2001 to approximately RMB40,053,000 in 2002. The decrease in other revenue during the year was mainly attributable to (i) the decrease in rental income from investment properties, net of business tax, from approximately RMB2,681,000 in 2001 to RMB1,235,000 in 2002 due to the disposal of some investment properties in 2002; and (ii) the decrease in government grant from approximately RMB35,555,000 in 2001 to RMB31,274,000 in 2002.
Operating profit
As a result of the foregoing, operating profit of the Group, including other revenues, increased by 18.2% from approximately RMB185,693,000 in 2001 to approximately RMB219,528,000 in 2002.
Finance cost
Finance costs decreased by approximately 10.5% from approximately RMB6,150,000 in 2001 to approximately RMB5,502,000 in 2002, as a result of the decrease in average bank loans balance.
Taxation and profit attributable to shareholders
Taxation increased by approximately 16.7% from approximately RMB55,152,000 in 2001 to approximately RMB64,369,000 in 2002, while profit attributable to shareholders increased by approximately 15.6% from approximately RMB122,053,000 in 2001 to approximately RMB141,075,000 in 2002.
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Recent developments
Based on the unaudited management accounts of the Group for the four months ended 30 April, 2003, the turnover and profit attributable to shareholders amounted to approximately RMB896.8 million and RMB41.9 million, respectively, representing an increase of approximately 15.7% and 2.0%, respectively, as compared to the same period in the previous financial year. The Construction Business, the Building Materials Business and the Real Estate Business accounted for approximately 89%, 9% and 2% of the total turnover of the Group for the four months ended 30 April, 2003. The increase in contribution to the Group’s turnover from the Construction Business was attributable to the fact that the Group obtained several large construction projects in early 2003 which had started to generate revenue to the Group. On the other hand, the Real Estate Business contributed only approximately 2% to the Group’s turnover, the Directors considered that the drop was because most of the real estate development projects of the Group were under construction and the Group had not much property units available for sale in the four months ended 30 April, 2003. As at 30 April, 2003, the total amount of contracts and orders on hand of the Group was approximately RMB3,845 million.
Accounts receivable turnover, inventory turnover and accounts payable turnover
For the three years ended 31 December, 2002, the Group’s average accounts receivable turnover, average inventory turnover and average accounts payable turnover are summarized as follows: For the year ended 31 December, 2000 2001 2002
Average accounts receivable turnover (days) (Note 1) 10 13 19 Average inventory turnover (days) (Note 2) 70 59 36 Average accounts payable turnover (days) (Note 3) 35 34 34
Notes:
1. The gross trade receivables represent aggregate balance of accounts and notes receivables, and net due from customers on construction contracts. Average accounts receivable turnover is calculated as 365 days divided by the turnover rate with respect to gross trade receivables, being net sales divided by the arithmetic mean of the opening and closing balances of gross trade receivables for the three years ended 31 December, 2002.
2. Inventories represent aggregate balance of properties held for development, properties under development, completed properties held for sale and inventories. Average inventory turnover is calculated as 365 days divided by the turnover rate with respect to inventories, being cost of sales divided by the arithmetic mean of the opening and closing balances of inventory for the three years ended 31 December, 2002.
3. Accounts payable represent trade and notes payables. Average accounts payable turnover is calculated as 365 days divided by the turnover rate with respect to accounts payable, being cost of sales divided by the arithmetic mean of the opening and closing balances of accounts payable for the three years ended 31 December, 2002.
The average days of accounts receivable for the three years ended 31 December, 2002 were approximately 10 days, 13 days and 19 days respectively. The average days of accounts receivable for 2000 and 2001 were relatively stable, while the increase in average days of accounts receivable in 2002 was due to the fact that considerable number of units of properties in the Real Estate Business were sold at the end of 2002. The customers were only able to complete the procedures for obtaining mortgages in early 2003. As a result, there was significant amount of receivables
– 130 – FINANCIAL INFORMATION from these customers as at 31 December, 2002. The Group’s accounting policy in connection with doubtful debts is to make a general provision based on 2.0% of receivables balances and to make specific provisions for receivables that are reasonably believed to be non-collectible due to bankruptcy, liquidation or other financial difficulties of the owing debtors. Provision for doubtful debts as a percentage of trade and notes receivables were approximately 8.5% as at 31 December, 2002, 5.0% as at 31 December, 2001 and 6.4% as at 31 December, 2000, respectively.
The average days of inventories for the three years ended 31 December, 2002 were approximately 70 days, 59 days and 36 days respectively. The decrease in average days of inventories reflect principally the fact that the real estate sales improved during the Track Record Period and the management’s better planning of the timing of construction and sales of real estate properties which results in smaller amount of properties held.
The average days of accounts payable for the three years ended 31 December, 2002 were approximately 35 days, 34 days and 34 days, respectively. As the Group was able to collect payments from its customers at a relatively timely manner (within 20 days), the Group settled its payables around its credit period of one month. As a result, the average days of accounts payable remained stable.
PROPERTY INTERESTS
The property interests attributable to the Group have been valued at approximately RMB738.1 million (equivalent to HK$696.3 million) as at 30 April, 2003 by Vigers Hong Kong Limited, an independent property valuer. Details of the Group’s property interests are set out in the letter and valuation certificates of Vigers Hong Kong Limited contained in Appendix II to this prospectus.
DIVIDEND POLICY
The holders of Shares, including H Shares and Domestic Shares, will share proportionally, on a per share basis, all dividends and other distributions declared by the Board and approved by shareholders’ meetings. For holders of H Shares, cash dividend payments, if any, shall be declared by the Board in Renminbi and paid in HK dollars.
The declaration of dividends is subject to the discretion of the Board. The amounts of dividends actually declared and paid to holders of Shares will depend upon the following factors:
• general business conditions of the Company;
• financial results of the Company;
• capital requirements of the Company;
• interests of the Company’s shareholders; and
• any other factors which the Board may deem relevant.
The Company may only distribute dividends after it has made allowances for:
• recovery of losses, if any;
• allocations to the statutory surplus reserve fund; – 131 – FINANCIAL INFORMATION
• allocations to the statutory public welfare fund; and
• allocations to a discretionary surplus reserve fund if approved by its shareholders.
The minimum and maximum aggregate allocations to the statutory surplus reserve fund and the statutory public welfare fund are, in aggregate, 15% and 20% of the Company’s net profits determined in accordance with the Company Law. According to the PRC law, the Company’s distributable earnings will be equal to its net profits, determined in accordance with PRC accounting rules or HKGAAP, whichever is lower, less allocations to the statutory and discretionary funds. Any final dividend for a financial year shall be subject to shareholders’ approval.
There were no dividends proposed or declared by the Company for the three years ended 31 December, 2002. The Directors currently expect to recommend annually the distribution to shareholders of about 30% of the Company’s distributable annual earnings as cash dividends for each of the two years ending 31 December, 2004. Such dividend policy may be amended where: (i) the cash available to the Company is in an amount lower than the above mentioned amount; and (ii) there is a negative impact on the cash flow of the Group due to investments made by the Company as approved by the Directors where such investments are not fully covered by appropriate financing. The amounts of dividends actually distributed to holders of H Shares will depend upon the Company’s earnings and financial condition, operating requirements and capital requirements.
In accordance with the Articles, the cash dividends for H Shares shall be declared in Renminbi but shall be paid in Hong Kong dollars. The conversion of Renminbi into Hong Kong dollars shall comply with the regulations of the PRC on foreign currency control. Renminbi shall be converted into Hong Kong dollars at the average conversion rate quoted by the People’s Bank of China during the week immediately before the date on which the payment of dividends was declared. If the Company has no sufficient foreign currency for payment of dividends in Hong Kong dollars, it will obtain the necessary Hong Kong dollars by converting Renminbi through authorised banks and other financial institutions.
APPROPRIATIONS
In accordance with the PRC Company Law and the Company’s articles of association, the Company and its subsidiaries registered in the PRC are required to appropriate 10% of the annual statutory net profit after tax (after offsetting any prior years’ losses) to the statutory surplus reserve. When the balance of such reserve fund reaches 50% of each entity’s capital, any further appropriation is optional. The statutory surplus reserve can be utilised to offset prior years’ losses or to increase capital. However, the balance of the statutory surplus reserve must be maintained at a minimum of 25% of capital after such usages.
In accordance with the PRC Company Law and the Company’s articles of association, the Company and its subsidiaries registered in the PRC are required to appropriate 5% to 10% of the annual statutory net profit after tax to statutory public welfare fund, which will be utilised to build or acquire capital items, such as dormitories and other facilities for the employees of the Company and its subsidiaries, and cannot be used to pay for staff welfare expenses. Titles of these capital items will remain with the respective companies now comprising the Group.
During the three years ended 31 December, 2002, 10% and 5% of the profit attributable to shareholders were appropriated to statutory surplus reserve and statutory public welfare fund respectively, as approved in resolutions passed by the boards of directors of the respective companies now comprising the Group.
– 132 – FINANCIAL INFORMATION
The above reserves cannot be used for purposes other than those for which they are created and are not distributable as cash dividends.
Upon the transformation of the Company into a joint stock limited company on 30 August, 2002, the Company transferred all the statutory surplus reserve and statutory public welfare fund as at 31 March, 2002 of approximately RMB29,101,000 to capital in accordance with Article 99 of the PRC Company Law.
The amounts of appropriations to statutory surplus reserve and statutory public welfare fund during the Track Record Period are summarised as follows: Year ended 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Statutory surplus reserve 5,870 12,043 10,644 Statutory public welfare fund 2,920 6,022 5,322
8,790 18,065 15,966
DISTRIBUTABLE RESERVES
In accordance with the original Articles of Association, the profit available for distribution to shareholders shall be the accumulated distributable profits as reported in accordance with PRC accounting standards less allocations to the statutory and discretionary funds. In accordance with the revised Articles of Association that became effectively on 15 October, 2002, the profit available for distribution to shareholders shall be the lower of the accumulated distributable profits less allocations to the statutory and discretionary funds as reported in accordance with (i) PRC accounting standards and (ii) HK GAAP. The Company has no distributable reserves as at 31 December, 2002.
– 133 – FINANCIAL INFORMATION
ADJUSTED NET TANGIBLE ASSETS
The following statement of adjusted net tangible assets of the Group is based on the net tangible assets of the Group as at 31 December, 2002 as shown in the accountants’ report, the text of which is set out in Appendix I to this prospectus, and adjusted as follows:
RMB’000
Audited consolidated net assets of the Group as at 31 December, 2002 461,874 Less: Deferred tax assets (6,208)
Audited consolidated net tangible assets 455,666 Unaudited consolidated profit after taxation of the Group for the four months ended 30 April, 2003 based on its unaudited management accounts 41,928 Add: Deferred tax attributable to unaudited consolidated profit after taxation of the Group for the four months ended 30 April, 2003 611
Estimated net proceeds of the Offering (Note 1) 283,384
Adjusted net tangible assets before taking into account of revaluation surplus 781,589
Surplus in the fixed assets of the Group (Note 2) 220,313 Less: Impact of minority interest (8,951) 211,362
Surplus in properties held for development, properties under development and completed properties held for sale (Note 3) 163,293 Less: Impact of land appreciation tax (Note 4) (38,067) Income tax on surplus in properties held for development, properties under development and completed properties held for sale (41,325) Impact of minority interest (84) 83,817
Adjusted net tangible assets (Notes 5) 1,076,768
Notes:
1. The estimated net proceeds from the Offering are based on the Offering Price of HK$1.62 (being the mid-point of the stated range of the Offer Price between HK$1.25 and HK$1.99 per H share) and take no account of any H Shares which might be issued pursuant to the Over-allotment Option.
2. Pursuant to the revaluation of the Group’s interests in land and buildings included in the fixed assets other than investment properties, at 30 April, 2003 (see Appendix II to this prospectus), revaluation surplus of approximately RMB220,313,000 arose. Such revaluation surplus will not be recorded in the Group’s financial statements as the Group accounts for such interests in land and buildings at cost less accumulated depreciation and impairment losses. If the revaluation surplus is recorded in the Group’s financial statements, the annual depreciation expense of the Group for the year ending 31 December, 2003 would be increased by approximately RMB6,609,000.
Pursuant to the revaluation of the Group’s investment properties at 30 April, 2003, (see Appendix II to the prospectus), no revaluation surplus or deficit arose.
– 134 – FINANCIAL INFORMATION
3. Pursuant to the revaluation of the Group’s properties held for development, properties under development and completed properties held for sale at 30 April, 2003 (see Appendix II to the prospectus), revaluation surplus of approximately RMB163,293,000 arose. Such revaluation surplus will not be recorded on the Group’s financial statements as the Group accounts for its properties held for development, properties under development and completed properties held for sale at the lower of cost and net realisable value. No additional depreciation expenese will be incurred.
4. Provision for land appreciation tax on the revaluation surplus of the properties held for development, properties under development and completed properties held for sale has been made for revaluation of the Group’s properties held for development, properties under development and completed properties held for sale as at 30 April, 2003 using the prevailing tax rates.
5. The adjusted net tangible assets value per Share has been arrived at after making the adjustments referred to in this section and on the basis of a total of 531,426,053 shares in issue immediately following completion of the Offering. It takes no account of any Shares which may be issued pursuant to the exercise of the Over-allotment Option.
NO MATERIAL ADVERSE CHANGE
The Directors confirm that since 31 December, 2002 (being the date to which the latest audited financial statements of the Group were made up), there has been no material adverse change in the financial or trading position or prospects of the Group.
– 135 – FUTURE PLANS AND PROSPECTS
FUTURE PLANS AND PROSPECTS OF THE GROUP
The goal of the Group is to become a leading integrated construction group which is principally engaged in the production of building materials, the undertaking and implementation of construction projects as well as real estates development, with nationwide brandname in the PRC and high quality of products.
BUSINESS STRATEGIES
The Directors believe that after nearly 30 years of operations in the construction industry, the Group has already established reputation and has accumulated extensive experience in the construction industry in Zhejiang Province. In addition, the Group also has a stable business foundation in the Yangtze River Delta area, especially Shanghai . The Group has obtained various licences and business permits from the relevant authorities in the PRC for the Construction Business, Building Materials Business and Real Estate Business. The Directors believe that the Group is equipped with the required qualifications to achieve its goal, and plans to implement the following growth strategies:
• To increase the Group’s profits and promote its reputation by actively participating in large scale construction projects
Capitalising on the outstanding brandname it has established in the construction industry in Zhejiang Province, the Group plans to actively participate in large scale construction projects within and outside Zhejiang Province. The Directors believe that the high quality projects completed by the Group in the past and the well-established relationship with its previous customers are beneficial to the Group in successfully obtaining large and meaningful construction projects to further promote its reputation and increase profits attributable to the Shareholders.
• To enhance the Group’s brandname
The Group will continue to adhere to its stringent commitment to quality control in order to maintain the quality of projects. Through the Real Estate Business, the Group can not only participate in those real estate development projects, which the Directors believe have growth potential, but also demonstrate its superb workmanship of construction to the industry in the way to promote “Baoye” as a prestigious and nationwide brandname.
• To leverage on the Group’s extensive experience in the construction industry to expand the product ranges and production volume of building materials
The Group plans to expand the product range and production volume of the Building Materials Business.
Currently, the PRC construction industry has a low level of technological innovation and application of pre-fabricated building materials. Compared to the other more economically advanced countries, the PRC construction industry is labour-intensive.
– 136 – FUTURE PLANS AND PROSPECTS
According to the《關於推進住宅產業現代化提高住宅質量的若干意見》 (Certain Opinions Concerning the Promotion of Industrialisation of Building Materials to Improve Housing Quality) prepared by the MOC and endorsed by the State Council in August 1999, the State Council set a targeted time-frame to complete the initial phase of industrialisation and standardisation of the building materials industry by 2005. The State Council also specifically called for the acceleration of the use of advanced construction technology and techniques and encouraged the use of steel structures and concrete bricks in the construction industry.
In December 1999, the MOC, the SETC, the State Quality and Technology Supervisory Bureau and the SBBMI jointly issued a notice 《關於在住宅建設中淘汰落後產品的通 知》(Notice Concerning the Elimination of the Use of Old-Fashioned Products in Residential Constructions) (the “Joint Notice”) which encouraged the building materials industry in the PRC to standardize and improve the quality of, and mass produce, building materials to allow more efficient use of resources and better protection of the environment.
The Directors believe that the Group would benefit from such new policy to:
• ensure product quality consistency;
• improve construction efficiency by reducing manual work components;
• shorten construction time period by using more pre-fabricated building materials;
• lower construction costs by using building materials which are manufactured on a large-scale basis; and
• reduce environmental impact through conservation of water on construction sites and by reducing the release of waste water and waste materials.
To capitalise on this development, the Group intends to invest an aggregate of approximately RMB220 million to establish a building materials industrialisation park (the “Building Materials Industrialisation Park”), which is called 寶業住宅產業（建材）園區 (Baoye Residential Industry (Building Materials) Park) in 柯西工業園 (Kexi Industrial Park), which is located in 柯橋經濟開發區(Keqiao Economic Development Zone) in Shaoxing County, Zhejiang Province. As at the Latest Practicable Date, the Group paid an aggregate of approximately RMB91 million in establishing the Building Materials Industrialisation Park. The Building Materials Industrialisation Park will cover a maximum area of approximately 1 million sq.m., and will, upon completion, contain several plants to produce building materials, which the Directors believe will have growth potentials in the PRC construction market. Currently, the Directors plan to build the following production facilities in the Building Materials Industrialisation Park.
Establish concrete brick production lines
The Group plans to further invest approximately RMB41 million to establish two concrete brick production lines with an estimated annual capacity of approximately 400,000 cubic meters in the Building Materials Industrialisation Park, covering an estimated gross floor area of 6,540 sq.m.. The Directors intend to import the key equipment and machinery from the United States.
– 137 – FUTURE PLANS AND PROSPECTS
The Joint Notice specifically stated that the usage of mud bricks in the PRC will be prohibited and totally phased out by 30 June, 2003, or earlier in certain parts of the PRC. Compared to mud bricks, the usage of concrete bricks would reduce pollution by reducing the release of wastes, utilising industrial wastes such as industrial ash as a raw material in the manufacturing process and reducing damage to agricultural land. The Directors expect that the demand for concrete bricks will increase along with the growth in the Construction Business.
Establish a steel structure production line and a sandwich board production line
The Group plans to further invest approximately RMB32 million to establish a steel structure production line with an estimated annual capacity of approximately 10,000 tonnes and a sandwich board production line with an estimated annual capacity of approximately 200,000 sq.m. in the Building Materials Industrialisation Park, covering an estimated gross floor area of 32,762 sq.m.. The Directors intend to source the key equipment and machinery in the PRC.
Steel structure construction is also one of the building techniques and materials promoted in the Joint Notice. Compared to traditional concrete structures, steel structures help to reduce pollution, shorten construction period, reduce usage of water and damage to land, and may be recycled upon destruction of the buildings in the future.
Establish a curtain wall production line
The Group plans to further invest approximately RMB24 million to establish a curtain wall production line with an estimated annual capacity of approximately 400,000 sq.m. in the Building Materials Industrialisation Park, covering an estimated gross floor area of 17,028 sq.m.. The Directors intend to import the key equipment and machinery from Germany, Switzerland or other countries in the future.
As at the Latest Practicable Date, Baoye Curtain Wall is one of the few construction enterprises in Zhejiang Province which holds 建築幕牆工程設計專項資質甲級證書 (First class certificate for engineering design of curtain walls) and 建築幕牆工程專業承包一級 證書 (First class certificate for curtain walls construction contracting works), both granted by the MOC. The Directors expect that the curtain wall production line would enable the Group to enhance production and installation efficiency for the Construction Business, reduce production costs and produce higher end heat insulation, sound-proofing and energy-saving products.
Establish a wooden door production line
The Group plans to further invest approximately RMB14 million to establish a production line to manufacture wooden doors with an estimated annual capacity of approximately 75,000 wooden doors in the Building Materials Industrialisation Park, covering an estimated gross floor area of 21,032 sq.m.. The Directors intend to source the equipment and machinery mainly in the PRC.
The majority of wooden doors used in the PRC construction industry are normally manufactured by hand at the construction sites. The Directors believe that the wooden door production line would enable the Group (i) to improve product quality, in particular, free from the defects of hand-made wooden doors such as deformation; (ii) to lower unit production costs through large-scale manufacturing; and (iii) to reduce the usage of harmful chemical adhesives through the use of environmental-friendly adhesives.
– 138 – FUTURE PLANS AND PROSPECTS
Establish a research and development centre for building materials
The Group plans to further invest approximately RMB18 million to establish a research and development centre (the “R&D Centre”) for building materials. The R&D Centre will be located in the Building Materials Industrialisation Park, in a building with a gross floor area of 25,680 sq.m.. The R&D Centre will include laboratories and test centres for building materials.
The Directors believe that, in order to maintain the Group’s competitive strengths and to compete successfully with construction and building materials companies from economically more advanced countries after the accession of the PRC to the WTO, utilisation of advanced construction technologies and techniques is one of the long-term requirements for the Group.
The Group was appointed by the MOC as one of 十間推廣及運用新科技及建築材 料產業化試驗公司 (Ten Pilot Companies for the Promotion and Application of New Technology and Building Materials Industrialisation) in the PRC, and is the only one chosen from Zhejiang Province.
– 139 – USE OF PROCEEDS
USE OF PROCEEDS
The net proceeds of the Offering, assuming an Offer Price of HK$1.62 per H Share (being the mid-point of the stated range of the Offer Price between HK$1.25 and HK$1.99 per H Share) and after deduction of underwriting fees and estimated expenses payable by the Company in relation to the Offering (assuming that the Over-allotment Option is not exercised) are estimated to be approximately HK$258 million (HK$300 million if the Over-allotment Option is exercised in full). The Company currently intends to use the net proceeds from the Offering as follows:
• approximately RMB41 million (equivalent to HK$38.6 million) to invest in the establishment of production lines for concrete bricks with an estimated annual capacity of approximately 400,000 cubic meters;
• approximately RMB32 million (equivalent to HK$30.2 million) to invest in the establishment of production lines for steel structures and sandwich boards with an estimated annual capacity of approximately 10,000 tonnes and 200,000 sq.m., respectively;
• approximately RMB24 million (equivalent to HK$22.6 million) to invest in the establishment of production facilities for curtain walls with an estimated annual capacity of approximately 400,000 sq.m.;
• approximately RMB14 million (equivalent to HK$13.2 million) to invest in the establishment of production lines for wooden doors with an estimated annual capacity of approximately 75,000 sets;
• approximately RMB18 million (equivalent to HK$17.0 million) to invest in the establishment of a research and development centre for building materials;
• the balance, including the additional amount from the exercise of the Over-allotment Options.
The Directors currently do not intend to utilize the proceeds from listing to pay any amount of unpaid land premia of the lands to be acquired by the Group as set out in Appendix II to this prospectus.
Pending the use of the net proceeds from the Offering for the purposes described above, the Company intends to invest the net proceeds, to the extent permitted by relevant PRC laws and regulations, in short-term deposits with banks or money market instruments, other than securities. Under the PRC law, the Company will be entitled to retain the net proceeds of the Offering in Hong Kong dollars or convert the same into US dollars or other foreign currencies and to deposit such amounts in one or more foreign currency accounts at a bank or banks in the PRC that are permitted to engage in foreign exchange transactions. The Company will be entitled to use such proceeds for any legitimate purpose, such as purchase of equipment from overseas (if required) in accordance with the exchange control regulations in effect.
– 140 – USE OF PROCEEDS
In the event that there is any material modification to the use of proceeds as described above, an announcement will be made by the Company in accordance with the Listing Rules.
In accordance with the accounting principles for a joint stock limited company in the PRC, the non-Renminbi proceeds obtained by the Company from the Offering will be translated at the PBOC Rate prevailing on the date on which the Company obtained the proceeds, and then credited to the financial statements of the Company.
– 141 – UNDERWRITING
UNDERWRITERS
Public Offer Underwriters
First Shanghai Securities Limited GC Capital (Asia) Limited CM-CCS Securities Limited CITIC Capital Markets Limited Worldwide Finance (Securities) Limited CAF Securities Company Limited Guotai Junan Securities (Hong Kong) Limited Phillip Securities (HK) Limited SBI E2-Capital Securities Limited Shenyin Wanguo Capital (H.K.) Limited Sun Hung Kai International Limited
International Placing Underwriters
First Shanghai Securities Limited GC Capital (Asia) Limited CM-CCS Securities Limited CITIC Capital Markets Limited Worldwide Finance (Securities) Limited CAF Securities Company Limited Guotai Junan Securities (Hong Kong) Limited Phillip Securities (HK) Limited SBI E2-Capital Securities Limited Shenyin Wanguo Capital (H.K.) Limited Sun Hung Kai International Limited
UNDERWRITING ARRANGEMENTS AND EXPENSES
Public Offer Underwriting Agreement
Pursuant to the Public Offer Underwriting Agreement, the Company is offering the Public Offer Shares for subscription on, and subject to, the terms and conditions of this prospectus and the application forms relating thereto at the Offer Price.
Subject to (i) the Listing Committee of the Stock Exchange granting listing of, and permission to deal in, the H Shares to be issued as mentioned herein; (ii) certain other conditions set out in the Public Offer Underwriting Agreement and the International Placing Underwriting Agreement having been duly executed and delivered and having become unconditional in accordance with its terms and not having been terminated in accordance with its terms or otherwise, the Public Offer Underwriters have agreed severally to subscribe or procure subscribers for their respective applicable proportions of the Public Offer Shares now being offered and which are not taken up under the Public Offer.
– 142 – UNDERWRITING
Grounds for termination
The obligations of the Public Offer Underwriters to subscribe or procure subscribers for the Public Offer Shares are subject to termination if any of the following occurs at any time prior to 6:00 a.m. on the day that trading in the Offer Shares is expected to commence on the Stock Exchange:
1. if there has come to the notice of First Shanghai Securities for itself and on behalf of the Public Offer Underwriters
(A) that any statement contained in this prospectus was, when it was made, or has become, untrue, incorrect or misleading in any material respect; or
(B) that any matter has arisen or has been discovered which would, had it arisen or been discovered immediately before the date of this prospectus, constitute a material omission therefrom; or
(C) any material breach of the warranties set out in the Public Offer Underwriting Agreement; or
(D) any material breach of any of the obligations imposed upon any party to the Public Offer Underwriting Agreements (other than on any of the Public Offer Underwriters); or
(E) any material adverse change in the business or in the financial or trading position of any member of the Group; or
2. if there develops, occurs or comes into effect:
(A) any event, or series of events, beyond the reasonable control of the Public Offer Underwriters (including, without limitations, acts of government, strikes, lock-outs, fire, explosion, flooding, civil commotion, acts of war, acts of God, accident or interruption or delay in transportation); or
(B) any change in local or international, financial, economic, political, military, industrial, fiscal, regulatory or market conditions (including any moratorium, suspension or material restriction on securities trading on the Stock Exchange); or
(C) any new law or regulation or change (whether or not forming part of a series of changes) in existing laws or regulations or any change in the interpretation or application thereof by any court or other competent authority in the PRC, Hong Kong or any other jurisdiction relevant to the Group or any member thereof; or
(D) the imposition of economic sanctions, in whatever form, directly or indirectly, by the United States or by the European Union (or any member thereof) on the PRC, Hong Kong or any other jurisdiction relevant to the Group or any member thereof; or
– 143 – UNDERWRITING
(E) a change or development occurs involving a prospective change in taxation or exchange control (or the implementation of any exchange control) in the PRC, Hong Kong or any other jurisdiction relevant to the Group or any member thereof; or
(F) (unless otherwise stated herein) any litigation or claim brought by any third party against any member of the Group, which will or is reasonably likely to result in the Group incurring liability that is material to the Group taken as a whole;
and which, in each case, in the reasonable opinion of First Shanghai Securities, for itself and on behalf of the Public Offer Underwriters:
(i) is, or will or is likely to be, materially adverse to the business, financial or other condition or prospects of the Group taken as a whole or, in the case of a change or development involving a prospective change in taxation or exchange control (or the implementation of any exchange control) in the PRC, Hong Kong or any other jurisdiction relevant to the Group or any member companies thereof, is or will or is likely to be materially adverse to any present or prospective shareholder of the Company in his capacity as such; or
(ii) has or will or is likely to have a material adverse effect on the success of the Offering or the level of Offer Shares being applied for; or
(iii) makes it inadvisable or inexpedient to proceed with the Offering;
then First Shanghai Securities may, on behalf of the Public Offer Underwriters, upon giving written notice to the Company, terminate the Public Offer Underwriting Agreement with immediate effect.
The International Placing Underwriting Agreement
In connection with the International Placing, it is expected that the Company, among others, will enter into the International Placing Underwriting Agreement with the International Placing Underwriters. Under the International Placing Underwriting Agreement, subject to the conditions set out therein, the International Placing Underwriters would severally agree to procure applicants to subscribe for or purchase or, failing which, to subscribe for or purchase by themselves as principal, the International Placing Shares being offered, pursuant to the International Placing which are not taken up under the International Placing. It is also expected that the International Placing Underwriting Agreement may be terminated upon similar grounds as the Public Offer Underwriting Agreement described above.
The Company intends to grant to the International Placing Underwriters the Over-allotment Option exercisable by First Shanghai Securities on behalf of the International Placing Underwriters to require the Company to allot and issue up to an aggregate of 27,102,000 additional new H Shares, such H Shares representing about 15.0% of the H Shares initially offered under the Offering, solely to cover over-allocations in the International Placing, if any. The Over-allotment Option will expire on the date which is 30 days from the date of this prospectus.
– 144 – UNDERWRITING
Undertakings
Mr. Pang has undertaken to the Public Offer Underwriters and the Company and will undertake to the International Placing Underwriters that, inter alia, he will not and will procure that none of his associates or companies controlled by him or any nominee or trustee holding in trust for him will, without the prior written consent of First Shanghai Securities (on behalf of the Underwriters), sell, transfer, dispose of or grant any option or other rights to acquire any Shares or any direct or indirect interest therein or any securities convertible into, exercisable or exchangeable for any of the foregoing or enter into any swap or other arrangement that transfers, in whole or in part, any of the economic consequence of ownership of any Shares or offer to or agree to do any of the foregoing or announce any intention to do so (other than in relation to any other Shares in which it may become interested following the date on which dealings first commence in the Offer Shares (“Listing Date”) or any direct or indirect interests in any companies or entities holding any Shares (other than companies or entities holding solely Shares acquired following the date on which dealings first commence in the Offer Shares) (i) at any time after the Listing Date up to and including the date falling six months after the Listing Date (the “First Six-month Period”); (ii) in the six months commencing from the expiry of the First Six-month Period if, immediately following any such disposal, he would cease to be a controlling shareholder (as defined in the Listing Rules) of the Company; and (iii) on any disposal of such Shares during the six months immediately following the First Six-month Period will and, if relevant, he will procure that his associates or companies controlled by him will, take all reasonable steps to ensure that any such disposal will not create a disorderly or false market.
Mr. Pang has undertaken to the Sponsor, each of the Public Offer Underwriters and the Company pursuant to the Public Offer Underwriting Agreement and will undertake to each of the International Placing Underwriters pursuant to the International Placing Underwriting Agreement that he and his associates will not, and the Company agrees to use its reasonable endeavours to procure that none of the Directors nor their respective associates will, apply for any of the Shares pursuant to the Offering, either directly or indirectly, whether in its own name or through nominees.
Mr. Pang has further undertaken to each of the Public Offer Underwriters, the Company and the Stock Exchange and will undertake to each of the International Placing Underwriters pursuant to the International Placing Underwriting Agreement that he will, at any time within 12 months from the date on which dealings in the Offer Shares commence on the Stock Exchange (i) immediately inform the Company and the Stock Exchange of any pledges or charges of any Shares or other securities beneficially owned by Mr. Pang and the number of Shares or securities so pledged or charged; and (ii) immediately inform the Company and the Stock Exchange of any indication, either verbal or written, received by Mr. Pang, from any pledgee or chargee of any Shares or other securities beneficially owned by Mr. Pang pledged or charged that such Shares or other securities will be disposed of. The Company will notify the Stock Exchange and disclose the above matters (if any) by way of a press notice as soon as possible after being so informed by Mr. Pang.
The Company has undertaken to each of the Public Offer Underwriters pursuant to the Public Offer Underwriting Agreement and will undertake to each of the International Placing Underwriters pursuant to the International Placing Underwriting Agreement that, without the prior written consent of First Shanghai Securities (on behalf of the Underwriters), and (i) except pursuant to the Offering, the Over-allotment Option, at any time during the First Six-month Period, it will not allot or issue or agree to allot or issue any Shares of the Company (including warrants or other convertible securities) or grant or agree to grant any options or rights over any Shares or other
– 145 – UNDERWRITING securities of the Company or enter into any swap or other arrangement that transfers, in whole or in part, any of the economic consequence of ownership of any Shares or offer to or agree to do any of the foregoing or has any intention to do so; and (ii) within a period of six months from the expiry of the First Six-month Period, it will not allot or issue any Shares of the Company (including warrants or other convertible securities) or grant or agree to grant any options or rights over any Shares of the Company or enter into any swap or other arrangement that transfers, in whole or in part, any of the economic consequence of ownership of any Shares or offer to or agree to do any of the foregoing or announce any intention to do so to the extent any such action would result in Mr. Pang ceasing to be a controlling shareholder (as defined in the Listing Rules) of the Company.
Commission
The Public Offer Underwriters will receive an underwriting commission equal to 4.0% of all the Offer Price, out of which any sub-underwriting commission will be paid. For unsubscribed Public Offer Shares reallocated to the International Placing the Company will pay an underwriting commission at the rate of 4.0% to the International Placing and such commission will be paid to First Shanghai Securities and the relevant International Placing Underwriters (but not the Public Offer Underwriters).
The above commissions and fees, together with Stock Exchange listing fees, Stock Exchange trading fee, SFC transaction levy, investor compensation levy, brokerage, legal and other professional fees, printing and other expenses relating to the Offering are estimated to be HK$34.7 million in total (assuming the Offer Price is HK$1.62 per H Share (being the mid-point of the stated range of the Offer Price of between HK$1.25 and HK$1.99 per H Share) and the Over-allotment Option is not exercised) and are payable by the Company.
UNDERWRITERS’ INTERESTS IN THE GROUP
Save as disclosed in the paragraph headed “Sponsor’s interests in the Group” below and as contemplated under the Underwriting Agreements, as at the Latest Practicable Date, none of the Underwriters are interested directly or indirectly in any shares or any securities in any member of the Group or has any right or option (whether legally enforceable or not) to subscribe for, or to nominate persons to subscribe for, shares or any securities in any member of the Group.
SPONSOR’S INTERESTS IN THE GROUP
Save as pursuant to the Underwriting Agreements and as disclosed herein, none of the Sponsor, or any of its associates are interested, directly or indirectly, in any shares in any member of the Group or have any right or option (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for any shares or securities in any member of the Group.
No director or employee of the Sponsor who is involved in providing advice to the Company has or may, as a result of the Offering, have any interest in any class of securities of the Company or any other member of the Group (including options or rights to subscribe for such securities but, for the avoidance of doubt, excluding interests in securities that may be subscribed for or purchased by any such director or employee of the Sponsor pursuant to the Offering).
– 146 – UNDERWRITING
None of the Sponsor or its respective associates have accrued any material benefit as a result of the successful outcome of the Offering, including by way of example, the repayment of material outstanding indebtedness or success fees, other than the following:
(i) by way of underwriting and placing commission to be paid to First Shanghai Securities, a fellow subsidiary of First Shanghai Capital, for acting as one of the Underwriters pursuant to the Underwriting Agreements;
(ii) the advisory and documentation fees to be paid to the Sponsor; and
(iii) certain associates of the Sponsor, whose ordinary business involves the trading of and dealing in securities, may be involved in the trading of and dealing in the securities in the Company.
No director or employee of the Sponsor has a directorship in the Company or any other company in the Group.
– 147 – STRUCTURE OF THE OFFERING
PRICE PAYABLE ON APPLICATION
The maximum Offer Price of HK$1.99 per H Share plus 1.00% brokerage, 0.005% SFC transaction levy payable, 0.005% Stock Exchange trading fee payable to the Stock Exchange and 0.002% investor compensation levy amounting to a total of HK$4,020.28 per board lot of 2,000 H Shares is payable in full on application.
If the Offer Price, as finally determined in the manner as set out below, is lower than the maximum Offer Price of HK$1.99 per H Share, appropriate refund payments will be made. Further details in this regard are set out in the section headed “How to apply for Public Offer Shares” of this prospectus.
DETERMINING THE OFFER PRICE
The International Placing Underwriters are soliciting from prospective investors indications of interest in acquiring the International Placing Shares. Prospective investors will be required to specify the number of International Placing Shares they would be prepared to acquire either at different prices or at a particular price. This process, known as “book-building”, is expected to continue up to 5:00 p.m. on 19 June, 2003.
The Offer Price will be fixed by agreement between the Company, First Shanghai Securities (on behalf of the Underwriters) and the Sponsor at or before the Price Determination Time, which is currently scheduled at 5:00 p.m. on 20 June, 2003 or at the latest 5:00 p.m. on 24 June, 2003. If First Shanghai Securities (on behalf of the Underwriters), the Sponsor and the Company are unable to reach an agreement on the Offer Price by 5:00 p.m. on 24 June, 2003, the Offering will not become unconditional and will lapse.
The Offer Price will not be more than HK$1.99 per H Share and is currently expected to be not less than HK$1.25 per H Share. Prospective investors should be aware that the Offer Price to be determined at or before the Price Determination Time may be, but is not expected to be, lower than the indicative Offer Price range stated in this prospectus.
If, based on the level of interest expressed by prospective investors during the book-building process, First Shanghai Securities (on behalf of the Underwriters, and with the consent of the Company and the Sponsor) thinks it appropriate (for instance, if the level of interest expressed by prospective investors is below the indicative Offer Price range stated in this prospectus), the indicative Offer Price range may be reduced below that stated in this prospectus at any time prior to the morning of the day which is the latest day for lodging applications under the Public Offer. In such a case, the Company will, as soon as practicable following the decision to make such reduction, and in any event not later than the morning of the day which is the latest day for lodging applications under the Public Offer cause to be published in South China Morning Post (in English) and Hong Kong Economic Times (in Chinese) notice of such a change. Applicants should have regard to the possibility that any announcement of a reduction in the indicative Offer Price range may not be made until the day which is the last day for lodging applications under the Public Offer. Such notice will also include confirmation or revision, as appropriate, of the working capital statement, the offer statistics, as currently set out in the section headed “Summary” of this prospectus and any other financial information which may change materially as a result of any such change. Applicants under the Public Offer should note that, even if the indicative Offer Price is so reduced, in no circumstances can applications be withdrawn once submitted.
– 148 – STRUCTURE OF THE OFFERING
In the absence of any notice being published in South China Morning Post (in English) and Hong Kong Economic Times (in Chinese) of a reduction of the indicative Offer Price range in the manner set out above, the Offer Price, if agreed upon with the Company, will under no circumstances be set outside the Offer Price range as stated in this prospectus.
The Offer Price, level of indication of interest in the International Placing, basis of allotment and the results of applications of the Public Offer are expected to be published in South China Morning Post (in English) and Hong Kong Economic Times (in Chinese) on or before Wednesday, 25 June, 2003.
CONDITIONS OF THE OFFERING
Acceptance of all applications for Offer Shares are conditional on:
(a) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the H Shares to be issued pursuant to the Offering (including the additional H Shares which may be made available pursuant to the exercise of the Over-allotment Option) (subject only to allotment and the despatch of share certificates in respect thereof), and such listing and permission not subsequently having been revoked prior to the commencement of dealings in the H Shares on the Stock Exchange;
(b) the execution and delivery of the International Placing Underwriting Agreement on the date the Offer Price is fixed; and
(c) the obligations of the Underwriters under the respective Underwriting Agreements becoming and remaining unconditional (including, if relevant, as a result of the waiver of any conditions by First Shanghai Securities, on behalf of the Underwriters) and such obligations not being terminated in accordance with the terms of the respective agreements.
If the above conditions are not fulfilled or waived on or before 16 July, 2003, the Offering will lapse and the Stock Exchange will be notified immediately. Notice of the lapse of the Offering will be caused to be published by the Company in South China Morning Post and Hong Kong Economic Times on the next day following such lapse.
In the above eventuality, all application monies will be returned to the applicants, without interest and on the terms set out under “How to apply for the Public Offer Shares”. In the meantime, all application monies will be held in a separate bank account or separate bank accounts with the receiving banker or other bank(s) licensed under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong).
THE OFFERING
The Offering comprises the Public Offer and the International Placing. A total of up to 180,684,000 H Shares will be initially made available under the Offering, of which 162,612,000 H Shares will initially be conditionally placed pursuant to the International Placing and the remaining
– 149 – STRUCTURE OF THE OFFERING
18,072,000 H Shares will initially be offered to the public in Hong Kong at the Offer Price under the Public Offer (subject, in each case, to reallocation on the basis described below under the paragraph headed “The Public Offer”). The H Shares included in the Offering will be conditionally placed pursuant to the International Placing with professional, institutional and other investors in Hong Kong and other jurisdictions.
Investors may apply for H Shares under the Public Offer or indicate an interest for H Shares under the International Placing, but may not do both. The Public Offer is open to members of the public in Hong Kong as well as to institutional and professional investors. The International Placing will involve selective marketing of the H Shares to institutional and professional investors and other investors anticipated to have a sizeable demand for such H Shares, Professional investors generally include brokers, dealers, companies (including fund managers) whose ordinary business involves dealing in shares and other securities and corporate entitles which regularly invest in shares and other securities.
The 180,684,000 H Shares initially being offered in the Offering will represent approximately 34.0% of the Company’s enlarged share capital after the completion of the Offering, without taking into account the exercise of the Over-allotment Option. If the Over-allotment Option is exercised in full, the H Shares will represent approximately 37.2% of the enlarged share capital of the Company after the completion of the Offering and the exercise of the Over-allotment Option.
THE PUBLIC OFFER
The Public Offer is a fully underwritten public offer (subject to agreement as to pricing and satisfaction or waiver of the other conditions described above in the section headed “Conditions of the Offering”) for the subscription in Hong Kong of, initially, 18,072,000 H Shares at the Offer Price (representing approximately 10% of the total number of the H Shares initially available under the Offering). Subject to reallocation of Offer Shares between the International Placing and the Public Offer, the Public Offer Shares will represent approximately 3.4% of the Company’s enlarged issued share capital immediately after completion of the Offering assuming that the Over-allotment Option is not exercised.
The total number of the H Shares available under the Public Offer (after taking account of any reallocation referred to below) is to be divided into two pools for allocation purposes: pool A and pool B. The H Shares in pool A will be allocated on an equitable basis to applicants who have applied for the H Shares with an aggregate subscription price of HK$5 million (excluding the Stock Exchange trading fee, SFC transaction levy, investor compensation levy and the brokerage payable) or less. The H Shares in pool B will be allocated on an equitable basis to applicants who have applied for the H Shares with an aggregate subscription price of more than HK$5 million (excluding the Stock Exchange trading fee, SFC transaction levy, investor compensation levy and the brokerage payable). Investors should be aware that applications in pool A and applications in pool B may receive different allocation ratios. If the H Shares in one (but not both) of the pools are undersubscribed, the surplus H Shares will be transferred to the other pool to satisfy demand in the pool and be allocate accordingly. For the purpose of this paragraph only, the “subscription price” for the H Shares means the price payable on application therefor (without regard to the Offer Price as finally determined). Applicants can only receive an allocation of the H Shares from either pool A or pool B but not from both pools. Multiple or suspected multiple applications and any application involving more than 50% of the H Shares initially available under the Public Offer
– 150 – STRUCTURE OF THE OFFERING
(that is, 9,036,000 H Shares) will be rejected. Each applicant under the Public Offer will also be required to give an undertaking and confirmation in the application form submitted by him that he and any person(s) for whose benefit he is making the application have not indicated an interest for or taken up and will not indicate an interest for or take up any H Shares under the International Placing, and such applicant’s application will be rejected if the said undertaking and/or confirmation is breached and/or untrue (as the case may be).
The allocation of the H Shares between the Public Offer and the International Placing is subject to adjustment. If the number of the H Shares validly applied for under the Public Offer represents 15 times or more but less than 50 times the number of the H Shares initially available for subscription under the Public Offer, then the H Shares will be reallocated to the Public Offer from the International Placing, so that the total number of the H Shares available under the Public Offer will be 54,206,000 H Shares, representing approximately 30.0% of the Offer Shares initially available under the Offering. If the number of the H Shares validly applied for under the Public Offer represents 50 times or more but less than 100 times the number of the H Shares initially available for subscription under the Public Offer, then the number of Offer Shares to be reallocated to the Public Offer from the International Placing will be increased so that the total number of the H Shares available under the Public Offer will be 72,274,000 H Shares, representing approximately 40.0% of the Offer Shares initially available under the Offering. If the number of the H Shares validly applied for under the Public Offer represents 100 times or more the number of the H Shares initially available for subscription under the Public Offer, then the number of the H Shares to be reallocated to the Public Offer from the International Placing will be increased, so that the total number of the H Shares available under the Public Offer will be 90,342,000 H Shares, representing 50% of the Offer Shares initially available under the Offering. In each such case, the additional H Shares reallocated to the Public Offer will be allocated between pool A and pool B and the number of the H Shares allocated to the International Placing will be correspondingly reduced.
In addition, if the Public Offer is not fully subscribed, First Shanghai Securities will have the discretion to reallocate to the International Placing all or any unsubscribed Public Offer Shares in such amounts as they deem appropriate.
References in this prospectus to applications, application forms, application or subscription monies or the procedure for application relate solely to the Public Offer.
THE INTERNATIONAL PLACING
In connection with the International Placing, it expected that the Company will enter into the International Placing Underwriting Agreement with the International Placing Underwriter on or about 20 June, 2003, pursuant to which the International Placing is to be fully underwritten by the International Placing Underwriters.
Assuming there is no reallocation between the Public Offer and the International Placing, the number of the H Shares to be offered for subscription under the International Placing will be 162,612,000 H Shares, representing approximately 90.0% of the Offer Shares under the Offering and approximately 30.6% of the Company’s enlarged issued share capital immediately after completion of the Offering assuming the Over-allotment Option is not exercised.
– 151 – STRUCTURE OF THE OFFERING
Pursuant to the International Placing, the International Placing Shares will be conditionally placed on behalf of the Company by the International Placing Underwriters or through selling agents appointed by them. International Placing Shares will be placed with certain professional, institutional and other investors in Hong Kong and other jurisdictions. The International Placing is subject to the Public Offer becoming unconditional.
– 152 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES
WHICH APPLICATION FORM TO USE
Use a white application form if you want the H Shares issued in your own name.
Use a yellow application form if you want the H Shares issued in the name of HKSCC Nominees Limited and deposited directly into CCASS for credit to your investor participant stock account or your designated CCASS participant’s stock account.
Note: The H Shares are not available to existing beneficial owners of Shares in the Company, the Directors, Supervisors or chief executive of the Company, or associates of any of them, a connected person of the Company (unless otherwise allowed by the Stock Exchange) or to legal or natural persons of the PRC (other than Hong Kong, Macau and Taiwan) or United States persons (as defined in the Regulation S under the US Securities Act).
WHERE TO COLLECT THE APPLICATION FORM
You can collect a white application form and a prospectus from:
Any participant of The Stock Exchange of Hong Kong Limited
First Shanghai Securities Limited 19th Floor Wing On House 71 Des Voeux Road Central Hong Kong
GC Capital (Asia) Limited 6501-06 The Center 99 Queen’s Road Central Hong Kong
CM-CCS Securities Limited 26th Floor World Wide House 19 Des Voeux Road Central Hong Kong
CITIC Capital Markets Limited 26th Floor CITIC Tower 1 Tim Mei Avenue Central Hong Kong
Worldwide Finance (Securities) Limited Flat A, 16th Floor Guangdong Investment Tower 148 Connaught Road Central Hong Kong
– 153 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES
CAF Securities Company Limited 13th Floor Fairmont House 8 Cotton Tree Drive Central Hong Kong
Guotai Junan Securities (Hong Kong) Limited 27th Floor, Low Block Grand Millennium Plaza 181 Queen’s Road Central Hong Kong
Phillip Securities (HK) Limited 11th – 12th Floor United Centre 95 Queensway Hong Kong
SBI E2-Capital Securities Limited Room 4301-09, 43th Floor Jardine House One Connaught Place Central Hong Kong
Shenyin Wanguo Capital (H.K.) Limited 28th Floor Citibank Tower Citibank Plaza 3 Garden Road Hong Kong
Sun Hung Kai International Limited Level 12 One Pacific Place 88 Queensway Hong Kong
– 154 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES
or any of the following branch and sub-branches of Standard Chartered Bank:
Hong Kong Island: Des Voeux Road Branch Standard Chartered Bank Building, 4-4A Des Voeux Road Central Central Branch Shop No. 16, Ground Floor and Lower Ground Floor New World Tower, 16-18 Queen’s Road Central CIG Building Branch Shop B, Ground Floor, CIG Building, 141 Des Voeux Road Central Hennessy Road Branch 399 Hennessy Road, Wanchai Leighton Centre Branch Shop 12-16, Upper Ground Floor, Leighton Centre, 77 Leighton Road, Causeway Bay Taikoo Place Branch Ground Floor, 969 King’s Road, Quarry Bay
Kowloon: Kwun Tong Branch 88-90 Fu Yan Street, Kwun Tong Mongkok Bank Centre Branch Bank Centre, 630-636 Nathan Road, Mongkok Tsimshatsui Branch 10 Granville Road, Tsimshatsui Cheung Sha Wan Branch 828 Cheung Sha Wan Road, Cheung Sha Wan
New Territories: Tsuen Wan Branch Basement 1st Floor, Emperor Plaza, 263 Sha Tsui Road, Tsuen Wan
You can collect a yellow application form and a prospectus from:
The depository counter of HKSCC at 2nd Floor, Vicwood Plaza, 199 Des Voeux Road Central, Hong Kong.
The Customer Service Centre of HKSCC at Upper Ground Floor, V-Heun Building, 128-140 Queen’s Road Central, Hong Kong.
HOW TO COMPLETE THE APPLICATION FORM
There are detailed instructions on each application form. You should read these instructions carefully. If you do not follow the instructions your application may be rejected and returned by ordinary post together with the accompanying cheque or banker’s cashier order to you (or the first-named applicant in the case of joint applicants) at your own risk at the address stated in the application form.
You should note that by signing on the application form:
(i) you agree with the Company and each shareholder of the Company, and the Company agrees with each shareholder, to observe and comply with the Company Law, the Special Regulations, and the Articles of Association;
(ii) you agree with the Company, each shareholder of the Company, Director, Supervisor, manager and officer of the Company, and the Company acting for itself and for each Director, Supervisor, manager and officer of the Company agrees with each shareholder to refer all differences and claims arising from the Articles of Association or any rights or obligations conferred or imposed by the Articles of Association, the Company
– 155 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES
Law or other relevant laws and administrative regulations concerning the affairs of the Company to arbitration in accordance with the Articles of Association, and any reference to arbitration shall be deemed to authorise the arbitration tribunal to conduct hearings in open session and to publish its award, which arbitration shall be final and conclusive;
(iii) you agree with the Company and each shareholder of the Company that the H Shares in the Company are freely transferable by the holder thereof, and
(iv) you authorise the Company to enter into a contract on your behalf with each Director and officer of the Company whereby such Directors and officers undertake to observe and comply with their obligations to shareholders as stipulated in the Articles of Association.
If your application is made through a duly authorised attorney, the Company and First Shanghai Securities as its agent may accept it at their discretion, and subject to any conditions they think fit, including evidence of the authority of your attorney.
HOW MANY APPLICATIONS MAY YOU MAKE
You may make more than one application for the H Shares only if:
You are a nominee, in which case you may lodge more than one application in your own name on behalf of different owners. In the box on the application form marked “For nominees” you must include:
• an account number; or
• some other identification code for each beneficial owner. If you do not include this information, the application will be treated as being for your benefit.
Otherwise, multiple applications are not allowed.
All of your applications will be rejected as multiple applications if you, or you and your joint applicant(s) together:
• make more than one application on a white or yellow application form; or
• apply on one white or yellow application form for more than 50% of the H Shares initially being offered for public subscription under the Public Offer.
All of your applications will also be rejected as multiple applications if more than one application is made for your benefit. If an application is made by an unlisted company and
• the only business of that company is dealing in securities; and
• you exercise statutory control over that company
then the application will be treated as being for your benefit.
– 156 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES
Unlisted company means a company with no equity securities listed on the Stock Exchange.
Statutory control means you:
• control the composition of the board of directors of the company; or
• control more than half of the voting power of the company; or
• hold more than half of the issued share capital of the company (not counting any part of it which carries no right to participate beyond a specified amount in a distribution of either profits or capital).
HOW MUCH ARE THE PUBLIC OFFER SHARES
The maximum Offer Price of the Public Offer Shares is HK$1.99 each. You must also pay 0.005% Stock Exchange trading fee, 0.005% SFC transaction levy, 0.002% investor compensation levy and 1% brokerage. This means that for every 2,000 H Shares you will pay HK$4,020.28. The application forms have tables showing the exact amount payable for multiples of up to 1,000,000 H Shares.
You must pay the maximum Offer Price, brokerage, the SFC transaction levy, the Stock Exchange trading fee and investor compensation levy in full when you apply for the H Shares. You must pay the amount payable upon application for the H Shares by a cheque or a banker’s cashier order in accordance with the terms set out in the application form.
If your application is successful, brokerage is paid to participants of the Stock Exchange, the transaction levy and the investor compensation levy are paid to the SFC and the trading fee is paid to the Stock Exchange.
If the Offer Price as finally determined is less than HK$1.99 per Public Offer Share, appropriate refund payments (including the Stock Exchange trading fee, the SFC transaction levy, investor compensation levy and the brokerage attributable to the surplus application monies) will be made to successful applicants, without interests. Details of the procedure for refund are set out in the paragraph headed “Despatch/collection of share certificates and refund cheques” below.
MEMBERS OF THE PUBLIC – TIME FOR APPLYING FOR PUBLIC OFFER SHARES
Completed white or yellow application forms with payment attached, must be lodged by 12:00 noon on Friday, 20 June, 2003, or, if the application lists are not open that day, then by 12:00 noon on the next day the lists are open.
Your completed application form, with payment attached, should be deposited in special collection boxes provided at any of the branch or sub-branches of Standard Chartered Bank listed on “How to apply for the Public Offer Shares – Where to collect the application form” at the following times:
Tuesday, 17 June, 2003 – 9:00 a.m. to 4:00 p.m. Wednesday, 18 June, 2003 – 9:00 a.m. to 4:00 p.m. Thursday, 19 June, 2003 – 9:00 a.m. to 4:00 p.m. Friday, 20 June, 2003 – 9:00 a.m. to 12:00 noon
– 157 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES
The application lists will open from 11:45 a.m. to 12:00 noon on Friday, 20 June, 2003
No proceedings will be taken on applications for the H Shares and no allotment of such H Shares will be made until the closing of the application lists. No allotment of H Shares will be made later than 16 July, 2003.
EFFECT OF BAD WEATHER ON THE OPENING OF THE APPLICATION LISTS
The application lists will not open if there is:
• a tropical cyclone warning signal number 8 or above, or
• a “black” rainstorm warning in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Friday, 20 June, 2003. Instead they will open between 11:45 a.m. and 12:00 noon on the next business day which does not have either of those warnings in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon.
Business day means a day that is not a Saturday, Sunday or public holiday in Hong Kong.
CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOTTED PUBLIC OFFER SHARES
Full details of the circumstances in which you will not be allotted the H Shares are set out in the notes attached to the application forms, and you should read them carefully. You should note in particular the following situations in which the H Shares will not be allotted to you:
• If your application is revoked:
By completing and submitting an application form you agree that you cannot revoke your application before the fifth day after the time of the opening of the application lists (excluding for this purpose any day which is a Saturday, Sunday or public holiday in Hong Kong), unless a person responsible for this prospectus under section 40 of the Companies Ordinance (as applied by section 342E of the Companies Ordinance) gives a public notice under that section which excludes or limits the responsibility of that person for this prospectus. This agreement will take effect as a collateral contract with the Company, and will become binding when you lodge your application form. This collateral contract will be in consideration of the Company agreeing that it will not offer any Public Offer Share to any person before Wednesday, 16 July, 2003 except by means of one of the procedures referred to in this prospectus.
If any supplement to the prospectus is issued, applicant(s) who have already submitted an application may or may not (depending on the information contained in the supplement) be notified that they can withdraw their applications. If applicant(s) have not been so notified, or if applicant(s) have been notified but have not withdrawn their applications in accordance with the procedure to be notified, all applications that have been submitted remain valid and may be accepted. Subject to the above, an application once made is irrevocable and applicants shall be deemed to have applied on the basis of the prospectus as supplemented.
– 158 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES
If your application has been accepted, it cannot be revoked. For this purpose, acceptance of applications which are not rejected will be constituted by notification in the press of the results of allocation, and where such basis of allocation is subject to certain conditions or provides for allocation by ballot, such acceptance will be subject to the satisfaction of such conditions or results of the ballot respectively.
• At the discretion of the Company or its agent:
The Company and the agents for the Company have full discretion to reject or accept any application, or to accept only part of any application.
The Company and the Underwriters in their capacity as agents for the Company do not have to give any reason for any rejection or acceptance.
• If you do not receive any allocation:
You will not receive any allocation if;
• you make multiple applications or suspected multiple applications;
• you or the person for whose benefits you have applied have applied for or taken up or indicated an interest for or received or have been or will be placed or allocated (including conditionally and/or provisionally) International Placing Shares;
• your payment is not made correctly or you pay by cheque or banker’s cashier order and the cheque or banker’s cashier order is dishonoured on its first presentation; or
• your application form is not completed in accordance with the instructions as stated in the application form.
• If your application is not accepted:
Your application will not be accepted if;
• you make multiple applications or suspected multiple applications;
• you or the person for whose benefits you apply for have taken up or indicated an interest or applied for or received or have been or will be placed or allocated (including conditionally and/or provisionally) Public Offer Shares and/or Offer Shares in the International Placing. By filling in any of the application forms, you agree not to apply for Public Offer Shares as well as Offer Shares in the International Placing. Reasonable steps will be taken to identify and reject applications in the Public Offer from investors who have received Offer Shares in the International Placing, and to identify and reject indications of interest in the International Placing from investors who have received Public Offer Shares in the Public Offer;
– 159 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES
• your payment is not made correctly or you pay by cheque or banker’s cashier order and the cheque or banker’s cashier order is dishonoured upon its first presentation;
• your application form is not completed in accordance with the instructions as stated in the application form;
• the Underwriting Agreements do not become unconditional; or
• the Underwriting Agreements are terminated in accordance with their respective terms.
You should also note that you may apply for H Shares under the Public Offer or indicate an interest for H Shares under the International Placing, but may not do both.
• If the allotment of Public Offer Shares is void:
Your allotment of Public Offer Shares will be void if the Listing Committee of the Stock Exchange does not grant permission to list the H Shares either:
• within 3 weeks from the closing of the applications list; or
• within a longer period of up to 6 weeks if the Listing Committee of the Stock Exchange notifies the Company of that longer period within 3 weeks of the closing date of the application lists.
COMMENCEMENT OF DEALINGS IN THE H SHARES
Dealings in the H Shares on the Stock Exchange are expected to commence on Monday, 30 June, 2003.
The H Shares will be traded in board lots of 2,000 each.
H SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS
If the Stock Exchange grants the listing of, and permission to deal in, the H Shares and the Company complies with the stock admission requirements of HKSCC, the H Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the date of commencement of dealings in the H Shares on the Stock Exchange or any other date HKSCC chooses. Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second business day after any trading day.
All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.
All necessary arrangements have been made for the H Shares to be admitted into CCASS.
Investors should seek the advice of their stockbroker or other professional adviser for details of the settlement arrangements as such arrangements will affect their rights and interests.
– 160 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES
Deposit of share certificates into CCASS
If you apply for Public Offer Shares using a yellow application form and your application is wholly or partially successful, your share certificates will be issued in the name of HKSCC Nominees Limited and deposited into CCASS for credit to your investor participant stock account or the stock account of your designated CCASS participant as instructed by you in your application form at the close of business on Thursday, 26 June, 2003, or under contingent situation, on any other date as shall be determined by HKSCC or HKSCC Nominees Limited.
If you are applying through a designated CCASS participant (other than a CCASS investor participant):
• for Public Offer Shares credited to the stock account of your designated CCASS participant (other than a CCASS investor participant), you can check the number of Public Offer Shares allotted to you with that CCASS participant.
If you are applying as a CCASS investor participant:
• the Company expects to publish the results of CCASS investor participants’ applications together with the results of the Public Offer in the newspapers on Wednesday, 25 June, 2003. You should check the announcement published by the Company and report any discrepancies to HKSCC before 12:00 noon on Thursday, 26 June, 2003 or such other date as shall be determined by HKSCC or HKSCC Nominees Limited. On Friday, 27 June, 2003 (the next day following the credit of the Public Offer Shares to your stock account), you can check your new account balance via the CCASS Phone System and CCASS Internet System (under the procedures contained in HKSCC’s “An Operating Guide for Investor Participants’’ in effect from time to time). HKSCC will also mail to you an activity statement showing the number of Public Offer Shares credited to your stock account.
DESPATCH/COLLECTION OF SHARE CERTIFICATES AND REFUND CHEQUES
If an application is rejected, not accepted or accepted in part only, or if the conditions of the Offering are not fulfilled in accordance with the paragraph headed “Conditions of the Offering” under the section headed “Structure of the Offering” of this prospectus or if any application is revoked or any allotment pursuant thereto has become void, or if the Offer Price (as finally determined) is less than the price per Offer Share initially paid by applicants on application, the application monies, or the appropriate portion thereof, together with the related Stock Exchange trading fee, SFC transaction levy, investor compensation levy and brokerage will be refunded, without interest. It is intended that special efforts will be made to avoid any undue delay in refunding application monies where appropriate.
No temporary document of title will be issued in respect of the H Shares. Share certificates which will be issued on Thursday, 26 June, 2003 will only become valid certificates of title after 6:00 a.m. on Monday, 30 June, 2003 provided that (i) the Public Offer becomes unconditional and (ii) the right of termination as described in the paragraph headed “Grounds for termination” under the section headed “Underwriting” of this prospectus has not been exercised thereto. No receipt will be issued for sums paid on application but, subject as mentioned below, in due course there
– 161 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES will be sent to you (or, in the case of joint applicants, to the first-named applicant) by ordinary post, at your own risk, to the address specified on the application form:
(a) (i) share certificate(s) for all the Public Offer Shares applied for, if the application is wholly successful; or (ii) share certificate(s) for the number of Public Offer Shares successfully applied for, if the application is partially successful (except for wholly successful and partially successful applicants on yellow application forms whose share certificates will be deposited into CCASS as described above); and/or
(b) a refund cheque crossed “Account Payee Only” in favour of the applicant (or, in the case of joint applicants, the first-named applicant) for (i) the surplus application monies for the Public Offer Shares unsuccessfully applied for, if the application is partially unsuccessful; and/or (ii) all the application monies, if the application is wholly unsuccessful in each case including brokerage at the rate of 1%, Stock Exchange trading fee of 0.005%, SFC transaction levy of 0.005% and investor compensation levy of 0.002% but without interest.
(c) in the event that the Offer Price is less than the price per Public Offer Share paid by you, the surplus application money (including the brokerage, the SFC transaction levy, the investor compensation levy and the Stock Exchange trading fee attributable to such surplus) will be refunded to you without interest.
Subject as mentioned below, refund cheques for surplus application monies (if any), and share certificates for successful applicants under white application forms are expected to be posted on Thursday, 26 June, 2003. The right is reserved to retain any share certificates and any surplus application monies pending clearance of cheque(s) or banker’s cashier order(s).
If you apply for 1,000,000 H Shares or more and have indicated in your application form that you wish to collect refund cheques (where applicable) and share certificates (where applicable) personally, you may collect your refund cheques (where applicable) and share certificates (where applicable) from Tengis Limited, the Company’s Hong Kong share registrar at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong from 9:00 a.m. to 1:00 p.m. on Thursday, 26 June, 2003 or any other date notified by the Company in the newspapers as the date of despatch of share certificates/refund cheques. If you are an individual who opts for personal collection, you must not authorise any other person to make collection on your behalf. If you are a corporate applicant which opts for personal collection, you must attend by your authorised representative bearing a letter of authorisation from your corporation stamped with your company’s chop. Both individuals and authorised representatives must produce, at the time of collection, evidence of identity acceptable to Tengis Limited. If you do not collect your refund cheque(s) and share certificate(s), they will be despatched thereafter to you by ordinary post to the address as specified in your application form at your own risk.
If you have applied for less than 1,000,000 H Shares or if you have applied for 1,000,000 H Shares or more but have not indicated in your application form that you wish to collect your share certificate(s) (where applicable) and/or refund cheque(s) (where applicable) personally within the time specified for collection, then your share certificate(s) (if you have applied using a white application form) and/or refund cheque(s) will be sent to the address on your application form on Thursday, 26 June, 2003 by ordinary post and at your own risk.
– 162 – APPENDIX I ACCOUNTANTS’ REPORT
The following is the text of a report, prepared for the purpose of incorporation in this prospectus, received from the auditors and reporting accountants, PricewaterhouseCoopers, Certified Public Accountants, Hong Kong.
PricewaterhouseCoopers 22nd Floor, Prince’s Building Central, Hong Kong
17 June, 2003 The Directors Baoye Group Company Limited First Shanghai Capital Limited
Dear Sirs,
We set out below our report on the financial information relating to Baoye Group Company Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for each of the three years ended 31 December, 2000, 2001 and 2002 (the “Relevant Periods”), for inclusion in the prospectus of the Company dated 17 June, 2003 (the “Prospectus”) in connection with the initial listing of the shares of the Company on the Main Board of The Stock Exchange of Hong Kong Limited (“the Stock Exchange”).
The Company was established as a limited liability company in the People’s Republic of China (the “PRC”) in May 1998 under the name Zhejiang Baoye Construction Works Group Co., Ltd. Pursuant to a group reorganisation as described more fully in the paragraphs headed “Reorganisation” in Appendix IV of the Prospectus (the “Reorganisation”), the Company became a joint stock limited company and changed to its present name, Baoye Group Company Limited, on 30 August, 2002.
As at 31 December, 2002, the Company has direct or indirect interest in the following subsidiaries and joint venture, all of which are private companies incorporated outside Hong Kong.
Date/Place of Attributable equity Name incorporation Entity type interest held Registered capital Principal activities Direct Indirect
Subsidiaries
Zhejiang Baoye 15 February, 2001 Limited 99% – RMB300,000,000 Construction and Construction Group The PRC Liability interior decoration Co., Ltd. (Note 1) Company
Zhejiang Baoye Curtain 1 December, 1999 Limited 83.1% – RMB10,800,000 Installation of Wall Decoration The PRC Liability curtain wall and Co., Ltd. Company steel framework (“Baoye Curtain Wall”)
– 163 – APPENDIX I ACCOUNTANTS’ REPORT
Date/Place of Attributable equity Name incorporation Entity type interest held Registered capital Principal activities Direct Indirect
Zhejiang Baoye 16 March, 2001 Limited 87.5% 12.4% RMB30,000,000 Construction of highway, Infrastructure The PRC Liability bridge and other Construction Company municipal Co., Ltd. infrastructure
Zhejiang Guangyi 16 June, 1995 Limited 93.3% 6.6% RMB15,000,000 Decoration and Construction and The PRC Liability replenishment Decoration Co., Ltd. Company (“Guangyi Decoration”)
Zhejiang Shaoxing 24 January, 1995 Limited 90% 9.9% RMB20,000,000 Real estate development Baoye Real Estate The PRC Liability Development Co., Ltd. Company (“Baoye Real Estate”)
Zhejiang Baoye Building 8 July, 1999 Joint Stock – 63.9% RMB60,600,000 Production and sales of Materials Industrialisation The PRC Limited concrete and Company Limited Company construction materials
Shaoxing Commodity 7 April, 1994 Limited 51.5% – RMB21,500,000 Production and sales of Concrete Co., Ltd. The PRC Liability concrete and (Note 2) Company construction materials
Shaoxing Baoye Fireproof 19 March, 2002 Limited 88.3% 7.5% RMB3,000,000 Production and sales of Materials Co., Ltd. The PRC Liability steel, wood fireproof Company doors
Zhejiang Building Materials 6 December, 1999 Limited 90% – RMB6,000,000 Construction and Industrialisation and The PRC Liability decoration design Design Research Institute Company Co., Ltd.
Shaoxing Baoye New 25 May, 2002 Limited – 72.7% RMB2,000,000 Production and sales of Building Materials The PRC Liability construction materials Co., Ltd. Company
Fuzhou Baoyue Real Estate 30 August, 2002 Limited – 50.5% RMB20,000,000 Real estate development Development Company The PRC Liability Limited (“Fuzhou Baoyue”) Company (see Section IV(ii))
Shanghai Zibao Real Estate 26 December, 2002 Limited – 55% RMB18,000,000 Real estate development Development Co., Ltd. The PRC Liability Company
Joint Venture
Hefei Qingfangcheng 14 March, 2002 Limited 50% – RMB30,000,000 Real estate development Baoye Real Estate The PRC Liability Co., Ltd. Company
– 164 – APPENDIX I ACCOUNTANTS’ REPORT
Notes:
1. As described more fully in the paragraphs headed “Reorganisation” in Appendix IV of the Prospectus, Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) had a registered capital of RMB100 million upon establishment and was held by the Company, Staff Shareholding Committee of Zhejiang Baoye Construction Works Group Company (“Staff Shareholding Committee”), Guangyi Decoration, Baoye Curtain Wall, Zhejiang Baoye Construction Accessories Co., Ltd. (“Baoye Accessories”) and Zhejiang Baoye Industrial Investment Company Limited (“Baoye Investment”) as to 50%, 30%, 6%, 5%, 5% and 4% respectively. In October 2001, Staff Shareholding Committee and Baoye Accessories transferred their equity interests in Baoye Construction to Labour Union Committee of Baoye Holdings (“Baoye Union”). In November 2001, Baoye Construction resolved to increase its registered capital from RMB100 million to RMB300 million and the increased portion of capital was injected by Baoye Union and Shaoxing County Yangxunqiao Township Collective Assets Management Company (“Town Management Company”). The then registered capital was held by the Company, Baoye Union, Town Management Company, Guangyi Decoration, Baoye Curtain Wall and Baoye Investment as to approximately 16.7%, 55%, 23.3%, 2%, 1.7% and 1.3%, respectively.
According to the declarations (“Declarations”) dated 20 April, 2003 of the Company, Baoye Construction, Baoye Union, Guangyi Decoration, Baoye Curtain Wall, Baoye Investment and Town Management Company, there were verbal agreements between each of the shareholders of Baoye Construction with the Company. According to these verbal agreements, since the registered capital injected into Baoye Construction by them was financed by advances from the Company and/or Baoye Construction (at the instruction of the Company), all the shareholders of Baoye Construction (other than the Company) agreed that all their shareholders rights from the date of establishment of Baoye Construction belonged to the Company and they would hold and exercise such rights on behalf of the Company.
Pursuant to resolutions in the shareholders’ meeting of Baoye Construction dated 1 April, 2002, and the Declarations, the Company was entitled to dividends received by other shareholders of Baoye Construction on its behalf, the Company would repay the advances made by Baoye Construction, and approximately 1% interest in Baoye Construction would be transferred to three individual shareholders, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin. The adjustment and rectification of the shareholding structure of Baoye Construction was confirmed by Shaoxing County Administration for Industry and Commerce. To implement the adjustment in the shareholding structure and to complete the rectification formalities, an agreement dated 13 June, 2002 was entered into among the Company, Baoye Union, Town Management Company, Guangyi Decoration, Baoye Curtain Wall, Baoye Investment, Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin, pursuant to which Baoye Union, Town Management Company, Guangyi Decoration, Baoye Curtain Wall and Baoye Investment transferred an aggregate of approximately 82.3% interests to the Company at nil consideration and an aggregate of approximately 1.0% interests to Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin for a consideration of RMB3,000,000.
After completion of this agreement, Baoye Construction is owned by the Company as to 99%, Mr. Wang Liequan as to approximately 0.33%, Mr. Chen Baorong as to approximately 0.33%, Mr. Xia Weimin as to approximately 0.33%.
According to the above, Baoye Construction was treated as a 100% owned subsidiary of the Company for the period from its establishment to 13 June, 2002, and was treated as a 99% owned subsidiary since 13 June, 2002.
2. According to the terms of the agreement entered into between the Company, Zhejiang Huanyu Construction Group Co., Ltd. (“Zhejiang Huanyu”) and Shaoxing Municipal Infrastructure Company (“Municipal Infrastructure”), the owners of Shaoxing Commodity Concrete Co., Ltd. (“Concrete Company”), Concrete Company was required to pay an annual fixed fee based on 15% of Zhejiang Huanyu and Municipal Infrastructure’s investments to Zhejiang Huanyu and Municipal Infrastructure respectively. After the payment of the fixed fee, the Company was entitled to all of the Concrete Company’s remaining profit. Effective from 20 June, 2002, when Concrete Company was converted from a state and collectively jointly-owned enterprise into a limited liability company, the fixed fee payment arrangement was discontinued and profit is to be shared among the investors according to their percentage of interest held.
All companies comprising the Group and the joint venture have adopted 31 December as their financial year end date. The management accounts of these entities were prepared in accordance with the relevant accounting principles and financial regulations applicable to PRC enterprises (the “PRC GAAP”).
– 165 – APPENDIX I ACCOUNTANTS’ REPORT
The statutory consolidated financial statements of the Group for the year ended 31 December, 2002 prepared in accordance with the PRC GAAP were audited by PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd, certified public accountants registered in the PRC. No other audited statutory annual financial statements has been prepared for the companies comprising the Group for the Relevant Periods.
For the purpose of the Reorganisation, the Directors of the Company have prepared the consolidated financial statements of the Group for each of the years ended 31 December, 2000, 2001 and three-month period ended 31 March, 2002 in accordance with PRC GAAP (the “PRC GAAP Financial Statements”). The PRC GAAP Financial Statements were audited by PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd, certified public accountants registered in the PRC.
No audited financial statements have been prepared for the joint venture since its date of incorporation.
For the purpose of this report, we have carried out an independent audit of the consolidated financial statements of the companies now comprising the Group for the Relevant Periods prepared under accounting principles generally accepted in Hong Kong in accordance with the Statements of Auditing Standards issued by the Hong Kong Society of Accountants (“HKSA”).
The financial information as set out in Sections I to V below (the “Financial Information”) has been prepared based on the audited consolidated financial statements or, where appropriate, unaudited management accounts of the joint venture and all the companies comprising the Group on the basis set out in Note 1 of Section II below, after making such adjustments as are appropriate to comply with accounting principles generally accepted in Hong Kong. We have examined the Financial Information in accordance with the Statements of Auditing Standards issued by the HKSA and have carried out such additional procedures as are necessary in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” issued by the HKSA. The directors and management of the respective companies comprising the Group and the joint venture, at the Relevant Periods, are responsible for preparing financial statements which give a true and fair view. In preparing these financial statements, it is fundamental that appropriate accounting policies are selected and applied consistently.
The directors of the Company are responsible for the Financial Information. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion.
In our opinion, the Financial Information, for the purpose of this report, and prepared on the basis set out in Note 1 of Section II below, gives a true and fair view of the consolidated state of affairs of the Group and the state of affairs of the Company as at 31 December, 2000, 2001 and 2002 and the consolidated results and consolidated cash flows of the Group for the Relevant Periods.
– 166 – APPENDIX I ACCOUNTANTS’ REPORT
I. FINANCIAL INFORMATION
The following are the consolidated financial statements of the Group and the balance sheets of the Company for the Relevant Periods, prepared on the basis set out in Note 1 of Section II below, and after making such adjustments as are appropriate:
(a) Consolidated income statements
Year ended 31 December, 2000 2001 2002 Note RMB’000 RMB’000 RMB’000
Turnover 2 981,896 1,604,574 2,297,526 Cost of sales (851,541) (1,409,366) (2,034,708)
Gross profit 130,355 195,208 262,818 Other revenues 2 6,028 42,420 40,053 Distribution costs (1,850) (4,607) (3,339) Administrative expenses (40,082) (42,670) (79,129) Other operating expenses (219) (4,658) (875)
Operating profit 3 94,232 185,693 219,528 Finance costs 4 (6,290) (6,150) (5,502) Share of loss of a joint venture 14 – – (1,016)
Profit before taxation 87,942 179,543 213,010 Taxation 5 (28,565) (55,152) (64,369)
Profit after taxation 59,377 124,391 148,641 Minority interests 357 (2,338) (7,566)
Profit attributable to shareholders 59,734 122,053 141,075
Dividends – – –
Basic earnings per share 8 0.34 0.35 0.40
– 167 – APPENDIX I ACCOUNTANTS’ REPORT
(b) Consolidated balance sheets
As at 31 December, 2000 2001 2002 Note RMB’000 RMB’000 RMB’000
Non-current assets Fixed assets 9 186,070 193,501 198,021 Properties held for development 10 74,353 82,570 8,695 Properties under development 11 11,160 603 71,389 Investment securities 13 3,050 3,050 – Investment in a joint venture 14 – – 46,984 Non-current deposits 15 – – 113,000 Deferred tax assets 27 1,682 1,859 6,208
276,315 281,583 444,297 ------
Current assets Inventories 16 11,528 10,484 11,900 Properties under development 11 95,297 73,008 22,737 Completed properties held for sale 3,040 92,185 26,549 Due from customers on construction contracts 17 164,495 255,096 204,145 Amounts due from related parties 18 63,036 83,556 20,272 Amounts due from directors 18 2,014 2,100 – Trade and other receivables 19 160,201 301,930 397,115 Cash and bank balances 20 98,510 208,267 251,370
598,121 1,026,626 934,088 ------
– 168 – APPENDIX I ACCOUNTANTS’ REPORT
As at 31 December, 2000 2001 2002 Note RMB’000 RMB’000 RMB’000 Current liabilities Trade and other payables 21 264,924 306,963 359,771 Taxes payable 22 68,016 90,798 100,763 Due to customers on construction contracts 17 197,299 304,656 204,727 Amounts due to related parties 18 3,039 6,901 33,615 Amounts due to directors 18 – – 900 Provision for warranty 23 534 1,480 4,880 Current portion of long-term bank loans 24 – 8,000 – Short-term bank loans 24 86,000 200,600 143,950
619,812 919,398 848,606 ------
Net current (liabilities)/assets (21,691) 107,228 85,482 ------
Total assets less current liabilities 254,624 388,811 529,779
Non-current liabilities Long-term bank loans 24 18,000 2,000 –
Minority interests 20,013 47,985 67,905
Net assets 216,611 338,826 461,874
Financed by:
Owners’ equity
Paid-in/Share capital 25 110,000 110,000 350,742 Reserves 26 32,401 50,628 19,466 Retained earnings 74,210 178,198 91,666
Total owners’ equity 216,611 338,826 461,874
– 169 – APPENDIX I ACCOUNTANTS’ REPORT
(c) Balance sheets of the Company As at 31 December, 2000 2001 2002 Note RMB’000 RMB’000 RMB’000 Non-current assets Fixed assets 9 55,044 – 1,548 Investments in subsidiaries 12 172,112 194,054 239,186 Investment securities 13 3,050 3,050 – Investment in a joint venture 14 – – 39,484 Deferred tax assets 27 1,924 – –
232,130 197,104 280,218 Current assets Inventories 16 491 – – Due from customers on construction contracts 17 143,988 – – Amounts due from related parties 18 61,258 – – Amounts due from directors 18 14 – – Trade and other receivables 19 105,242 – – Cash and bank balances 20 63,079 26,872 760
374,072 26,872 760 Current liabilities Trade and other payables 21 136,178 6,236 3,653 Taxes payable 22 35,739 12,766 11,941 Due to customers on construction contracts 17 176,844 – – Amounts due to shareholders 18 2,664 – – Provision for warranty 23 534 – – Short-term bank loans 24 72,300 43,000 –
424,259 62,002 15,594
Net current liabilities (50,187) (35,130) (14,834)
Total assets less current liabilities 181,943 161,974 265,384
Non-current liabilities Long-term bank loans 24 18,000 – –
Net assets 163,943 161,974 265,384
Financed by:
Owners’ equity
Paid-in/Share Capital 25 110,000 110,000 350,742 Reserves 26 12,905 29,101 6,346 Retained earnings/ (Accumulated losses) 41,038 22,873 (91,704)
Total owners’ equity 163,943 161,974 265,384
– 170 – APPENDIX I ACCOUNTANTS’ REPORT
(d) Consolidated statements of changes in owners’ equity
Asset Statutory Statutory Share Paid-in/ revaluation surplus public issuance Retained Share capital reserve reserve welfare fund costs earnings Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at 1 January, 2000 50,000 5,600 1,676 570 – 23,266 81,112
Surplus on revaluation of investment properties – 15,765 – – – – 15,765 Profit for the year – – – – – 59,734 59,734 Transfer to statutory surplus reserve (Note 26) – – 5,870 – – (5,870) – Transfer to statutory public welfare fund (Note 26) – – – 2,920 – (2,920) – Capital injection (Note 25) 60,000 – – – – – 60,000
As at 31 December, 2000 110,000 21,365 7,546 3,490 – 74,210 216,611
Surplus on revaluation of investment properties – 162 – – – – 162 Profit for the year – – – – – 122,053 122,053 Transfer to statutory surplus reserve (Note 26) – – 12,043 – – (12,043) – Transfer to statutory public welfare fund (Note 26) – – – 6,022 – (6,022) –
As at 31 December, 2001 110,000 21,527 19,589 9,512 – 178,198 338,826
Profit for the year – – – – – 141,075 141,075 Capitalisation into paid-in capital (Note 25) 240,742 – (19,589) (9,512) – (211,641) – Transfer to statutory surplus reserve (Note 26) – – 10,644 – – (10,644) – Transfer to statutory public welfare fund (Note 26) – – – 5,322 – (5,322) – Release upon disposal/ dilution of equity interest in subsidiaries – (8,407) – – – – (8,407) Share issuance costs – – – – (9,620) – (9,620)
As at 31 December, 2002 350,742 13,120 10,644 5,322 (9,620) 91,666 461,874
– 171 – APPENDIX I ACCOUNTANTS’ REPORT
(e) Consolidated cash flow statements
Year ended 31 December, 2000 2001 2002 Note RMB’000 RMB’000 RMB’000
Cash flow from operating activities Net cash generated from operations 28a 42,224 52,937 349,119 Interest paid (8,140) (9,645) (5,626) Income taxes paid (2,870) (56,008) (65,931)
Net cash inflow/(outflow) from operating activities 31,214 (12,716) 277,562 ------
Cash flow from investing activities Purchase of fixed assets (78,949) (24,258) (53,616) Deposits placed for land use rights – – (113,000) Proceeds on disposal of fixed assets 1,067 2,341 3,670 Disposal of subsidiaries 28c – – 16,676 Investment in a joint venture – – (48,000) Purchase of other investments (3,556) – – Sale of other investments 4,941 – – Interest received 1,577 1,812 1,639
Net cash outflow from investing activities (74,920) (20,105) (192,631) ------
– 172 – APPENDIX I ACCOUNTANTS’ REPORT
Year ended 31 December, 2000 2001 2002 Note RMB’000 RMB’000 RMB’000
Cash flow from financing activities Issue of paid-in capital 60,000 – – Injections from minority shareholders 10,667 20,610 26,620 Proceeds from borrowings 285,200 590,000 386,950 Repayment of borrowings (286,800) (483,400) (443,600) Payment for shares issuance costs – – (7,820)
Net cash inflow/(outflow) from financing activities 69,067 127,210 (37,850) ------
Increase in cash and cash equivalents 25,361 94,389 47,081 Cash and cash equivalents at beginning of year 70,149 95,510 189,899
Cash and cash equivalents at end of year 95,510 189,899 236,980
Analysis of balances of cash and cash equivalents: Cash and bank balances 98,510 208,267 251,370 Less: pledged deposits 20 (3,000) (18,368) (14,390)
95,510 189,899 236,980
– 173 – APPENDIX I ACCOUNTANTS’ REPORT
II. NOTES TO THE FINANCIAL INFORMATION
(1) Principal accounting policies
(a) Basis of presentation
The principal accounting policies adopted by the Group in arriving at the Financial Information set out in this report, which are in conformity with accounting principles generally accepted in Hong Kong and the Statements of Standard Accounting Practice (the “SSAP”) issued by the HKSA, are set out below:
The Financial Information in this report is prepared under the historical cost convention except that, as disclosed in the accounting policies below, investment properties and other investments are stated at fair values.
The Company was established as a limited liability company and became a joint stock limited company on 30 August, 2002. The Financial Information as set out in Sections I to V has been prepared on continuing basis.
(b) Consolidation
The consolidated income statements and cash flow statements of the Group include the results and cash flows of the companies comprising the Group for the Relevant Periods.
The consolidated balance sheets of the Group as at 31 December, 2000, 2001 and 2002 have been prepared to present the assets and liabilities of the Group as at these dates.
Subsidiaries are those entities in which the Company, directly or indirectly, controls more than half of the voting power; has the power to govern the financial and operating policies; to appoint or remove a majority of the members of the board of directors; or to cast majority votes at the meetings of the board of directors.
The results of subsidiaries acquired or disposed of during the Relevant Periods are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
All significant intercompany transactions and balances within the Group are eliminated on consolidation.
The gain or loss on the disposal of a subsidiary represents the difference between the proceeds of the sale and the Group’s share of its net assets together with any unamortised goodwill or negative goodwill or goodwill/negative goodwill taken to reserves and which was not previously charged or recognised in the consolidated income statement.
Minority interests represent the interests of outside shareholders in the operating results and net assets of subsidiaries.
In the Company’s balance sheet, the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.
(c) Joint ventures
A joint venture is a contractual agreement whereby the Group and other parties undertake an economic activity which is subject to joint control and none of the participating parties has unilateral control over the economic activity.
The consolidated income statement includes the Group’s share of the results of the jointly controlled entities for the year, and the consolidated balance sheet includes the Group’s share of the net assets of the jointly controlled entities and also goodwill/negative goodwill (net of accumulated amortisation) on acquisition.
In the Company’s balance sheet, the investment in jointly controlled entities are stated at cost less provision for impairment losses. The results of jointly controlled entities are accounted for by the Company on the basis of dividends received and receivable.
– 174 – APPENDIX I ACCOUNTANTS’ REPORT
(d) Translation of foreign currencies
Transactions in foreign currencies are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities expressed in foreign currencies at the balance sheet date are translated at rates of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in the income statement.
(e) Fixed assets
(i) Investment properties
Investment properties are interests in land and buildings in respect of which construction work and development have been completed and which are held for their investment potential, any rental income being negotiated at arm’s length.
Investment properties held on leases with unexpired periods of greater than 20 years are valued on the open market value basis at intervals of not more than three years by independent valuers; in each of the intervening years valuations are undertaken by professionally qualified executives of the Group. Increases in valuation are credited to the asset revaluation reserve. Decreases in valuation are first set off against increases on earlier valuations on a portfolio basis and thereafter are debited to operating expenses. Any subsequent increases are credited to operating profit up to the amount previously debited.
Investment properties held on leases with unexpired periods of 20 years or less are depreciated over the remaining portion of the leases.
Upon the disposal of an investment property, the relevant portion of the revaluation reserve realised in respect of previous valuations is released from the asset revaluation reserve to the income statement.
(ii) Other fixed assets
Construction in progress represents plant and properties under construction and is stated at cost, which includes development and construction expenditure incurred and other direct costs attributable to the construction and borrowing costs, less accumulated impairment losses. Construction in progress is not depreciated until such time as the assets are completed and available for use.
Other fixed assets, comprising land use rights, buildings, plant and machinery, motor vehicles and office equipment and others, are stated at cost less accumulated depreciation and accumulated impairment losses. Other fixed assets are depreciated at rates sufficient to write off their cost less residual values and accumulated impairment losses over their estimated useful lives on a straight-line basis. The principal useful lives and respective residual values are as follows:
Useful lives Residual values
Land use rights over the unexpired period of rights – Buildings 20 years 10% Plant and machinery 10 years 10% Motor vehicles 5 years 10% Office equipment and others 5 years 10%
Expenditure incurred after the fixed assets have been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to the income statement in the year in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset beyond its originally assessed standard of performances, the expenditure is capitalised as an additional cost of the asset.
(iii) Impairment and gain or loss on sale
At each balance sheet date, both internal and external sources of information are considered to assess whether there is any indication that fixed assets other than investment properties are impaired. If any such indication exists, the recoverable amount of the asset is estimated and where relevant, an impairment loss is recognised to reduce the asset to its recoverable amount. Such impairment losses are recognised in the income statement.
The gain or loss on disposal of a fixed asset other than investment properties is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the income statement.
– 175 – APPENDIX I ACCOUNTANTS’ REPORT
(f) Goodwill/negative goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary/joint venture at the date of acquisition.
Goodwill on acquisitions is amortised using the straight-line method over its estimated useful life not exceeding 20 years.
Negative goodwill represents the excess of the fair value of the Group’s share of the net assets acquired over the cost of acquisition.
Negative goodwill is presented in the same balance sheet classification as goodwill. To the extent that negative goodwill relates to expectations of future losses and expenses that are identified in the Group’s plan for the acquisition and can be measured reliably, but which do not represent identifiable liabilities at the date of acquisition, that portion of negative goodwill is recognised in the income statement when the future losses and expenses are recognised. Any remaining negative goodwill, not exceeding the fair values of the non-monetary assets acquired, is recognised in the income statement over the remaining weighted average useful life of those assets; negative goodwill in excess of the fair values of those non- monetary assets is recognised in the income statement immediately.
The gain or loss on disposal of an entity includes the unamortised balance of goodwill relating to the entity disposed of.
Where an indication of impairment exists, the carrying amount of goodwill is assessed and written down immediately to its recoverable amount.
(g) Operating leases
Leases where substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases net of any incentives received from the leasing company are charged to the income statement on a straight-line basis over the lease periods.
(h) Construction contracts in progress
When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised when incurred.
When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised over the period of the contract, respectively, as revenues and expenses. The Group uses the percentage of completion method to determine the appropriate amount of revenue and costs to be recognised in a given period; the stage of completion is measured by reference to the proportion that contract costs incurred for work performed to date bear to the estimated total costs for the contract. When it is probable total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.
The aggregate of the costs incurred and the profit/loss recognised on each contract is compared against the progress billings up to the end of the year. Where costs incurred and recognised profits (less recognised losses) exceed progress billings, the balance is shown as due from customers on construction contracts, under current assets. Where progress billings exceed costs incurred plus recognised profits (less recognised losses), the balance is shown as due to customers on construction contracts, under current liabilities.
(i) Inventories
Inventories comprise stocks and work in progress and are stated at the lower of cost and net realisable value. Cost, calculated on the first-in, first-out basis, comprises materials, direct labour and an appropriate proportion of all production overhead expenditure. Net realisable value is determined on the basis of anticipated sales proceeds less estimated selling expenses.
(j) Properties under development
Properties under development are stated at the lower of cost and net realisable value. Cost comprises the cost of the land together with direct costs attributable to the development of the properties and borrowing costs capitalised during the period of development. Properties under development which are
– 176 – APPENDIX I ACCOUNTANTS’ REPORT
due for completion more than one year from the balance sheet date are shown as non-current assets while properties under development which are due for completion within one year from the balance sheet date are shown as current assets. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs necessary to complete and make the sale.
(k) Completed properties held for sale
Completed properties held for sale are stated at the lower of cost and net realisable value. Cost comprises the cost of the land together with the costs attributable to the completion of the properties. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.
(l) Properties held for development
Properties held for development represented land use rights held for development and are stated at the lower of cost and net realisable value. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs necessary to complete and make the sale.
(m) Investment in securities
i) Investment securities
Investment securities are stated at cost less any provision for impairment losses. The carrying amounts of individual investments are reviewed at each balance sheet date to assess whether the fair values have declined below the carrying amounts. When a decline other than temporary has occurred, the carrying amount of such securities will be reduced to its fair value. The impairment loss is recognised as an expense in the income statement.
This impairment loss is written back to the income statement when the circumstances and events that led to the write-down or write-offs cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future.
ii) Other investments
Other investments are carried at fair value. At each balance sheet date, the net unrealised gains or losses arising from the changes in fair value of other investments are recognised in the income statement. Profits or losses on disposal of other investments, representing the difference between the net sales proceeds and the carrying amounts, are recognised in the income statement as they arise.
(n) Accounts receivable
Provision is made against accounts receivable to the extent they are considered to be doubtful. Accounts receivable in the balance sheet are stated net of such provision.
(o) Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, cash investments with a maturity of three months or less from date of investment and bank overdrafts.
(p) Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate the amount can be made.
Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.
The Group recognises a provision for repairs of construction work still under warranty at the balance sheet dates. This provision is calculated based on past history of the level of repairs.
– 177 – APPENDIX I ACCOUNTANTS’ REPORT
(q) Contingent liabilities and contingent assets
A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.
A contingent liability is not recognised but is disclosed in the notes to the financial information. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision.
A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain event not wholly within the control of the Group.
Contingent assets are not recognised but are disclosed in the notes to the financial information when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.
(r) Deferred taxation
Deferred taxation is accounted for at the current taxation rate in respect of timing differences between profit as computed for taxation purposes and profit as stated in the financial information to the extent that a liability or an asset is expected to be payable or recoverable in the foreseeable future.
(s) Revenue recognition
When the outcome of a construction contract can be estimated reliably, contract revenue is recognised using the percentage of completion method, measured by reference to the contract costs incurred to date to estimated total contract costs for the contract. When the outcome of a construction contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable.
Revenue from the sale of building materials is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and title has passed.
Revenue from sales of completed properties held for sale is recognised upon execution of the sales agreements. When a development property is sold in advance of completion, revenue is only recognised upon completion of the development. Deposits and instalments received on properties sold prior to the date of revenue recognition are included in the balance sheet under “trade and other payables”.
Operating lease rental income is recognised on a straight-line basis.
Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.
Dividend income is recognised when the right to receive payment is established.
(t) Retirement benefit costs
The costs of employee retirement benefits are recognised as an expense in the year in which they are incurred.
(u) Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset.
All other borrowing costs are charged to the income statement in the year in which they are incurred.
(v) Government grants
A government grant is recognised, when there is reasonable assurance that the grant will be received and all attached conditions are complied with.
– 178 – APPENDIX I ACCOUNTANTS’ REPORT
(w) Segment reporting
In accordance with the Group’s internal financial reporting, the Group has determined that business segments be presented as the primary reporting format and geographical segments as the secondary reporting format.
Segment assets consist primarily of fixed assets, property held for development, property under development, completed properties held for sale, inventories, amount due from customers on construction contracts, receivables and operating cash, and exclude deferred tax, investment securities and investment properties. Segment liabilities comprise operating liabilities including amount due to customers on construction contracts and exclude items such as certain borrowings and income tax payable. Capital expenditure comprises additions to fixed assets.
In respect of geographical segment reporting, sales are based on the country in which the customer is located. Total assets and capital expenditure are allocated based on where the assets are located.
(2) Segment information
The Group is principally engaged in (1) the provision of construction services, (2) manufacturing and distribution of building materials and (3) property development. Revenues recognised during the year are as follows:
Year ended 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Turnover Construction contracts revenue 820,857 1,331,913 1,896,354 Sales of building materials 59,588 123,532 148,696 Sales of properties 100,122 146,140 251,292 Others 1,329 2,989 1,184
981,896 1,604,574 2,297,526 ------
Other revenues Rental income from investment properties, net of business tax 1,106 2,681 1,235 Realised gain on disposal of other investments 1,385 –– Gain on disposal of subsidiaries ––2,690 Interest income on bank deposits 1,577 1,812 1,639 Government grants (Note) – 35,555 31,274 Others 1,960 2,372 3,215
6,028 42,420 40,053 ------
Total revenues 987,924 1,646,994 2,337,579
Note: The Financial Bureau of Shaoxing County awarded government grants to the Group for the years ended 31 December, 2001 and 2002 in recognition of the Group’s strong operational and financial performance.
– 179 – APPENDIX I ACCOUNTANTS’ REPORT
Primary reporting format – business segments
The Group is organised into three main business segments:
• Construction – construction of real properties
• Building materials – manufacture and distribution of building materials
• Property development – development of properties and sales of developed properties
Year ended 31 December, 2002 Building Property Other Construction materials development operations Elimination Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Turnover 1,987,114 180,746 251,292 1,184 (122,810) 2,297,526
Segment results 103,510 32,359 43,934 28 519 180,350
Other revenues 40,053 Other operating expenses (875)
Operating profit 219,528 Finance costs (5,502) Share of loss of a joint venture (1,016)
Profit before taxation 213,010 Taxation (64,369)
Profit after taxation 148,641 Minority interests (7,566)
Profit attributable to shareholders 141,075
Segment assets 826,314 236,667 288,332 2,986 (59,644) 1,294,655 Unallocated assets 83,730
Total assets 1,378,385
Segment liabilities 522,269 62,110 157,283 22 (54,856) 686,828 Unallocated liabilities 161,778
Total liabilities 848,606
Capital expenditure 19,472 82,091 1,548 5 – 103,116 Depreciation 8,901 5,634 1,602 6 – 16,143 Provision for doubtful receivables 8,843 917 362 ––10,122
– 180 – APPENDIX I ACCOUNTANTS’ REPORT
Year ended 31 December, 2001
Building Property Other Construction materials development operations Elimination Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Turnover 1,453,184 148,965 146,140 2,989 (146,704) 1,604,574
Segment results 81,390 33,576 37,234 (2,715) (1,554) 147,931
Other revenues 42,420 Other operating expenses (4,658)
Operating profit 185,693 Finance costs (6,150)
Profit before taxation 179,543 Taxation (55,152)
Profit after taxation 124,391 Minority interests (2,338)
Profit attributable to shareholders 122,053
Segment assets 904,637 186,927 300,248 29,962 (173,319) 1,248,455 Unallocated assets 59,754
Total assets 1,308,209
Segment liabilities 639,783 36,761 226,192 5,737 (168,265) 740,208 Unallocated liabilities 181,190
Total liabilities 921,398
Capital expenditure 16,197 7,140 78 843 – 24,258 Depreciation 8,594 5,159 868 232 – 14,853 Provision for doubtful receivables 1,939 1,394 –––3,333
– 181 – APPENDIX I ACCOUNTANTS’ REPORT
Year ended 31 December, 2000
Building Property Other Construction materials development operations Elimination Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Turnover 881,722 73,364 100,122 1,329 (74,641) 981,896
Segment results 46,869 16,622 27,700 (963) (1,805) 88,423
Other revenues 6,028 Other operating expenses (219)
Operating profit 94,232 Finance costs (6,290)
Profit before taxation 87,942 Taxation (28,565)
Profit after taxation 59,377 Minority interests 357
Profit attributable to shareholders 59,734
Segment assets 587,715 90,076 226,159 24,234 (113,064) 815,120 Unallocated assets 59,316
Total assets 874,436
Segment liabilities 412,078 40,044 181,027 2,564 (109,570) 526,143 Unallocated liabilities 111,669
Total liabilities 637,812
Capital expenditure 19,408 40,210 16,420 2,911 – 78,949 Depreciation 7,775 2,784 2,002 131 – 12,692 Provision for doubtful receivables 1,777 72 13 ––1,862
Secondary reporting format – geographical segments
All the Group’s turnover for each of the Relevant Periods was made in the PRC.
As at 31 December, 2000, 2001 and 2002, all the Group’s segment assets were located in the PRC.
During each of the Relevant Periods, all the Group’s additions to investment properties and fixed assets took place in the PRC.
– 182 – APPENDIX I ACCOUNTANTS’ REPORT
(3) Operating profit
Operating profit is stated after crediting and charging the following:
Year ended 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Crediting
Gain on dilution of equity interest in a subsidiary 1,460 –– Gains on disposal of fixed assets 193 136 1,419
Charging
Depreciation of owned fixed assets 12,692 14,853 16,143 Staff costs (including directors’ remuneration) 115,839 209,860 291,867 Operating leases of land and buildings 188 405 561 Outgoings in respect of investment properties 58 141 65 Retirement benefit costs (Note 6) 395 372 1,094 Auditors’ remuneration 23 190 40 Provision for doubtful receivables 1,862 3,333 10,122 Provision for warranty (Note 23) 517 1,029 3,520 Loss on dilution of equity interest in subsidiaries – 4,504 168 Land appreciation tax ––17,923
(4) Finance costs
Year ended 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Interest on bank loans and overdrafts 8,140 9,645 6,199 Less: interest capitalised in properties under development (1,850) (3,495) (697)
6,290 6,150 5,502
The capitalisation rates applied to funds borrowed generally and used for the development of properties were approximately 6.3%, 6.3% and 5.9% per annum for the years ended 31 December, 2000, 2001 and 2002 respectively.
(5) Taxation
The companies comprising the Group are subject to PRC Enterprise Income Tax (“EIT”) at a rate of 33%.
The amounts of taxation charged to the consolidated income statements represent:
Year ended 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
PRC current taxation 28,589 55,329 68,718 Deferred taxation (Note 27) (24) (177) (4,349)
28,565 55,152 64,369
(6) Retirement benefit costs
As stipulated by the Government regulations in Mainland China, the Company and its subsidiaries are required to contribute to the State-sponsored retirement scheme for all of its employees at 19% to 20% of the eligible salary of its employees on a monthly basis. The State-sponsored retirement scheme is responsible for the entire pension obligations payable to all retired employees and the Group has no further obligations for the actual pension payments or post-retirement benefits beyond the monthly contributions.
– 183 – APPENDIX I ACCOUNTANTS’ REPORT
The details of the contributions to retirement scheme made by the Group, which have been dealt with in the consolidated income statements of the Group for the Relevant Periods were as follows:
Year ended 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Contributions to retirement scheme 395 372 1,094
(7) Directors’, supervisors’ and senior management’s emoluments
(a) Directors’ and supervisors’ emoluments
The aggregate amounts of emoluments payable to directors and supervisors of the Company during the Relevant Periods are as follows: Year ended 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Basic salaries, allowances and benefits in kind 257 277 375 Bonuses 1,434 2,174 1,260 Retirement benefits 10 11 15
1,701 2,462 1,650
The emoluments of the directors and supervisors fell within the following bands:
Number of directors
Year ended 31 December, 2000 2001 2002 Emolument bands Executive directors RMBNil – RMB1,060,000 (equivalent to HK$1,000,000) 13 13 17
Supervisors RMBNil – RMB1,060,000 (equivalent to HK$1,000,000) ––5
During the Relevant Periods, no director and supervisor waived any emoluments. No incentive payment for joining the Group nor compensation for loss of office was paid or payable to any directors or supervisors during the Relevant Periods.
(b) Five highest paid individuals
The five individuals whose emoluments were the highest in the Group during the Relevant Periods were also directors and their emoluments are reflected in the analysis presented above.
During the Relevant Periods, the Company did not pay any amount to the five highest paid individuals as an inducement to join or upon joining the Company as compensation for loss of office.
(8) Earnings per share
Basic earnings per share for the years ended 31 December, 2000, 2001 and 2002 is calculated based on the Group’s profit attributable to shareholders for the Relevant Periods and the weighted average number of 175,371,027, 350,742,053 and 350,742,053 shares in issue during the Relevant Periods respectively. In determining the weighted average number of shares in issue during the Relevant Periods, it is assumed that the conversion of capital took place at the same time as when the registered capital was injected into the Company. The deemed number of shares before the capitalisation issue is adjusted for the proportionate change in the number of shares as if the capitalisation had occurred at the beginning of the earliest period presented (see Note 25).
No dilutive earnings per share is presented as the Company has no dilutive potential ordinary shares during the Relevant Periods.
– 184 – APPENDIX I ACCOUNTANTS’ REPORT
(9) Fixed assets
Group Office Investment Land Plant and Motor equipment Construction properties use rights Buildings machinery vehicles and others in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Cost or valuation:
At 1 January, 2000 18,135 – 44,758 38,562 18,286 5,414 15,271 140,426 Additions 6,507 4,538 12,646 23,062 12,957 1,293 17,946 78,949 Revaluation 16,888 ––––––16,888 Transfers 13,054 – 16,316 –––(29,370 ) – Disposals –––(59 ) (2,261 ) ––(2,320 )
At 31 December, 2000 54,584 4,538 73,720 61,565 28,982 6,707 3,847 233,943 Additions 30 – 5,261 11,302 2,008 1,459 4,198 24,258 Revaluation 231 ––––––231 Transfers ––585 –––(585 ) – Disposals ––(2,447 ) (446 ) (769 ) (49 ) – (3,711 )
At 31 December, 2001 54,845 4,538 77,119 72,421 30,221 8,117 7,460 254,721 Additions – 3,613 12,585 6,507 20,963 1,584 9,864 55,116 Transfers ––4,553 –––(4,553 ) – Disposal of subsidiaries (25,323 ) – (6,956 ) (230 ) (170 ) (52 ) – (32,731 ) Disposals ––(1,697 ) (1,253 ) (392 ) (55 ) – (3,397 )
At 31 December, 2002 29,522 8,151 85,604 77,445 50,622 9,594 12,771 273,709
Office Investment Land Plant and Motor equipment Construction properties use rights Buildings machinery vehicles and others in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Accumulated depreciation and impairment:
At 1 January, 2000 ––4,816 16,760 13,107 1,944 – 36,627 Charge for the year – 23 2,342 5,847 3,442 1,038 – 12,692 Disposals –––(46 ) (1,400 ) ––(1,446 )
At 31 December, 2000 – 23 7,158 22,561 15,149 2,982 – 47,873 Charge for the year – 91 4,232 6,196 3,543 791 – 14,853 Disposals ––(632 ) (392 ) (453 ) (29 ) – (1,506 )
At 31 December, 2001 – 114 10,758 28,365 18,239 3,744 – 61,220 Charge for the year – 176 3,213 7,850 3,976 928 – 16,143 Disposal of subsidiaries ––(383 ) – (124 ) (22 ) – (529 ) Disposals ––(53 ) (982 ) (75 ) (36 ) – (1,146 )
At 31 December, 2002 – 290 13,535 35,233 22,016 4,614 – 75,688
Net book value:
At 31 December, 2000 54,584 4,515 66,562 39,004 13,833 3,725 3,847 186,070
At 31 December, 2001 54,845 4,424 66,361 44,056 11,982 4,373 7,460 193,501
At 31 December, 2002 29,522 7,861 72,069 42,212 28,606 4,980 12,771 198,021
– 185 – APPENDIX I ACCOUNTANTS’ REPORT
Analysis of the cost or valuation of the above assets is as follows:
Office Investment Land Plant and Motor equipment Construction properties use rights Buildings machinery vehicles and others in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 31 December, 2000 At cost – 4,538 73,720 61,565 28,982 6,707 3,847 179,359 At valuation 54,584 ––––––54,584
54,584 4,538 73,720 61,565 28,982 6,707 3,847 233,943
At 31 December, 2001 At cost – 4,538 77,119 72,421 30,221 8,117 7,460 199,876 At valuation 54,845 ––––––54,845
54,845 4,538 77,119 72,421 30,221 8,117 7,460 254,721
At 31 December, 2002 At cost – 8,151 85,604 77,445 50,622 9,594 12,771 244,187 At valuation 29,522 ––––––29,522
29,522 8,151 85,604 77,445 50,622 9,594 12,771 273,709
Land use rights comprises land use fees paid for the right to use the land where the Group’s buildings are located. All buildings of the Group are located in the PRC.
The Group’s interests in investment properties, land use rights and buildings at their net book values are analysed as follows:
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Outside Hong Kong, held on:
Leases of between 10 to 50 years 125,661 125,630 109,452
The investment properties as at 31 December, 2000, 2001 and 2002 were valued by Vigers Hong Kong Ltd., independent professional surveyors, on the open market value basis.
– 186 – APPENDIX I ACCOUNTANTS’ REPORT
Company
Office Investment Plant and Motor equipment Construction properties Buildings machinery vehicles and others in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Cost or valuation:
At 1 January, 2000 – 16,497 26,176 6,569 4,819 8,191 62,252 Additions 3,319 5,333 6,934 3,390 774 – 19,750 Revaluation 1,869 –––––1,869 Transfers – 785 –––(785 ) – Disposals ––(117 ) (2,183 ) (228 ) – (2,528 )
At 31 December, 2000 5,188 22,615 32,993 7,776 5,365 7,406 81,343 Transfer out to a subsidiary (5,188 ) (22,615 ) (32,993 ) (7,776 ) (5,365 ) (7,406 ) (81,343 )
At 31 December, 2001 ––––––– Additions –––1,590 57 – 1,647
At 31 December, 2002 –––1,590 57 – 1,647
Accumulated depreciation and impairment:
At 1 January, 2000 – 3,095 11,546 3,880 1,654 – 20,175 Charge for the year – 1,155 4,320 1,187 913 – 7,575 Disposals ––(56 ) (1,325 ) (70 ) – (1,451 )
At 31 December, 2000 – 4,250 15,810 3,742 2,497 – 26,299 Transfer out to a subsidiary – (4,250 ) (15,810 ) (3,742 ) (2,497 ) – (26,299 )
At 31 December, 2001 ––––––– Charge for the year –––99 ––99
At 31 December, 2002 –––99 ––99
Net book value:
At 31 December, 2000 5,188 18,365 17,183 4,034 2,868 7,406 55,044
At 31 December, 2001 –––––––
At 31 December, 2002 –––1,491 57 – 1,548
– 187 – APPENDIX I ACCOUNTANTS’ REPORT
Analysis of the cost or valuation of the above assets is as follows:
Office Investment Plant and Motor equipment Construction properties Buildings machinery vehicles and others in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 31 December, 2000 At cost – 22,615 32,993 7,776 5,365 7,406 76,155 At valuation 5,188 –––––5,188
5,188 22,615 32,993 7,776 5,365 7,406 81,343
At 31 December, 2001 At cost ––––––– At valuation –––––––
–––––––
At 31 December, 2002 At cost –––1,590 57 – 1,647 At valuation –––––––
–––1,590 57 – 1,647
All buildings of the Company are located in the PRC.
The Company’s interests in investment properties and buildings at their net book values are analysed as follows:
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Outside Hong Kong, held on:
Leases of between 10 to 50 years 23,553 ––
The investment properties as at 31 December, 2000 were valued by Vigers Hong Kong Ltd., independent professional surveyors, on the open market value basis.
(10) Properties held for development
As at 31 December, 2000, 2001 and 2002, the properties held for development represented the payment for land use rights under 70 years’ lease in the PRC which are held for development of real properties. As at 31 December, 2000 and 2001, land use rights of approximately RMB74,353,000 were pledged as collaterals to secure the Group’s short-term bank loans (see Note 24c).
– 188 – APPENDIX I ACCOUNTANTS’ REPORT
(11) Properties under development
Group
The properties under development are located in the PRC and are due for completion:
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Within one year 95,297 73,008 22,737 More than one year 11,160 603 71,389
106,457 73,611 94,126
As at 31 December, 2000, 2001 and 2002, the properties under development included interest capitalised of RMB1,377,000, RMB3,268,000 and RMB211,874 respectively.
(12) Investment in subsidiaries
Company
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Investment at cost, unlisted 73,718 140,368 381,760 Amount due from subsidiaries 139,393 111,065 12,030 Amount due to subsidiaries (40,999) (57,379) (154,604)
172,112 194,054 239,186
(13) Investment securities
Group and Company
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Unlisted equity securities – at cost 3,050 3,050 –
Investment securities represented a 5.8% interest in the equity of Zhejiang Keyan Scenic Spot Joint Stock Company Limited, established in the PRC. The investment has been transferred to a subsidiary and disposed of as a result of the disposal of the subsidiary which held this investment during 2002 (see Note 28c).
– 189 – APPENDIX I ACCOUNTANTS’ REPORT
(14) Investment in a joint venture
Jointly controlled entity:
Group
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Share of net assets ––13,984 Amount due from a joint venture ––33,000
––46,984
Share of net assets: Unlisted shares, at cost ––15,000 Share of loss of a joint venture ––(1,016)
––13,984
Company
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Share of net assets ––13,984 Amount due from a joint venture ––25,500
––39,484
Share of net assets: Unlisted shares, at cost ––15,000 Less: provision for impairment losses ––(1,016)
––13,984
The amount due from a joint venture is unsecured, non-interest bearing and has no fixed repayment terms.
(15) Non-current deposits
Non-current deposits represented prepayments for land use rights.
(16) Inventories
Group
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Raw materials 3,877 5,131 5,372 Work in progress 31 574 241 Finished goods 7,179 4,226 6,075 Production supplies 441 553 212
11,528 10,484 11,900
– 190 – APPENDIX I ACCOUNTANTS’ REPORT
Company
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Raw materials 491 ––
As at 31 December, 2000, 2001 and 2002, no inventories were carried at net realisable value.
(17) Amounts due from/(to) customers on construction contracts
Group
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Contract costs incurred plus attributable profits less foreseeable losses to date 1,937,959 2,925,695 4,591,478 Less: progress billings to date (1,970,763) (2,975,255) (4,592,060)
(32,804) (49,560) (582)
Represented by: Due from customers on construction contracts 164,495 255,096 204,145 Due to customers on construction contracts (197,299) (304,656) (204,727)
(32,804) (49,560) (582)
As at 31 December, 2000, 2001 and 2002, retentions and project deposits held by customers for contract work included in trade and other receivables of the Group amounted to approximately RMB53,473,000, RMB121,435,000 and RMB230,379,000 respectively (see Note 19).
As at 31 December, 2000, 2001 and 2002, advances received from customers for contract work included in trade and other payables of the Group amounted to approximately RMB4,291,000, RMB6,800,000 and RMB729,000 respectively (see Note 21).
– 191 – APPENDIX I ACCOUNTANTS’ REPORT
Company
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Contract costs incurred plus attributable profits less foreseeable losses to date 1,790,831 –– Less: progress billings to date (1,823,687) ––
(32,856) ––
Represented by: Due from customers on construction contracts 143,988 –– Due to customers on construction contracts (176,844) ––
(32,856) ––
As at 31 December, 2000 retentions and project deposits held by customers for contract work included in trade and other receivables of the Company amounted to approximately RMB53,473,000 (see Note 19).
As at 31 December, 2000, advances received from customers for contract work included in trade and other payables of the Company amounted to approximately RMB1,005,000 (see Note 21).
(18) Balances with related parties
Group
Parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence, or if they are minority shareholders of the Group’s subsidiaries. Related parties may be individuals or other entities.
As at 31 December, 2000, 2001 and 2002, the Group had the following significant balances with related parties:
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Amounts due from related parties
– Staff Shareholding Committee (Note a) 60,000 60,000 – – The Reception Centre of Zhejiang Provincial Department of Construction (Note e) 600 600 – – Zhejiang Construction Science and Design Research Institute (Note e) – 19,800 – – Zhejiang Huanyu (Note e) – 1,049 10,992 – Municipal Infrastructure (Note e) 1,178 1,948 3,734 – Tong Yingqiang (Note e) ––2,700 – Xu Jianjun (Note e) ––2,700
61,778 83,397 20,126 ------
– 192 – APPENDIX I ACCOUNTANTS’ REPORT
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Amounts due from shareholders – Sun Yongxiang 7 7 – – Xu Jianbiao – 2 – – Wang Liequan 1,251 –– – Chen Lianlu (Note b, d) – 150 5 – Wang Rongfu ––141
1,258 159 146 ------
Total 63,036 83,556 20,272
Amounts due from directors (Note c) – Pang Baogen 7 –– – Gao Lin 7 –– – Zhou Hanwan 2,000 2,100 –
2,014 2,100 –
Amounts due to related parties – Zhejiang Huanyu 375 –– – Shaoxing Feiyue Investment Company Limited (Note e, f) ––19,600
375 – 19,600 ------
Amounts due to shareholders – Xu Jianbiao (Note d) ––300 – Pang Baisong (Note b, d) ––300 – Gao Jun (Note d) ––200 – Wu Zhanglin (Note d) ––300 – Yuan Ajin (Note d) ––300 – Tang Liping (Note b, d) ––200 – Xia Weimin (Note d) 69 45 300 – Xia Yahong (Note b, d) – 5 300 – Sun Guoxun (Note b) ––1,500 – Xia Huihua (Note b, d) ––300 – Wang Jianhua 2,085 5,036 6,500 – Wang Liequan (Note d) – 1,488 715 – Chen Baorong 510 327 2,800
2,664 6,901 14,015 ------
Total 3,039 6,901 33,615
Amounts due to directors (Note c) – Pang Baogen (Note d) ––300 – Gao Lin (Note d) ––300 – Zhou Hanwan (Note d) ––300
––900
As at 31 December, 2000, 2001 and 2002, all balances with related parties were unsecured, non-interest bearing and had no fixed repayment terms. All amounts due from related parties and shareholders as at 31 December, 2002 have been fully settled in 2003.
– 193 – APPENDIX I ACCOUNTANTS’ REPORT
Additional information on amounts due from related parties:
Maximum balance of receivables from related parties Year ended 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Amounts due from related parties – Staff Shareholding Committee 60,000 60,000 60,000 – The Reception Centre of Zhejiang Provincial Department of Construction 600 600 600 – Zhejiang Construction Science and Design Research Institute – 19,800 19,800 – Zhejiang Huanyu 1,572 1,611 10,992 – Municipal Infrastructure 1,178 1,948 3,734 – Tong yingqiang ––2,700 – Xu Jianjun ––2,700
Amounts due from shareholders – Sun Yongxiang 7 7 7 – Xu Jianbiao 461 2 8 – Xia Weimin 2,154 – 2,159 – Xie Baojin (Note b) ––160 – Wang Jianhua 65 – 664 – Wang Liequan 1,251 1,251 – – Chen Baorong ––3,236 – Chen Lianlu – 150 150 – Wang Rongfu ––141
Amounts due from directors – Pang Baogen 16 7 – – Gao Lin 9 7 – – Zhou Hanwan 2,000 2,100 2,100
– 194 – APPENDIX I ACCOUNTANTS’ REPORT
Company
As at 31st December, 2000, 2001 and 2002, the Company had the following significant balances with related parties:
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Amount due from a related party
Staff Shareholding Committee 60,000 –– ------
Amounts due from shareholders – Sun Yongxiang 7 –– – Wang Liequan 1,251 ––
1,258 –– ------
Total 61,258 ––
Amounts due from directors – Pang Baogen 7 –– – Gao Lin 7 ––
14 ––
Amounts due to shareholders – Xia Weimin 69 –– – Wang Jianhua 2,085 –– – Chen Baorong 510 ––
2,664 ––
As at 31 December, 2000, all balances with related parties were unsecured, non-interest bearing and had no fixed repayment terms.
(a) This company ceased to be a shareholder in February 2002.
(b) These individuals became shareholders of the Company in February, 2002.
(c) All the above directors are also shareholders of the Company.
(d) Included in the balances as at 31 December, 2002 were deposits paid in relation to the purchase of certain units in Baoye Garden, which has been constructed by Baoye Real Estate. The construction of these units has been completed in 2003. The selling price of such units are lower than the market price but the other terms of sale are on normal commercial terms.
(e) Minority shareholders of the subsidiaries of the Group.
(f) The balance represents the amount due to Shaoxing Feiyue Investment Company Limited by Fuzhou Baoyue. Fuzhou Baoyue was disposed of in 2003 (see Section IV(ii)).
– 195 – APPENDIX I ACCOUNTANTS’ REPORT
(19) Trade and other receivables
Group As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Trade and notes receivables (Note a) 59,615 133,729 157,078 Less: provision for doubtful debts (3,820) (6,653) (13,290)
55,795 127,076 143,788 Prepayments and deposits 835 2,988 3,853 Other receivables 50,098 50,431 19,095 Retention money receivables and project deposits (Note 17) 53,473 121,435 230,379
160,201 301,930 397,115
Note:
(a) The ageing analysis of the trade and notes receivables is as follows:
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
0 to 3 months 15,033 38,401 82,615 3 months to 1 year 29,834 57,295 63,599 1 to 2 years 12,246 33,623 7,129 2 to 3 years 1,800 2,709 1,466 Over 3 years 702 1,701 2,269
59,615 133,729 157,078
Customers are generally granted credit terms of 1 to 3 months for construction business, 1 to 12 months for building materials business and no credit terms for property development business.
Company
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Trade and notes receivables (Note b) 34,899 –– Less: provision for doubtful debts (3,450) ––
31,449 –– Other receivables 20,320 –– Retention money receivables and project deposits (Note 17) 53,473 ––
105,242 ––
– 196 – APPENDIX I ACCOUNTANTS’ REPORT
Note:
(b) The ageing analysis of the trade and notes receivables is as follows:
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
0 to 3 months 4,485 –– 3 months to 1 year 21,863 –– 1 to 2 years 6,255 –– 2 to 3 years 1,706 –– Over 3 years 590 ––
34,899 ––
(20) Cash and bank balances
All cash and bank balances, which are denominated in Renminbi, are placed with banks in the PRC. The remittance of these funds out of the PRC is subject to the exchange control restrictions imposed by Government of Mainland China.
Group
Certain deposits with banks amounting to approximately RMB3,000,000, RMB18,368,000 and RMB14,390,000 as at 31 December, 2000, 2001 and 2002 respectively have been pledged to guarantee the performance of construction contracts work and notes payable.
Company
Certain deposits with banks accounting to approximately RMB3,000,000 as at 31 December, 2000 have been pledged to guarantee the performance of construction contracts work and notes payable.
(21) Trade and other payables
Group
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Trade and notes payables (Note a) 104,986 156,752 224,713 Other payables 57,505 68,865 48,026 Pre-sale receipt in advance 76,347 41,249 44,184 Deposits from project managers 21,298 32,979 39,429 Advance from customers for contract work (Note 17) 4,291 6,800 729 Accruals 497 318 2,690
264,924 306,963 359,771
– 197 – APPENDIX I ACCOUNTANTS’ REPORT
Note:
(a) The ageing analysis of the trade and notes payables is as follows:
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
1 to 3 months 45,709 84,685 60,878 3 months to 1 year 55,508 62,171 160,262 1 to 2 years 2,147 8,476 2,801 2 to 3 years 1,604 797 419 Over 3 years 18 623 353
104,986 156,752 224,713
Company
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Trade and notes payables 76,264 –– Other payables 37,197 6,236 1,853 Deposits from project managers 21,298 –– Advance from customers for contract work (Note 17) 1,005 –– Accruals 414 – 1,800
136,178 6,236 3,653
Note:
(a) The ageing analysis of the trade and notes payables is as follows:
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
1 to 3 months 35,536 –– 3 months to 1 year 37,960 –– 1 to 2 years 1,541 –– 2 to 3 years 1,209 –– Over 3 years 18 ––
76,264 ––
– 198 – APPENDIX I ACCOUNTANTS’ REPORT
(22) Taxes payable
Group
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Enterprise income tax 31,669 30,990 33,777 Value added tax 159 1,158 6,838 Business tax 31,012 46,879 33,015 Others 5,176 11,771 27,133
68,016 90,798 100,763
Company
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Enterprise income tax 13,426 – 4,830 Business tax 20,923 11,752 6,399 Others 1,390 1,014 712
35,739 12,766 11,941
(23) Provision for warranty
Group
Year ended 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
At the beginning of the year 74 534 1,480 Additional provision 517 1,029 3,520 Less: amount utilised (57) (83) (120)
At the end of the year 534 1,480 4,880
Company
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
At the beginning of the year 74 534 – Additional provision 517 –– Less: amount utilised (57) –– amount transferred out to a subsidiary – (534) –
At the end of the year 534 ––
The Group gives warranties on construction work and undertakes to repair construction work that is not satisfactory. The warranties on construction work normally covers different components for 6 months to 5 years as stipulated in the contracts.
– 199 – APPENDIX I ACCOUNTANTS’ REPORT
(24) Borrowings
Group
(a) Short-term bank loans
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Unsecured 39,100 143,700 143,950 Secured 46,900 56,900 –
86,000 200,600 143,950
Interest were charged at 5% to 7%, 6% to 8% and 5% to 7% of the outstanding loan balances for the years ended 31 December, 2000 and 2001 and 2002 respectively.
The unsecured bank loans were guaranteed by:
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
– The Company and its subsidiaries 24,100 91,700 143,950 – Independent third parties 15,000 52,000 –
39,100 143,700 143,950
(b) Long-term bank loans wholly repayable within five years
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Unsecured 18,000 10,000 – Less: Current portion of long-term loans – (8,000) –
18,000 2,000 –
The analysis of the above is as follows:
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Long-term bank loans are repayable Within 1 year – 8,000 – Between 1 to 2 years 18,000 2,000 –
18,000 10,000 –
Interest were charged at 5% to 7.5%, 5.5% to 8% and 5% to 7.5% of the outstanding loan balances for the years ended 31 December, 2000, 2001 and 2002 respectively.
– 200 – APPENDIX I ACCOUNTANTS’ REPORT
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
The unsecured bank loans were guaranteed by:
– The Company and its subsidiaries – 2,000 – – Independent third parties 18,000 8,000 –
18,000 10,000 –
(c) As at 31 December, 2000 and 2001, the secured portions of the short-term bank loans were secured by certain of the Group’s land use rights amounting to approximately RMB74,353,000 included under properties held for development (see Note 10).
Company
(a) Short-term bank loans
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Unsecured 25,400 15,000 – Secured 46,900 28,000 –
72,300 43,000 –
Interest were charged at 5% to 6%, 6% to 6.5% and 6% to 6.5% of the outstanding loan balances for the year ended 31 December, 2000, 2001 and 2002 respectively.
The unsecured bank loans were guaranteed by:
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
– Subsidiaries 10,400 10,000 – – Independent third parties 15,000 5,000 –
25,400 15,000 –
(b) Long-term bank loans wholly repayable within five years
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Unsecured 18,000 ––
The analysis of the above is as follows:
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Long-term bank loans are repayable Between 1 to 2 years 18,000 ––
18,000 ––
– 201 – APPENDIX I ACCOUNTANTS’ REPORT
Interest were charged at 5% to 7.5%, 5.5% to 8% of the outstanding loan balances for the years ended 31 December, 2000 and 2001.
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
The unsecured bank loans were guaranteed by:
– Independent third parties 18,000 ––
(c) As at 31 December, 2000 and 2001, the secured portions of the short-term bank loans were secured by certain of the Group’s land use rights amounting to approximately RMB74,353,000 included under properties held for development (see Note 10).
(25) Paid-in/Share capital
The movements of paid-in/share capital are as follows:
Number Paid-in Share of shares capital* capital (in thousand) RMB’000 RMB’000
Balances as at 1 January, 2000 N/A* 50,000 N/A* Capital injection N/A* 60,000 N/A*
Balances as at 31 December, 2000 and 31 December, 2001 N/A* 110,000 N/A*
Changes during 2002: Capitalisation into paid-in capital N/A* 240,742 N/A* Capitalisation upon transformation into shares in a joint stock limited company (registered, issued and fully paid (RMB1.00 each)) 350,742 (350,742) 350,742
Balances as at 31 December, 2002 350,742 – 350,742
* Prior to the transformation into a joint stock limited company in the PRC, the capital of the Company was not divided into ordinary shares and accordingly, no information regarding the number of shares is presented.
The Company was established as a limited liability company with registered capital of RMB50,000,000 under the name of Zhejiang Baoye Construction Works Group Co., Ltd. in May 1998.
In November, 2000, with the approval of the State Administrative Bureau for Industry and Commerce, the Company changed its name into Baoye Construction Holdings Group Co., Ltd., and the registered capital was increased to RMB110,000,000.
Pursuant to an approval (Zhe Shang Shi [2002] No.53) issued by the Supervisor Committee of Listing of Enterprises of the People’s Government of Zhejiang Province, the Company changed its name to Baoye Group Company Limited, was transformed into a joint stock limited company and obtained the enterprise legal person business license issued by the Zhejiang Administration Bureau of Industry and Commerce on 30 August, 2002. The registered paid-in-capital, retained earnings, statutory surplus reserve and statutory public welfare fund at 31 March, 2002 were capitalised into 350,742,053 shares of RMB1 each, totalling RMB350,742,053, in accordance with Article 99 of the PRC Company Law.
– 202 – APPENDIX I ACCOUNTANTS’ REPORT
(26) Reserves
In accordance with the PRC Company Law and the Company’s articles of association, the Company and its subsidiaries registered in the PRC are required to appropriate 10% of the annual statutory net profit after tax (after offsetting any prior years’ losses) to the statutory surplus reserve. When the balance of such reserve fund reaches 50% of each entity’s capital, any further appropriation is optional. The statutory surplus reserve can be utilised to offset prior years’ losses or to increase capital. However, the balance of the statutory surplus reserve must be maintained at a minimum of 25% of capital after such usages.
In accordance with the PRC Company Law and the Company’s articles of association, the Company and its subsidiaries registered in the PRC are required to appropriate 5% to 10% of the annual statutory net profit after tax to statutory public welfare fund, which will be utilised to build or acquire capital items, such as dormitories and other facilities for the employees of the Company and its subsidiaries, and cannot be used to pay for staff welfare expenses. Titles of these capital items will remain with the respective companies now comprising the Group.
During the Relevant Periods, 10% and 5% of the profit attributable to shareholders were appropriated to statutory surplus reserve and statutory public welfare fund, respectively, as approved in resolutions passed by the boards of directors of the respective companies now comprising the Group.
The above reserves cannot be used for purposes other than those for which they are created and are not distributable as cash dividends.
Upon the transformation of the Company into a joint stock limited company on 30 August, 2002, the Company transferred all the statutory surplus reserve and statutory public welfare fund of approximately RMB29,101,000 to capital in accordance with Article 99 of the PRC Company Law.
– 203 – APPENDIX I ACCOUNTANTS’ REPORT
The reserves of the Company is summarized as follows:
Retained Asset Statutory Statutory Share earnings/ revaluation surplus public issuance (Accumulated reserve reserve welfare fund costs losses) Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at 1 January, 2000 – 1,676 570 – 23,656 25,902
Surplus on revaluation of investment properties 1,869 ––––1,869 Profit for the year ––––26,172 26,172 Transfer to statutory surplus reserve – 5,870 ––(5,870) – Transfer to statutory public welfare fund ––2,920 – (2,920) –
As at 31 December, 2000 1,869 7,546 3,490 – 41,038 53,943
Disposal of investment properties (1,869) ––––(1,869) Loss for the year ––––(100) (100) Transfer to statutory surplus reserve – 12,043 ––(12,043) – Transfer to statutory public welfare fund ––6,022 – (6,022) –
As at 31 December, 2001 – 19,589 9,512 – 22,873 51,974
Profit for the year ––––113,030 113,030 Capitalisation into paid-in capital (Note 25) – (19,589) (9,512) – (211,641) (240,742) Transfer to statutory surplus reserve – 10,644 ––(10,644) – Transfer to statutory public welfare fund ––5,322 – (5,322) – Share issuance costs –––(9,620) – (9,620)
As at 31 December, 2002 – 10,644 5,322 (9,620) (91,704) (85,358)
– 204 – APPENDIX I ACCOUNTANTS’ REPORT
(27) Deferred tax assets
Group Year ended 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
At beginning of year 1,658 1,682 1,859 Transfer from income statement (Note 5) 24 177 4,349
At end of year 1,682 1,859 6,208
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Provided for timing differences in respect of: Provision for doubtful receivables 2,354 3,454 6,794 Interest expenses capitalised (455) (1,079) (70) Depreciation allowances of investment properties (217) (516) (516)
1,682 1,859 6,208
Company
Year ended 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
At beginning of year 1,482 1,924 –
Transfer from income statement 442 –– Transfer out to a subsidiary – (1,924) –
At end of year 1,924 ––
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Provided for timing differences in respect of: Provision for doubtful receivables 1,974 –– Depreciation allowances of investment properties (50) ––
1,924 ––
– 205 – APPENDIX I ACCOUNTANTS’ REPORT
(28) Notes to the consolidated cash flow statement
(a) Reconciliation of profit before taxation to net cash generated from operations is as below:
Year ended 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Profit before taxation 87,942 179,543 213,010 Depreciation 12,692 14,853 16,143 Share of loss of a joint venture ––1,016 Provision for doubtful receivables 1,862 3,333 10,122 Gain on disposal of fixed assets (193) (136) (1,419) Gain on disposal of subsidiaries ––(2,690) Gain on disposal of other investments (1,385) –– Interest income (1,577) (1,812) (1,639) Interest expenses 6,290 6,150 5,502 (Increase)/decrease in properties under development, properties held for development and completed properties held for sale (58,758) (61,021) 119,693 (Increase)/decrease in pledged bank deposits (1,900) (15,368) 3,978 (Increase)/decrease in inventories (3,409) 1,044 (1,533) Decrease/(increase) in balances with customers on construction contracts 7,953 16,756 (48,978) Increase in trade and other receivables (82,753) (160,713) (82,695) Increase in trade and other payables 75,460 70,308 118,609
Net cash generated from operations 42,224 52,937 349,119
(b) Analysis of changes in financing activities
Paid in/share Minority capital interest Bank loans RMB’000 RMB’000 RMB’000
As at 1 January, 2000 50,000 10,103 105,600 Additional capital injection 60,000 –– Net cash outflow from borrowings ––(1,600) Injections from minority shareholders – 10,667 – Loss attributable to minority shareholders – (357) – Effect of dilution of equity interest in subsidiaries – (1,460) – Others – 1,060 –
As at 31 December, 2000 110,000 20,013 104,000 Net cash inflow from borrowings ––106,600 Injections from minority shareholders – 20,610 – Profit attributable to minority shareholders – 2,338 – Effect of dilution of equity interest in subsidiaries – 4,504 – Others – 520 –
As at 31 December, 2001 110,000 47,985 210,600 Capitalisation of paid-in capital 240,742 –– Disposal of subsidiaries – (7,700) (10,000) Net cash outflow from borrowings ––(56,650) Injections from minority shareholders – 26,620 – Profit attributable to minority shareholders – 7,566 – Effect of dilution of equity interest in subsidiaries – 168 – Others – (6,734) –
As at 31 December, 2002 350,742 67,905 143,950
– 206 – APPENDIX I ACCOUNTANTS’ REPORT
(c) Disposal of subsidiaries
2002 RMB’000
Net assets disposed of: Cash and bank balances 6,324 Inventories 117 Trade and other receivables 34,678 Fixed assets 32,202 Investment securities 3,050 Trade and other payables (11,480) Amount due to related parties (18,502) Bank loans (10,000) Minority interest (7,700)
28,689
Reversal of asset revaluation reserve upon disposal (8,379) Gain on disposal 2,690
Satisfied by cash 23,000
Analysis of net inflows of cash in respect of the disposal of subsidiaries: Cash consideration 23,000 Cash and bank balances disposed of (6,324)
16,676
The following subsidiaries were disposed of during the Relevant Periods:
Date/Place of Percentage of Registered Date of Name incorporation equity interest held capital Principal activities Disposal Direct Indirect
Shaoxing Baoye Property 12 December, 1999 – 100% RMB1,000,000 Property management 28 March, Management Company The PRC and interior 2002 Limited decoration
Zhejiang Baoye Industrial 8 October, 2000 83.33% – RMB12,000,000 Investment and 11 January, Investment Company The PRC asset management 2002 Limited
Shaoxing Commercial 29 February, 1996 70% – RMB10,000,000 Sales of daily articles, 20 March, City Company Limited The PRC garment, electronic 2002 machinery and construction and decoration materials
Baoye Decoration Material 21 October, 1998 – 100% RMB5,000,000 Sales of decoration 26 March, Market Company Limited The PRC material, decoration 2002 and designing
– 207 – APPENDIX I ACCOUNTANTS’ REPORT
(29) Contingent liabilities
Group
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Guarantee given to banks in respect of mortgage facilities granted to outside parties 7,617 7,587 9,248 Guarantee given to a bank in respect of a bank loan granted to a joint venture ––20,000
7,617 7,587 29,248
The Group had issued above performance guarantees in respect of mortgage facilities granted by certain banks relating to the mortgage loans arranged for certain purchasers of property projects developed by the subsidiaries of the Group. The bank will release such guarantee only upon the building ownership certificate of such property is delivered to the bank as security.
Company
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Guarantee given to banks in respect of bank loans granted to subsidiaries and a joint venture 2,000 8,000 140,950
(30) Commitments
Group
(a) Capital commitments
i) The Group had the following commitments in respect of the development costs of properties under development and properties held for development:
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
– Authorised but not contracted for 233,812 121,155 215,084 – Contracted but not provided for ––400,000
233,812 121,155 615,084
Included in the above capital commitments were commitments of RMB400 million entered into by Fuzhou Baoyue which was subsequently disposed of (see Section IV(ii)).
ii) The Group had the following capital commitments authorised but not provided for in respect of land and buildings, plant and machinery:
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Land and buildings ––70,578 Plant and machinery ––91,395
––161,973
– 208 – APPENDIX I ACCOUNTANTS’ REPORT
(b) Commitments under operating leases
– Where the Group is the lessor
The Group had future aggregate minimum lease receivables under non-cancellable operating leases in respect of land and buildings as follows:
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Not later than one year 2,378 2,378 1,755 Later than one year and not later than five years 2,275 975 82
4,653 3,353 1,837
– Where the Group is the lessee
The Group had future aggregate minimum lease payments under non-cancellable operating leases in respect of land and building as follows:
As at 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Not later than one year 170 170 381 Later than one year and not later than five years 581 411 28
751 581 409
Company
The Company has no significant operating lease or capital commitments as at 31 December, 2000, 2001 and 2002.
(31) Related party transactions
In addition to the balances with related parties as disclosed in Note 18 above, the Group had the following significant transactions with related parties during the Relevant Periods:
Year ended 31 December, 2000 2001 2002 RMB’000 RMB’000 RMB’000
Non-continuing transactions Fixed fee paid to (Note a) – Municipal Infrastructure 105 105 52 – Zhejiang Huanyu 375 375 187
Continuing transactions Sales to – Zhejiang Huanyu 8,646 4,214 16,685 – Municipal Infrastructure 642 1,417 71
(a) According to the terms of the agreement entered into between the Company, Zhejiang Huanyu and Municipal Infrastructure, the owners of Concrete Company, Concrete Company was required to pay an annual fixed fee based on 15% of Zhejiang Huanyu’s and Municipal Infrastructure’s investments to Zhejiang Huanyu and Municipal Infractructure. After the payment of the fixed fee, the Company was entitled to all of the Concrete Company’s remaining profit. Effective 20 June, 2002, when Concrete Company was converted from a state and collectively jointly-owned enterprise into a limited liability company, the fixed fee payment arrangement was discontinued, and profit is to be shared among the investors according to their percentage of interest held.
– 209 – APPENDIX I ACCOUNTANTS’ REPORT
(b) Certain companies of the Group had entered into Internal Undertaking Contract of Construction Projects with the project managers. The shareholders of the Company, Mr. Xia Weimin, Mr. Chen Baorong, Mr. Wang Jianghua, Mr. Wu Xianfu and Mr. Wang Liequan were also project managers and the directors confirm that the terms of their Internal Undertaking Contract of Construction Projects are similar to those of other project managers who were not shareholders of the Company.
The directors of the Company are of the opinion that the transactions with related parties were conducted in the ordinary course of the Group’s business.
III. DISTRIBUTABLE RESERVES
In accordance with the original Articles of Association, the profit available for distribution to shareholders shall be the accumulated distributable profits as reported in accordance with PRC accounting standards less allocations to the statutory and discretionary funds. In accordance with the revised Articles of Association that became effective on 15 October, 2002, the profit available for distribution to shareholders shall be the lower of the accumulated distributable profits less allocations to the statutory and discretionary funds as reported in accordance with PRC accounting standards and HK GAAP. The Company has no distributable reserves as at 31 December, 2002.
IV. SUBSEQUENT EVENTS
(i) An approval document (Zheng Jian Guo He Zi [2003] No. 1) was issued on 3 January, 2003 by the China Securities Regulatory Commission, granting the approval to the Company on the issue of H Shares of not more than 207,788,095 Shares of nominal value of RMB1 each and the application for the listing of H Shares on the Stock Exchange.
(ii) On 2 June, 2003, the Company’s subsidiary, Baoye Construction disposed of its entire 51% interest in Fuzhou Baoyue at a consideration of RMB10,200,000 to an independent third party.
(iii) The investment properties as at 30 April 2003 have been revalued by Vigers Hong Kong Ltd., independent professional surveyors, on the open market value basis and there were no material difference in the revalued amounts as compared to the open market value as at 31 December, 2002.
V. SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by the Company or any of its subsidiaries in respect of any period subsequent to 31 December, 2002, and no dividends or other distributions has been declared or paid by the Company or its subsidiaries subsequent to 31 December, 2002.
Yours faithfully, PricewaterhouseCoopers Certified Public Accountants Hong Kong
– 210 – APPENDIX II PROPERTY VALUATION
The following is the text of a letter with the summary of valuation and valuation certificates, prepared for the purpose of incorporation in this prospectus received from Vigers Hong Kong Ltd., an independent property valuer, in connection with its valuation as at 30 April, 2003 of the property interests held by the Group in the PRC.
Vigers Hong Kong Ltd. International Property Consultants
Suites 1607-1612 Miramar Tower 132 Nathan Road Tsimshatsui Kowloon Hong Kong
17 June, 2003
The Board of Directors Baoye Group Company Limited Yangxunqiao Township Shaoxing County Zhejiang Province The PRC
Dear Sirs,
In accordance with your instructions for us to value the property interests of Baoye Group Company Limited (the “Company”) and its subsidiaries (together referred to as the “Group”) in the People’s Republic of China (the “PRC”), we confirmed that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the open market value of the property interests as at 30 April, 2003 (“date of valuation”).
Our valuation is our opinion of the open market value which we would define as intended to mean – “the best price at which the sale of an interest in the property would have been completed unconditionally for cash consideration on the date of valuation, assuming:–
(a) a willing seller;
(b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of the price and terms and for the completion of the sale;
(c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;
(d) that no account is taken of any additional bid by a prospective purchaser with a special interest; and
– 211 – APPENDIX II PROPERTY VALUATION
(e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.”
In valuing the property Nos. 1 to 3, 11 to 13 in Group I, which are owned by the Group in the PRC, we have adopted a combination of the open market and depreciated replacement cost approaches in assessing the land portions of the property and the buildings and structures standing on the land respectively. Hence, the sum of the two results represents the market value of the property as a whole. In the valuation of the land portions, reference has been made to the standard land price in Zhejiang Province and the sales comparables in the locality. Due to the nature of the buildings and structures cannot be valued on the basis of open market value. They have therefore been valued on the basis of their depreciated replacement cost, the depreciated replacement cost approach considers the cost to reproduce or replace in new condition the property appraised in accordance with current construction costs for similar buildings and structures in the locality, with allowance for accrued depreciation as evidenced by observed condition or obsolescence present, whether arising from physical, functional or economic causes. The depreciated replacement cost approach generally furnishes the most reliable indication of value for property in the absence of a known market based on comparable sales.
In valuing the property Nos. 4-10 and 14 which are owned by the Group in the PRC, we have arrived at the open market value in existing state on “as is” basis of the subject properties by adopting the direct comparison approach making reference to the recent transactions for similar premises in the proximity. Adjustments have been made for the differences in transaction dates, size and accessibility, etc.
The properties in Group II, i.e. property Nos. 15-17, which are held for investment purposes by the Group in the PRC, have been valued on the basis of capitalization of net rental income derived from the existing tenancy, made allowance for reversionary income potential of the property and making reference to comparable market transactions.
The unsold units of the property Nos. 18-23 and 26 in Group III which are owned by the Group for development and sales in the PRC have been valued by reference to comparable market transactions and on a vacant possession basis.
For those portions of properties in Group III that have been contracted to be sold or pre-sold by the Group on the date of valuation, we have disregarded their open market values but adopted the cash considerations for the transactions on assumption that all the relevant parties to the contracts shall perform their obligations and honor the contracts.
In valuing property Nos. 24-26 in Group III which are held for development and sales by the Group in the PRC, we have valued each of these property interests on the basis that these properties will be developed and completed in accordance with the Group’s latest development proposals provided to us. We have assumed that approvals for the proposals have been obtained. In arriving at our opinion of value, we have valued it by the Direct Comparison Approach by making reference to comparable transactions in the locality and have also taken into account the construction costs that will be expended to complete the development to reflect the quality of the completed development. The “Capital value when completed” represents our opinion of the aggregate selling prices of the development assuming that it would have been completed at the date of valuation.
In valuing property Nos. 27-33 in Groups IV and V which are held for future development and sales and to be acquired by the Group respectively in the PRC, we have made reference to the standard land price in Anhai Province, Jiangxi Province and Shanghai City respectively and the sales comparable in the locality. – 212 – APPENDIX II PROPERTY VALUATION
The properties in Group VI which are rented by the Group in the PRC have no commercial value due to the prohibition against assignment of the properties or otherwise due to the lack of substantial profit rents.
We have been shown copies of various documents relating to the properties in the PRC. We have not, however, searched the original documents to verify ownership or to verify the existence of any amendments which do not appear on the copies handed to us.
In undertaking our valuation of property in the PRC, we have relied on the legal opinion provided by the Group’s PRC legal adviser (the “PRC Legal Opinion”).
From the PRC Legal Opinion, we understand the current status of titles, grant of major approvals, licences and documents are as follows:
Documents/Approvals Contract for Grant of State-owned Land State-owned Land Use Building Ownership Use Rights/Asset Property Rights Certificate Certificate Transfer Contract
1 Yes Yes Yes 2 Yes Yes Yes 3 Yes Yes Yes 4 Yes Yes N/A 5 Yes Yes Yes 6 Yes Yes N/A 7 Yes Yes Yes 8 Yes Yes Yes 9 Yes Yes Yes 10 Yes Yes Yes 11 Yes No Yes 12 Yes Yes Yes 13 Yes Yes Yes 14 N/A No Yes 15 Yes Yes Yes 16 Yes Yes Yes 17 Yes Yes Yes 18 Yes N/A Yes 19 Yes Yes Yes 20 Yes N/A Yes 21 Yes Yes Yes 22 Yes Yes Yes 23 Yes N/A Yes 24 Yes N/A Yes 25 Yes N/A Yes 26 Yes Yes Yes 27 Yes N/A Yes 28 Yes N/A Yes 29 Yes N/A Yes 30 No N/A Yes 31 No N/A Yes 32 No N/A Yes 33 No N/A No
Key: N/A means not applicable
– 213 – APPENDIX II PROPERTY VALUATION
In the course of our valuation, we have assumed that all consents, approvals and licences from relevant PRC Government authorities for development of the property will be granted without any onerous conditions or undue delay.
We have relied to a considerable extent on information provided by the Group and have accepted advice given to us by the Group on such matters as planning approvals or statutory notices, easements, tenure, occupation, lettings, site and floor areas and in the identification of those properties in which the Group has an interest. We have also been advised by the Group that no material factors had been concealed or omitted in the information provided to us.
Our valuation of each of the property interests has been made on the assumption that the Group sells the property interests in the open market without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to affect the value of the properties. In addition, no account has been taken of any option or right of pre-emption concerning or effecting the sale of the property interests and no forced sale situation in any manner is assumed in our valuations.
In valuing the property interests of the Group, we have assumed that the Group has free and uninterrupted rights to use, occupy or assign the property interests for the whole of the unexpired term as granted.
We have inspected the exterior and, where possible, the interior of the properties. However, no structural survey has been made and we are therefore unable to report whether the properties are free from rot, infestation or any structural defects, though in the course of our inspections we did not note any serious defects. No tests were carried out on any of the services.
No allowance has been made in our valuation for any charges, mortgages or amounts owing on the property nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property interests are free from encumbrances restrictions and outgoings of an onerous nature which could affect their values.
Portions of properties in Group IV have been sold or pre-sold at the respective considerations stated in the valuation certificate and such considerations have been reflected in our valuation. However, irrespective of whether or not such transactions are completed, there shall not be any material impact on our valuation.
Our valuations have been prepared in accordance with the Hong Kong Guidance Notes on the Valuation of Property Assets (2nd Edition) published by the Hong Kong Institute Surveyors in March 2000.
Unless otherwise stated, all money amounts stated are in Renminbi. The exchange rates used in valuing the property interests as at 30 April, 2003 was HK$1 = RMB1.06. There has been no significant fluctuation in exchange rates between the date of valuation and the date of this letter.
– 214 – APPENDIX II PROPERTY VALUATION
We enclose herewith a summary of our valuation and the valuation certificate.
Yours faithfully, For and on behalf of VIGERS HONG KONG LTD. Raymond Ho Kai Kwong, Registered Professional Surveyor MRICS, MHKIS Director Head of Valuation Department
Note: Raymond Ho Kai Kwong, Chartered Surveyor, MRICS, MHKIS has extensive experience in undertaking valuations of properties in Hong Kong and Macau and has over nine years’ experience in the valuation of properties in the PRC.
– 215 – APPENDIX II PROPERTY VALUATION
SUMMARY OF VALUATION
Capital value in Open market value existing state in existing state Interest attributable to as at attributable to the Group as at Property 30 April, 2003 the Group 30 April, 2003 RMB RMB
Group I – Property interests owned by the Group in the PRC
A. Property interests held by Zhejiang Baoye Construction Group Co., Ltd.
1. Factory complex located at 24,950,000 99% 24,701,000 Gaojia Village, Yangxunqiao Town, Shaoxing County, Zhejiang Province, the PRC.
2. Factory/Office complex located at 10,970,000 99% 10,860,000 Lingjiang Village, Qianqing Town, Shaoxing County, Zhejiang Province, the PRC.
3. Factory complex located at Gaojia Village, 8,680,000 99% 8,593,000 Yangxunqiao Town, Shaoxing County, Zhejiang Province, the PRC.
4. Office, Staff Quarter, 10,020,000 99% 9,920,000 Canteen and Storage located at Jincheng Building, Gangyue Road, Keqiao Town, Shaoxing County, Zhejiang Province, the PRC.
5. Yangxunqiao Market Complex 4,130,000 99% 4,089,000 located at Jiangnanzhou Village, Yangxunqiao Town, Shaoxing County, Zhejiang Province, the PRC.
– 216 – APPENDIX II PROPERTY VALUATION
Capital value in Open market value existing state in existing state Interest attributable to as at attributable to the Group as at Property 30 April, 2003 the Group 30 April, 2003 RMB RMB
6. Room 404 of Block A1, 530,000 99% 525,000 Lu Zhou Xin Cun, Jianhu Town Chengnan, Shaoxing County, Zhejiang Province, the PRC.
B. Property interest held by Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd.
7. Portion of basement, 1-3 Levels, 37,210,000 99.9% 37,173,000 Levels 4-6, 12 and 13 and a supplemental block, Fa Zhan Building, No. 208 Jianhu Road, Jinkeqiao Main Road West, Keqiao Town, Shaoxing County, Zhejiang Province, the PRC.
8. 9 units of Decorative Material Market 4,180,000 99.9% 4,176,000 located at Yunji Road, Shangxieqiao Village, Keqiao Town, Shaoxing County, Zhejiang Province, the PRC.
9. Level 3 of 670,000 99.9% 669,000 Supplementary Block of Block No. 10 of Decorative Material Market located at Yunji Road, Shangxieqiao Village, Keqiao Town, Shaoxing County, Zhejiang Province, the PRC.
– 217 – APPENDIX II PROPERTY VALUATION
Capital value in Open market value existing state in existing state Interest attributable to as at attributable to the Group as at Property 30 April, 2003 the Group 30 April, 2003 RMB RMB
10. China Light Textile City Decorative 26,700,000 99.9% 26,673,000 Material Market Located at No. 568 Yunji Road Shangxieqiao Village, Keqiao Town, Shaoxing County, Zhejiang Province, the PRC.
C. Property interests held by Shaoxing Commodity Concrete Co., Ltd.
11. Factory Complex located at 3,940,000 51.5% 2,029,000 Ting Shan Shu Xia Wang Xing Fu, Qiao Tou, Shaoxing County, Zhejiang Province, the PRC.
D. Property interests held by Zhejiang Baoye Building Materials Industrialisation Company Limited
12. Factory Complex located at 13,310,000 63.9% 8,505,000 Gaojia Ju Wei Hui, Yangxunqiao Town, Shaoxing County, Zhejiang Province, the PRC.
13. Factory Complex located at 33,630,000 63.9% 21,490,000 Jingshui Road West, Hongfeng Village, Keqiao Jie Dao Keqiao Town, Shaoxing County, Zhejiang Province, the PRC.
– 218 – APPENDIX II PROPERTY VALUATION
Capital value in Open market value existing state in existing state Interest attributable to as at attributable to the Group as at Property 30 April, 2003 the Group 30 April, 2003 RMB RMB
E. Property interests held by Zhejiang Baoye Curtain Wall Decoration Co., Ltd.
14. Units N, O, P, Q, and R No commercial 83.1% No commercial on Level 27, Shuang Niu Building, value value Hangzhou City, Zhejiang Province, the PRC.
Sub-total: 178,920,000 159,403,000
Group II – Property interests held by the Group for investment by the Group in the PRC
A. Property interests held by Baoye Group Company Limited
15. China Light Textile City 5,190,000 99% 5,138,000 Motorcycle Market located at north of 104 Highway, Hongfeng Village, Keqiao Town, Shaoxing County, Zhejiang Province, the PRC.
B. Property interests held by Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd.
16. Block No. 10 of 12,142,000 99.9% 12,128,000 Decorative Material Market located at Yunji Road, Shangxieqiao Village, Keqiao Town, Shaoxing County, Zhejiang Province, the PRC.
17. Levels 8-11, Fa Zhan Building, 12,190,000 99.9% 12,178,000 No. 208 Jianhu Road, Jinkeqiao Main Road West, Keqiao Town, Shaoxing County, Zhejiang Province, the PRC.
Sub-total: 29,520,000 29,444,000
– 219 – APPENDIX II PROPERTY VALUATION
Capital value in Open market value existing state in existing state Interest attributable to as at attributable to the Group as at Property 30 April, 2003 the Group 30 April, 2003 RMB RMB
Group III – Property interests held by the Group for development and sales in the PRC
A. Property interests held by Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd.
18. The remaining unsold commercial 13,730,000 99.9% 13,716,000 and residential units of Keqiao City Garden (also known as Bei Zi Tan Area Phase I and II) located at cross Yu Cai Road, Shanyin Road, Keqiao Town, Shaoxing County, Zhejiang Province, the PRC.
19. The remaining unsold residential 6,190,000 99.9% 6,184,000 units and underground car parking spaces of Shaoxing Oriental Green Court, (also known as Dong Fang Hua Yuan-Nan Yuan) located at the junction of Danqi Road and Tiyu Chang Road amid in Shaoxing City, Zhejiang Province, the PRC.
20. The remaining unsold commercial 23,050,000 99.9% 23,027,000 and residential units in various blocks of Baoye Garden located at Zhenzhong Road, Xinan Village, Yahgxunqiao, Zhejiang Province, the PRC.
21. 2 shops, 4 levels of office, 6,370,000 99.9% 6,364,000 2 bicycle parking spaces and 5 car parking spaces of Tian Shi Yuan, Yanxi Road, Renmin East Road, Shaoxing City, Zhejiang Province, the PRC.
– 220 – APPENDIX II PROPERTY VALUATION
Capital value in Open market value existing state in existing state Interest attributable to as at attributable to the Group as at Property 30 April, 2003 the Group 30 April, 2003 RMB RMB
22. 1 residential unit, 6 shops 2,040,000 99.9% 2,038,000 and 1 car parking space of Guazhu Lake Commercial/ Residential Building located at Jiangyi Road East, Keqiao Town, Shaoxing County, Zhejiang Province, the PRC.
23. The remaining unsold units and Block 8,970,000 99.9% 8,961,000 No. 1 of Material Market Phase II located at Weiyi Road South, Shangxie Village, Keqiao Town, Shaoxing County, Zhejiang Province, the PRC.
24. A residential/commercial site 226,380,000 99.9% 226,154,000 located at Huxi Road West, Shanyin Road South, Keqiao Town, Shaoxing County, Zhejiang Province, the PRC.
25. The remaining undevelope 14,580,000 99.9% 14,565,000 site area of Keqiao City Garden, (also known as Bei Zi Tan Area Phase I and II) located at cross Yu Cai Road, Shanyin Road, Keqiao Town, Shaoxing County, Zhejiang Province, the PRC.
26. 2 shop units of Supplementary 1,130,000 99.9% 1,129,000 Block of Block No. 10 of Decorative Material Market located at Yunji Road, Shangxieqiao Village, Keqiao Town, Shaoxing County, Zhejiang Province the PRC.
Sub-total: 302,440,000 302,138,000
– 221 – APPENDIX II PROPERTY VALUATION
Capital value in Open market value existing state in existing state Interest attributable to as at attributable to the Group as at Property 30 April, 2003 the Group 30 April, 2003 RMB RMB
Group IV – Property interests held by the Group for future development and sales in the PRC
A. Property interests held by Hefei Qingfangcheng Baoye Real Estate Co., Ltd.
27. A parcel of land located at 111,000,000 50% 55,500,000 Tong Ling Road, He Ping Road, Hefei, Anhai Province, The PRC.
B. Property interests held by Baoye Group Company Limited
28. A parcel of land located at 182,450,000 100% 182,450,000 north of Keqiao Shanyin Road, west of Xihuan Road, Kexi Industrial District, Keqiao Economic Development Area, Shaoxing County, Zhejiang Province, the PRC.
29. A parcel of land located at 9,160,000 100% 9,160,000 Lingjiang Village, Qianqing Town, Shaoxing County, Zhejiang Province, the PRC.
Sub-total: 302,610,000 247,110,000
Group V – Property interest to be acquired by the Group in the PRC
A. Property interests to be acquired by Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd.
30. A parcel of land located at No commercial 99.9% No commercial Yan Jia Tan, Shaoxing City, value value Zhejiang Province, the PRC.
– 222 – APPENDIX II PROPERTY VALUATION
Capital value in Open market value existing state in existing state Interest attributable to as at attributable to the Group as at Property 30 April, 2003 the Group 30 April, 2003 RMB RMB
B. Property interest to be acquired by Hefei Qingfangcheng Baoye Real Estate Co., Ltd.
31. A parcel of land located at No commercial 50% No commercial Xin Zhan Lot 14, value value Bianhe Road south, Dangtu Road east Hefei, Anhai Province, the PRC.
C. Property interest to be acquired by Shanghai Zibao Real Estate Development Co., Ltd.
32. A parcel of land located at No commercial 54.9% No commercial Nos. 332-398 Jiang Ning Road, value value Jing An District, Shanghai City, the PRC.
Sub-total: No commercial No commercial value value
Group VI – Property interests rented by the Group in the PRC
33. Rooms 301, 302 and 402 No commercial 99% No commercial of Block 1, value value Milan Apartment, No. 36-2 Huanchengdong Road, Hangzhou City, Zhejiang Province, the PRC
34. No. 42 of Lane 1100, No commercial 99% No commercial Zhongshanbeiyi Road, value value Hongkou District, Shanghai City, the PRC
– 223 – APPENDIX II PROPERTY VALUATION
Capital value in Open market value existing state in existing state Interest attributable to as at attributable to the Group as at Property 30 April, 2003 the Group 30 April, 2003 RMB RMB
35. Levels 3 & 4 of No commercial 99% No commercial Nos. 16-18, Unit 5, value value Block 2, International Building, Chouzhoubei Road, Yiwu County, Zhejiang Province, the PRC
36. A showroom for new No commercial 99% No commercial wall material of Block 5, value value Xinqiang Court, No. 77 Tianhe Road, Xiucheng District, Jiaxing City, Zhejiang Province, the PRC
37. Unit 201 of Unit 1, No commercial 99% No commercial Block 64 and a carparking space, value value Yunxi New Village, Jiaojiang District, Taizhou City, Zhejiang Province, the PRC
38. Room 103 of Block 30, No commercial 99% No commercial Feihong New Village value value Ningbo City, Zhejiang Province, the PRC
39. No. 1406, Xinhua Building, No commercial 99% No commercial No. 45 Liuan Road, value value Hefei City, Anhai Province, the PRC
40. Room 401 of Block 1, No commercial 90% No commercial Milan Apartment, value value No. 36-2 Huanchengdong Road, Hangzhou City, Zhejiang Province, the PRC
– 224 – APPENDIX II PROPERTY VALUATION
Capital value in Open market value existing state in existing state Interest attributable to as at attributable to the Group as at Property 30 April, 2003 the Group 30 April, 2003 RMB RMB
41. Nos. 1-6 No commercial 99% No commercial of Western District, value value Shaoxing Commercial Centre, No. 240 Yanandong Road, Shaoxing City, Zhejiang Province, the PRC
Sub-total: No commercial No commercial value value
TOTAL: 813,490,000 738,095,000 (equivalent to (equivalent to HK$767,440,000) HK$696,316,000)
– 225 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Group I – Property interests owned by the Group in the PRC
A. Property interests held by Zhejiang Baoye Construction Group Co., Ltd.
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
1. Factory complex The property comprises a parcel The property is occupied by RMB24,950,000 located at of irregular level land with a the Group for production Gaojia Village, site area of approximately uses. Interest attributable to Yangxunqiao Town, 44,369 sq.m. (477,588 sq.ft.) the Group Shaoxing County, and five major blocks of Zhejiang Province, buildings erected thereon. They 99% the PRC. are of 1 to 8-storey and completed in or about 1997. Capital value in existing state The buildings mainly comprise attributable to ancillary office buildings, the Group as at factory and canteen with a gross 30 April, 2003 floor area of approximately as follows:– RMB24,701,000
Gross Floor Area (sq.m.) (sq.ft.)
2-storey canteen 935.88 10,074 8-storey ancillary office building 3,729.90 40,149 2-storey office building 1,088.70 11,719 1-storey factory 476.00 5,124 Security Guard Room 58.32 628
Total: 6,288.80 67,694
The property is held under land use rights for a term of 50 years expiring on 18 July, 2052 for industrial uses.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shaoxing Xian Guo Yong (2003) Zi No. 7-23) dated 18 April, 2003 issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 44,369 sq.m. was vested in Zhejiang Baoye Construction Group Co., Ltd. (referred hereinafter as “Baoye Construction”) for a term expiring on 18 July, 2052 for industrial uses.
2. Pursuant to two Building Ownership Certificates (Document No. Shao Fang Quan Zheng Yangxunqiao Zi Nos. 00153 and 00154) both dated 18 April, 2003 issued by the Shaoxing County Real Estate Administration Bureau, the property, which comprises 5 blocks of buildings with a total gross floor area of approximately 6,288.80 sq.m., was vested in Baoye Construction.
– 226 – APPENDIX II PROPERTY VALUATION
3. Pursuant to a State-owned Land Use Rights Grant Contract dated 22 June, 2002, the land use rights of the land with a site area of approximately 44,369 sq.m. for a term of 50 years for industrial use have been granted to Baoye Construction Holdings Group Co., Ltd., the predecessor of Baoye Group Company Limited (“the Company”), for the consideration of RMB4,858,849. As advised by the Group, the State-owned Land use Rights Grant Contract is entered into by the Company on behalf of Baoye Construction. According to the confirmation letter dated 13 June, 2003 entered between Baoye Construction and the Company, Baoye Construction confirmed that they instructed the Company to sign the Land Use Rights Grant Contract on behalf of them.
4. Pursuant to a Business Licence (Registration No. 3306211010276) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Construction on 9 August, 2002, Baoye Construction is permitted to register with a registered capital of RMB300,000,000. The term of operation is commencing from 15 February, 2001 to 14 August, 2010. The scope of operation mainly covers construction and decoration works.
5. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Right Certificate Yes (b) Building Ownership Certificates Yes (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes
6. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Baoye Construction had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) Baoye Construction has obtained the building ownership rights of the buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
(c) By virtue of having obtained its business licence, Baoye Construction has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Baoye Construction has obtained all necessary licenses to operate in the location where the property is situated.
7. According to the information provided by the Group, the Group holds 99% interests in the property as at 30 April, 2003.
8. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”), Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of joint venture company: Baoye Construction
(b) Term of operation: From 15 February, 2001 to 14 August, 2010
(c) Registered capital: RMB300,000,000
(d) Proportion of capital contribution/ the Company: 99% profit sharing: Mr. Wang Liequan, Mr. Chen Baorong, Ms. Xia Weimin: 1%
– 227 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
2. Factory/Office The property comprises a parcel The property is occupied by RMB10,970,000 complex located at of level land with a site area of the Group for production Lingjiang Village, approximately 19,630 sq.m. uses. Interest attributable to Qianqing Town, (211,297.32 sq.ft.), 9 items of the Group Shaoxing County, buildings and 3 items of Zhejiang Province, structures (see note 5) erected 99% the PRC. thereon. They are of 1 to 2 storey and completed in or Capital value in about 1995 to 1997. existing state attributable to The buildings mainly comprise the Group as at office, factory and transformer 30 April, 2003 room with a gross floor area approximately as follows:– RMB10,860,000
Gross Floor Area (sq.m.) (sq.ft.)
2 blocks of 2-storey office building 1,360.80 14,648 6 blocks of 1-storey factory 4,041.91 43,507 1-storey transformer room 193.20 2,080
Total: 5,595.91 60,235
The property is held under a land use rights for a term of 50 years expiring on 14 July, 2052 for industrial uses.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shaoxing Xian Guo Yong (2003) Zi (No. 6-30) dated 18 April, 2003 issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 19,630 sq.m. was vested in Zhejiang Baoye Construction Group Co., Ltd. (referred hereinafter as “Baoye Construction”) for a term expiring on 14 July, 2052 for industrial uses.
2. Pursuant to two Building Ownership Certificates (Document No. Shao Fang Quan Zheng Qianqing Zi Nos. 01173 and 01174) all dated 18 April, 2003 issued by the Shaoxing County Real Estate Administration Bureau, the property, which comprises 9 blocks of buildings with a total gross floor area of approximately 5,595.91 sq.m., was vested in Baoye Construction.
3. Pursuant to a State-owned Land Use Rights Grant Contract dated 19 June, 2002, the land use rights of the land with a site area of approximately 19,630 sq.m. for a term of 50 years for industrial use has been granted to Zhejiang Guangyi Construction and Decoration Co., Ltd., a subsidiary of the Company, for the consideration of RMB2,494,973. As advised by the Group, the Land Use Rights Grant Contract is entered into by Zhejiang Guangyi Construction and Decoration Co. Ltd. on behalf of Baoye Construction. According to the confirmation letter dated 13 June, 2003 entered between Zhejiang Guangyi Construction and Decoration Co. Ltd. and Baoye Construction, Zhejiang Guangyi Construction and Decoration Co. Ltd. confirmed that they instructed Baoye Construction to sign the Land Use Rights Grant Contract on behalf of them.
– 228 – APPENDIX II PROPERTY VALUATION
4. Pursuant to a Business Licence (Registration No. 3306211010276) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Construction on 9 August, 2002, Baoye Construction is permitted to register with a registered capital of RMB300,000,000. The term of operation is commencing from 15 February, 2001 to 14 August, 2010. The scope of operation mainly covers construction and decoration works.
5. Upon inspection, there are 3 items of structures erected on the site. The structures include carport and temporary structures for storage and no Building Ownership Certificates are required for these structures, no capital value for such structures have been assigned in the valuation. For indicative purposes, the depreciated replacement cost of the structures as at 30 April, 2003 was RMB149,500.
6. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:-
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates for the 9 items of buildings with a total gross floor area of 5,595.91 sq.m. Yes (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes
7. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Baoye Construction had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) Baoye Construction has obtained the building ownership rights of the 9 items of buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
(c) By virtue of having obtained its business licence, Baoye Construction has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Baoye Construction has obtained all necessary licenses to operate in the location where the property is situated.
8. According to the information provided by the Group, the Group holds 99% interests in the property as at 30 April, 2003.
9. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”), Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of joint venture company: Baoye Construction
(b) Term of operation: From 15 February, 2001 to 14 August, 2010
(c) Registered capital: RMB300,000,000
(d) Proportion of capital contribution/ the Company: 99% profit sharing: Mr. Wang Liequan, Mr. Chen Baorong, Ms. Xia Weimin: 1%
– 229 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
3. Factory Complex The property comprises a parcel The property is occupied by RMB8,680,000 located at of irregular-shaped level land the Group for production Gaojia Village, with a site area of and ancillary office uses. Interest attributable to Yangxunqiao Town, approximately 18,630 sq.m. the Group Shaoxing County, (200,533 sq.ft.) and fifteen Zhejiang Province, blocks of buildings and 3 items 99% the PRC. of structures (see note 5) erected thereon. Capital value in existing state The buildings mainly comprise attributable to 1 to 4-storey factories and the Group as at ancillary office of brick/ 30 April, 2003 concrete construction completed in or about 1987. RMB8,593,000
Details of the buildings’ approximately gross floor areas are listed as follows:–
Gross Floor Area (sq.m.) (sq.ft.)
11 blocks of 1-storey factory 2,542.54 27,368 1 block of 4-storey ancillary office building 975.34 10,499 2 blocks of 1-storey Guard Room 118.81 1,279 1 block of 2-storey Staff Quarters 457.24 4,922
Total: 4,093.93 44,068
The property is held under a land use rights for a term expiring on 9 September, 2052 for industrial uses.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shaoxing Xian Guo Yong (2003) Zi No. 7-24) dated 18 April, 2003 issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 18,630 sq.m. was vested in Zhejiang Baoye Construction Group Co., Ltd. (referred hereinafter as “Baoye Construction”) for a term expiring on 9 September, 2052 for industrial uses.
2. Pursuant to three Building Ownership Certificates (Document No. Shao Fang Quan Zheng Yangxunqiao Zi Nos. 00152, 00155 and 00157) all dated 18 April, 2003 issued by the Shaoxing County Real Estate Administration Bureau, the property, which comprises 15 blocks of buildings with a total gross floor area of approximately 4,093.93 sq.m., was vested in Baoye Construction.
3. Pursuant to a State-owned Land Use Rights Grant Contract dated 6 August, 2002, the land use rights of the land with a site area of approximately 18,630 sq.m. for a term of 50 years for industrial use has been granted to Zhejiang Baoye Construction Group Co., Ltd., for the consideration of RMB1,929,509.
– 230 – APPENDIX II PROPERTY VALUATION
4. Pursuant to a Business Licence (Registration No. 3306211010276) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Construction on 9 August, 2002, Baoye Construction is permitted to register with a registered capital of RMB300,000,000. The term of operation is commencing from 15 February, 2001 to 14 August, 2010. The scope of operation mainly covers construction and decoration works.
5. Upon inspection, there are 3 items of structures erected on the site. The structures include carport, temporary structures for storage and no Building Ownership Certificates are required for these structures, no capital value for such structures have been assigned in the valuation. For indicative purposes, the depreciated replacement cost of the structures as at 30 April, 2003 was RMB700,000.
6. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates for the 15 items of buildings with a total gross floor area of 4,093.93 sq.m. Yes (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes
7. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Baoye Construction had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) Baoye Construction has obtained the building ownership rights of the 15 items of buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
(c) By virtue of having obtained its business licence, Baoye Construction has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Baoye Construction has obtained all necessary licenses to operate in the location where the property is situated.
8. According to the information provided by the Group, the Group holds 99% interests in the property as at 30 April, 2003.
9. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”), Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of joint venture company: Baoye Construction
(b) Term of operation: From 15 February, 2001 to 14 August, 2010
(c) Registered capital: RMB300,000,000
(d) Proportion of capital contribution/ the Company: 99% profit sharing: Mr. Wang Liequan, Mr. Chen Baorong, Ms. Xia Weimin: 1%
– 231 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
4. Office, Staff The property comprises 13 units The property is occupied by RMB10,020,000 Quarter, Canteen located in various floors of a 7- the Group for office, staff, and Storage located storey residential/commercial quarter, canteen and Interest attributable to at Jincheng building. storage. the Group Building, Gangyue Road, The building is erected on a 99% Keqiao Town, parcel of land with the site area Shaoxing County, of the subject units is Capital value in Zhejiang Province, approximately 784.33 sq.m. existing state the PRC. (8,443 sq.ft.) and completed in attributable to or about 1999. the Group as at 30 April, 2003 The property has a gross floor area as follows: RMB9,920,000
Gross Floor Area Units (sq.m.) (sq.ft.)
112 254.99 2,745 210 230.40 2,480 302 163.20 1,757 303 230.40 2,480 304 114.69 1,235 402 163.20 1,757 403 230.40 2,480 404 114.69 1,235 502 163.20 1,757 503 230.40 2,480 504 114.69 1,235 603 230.40 2,480 604 114.69 1,235
Total: 2,355.35 25,356
The property is held under a land use rights for a term expiring on 1 December, 2045 for commercial/recreational uses.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shaoxing Xian Guo Yong (GF-11-298) Zi No. 12501) dated 22 April, 2003 issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 784.33 sq.m. was vested in Zhejiang Baoye Construction Group Co., Ltd. (referred hereinafter as “Baoye Construction”) for a term expiring on 1 December, 2045 for commercial/recreational uses.
2. Pursuant to a Building Ownership Certificate (Document No. Shao Fang Quan Zheng Keqiao Zi No. 11177) dated 18 April, 2003 issued by the Shaoxing County Real Estate Administration Bureau, the property, which comprises 13 units with a total gross floor area of approximately 2,355.35 sq.m., was vested in Baoye Construction.
3. Pursuant to a Business Licence (Registration No. 3306211010276) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Construction on 9 August, 2002, Baoye Construction is permitted to register with a registered capital of RMB300,000,000. The term of operation is commencing from 15 February, 2001 to 14 August, 2010. The scope of operation mainly covers construction and decoration works.
– 232 – APPENDIX II PROPERTY VALUATION
4. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates Yes (c) Contract for Grant of State-owned Land Use Rights N/A (d) Business Licence Yes
N/A: no applicable
5. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Baoye Construction has obtained the building ownership rights of the buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
(b) By virtue of having obtained its business licence, Baoye Construction has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(c) Baoye Construction has obtained all necessary licenses to operate in the location where the property is situated.
6. According to the information provided by the Group, the Group holds 99% interests in the property as at 30 April, 2003.
7. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”), Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of joint venture company: Baoye Construction
(b) Term of operation: From 15 February, 2001 to 14 August, 2010
(c) Registered capital: RMB300,000,000
(d) Proportion of capital contribution/ the Company: 99% profit sharing: Mr. Wang Liequan, Mr. Chen Baorong, Ms. Xia Weimin: 1%
– 233 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
5. Yangxunqiao The property comprises a parcel The whole property is RMB4,130,000 Market Complex of land with a site area of subject to various tenancy located at approximately 5,250.5 sq.m. agreements and leased out Interest attributable to Jiangnanzhou (56,516 sq.ft.) and a 3-storey from the Group with a total the Group Village, residential/ commercial building gross floor area of Yangxunqiao Town, erected thereon. The property approximately 4,782.60 99% Shaoxing County, was completed in or about sq.m. for market shop units Zhejiang Province, 1996. and residential purpose at a Capital value in the PRC total monthly rental of existing state The property has a total gross RMB41,007 with the latest attributable to floor area of approximately expiring date of 2nd March, the Group as at 4,782.6 sq.m. (51,480 sq.ft.). 2004. (See Note 4 below). 30 April, 2003
The property is held under a land RMB4,089,000 use rights for a term expiring on 29 November, 2068 for residential use and on 29 November, 2038 for commercial use.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shaoxing Xian Guo Yong (2003) Zi No. 7-28) dated 25 April, 2003 issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 5,250.5 sq.m. was vested in Zhejiang Baoye Construction Group Co., Ltd. (referred hereinafter as “Baoye Construction”) for a term expiring on 29 November, 2068 for residential use and on 29 November, 2038 for commercial use.
2 Pursuant to a Building Ownership Certificate (Document No. Shao Fang Quan Zheng Yangxunqiao Zi No. 00156) dated 18 April, 2003 issued by the Shaoxing County Real Estate Administration Bureau, the property, which comprises a block of building with a total gross floor area of approximately 4,782.6 sq.m., was vested in Baoye Construction.
3. Pursuant to two State-owned Land Use Rights Grant Contracts both dated 30 September, 1998, the land use rights of the land with site areas of approximately 2,459 sq.m. and 2,791.5 sq.m. for terms of 70 years for “職 工集資建住宅” (staff funding domestic flat) uses and 40 years for “County Composite Market Complex” uses respectively have been granted to Zhejiang Baoye Construction Works Group Co., Ltd., the predecessor of Baoye Group Company Limited “the Company”, for the consideration of RMB549,192 and RMB523,796 respectively. As advised by the Group, the Land Use Rights Grant Contracts are entered into by the Company on behalf of Baoye Construction. According to the confirmation letter dated 13 June, 2003 entered between the Company and Baoye Construction, the Company confirmed that they instructed Baoye Construction to sign the Land Use Rights Grant contract on behalf of them.
4. The property is subject to 9 tenancy agreements, details contained in the agreements are cited as follows:
Lessor Lessee Leased Area Lease Term Monthly Rental (sq.m.) (RMB/month)
1. Baoye Shaoxing City Baoye 3,082.45 1 year from RMB25,000 Construction Property Management 1 January, 2003 to Company Limited 31 December, 2003
2. Baoye Mr. Bao Po Fu 212.00 1 year from RMB2,141 Construction 3 March, 2003 to 2 March, 2004
– 234 – APPENDIX II PROPERTY VALUATION
Lessor Lessee Leased Area Lease Term Monthly Rental (sq.m.) (RMB/month)
3. Baoye Mr. Bao Ya Fu 216.15 2 years from RMB2,097 Construction 5 November, 2001 to 4 November, 2003
4. Baoye Mr. Li Bao Quan 212.00 1 year from RMB2,184 Construction 6 January, 2003 to 5 January, 2004
5. Baoye Mr. Li Bao Quan 212.00 16 months from RMB1,749 Construction 27 June, 2001 to 26 October, 2003
6. Baoye Mr. Wang Guo Xiang 212.00 18 months from RMB2,141 Construction 16 March, 2002 to 15 September, 2003
7. Baoye Mr. Wang Lian Rong 212.00 30 months from RMB1,794 Construction 15 February, 2001 to 14 August, 2003
8. Baoye Mr. Wo Zhang Rong 212.00 30 months from RMB1,760 Construction 15 February, 2001 to 14 August, 2003
9. Baoye Mr. Zhou Xiang Hua 212.00 6 months from RMB2,141 Construction 16 February, 2003 to 15 August, 2003
Total: 4,782.60 RMB41,007
5. Pursuant to a Business Licence (Registration No. 3306211010276) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Construction on 9 August, 2002, Baoye Construction is permitted to register with a registered capital of RMB300,000,000. The term of operation is commencing from 15 February, 2001 to 14 August, 2010. The scope of operation mainly covers construction and decoration works.
6. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:-
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates Yes (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes
7. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Baoye Construction had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) Baoye Construction has obtained the building ownership rights of the buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
(c) By virtue of having obtained its business licence, Baoye Construction has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Baoye Construction has obtained all necessary licenses to operate in the location where the property is situated.
– 235 – APPENDIX II PROPERTY VALUATION
8. According to the information provided by the Group, the Group holds 99% interests in the property as at 30 April, 2003.
9. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”), Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of joint venture company: Baoye Construction
(b) Term of operation: From 15 February, 2001 to 14 August, 2010
(c) Registered capital: RMB300,000,000
(d) Proportion of capital contribution/ the Company: 99% profit sharing: Mr. Wang Liequan, Mr. Chen Baorong, Ms. Xia Weimin: 1%
– 236 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
6. Room 404 of Block The property comprises a The property is occupied by RMB530,000 A1, residential unit of a 6-storey the Group for residential Lu Zhou Xin Cun, building completed in or about purpose. Interest attributable to Jianhu Town 1996. the Group Chengnan, Shaoxing County, The property has a gross floor 99% Zhejiang Province, area of approximately the PRC. 76.84 sq.m. (827 sq.ft.). Capital value in existing state The property is held under a attributable to the land use rights for a term Group as at expiring on 26 December, 2065 30 April, 2003 for residential uses. RMB525,000
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shao Shi Guo Yong (2001) Zi No. 1-13845) dated 11 October, 2001 issued by Shaoxing City State-owned Land Administration Bureau, the property with a site area of approximately 51.3 sq.m. was vested in Zhejiang Baoye Construction Group Co., Ltd. (referred hereinafter as Baoye Construction) for a term expiring on 26 December, 2065 for residential uses.
2. Pursuant to a Building Ownership Certificate (Document No. Shao Fang Quan Zheng Jianhu Zi No. 03104) dated 22 July, 2001 issued by Shaoxing County Real Estate Administration Bureau, the property with a gross floor area of approximately 76.84 sq.m. was vested in Baoye Construction.
3. Pursuant to a Business Licence (Registration No. 3306211010276) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Construction on 9 August, 2002, Baoye Construction is permitted to register with a registered capital of RMB300,000,000. The term of operation is commencing from 15 February, 2001 to 14 August, 2010. The scope of operation mainly covers construction and decoration works.
4. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates Yes (c) Contract for Grant of State-owned Land Use Rights N/A (d) Business Licence Yes
N/A: not applicable
5. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Baoye Construction has obtained the building ownership rights of the buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
(b) By virtue of having obtained its business licence, Baoye Construction has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(c) Baoye Construction has obtained all necessary licenses to operate in the location where the property is situated.
6. According to the information provided by the Group, the Group holds 99% interests in the property as at 30 April, 2003.
– 237 – APPENDIX II PROPERTY VALUATION
7. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”), Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of joint venture company: Baoye Construction
(b) Term of operation: From 15 February, 2001 to 14 August, 2010
(c) Registered capital: RMB300,000,000
(d) Proportion of capital contribution/ the Company: 99% profit sharing: Mr. Wang Liequan, Mr. Chen Baorong, Ms. Xia Weimin: 1%
– 238 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
B. Property interests held by Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd.
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
7. Portion of Basement, Fa Zhan Building (referred Portions of Basement, 2 to RMB37,210,000 1-3 Levels, hereinafter as the “Building”), 3 Levels are currently Levels 4-6, 12 which comprises a 11-storey vacant. Interest attributable to and 13 and a composite building erected over the Group supplemental block, a 3-storey commercial podium The other portions of the Fa Zhan Building, plus one level of storage property are occupied by 99.9% No. 208 Jianhu basement underneath and a the Group for showroom Road, Jinkeqiao 2-storey supplemental block, and office uses. Capital value in Main Road West, constructed on a parcel of existing state Keqiao Town, rectangular shaped level land attributable to the Shaoxing County, with a site area of Group as at Zhejiang Province, approximately 10,101.4 sq.m. 30 April, 2003 the PRC. (108,731 sq.ft.) located at the junction of Jinkeqiao Main RMB37,173,000 Road and Jianhu Road amid Keqiao Town in Shaoxing.
The property comprises various levels and a 2-storey supplemental block, its accommodation are as follows:–
Level Gross Floor Area (Approximately) (sq.m.) (sq.ft.)
Portion of Basement Level 555.782 5,982 Portion of Level 1 997.596 10,738 Portion of Level 2 978.9764 10,538 Portion of Level 3 52.0272 560 4 762.124 8,204 5 762.124 8,204 6 762.124 8,204 12 762.124 8,204 13 722.074 7,772 2-storey supplemental block 283.250 3,049
6,638.2016 71,455
The Building was completed in 1999.
The property is held under a land use rights for a term expiring on 25 February, 2049 for residential/commercial uses.
– 239 – APPENDIX II PROPERTY VALUATION
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shao Guo Yong (GF-1103 Zi No. 056) dated 11 May, 1999 issued by Shaoxing Xian State-owned Land Administration Bureau, the land use rights of Fa Zhan Building with a total site area of approximately 10,101.40 sq.m. was vested in Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd. (referred hereinafter as “Baoye Real Estate”) for a term expiring on 25 February, 2049 for residential/commercial uses.
2. Pursuant to a Building Ownership Certificate (Document No. Shao Fang Quan Zheng Keqiao Zi No. 07643) dated 12 April, 2002 issued by the Shaoxing Xian Real Estate Administration Bureau, the building ownership of Fa Zhan Building which comprises a total gross floor area of approximately 13,464.31 sq.m., was vested in Baoye Real Estate. The property comprises portion of Fa Zhan Building.
3. Pursuant to a Building Ownership Certificate (Document No. Shao Fang Quan Zheng Keqiao Zi No. 07615) dated 5 April, 2002 issued by the Shaoxing Xian Real Estate Administration Bureau, the property comprises a total gross floor area of approximately 283.25 sq.m. (the 2-storey supplemental block) was vested in Baoye Real Estate.
4. Pursuant to a State-owned Land Use Rights Grant Contract dated 12 January, 1999, the land use right of the property with a site area of approximately 10,101.4 sq.m. for a term of 50 years for residential/commercial uses have been granted to Baoye Real Estate at the consideration of RMB3,333,462.
5. Pursuant to a Business Licence (Registration No. 3306211000192) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Real Estate on 10 July, 2000, Baoye Real Estate is permitted to register with a registered capital of RMB20,000,000. The term of operation is commencing from 8 February, 1995 to 24 January, 2005. The scope of operation mainly covers real estate development.
6. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates Yes (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes
7. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Baoye Real Estate had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) Baoye Real Estate has obtained the building ownership rights of the buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium.
(c) By virtue of having obtained its business licence, Baoye Real Estate has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Baoye Real Estate has obtained all necessary licenses to operate in the location where the property is situated.
8. According to the information provided by the Group, the Group holds 99.9% interests in the property as at 30 April, 2003.
– 240 – APPENDIX II PROPERTY VALUATION
9. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”) and Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of the Joint venture company: Baoye Real Estate
(b) Term of operation: 10 years
(c) Registered capital: RMB20,000,000
(d) Proportion of capital contribution/ – the Company: 90% profit sharing: – Baoye Construction: 10%
(e) Baoye Construction is owned as to 99.0% by the Company, while the remaining 1.0% is owned equally by three Promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
– 241 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
8. 9 units of Decorative Material Market The property is occupied by RMB4,180,000 Decorative Material comprises 10 blocks of 4-storey the Group for shops and Market located at residential/commercial building domestic units. Interest attributable to Yunji Road, erected on a parcel of land, the Group Shangxieqiao which has a site area of Village, approximately 25,519.29 sq.m. 99.9% Keqiao Town, (274,690 sq.ft.). The buildings Shaoxing County, were completed in or about Capital value in Zhejiang Province, 2000. existing state the PRC. attributable to the The property has a gross floor Group as at area of approximately as 30 April, 2003 follows: RMB4,176,000 Gross Floor Area Unit (sq.m.) (sq.ft.)
Block 1-131 130.25 1,402 Block 1-132 130.25 1,402 Block 2-217 130.18 1,401 Block 2-218 130.18 1,401 Block 2-220 130.18 1,401 Block 2-221 130.18 1,401 Block 3-307 130.85 1,408 Block 3-308 130.85 1,408 Block 5-503 130.85 1,408
Total: 1,173.77 12,632
The property is held under a land use rights expiring on 28 December, 2045 for residential/ commercial composite uses.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shao Guo Yong (GF-1103) Zi No. 066) dated 6 September, 1999 issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 25,519.29 sq.m. was vested in Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd. (referred hereinafter as Baoye Real Estate) for a term expiring on 28 December, 2045 for residential/commercial composite uses.
2. Pursuant to 9 Building Ownership Certificates (Document No. Shao Fang Quan Zheng Keqiao Zi Nos. 03445- 03453) dated 10 July 2000 issued by Shaoxing County Real Estate Administration Bureau, the property with a total gross floor area of approximately 25,843.89 sq.m. was vested in Baoye Real Estate.
3. Pursuant to a State-owned Land Use Rights Grant Contract dated 5 May, 1995, the land use rights of the land with a site area of approximately 43,811.02 sq.m. (covering property Nos. 8, 9, 10, 16, 23 and 26) for a term of 40 years for “Baoye Plaza and supplementary facilities” uses has been granted to Zhejiang Baoye Construction Group Company, the predecessor of Baoye Group Company Limited. As advised by the Group, the Land Use Rights Grant Contract is entered into by Zhejiang Baoye Construction Group Company Ltd. on behalf of Baoye Real Estate. According to the confirmation letter dated 13 June, 2003 entered between Zhejang Baoye Construction Group Company Ltd. and Baoye Real Estate, Baoye Real Estate confirmed that they instructed Zhejiang Baoye Construction Group Company Ltd. to sign the Land Use Rights Grant contract on behalf of them.
– 242 – APPENDIX II PROPERTY VALUATION
4. Pursuant to a Business Licence (Registration No. 3306211000192) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Real Estate on 10 July, 2000, Baoye Real Estate is permitted to register with a registered capital of RMB20,000,000. The term of operation is commencing from 8 February, 1995 to 24 January, 2005. The scope of operation mainly covers real estate development.
5. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:-
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates Yes (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes
6. We have been provided with a legal opinion on the property prepared by the Group’s legal advisers, which contains, inter alia, the following information:
(a) Baoye Real Estate had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) Baoye Real Estate has obtained the building ownership rights of the buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
(c) By virtue of having obtained its business licence, Baoye Real Estate has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Baoye Real Estate has obtained all necessary licenses to operate in the location where the property is situated.
7. According to the information provided by the Group, the Group holds 99.9% interests in the property as at 30 April, 2003.
8. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”) and Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of the Joint venture company: Baoye Real Estate
(b) Term of operation: 10 years
(c) Registered capital: RMB20,000,000
(d) Proportion of capital contribution/ – the Company: 90% profit sharing: – Baoye Construction: 10%
(e) Baoye Construction is owned as to 99.0% by the Company, while the remaining 1.0% is owned equally by three Promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
– 243 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
9. Level 3 of The property comprises the The property is leased out RMB670,000 Supplementary level 3 of a 3-storey residential/ from the Group for shops Block of commercial building erected on and office together with Interest attributable to Block No. 10 of a parcel of land, which has a property No. 26. (see note the Group Decorative Material site area of approximately 4) Market located at 5,329.27 sq.m. (57,364 sq.ft.). 99.9% Yunji Road, The building was completed in Shangxieqiao or about 2000. Capital value in Village, existing state Keqiao Town, The property has a gross floor attributable to the Shaoxing County, area of approximately Group as at Zhejiang Province, 424.13 sq.m. (4,565 sq.ft.). 30 April, 2003 the PRC. The property is held under a RMB669,000 land use rights for a term expiring on 28 December, 2045 for residential/commercial uses.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shaoxing Xian Guo Yong (GF-1103-66 Zi No. 11931)) dated 29 November 2002 issued by Shaoxing County State-owned Land Administration Bureau, the property with a total site area of approximately 5,329.27 sq.m. was vested in Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd. (referred hereinafter as Baoye Real Estate) for a term expiring on 28 December, 2045 for residential/commercial uses.
2. Pursuant to a Building Ownership Certificate (Document No.: Shao Fang Quan Zheng Keqiao Zi No. 05630) dated 29 March, 2001 issued by Shaoxing County Real Estate Administration Bureau, the building ownership of the property with gross floor area of approximately 1,304.3 sq.m. was vested in Baoye Real Estate.
3. Pursuant to a State-owned Land Use Rights Grant Contract dated 5 May, 1995, the land use rights of the land with a site area of approximately 43,811.02 sq.m. (covering property Nos. 8, 9, 10, 16, 23 and 26) for a term of 40 years for “Baoye Plaza and supplementary facilities” uses has been granted to Zhejiang Baoye Construction Group Company, the predecessor of Baoye Group Company Limited. As advised by the Group, the Land Use Rights Grant Contract is entered into by Zhejiang Baoye Construction Group Company on behalf of Baoye Real Estate. According to the confirmation letter dated 13 June, 2003 entered between Baoye Real Estate and Zhejiang Baoye Construction Group Company, Baoye Real Estate confirmed that they instructed Zhejiang Baoye Construction Group Company to sign the landuse Rights Grant contract on behalf of them.
4. Pursuant to a tenancy agreements entered between Baoye Real Estate and 紹興縣工商行政管理局 (Shaoxing County Industrial and Commerce Executive Bureau) (“the Lessee”) dated 15 September, 2000, the property with gross floor areas of approximately 670.39 sq.m. (supplementary Block: 462.93 sq.m. and Room 6: 207.46 sq.m.) has been leased to the Lessee for a term of 3 years commencing from 28 September, 2000 to 28 September, 2003 at an annual rental of RMB100,000.
5. Pursuant to a Business Licence (Registration No. 3306211000192) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Real Estate on 10 July, 2000, Baoye Real Estate is permitted to register with a registered capital of RMB20,000,000. The term of operation is commencing from 8 February, 1995 to 24 January, 2005. The scope of operation mainly covers real estate development.
6. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates Yes (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes (e) Tenancy Agreement Yes
– 244 – APPENDIX II PROPERTY VALUATION
7. We have been provided with a legal opinion on the property prepared by the Group’s legal advisers, which contains, inter alia, the following information:
(a) Baoye Real Estate had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) Baoye Real Estate has obtained the building ownership rights of the buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
(c) By virtue of having obtained its business licence, Baoye Real Estate has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Baoye Real Estate has obtained all necessary licenses to operate in the location where the property is situated.
(e) The tenancy agreement is legally binding between the landlord and the tenant.
8. According to the information provided by the Group, the Group holds 99.9% interests in the property as at 30 April, 2003.
9. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”) and Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of the Joint venture company: Baoye Real Estate
(b) Term of operation: 10 years
(c) Registered capital: RMB20,000,000
(d) Proportion of capital contribution/ – the Company: 90% profit sharing: – Baoye Construction: 10%
(e) Baoye Construction is owned as to 99.0% by the Company, while the remaining 1.0% is owned equally by three Promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
– 245 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
10. China Light Textile The property comprises a parcel The property is leased out RMB26,700,000 City Decorative of land with a site area of from the Group for Material Market approximately 13,199.08 sq.m. decorative material market Interest attributable to located at (142,075 sq.ft.) and a 1-storey at a total annual rental of the Group No. 568 Yunji Road, building erected thereon. It was RMB70,000. Shangxieqiao completed in or about 1999. 99.9% Village, Keqiao Town, The building has a gross floor Capital value in Shaoxing County, area of approximately 5,804.38 existing state Zhejiang Province, sq.m. (62,478 sq.ft.). attributable to the the PRC. Group as at The property is held under a 30 April, 2003 land use rights for a term expiring on 26 May, 2036 for RMB26,673,000 commercial uses.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shaoxing Xian Guo Yong (2002) Zi No. 3-65) dated 10 September, 2002 issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 13,199.08 sq.m. was vested in Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd. (referred hereinafter as Baoye Real Estate) for a term expiring on 26 May, 2036 for commercial uses.
2. Pursuant to a Building Ownership Certificate (Document No. Shao Fang Quan Zheng Keqiao Zi No. 01758) dated 30 December, 1999 issued by the Shaoxing County Real Estate Administration Bureau, the property, which comprises a block of building with a total gross floor area of approximately 5,804.38 sq.m., was vested in Baoye Real Estate.
3. Pursuant to a State-owned Land Use Rights Grant Contract dated 5 May, 1995 (the “Contract”), the land use rights of the land with a site area of approximately 43,811.02 sq.m. (covering Property Nos. 8, 9, 10, 16, 23 and 26) for a term of 40 years for “Baoye Plaza and supplementary facilities” uses has been granted to Zhejiang Baoye Construction Group Company, the predecessor of Baoye Group Company Limited. As advised by the Group, the Land Use Rights Grant Contract is entered into by Zhejiang Baoye Construction Group Company on behalf of Baoye Real Estate. According to the confirmation letter dated 13 June, 2003 entered between Baoye Real Estate and Zhejiang Baoye Construction Group Company, Baoye Real Estate confirmed that they instructed Zhejiang Baoye Construction Group Company to sign the Land Use Rights Grant contract on behalf of them.
4. Pursuant to a Supplement to the Contract dated 2 September, 1999, the property with a site area of approximately 30,611.94 sq.m. was assigned back to Baoye Real Estate. The remaining property with a site area of approximately 13,199.08 sq.m. remained unassigned.
5. Pursuant to a Business Licence (Registration No. 3306211000192) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Real Estate on 10 July, 2000, Baoye Real Estate is permitted to register with a registered capital of RMB20,000,000. The term of operation is commencing from 8 February, 1995 to 24 January, 2005. The scope of operation mainly covers real estate development.
6. Pursuant to a tenancy agreement entered between Baoye Real Estate and Shaoxing County Baoye Decorative Material Market Company Limited (the “Lessee”) dated 11 June, 2003, the property with gross floor area of approximately 5,804.38 sq.m. has been leased to the Lessee for a term commencing from 1 May, 2002 to 31 October, 2003 at an annual rental of RMB70,000.
– 246 – APPENDIX II PROPERTY VALUATION
7. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:-
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates Yes (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes
8. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Baoye Real Estate had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) Baoye Real Estate has obtained the building ownership rights of the buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
(c) By virtue of having obtained its business licence, Baoye Real Estate has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Baoye Real Estate has obtained all necessary licenses to operate in the location where the property is situated.
(e) The tenancy agreement is legally binding between the landlord and the tenant.
9. According to the information provided by the Group, the Group holds 99.9% interests in the property as at 30 April, 2003.
10. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”) and Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of the Joint venture company: Baoye Real Estate
(b) Term of operation: 10 years
(c) Registered capital: RMB20,000,000
(d) Proportion of capital contribution/ – the Company: 90% profit sharing: – Baoye Construction: 10%
(e) Baoye Construction is owned as to 99.0% by the Company, while the remaining 1.0% is owned equally by three Promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
– 247 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
C. Property interests held by Shaoxing Commodity Concrete Co., Ltd.
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
11. Factory Complex The property comprises a parcel The property is occupied by RMB3,940,000 located at of land with a total site area of the Group for open storage Ting Shan Shu Xia approximately 12,688.9 sq.m. and ancillary facilities. Interest attributable to Wang Xing Fu, (136,583 sq.ft.) and six items of the Group Qiao Tou, structures erected thereon (see Shaoxing County, note 4). They are of 1 to 51.5% Zhejiang Province, 3-storey and completed in or the PRC. about 1994 to 2001. Capital value in existing state The property is held under a attributable to the land use rights for a term Group as at expiring on 17 October, 2051 30 April, 2003 for storage uses. RMB2,029,000
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shao Shi Guo Yong (2002) Zi No. 1-1219) dated 28 February, 2002 issued by Shaoxing City State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 12,688.9 sq.m. was vested in Shaoxing Commodity Concrete Company (the predecessor of Shaoxing Commodity Concrete Co., Ltd. (referred hereinafter as Concrete Company)) for a term expiring on 17 October, 2051 for storage uses.
2. Pursuant to a State-owned Land Use Rights Grant Contract dated 5 February, 2002, the property with a site area of approximately 12,688.88 sq.m. for a term of 50 years for storage use has been granted to Shaoxing Commodity Concrete Company for the consideration of RMB2,004,843.
3. Pursuant to a Business Licence (Registration No. 3306001001092) issued by Shaoxing City Industrial and Commerce Executive Bureau to Concrete Company on 24 September, 2002, Concrete Company is permitted to register with a registered capital of RMB21,500,000. The term of operation is commencing from 7 April, 1994 to 31 December, 2011. The scope of operation mainly covers production and sales of concrete and building materials.
4. Upon inspection, there are 6 items of structures erected on the site. The structures include carport, toilet and various temporary structures for storage and no building ownership certificates are required for these structures, no capital value for such structures have been assigned in the valuation. For indicative purposes, the depreciated replacement cost of the structures as at 30 April, 2003 was RMB2,151,000.
5. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates No (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes
6. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Concrete Company had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) Concrete Company is entitled to transfer, lease, mortgage or deal with the land by way of legal means with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
– 248 – APPENDIX II PROPERTY VALUATION
(c) By virtue of having obtained its business licence, Concrete Company has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Concrete Company has obtained all necessary licenses to operate in the location where the property is situated.
7. According to the information provided by the Group, the Group holds 51.5% interests in the property as at 30 April, 2003.
8. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”), Zhejiang Huanyu Construction Group Co., Ltd., and Shaoxing Municipal Infrastructure Company agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of joint venture company: Concrete Company
(b) Term of operation: 7 April, 1994 to 31 December, 2011
(c) Registered capital: RMB21,500,000
(d) Proportion of capital contribution/ Company: 51.5% profit sharing: Zhejiang Huanyu Construction Group Co., Ltd.: 25.8% Shaoxing Municipal Infrastructure Company: 22.7%
– 249 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
D. Property interests held by Zhejiang Baoye Building Materials Industrialisation Company Limited
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
12. Factory Complex The property comprises a parcel The property is occupied by RMB13,310,000 located at of irregular-shaped level land the Group for production Gaojia Ju Wei Hui, with a site area of use. Interest attributable to Yangxunqiao Town, approximately 25,547 sq.m. the Group Shaoxing County, (20,175 sq.ft.) and eight items Zhejiang Province, of buildings and 4 items of 63.9% the PRC. structures (see note 5) erected thereon. They are of 1 to Capital value in 2-storey and completed in or existing state about 1987. attributable to the Group as at The buildings mainly comprise 30 April, 2003 factory with a total gross floor area of approximately 5,790.36 RMB8,505,000 sq.m. (62,327 sq.ft.).
The property is held under a land use rights for a term expiring on 14 July, 2052 for industrial uses.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shaoxing Xian Guo Yong (2002) Zi No. 7-34) dated 12 September, 2002 issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 25,547 sq.m. was vested in Zhejiang Baoye Building Materials Industrialisation Company Limited (referred hereinafter as Building Materials Industrialisation Company) for a term expiring on 14 July, 2052 for industrial uses.
2. Pursuant to a Building Ownership Certificate (Document No. Shao Fang Quan Zheng Yangxunqiao Zi No. 00122) dated 12 September, 2002 issued by the Shaoxing County Real Estate Administration Bureau, the property, which comprises 8 blocks of buildings with a total gross floor area of approximately 5,790.36 sq.m., was vested in Building Materials Industrialisation Company.
3. Pursuant to a State-owned Land Use Rights Grant Contract dated 20 June, 2002, the property with a site area of approximately 25,547 sq.m. for a term of 50 years for industrial uses has been granted to Shaoxing Baoye Fireproof Materials Co., Ltd, a subsidiary company of the Group, for the consideration of RMB2,478,059. As advised by the Group, the Land Use Rights Grant Contract is entered into by Shaoxing Baoye Fireproof Materials Co., Ltd. on behalf of Building Materials Industrialisation Company. According to the confirmation letter dated 13 June, 2003 entered into between Building Material Industrialisation Company and Shaoxing Baoye Fireproof Material Co. Ltd., Building Material Industrialisation Company confirmed that they instructed Shaoxing Baoye Fireproof Material Co. Ltd. to sign the Land Use Rights Grant Contract on behalf of them.
4. Pursuant to a Business Licence (Registration No. 3300001008269) issued by Zhejiang Province Industrial and Commerce Executive Bureau to Building Materials Industrialisation Company on 8 November, 2001, Building Materials Industrialisation Company is permitted to register with a registered capital of RMB60,600,000. The term of operation is unlimited. The scope of operation mainly covers production and sales of concrete products and building materials.
5. Upon inspection, there are 4 items of structures erected on the site. The structures include carport, various temporary structures for storage and workshop and no building ownership certificates are required for these structures, no capital value for such structures have been assigned in the valuation. For indicative purposes, the depreciated replacement cost of the structures as at 30 April, 2003 was RMB270,000.
– 250 – APPENDIX II PROPERTY VALUATION
6. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates for the 8 items of buildings with a total gross floor area of 5,790.36 sq.m. Yes (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes
7. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Building Materials Industrialisation Company had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) Building Materials Industrialisation Company has obtained the building ownership rights of the 8 items of buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
(c) By virtue of having obtained its business licence, Building Materials Industrialisation Company has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Building Materials Industrialisation Company has obtained all necessary licenses to operate in the location where the property is situated.
8. According to the information provided by the Group, the Group holds 63.9% interests in the property as at 30 April, 2003.
9. Pursuant to an Article of Association dated 19 October, 2001, Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”), Mr. Pang Baogen, Zhejiang Construction Science and Design Research Institute, Zhejiang Building Materials Industrialisation and Design Research Institute Co., Ltd. (“Building Materials Industrialisation Research Institute”) and Mr. Hu Shaozeng agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of joint venture company: Building Materials Industrialisation Company
(b) Term of operation: commenced on 8 July, 1999
(c) Registered capital: RMB60,600,000
(d) Proportion of capital contribution/ Baoye Construction: 60% profit sharing: Mr. Pang Baogen: 19% Zhejiang Construction Science and Design Research Institute: 15% Building Materials Industrialisation Research Institute: 5% Mr. Hu Shaozeng: 1%
(e) Baoye Construction is owned as to 99.0% by the Company while the remaining 1.0% is owned equally by three promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
(f) Building Materials Industrialisation Research Institute is owned as to 90.0% by the Company while the remaining 10.0% is owned by the Reception Centre of Zhejiang Provincial Department of Construction.
– 251 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
13. Factory Complex The property comprises two The property is occupied by RMB33,630,000 located at Jingshui parcels of land with a total site the Group for factory and Road West, area of approximately ancillary uses including Interest attributable to Hongfeng Village, 60,072 sq.m. (646,615 sq.ft.) office, dormitory, canteen, the Group Keqiao Jie Dao and four items of main open storage and Keqiao Town, buildings erected thereon. They supplementary purpose 63.9% Shaoxing County, are of 1 to 3-storey and which are permitted on an Zhejiang Province, completed in or about 1999 to industrial land. Capital value in the PRC. 2002. existing state attributable to the The buildings mainly comprise Group as at office, factory, dormitory and 30 April, 2003 canteen buildings with a total gross floor area of RMB21,490,000 approximately 5,857.26 sq.m. (63,048 sq.ft.). There are also 7 items of structures erected thereon (see note 7).
The property is held under a land use rights for terms expiring on 29 December, 2048 and 23 October, 2052 for industrial uses.
Notes:
1. Pursuant to two State-owned Land Use Rights Certificates (Document Nos. Shaoxing Xian Guo Yong (2002) Zi No. 3-66 and No. 3-73) dated 12 September, 2002 and 28 October, 2002 respectively issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with site areas of approximately 55,484 sq.m. and 4,588 sq.m. respectively were vested in Zhejiang Baoye Building Materials Industrialisation Company Limited (referred hereinafter as Building Materials Industrialisation Company) for terms expiring on 29 December, 2048 and 23 October, 2052 for industrial uses.
2. Pursuant to three Building Ownership Certificates (Document Nos. Shao Fang Quan Zheng Keqiao Zi No. 09375, No. 09546 and No. 09547) dated 23 September, 2002, 30 October, 2002 and 30 October, 2002 respectively issued by the Shaoxing Xian Real Estate Administration Bureau, the property, which comprises four blocks of buildings with a total gross floor area of approximately 5,857.26 sq.m., was vested in Building Materials Industrialisation Company.
3. Pursuant to a State-owned Land Use Rights Grant Contract dated 5 December, 1998, the property with a site area of approximately 113,466.67 sq.m. for a term of 50 years for industrial uses has been granted to 中國輕 紡城開發集團有限公司 (China Light Textile City Development Group Company Limited) for a consideration of RMB8,339,800.2.
4. Pursuant to a 土地使用權變更申請、審批表 (Change of Land Use Rights Application, Approval) dated 27 March, 2000, the original user of 中國輕紡城開發集團有限公司 (China Light Textile City Development Group Company Limited) of a land with a site area of approximately 113,466.67 sq.m. has been changed to Zhejiang Baoye Construction Works Group Co., Ltd., the predecessor of the Company, and the site area has been reduced to 55,484 sq.m. for a term of 50 years for industrial uses. Afterward, the land use rights had been transferred to Building Materials Industrialisation Company.
5. Pursuant to a State-owned Land Use Rights Grant Contract dated 17 October, 2002, the property with a site area of approximately 4,588 sq.m. for a term of 50 years for industrial uses has been granted to Building Materials Industrialisation Company for the consideration of RMB550,560.
– 252 – APPENDIX II PROPERTY VALUATION
6. Pursuant to a Business Licence (Registration No. 3300001008269) issued by Zhejiang Province Industrial and Commerce Executive Bureau to Building Materials Industrialisation Company on 8 November, 2001, Building Materials Industrialisation Company is permitted to register with a registered capital of RMB60,600,000. The term of operation is unlimited. The scope of operation mainly covers production and sales of concrete products and building materials.
7. Upon inspection, there are 7 items of structures erected on the site. The structures include carport, toilet, various temporary structures for storage, workshop and no building ownership certificates are required, no capital value for such structures have been assigned in the valuation. For indicative purposes, the depreciated replacement cost of the structures as at 30 April, 2003 was RMB2,360,000.
8. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates for the 4 items of buildings with a total gross floor area of 5,857.26 sq.m. Yes (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes
9. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Building Materials Industrialisation Company had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) Building Materials Industrialisation Company has obtained the building ownership rights of the 4 items of buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
(c) By virtue of having obtained its business licence, Building Materials Industrialisation Company has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Building Materials Industrialisation Company has obtained all necessary licenses to operate in the location where the property is situated.
10. According to the information provided by the Group, the Group holds 63.9% interests in the property as at 30 April, 2003.
11. Pursuant to an Article of Association dated 19 October, 2001, Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”), Mr. Pang Baogen, Zhejiang Construction Science and Design Research Institute, Zhejiang Building Materials Industrialisation and Design Research Institute Co., Ltd. (“Building Materials Industrialisation Research Institute”) and Mr. Hu Shaozeng agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of joint venture company: Building Materials Industrialisation Company
(b) Term of operation: commenced on 8 July, 1999
(c) Registered capital: RMB60,600,000
(d) Proportion of capital contribution/ Baoye Construction: 60% profit sharing: Mr. Pang Baogen: 19% Zhejiang Construction Science and Design Research Institute: 15% Building Materials Industrialisation Research Institute: 5% Mr. Hu Shaozeng: 1%
(e) Baoye Construction is owned as to 99.0% by the Company while the remaining 1.0% is owned equally by three promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
(f) Building Materials Industrialisation Research Institute is owned as to 90.0% by the Company while the remaining 10.0% is owned by the Reception Centre of Zhejiang Provincial Department of Construction.
– 253 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
E. Property interests held by Zhejiang Baoye Curtain Wall Decoration Co., Ltd.
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
14. Units N, O, P, Q The property comprises five The property is occupied by No commercial value and R on Level 27, office units of a 28-storey the Group for office. Shuang Niu (excluding 3-storey basement) Interest attributable to Building, building completed in or about the Group Hangzhou City, 2001. Zhejiang Province, 83.1% the PRC. The property has a total gross floor area of approximately Capital value in 317.01 sq.m. (3,412 sq.ft.). existing state attributable to the The property is held under a Group as at land use rights for a term from 30 April, 2003 27 May, 1997 to 26 May, 2047 for commercial/residential uses. No commercial value
Notes:
1. Pursuant to a Commodity Building Sales Contract signed between 杭州雙牛大廈開發有限公司 (Vendor) and Zhejiang Baoye Curtain Wall Decoration Co., Ltd. (referred hereinafter as Baoye Curtain Wall) (Purchaser) dated 31 May, 2001, the property with a total gross floor area of approximately 317.01 sq.m. was sold to Baoye Curtain Wall at RMB2,172,263 for office uses. The purchase price has been fully paid by Baoye Curtain Wall.
2. Pursuant to a Business Licence (Registration No. 3306211008963) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Curtain Wall on 18 July, 2002, Baoye Curtain Wall is permitted to register with a registered capital of RMB10,800,000. The term of operation is commencing from 1 December, 1999 to 1 December, 2009. The scope of operation mainly covers production and installation of curtain wall and steel structures.
3. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate N/A (b) Building Ownership Certificates No (c) Commodity Building Sales Contract Yes (d) Business Licence Yes
N/A: not applicable
4. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) By virtue of having obtained its business licence, Baoye Curtain Wall has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(b) Baoye Curtain Wall has obtained all necessary licenses to operate in the location where the property is situated.
5. According to the information provided by the Group, the Group holds 83.1% interests in the property as at 30 April, 2003.
6. As advised by the Group, the developer of the building cannot provide sufficient legal documents to proof that they have good title in the building. Thus, the Group cannot obtained Building Ownership certificate of the property, so we assign no commercial value to the property. For indicative purpose, the open market value of the property as at 30 April, 2003, on the assumption that the building ownership certificate obtained, was RMB2,200,000. – 254 – APPENDIX II PROPERTY VALUATION
7. Pursuant to an Article of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”), Mr. Pang Baisong, Mr. Wang Jianguo, Ms. Xia Xiaomin, Mr. Sun Baoxian, Mr. Shen Muquan and Labour Union Committee of Zhejiang Baoye Curtain Wall Decoration Co., Ltd. (“Labour Union Committee of Baoye Curtain Wall”) agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of joint venture company: Baoye Curtain Wall
(b) Term of operation: 1 December, 1999 to 1 December, 2009
(c) Registered capital: RMB10,800,000
(d) Proportion of capital contribution/ the Company: 83.1% profit sharing: Mr. Pang Baisong: 3.7% Mr. Wang Jianguo: 3.4% Ms. Xia Xiaomin: 2.0% Mr. Sun Baoxian: 0.9% Mr. Shen Muquan: 0.7% Labour Union Committee of Baoye Curtain Wall: 6.2%
– 255 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Group II – Property interests held by the Group for investment by the Group in the PRC
A. Property interests held by Zhejiang Baoye Construction Group Co., Ltd.
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
15. China Light Textile The property comprises a parcel The property is leased out RMB5,190,000 City Motorcycle of land with a site area of from the Group for Market located at approximately 5,976.78 sq.m. motorcycle exhibition hall Interest attributable to north of 104 (64,334 sq.ft.) and two items of at a total annual rental of the Group Highway, Hongfeng buildings erected thereon. They RMB500,000 (Please refer Village, Keqiao are of 1-storey and completed in to Note 4). 99% Town, Shaoxing or about 1997. County, Zhejiang The remaining portion is for Capital value in Province, The buildings mainly comprise corridor purpose. existing state the PRC. a exhibition hall and attributable to the transformer room with a gross Group as at floor area of approximately as 30 April, 2003 follows:– RMB5,138,100 Gross Floor Area (sq.m.) (sq.ft.)
Exhibition hall 4,410.59 47,476 Transformer room 16.98 183
Total: 4,427.57 47,659
The property is held under a land use rights for a term expiring on 9 March, 2045 for industrial uses.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shaoxing Xian Guo Yong (2003) Zi No. 3-47) dated 18 April, 2003 issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 5,976.78 sq.m. was vested in Zhejiang Baoye Construction Group Co., Ltd. (referred hereinafter as “Baoye Construction”) for a term expiring on 9 March, 2045 for industrial uses.
2. Pursuant to a Building Ownership Certificate (Document No. Shao Fang Quan Zheng Keqiao Zi No. 11176) dated 18 April, 2003 issued by the Shaoxing County Real Estate Administration Bureau, the property, which comprises 2 blocks of buildings with a total gross floor area of approximately 4,427.57 sq.m., was vested in Baoye Construction.
3. Pursuant to a State-owned Land Use Rights Grant Contract dated 1 September, 1994, the land use rights of the land with a site area of approximately 5,976.778 sq.m. for a term of 50 years for Shaoxing Commodity Concrete Company project uses has been granted to Shaoxing County No.6 Construction Company, for the consideration of RMB978,577.86. As advised by the Group, the Land Use Rights Grant Contract is entered into by Shaoxing County No. 6 Construction Company on behalf of Baoye Construction. According to the confirmation letter dated 13 June, 2003 entered into between Baoye Construction and Shaoxing Xian No.6 Construction Company, Baoye Construction confirmed that they instructed Shaoxing County No.6 Construction Company to sign the Land Use Rights Grant contract on behalf of them.
– 256 – APPENDIX II PROPERTY VALUATION
4. Pursuant to a tenancy agreement entered between the Company (“the Lessor”) and 中國輕紡城紡機市場有 限公司 (China Qing Fang Cheng Fang Ji Market Company Limited) (“the Lessee”) dated 11 June, 2003, the property with a rented area of approximately 4,320 sq.m. has been leased to the Lessee for a term of 1 year commencing from 21 October, 2002 to 20 October, 2003 at an annual rental of RMB500,000.
5. Pursuant to a Business Licence (Registration No. 3306211010276) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Construction on 9 August, 2002, Baoye Construction is permitted to register with a registered capital of RMB300,000,000. The term of operation is commencing from 15 February, 2001 to 14 August, 2010. The scope of operation mainly covers construction and decoration works.
6. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates Yes (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes (e) Tenancy Agreement Yes
7. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Baoye Construction had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) Baoye Construction has obtained the building ownership rights of the buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
(c) By virtue of having obtained its business licence, Baoye Construction has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Baoye Construction has obtained all necessary licenses to operate in the location where the property is situated.
8. According to the information provided by the Group, the Group holds 99% interests in the property as at 30 April, 2003.
9. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”), Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of joint venture company: Baoye Construction
(b) Term of operation: From 15 February, 2001 to 14 August, 2010
(c) Registered capital: RMB300,000,000
(d) Proportion of capital contribution/ the Company: 99% profit sharing: Mr. Wang Liequan, Mr. Chen Baorong, Ms. Xia Weimin: 1%
– 257 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
B. Property interests held by Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd.
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
16. Block No. 10 of The property comprises a Portion of the property is RMB12,140,000 Decorative Material 4-storey residential/commercial leased out from the Group Market located at building erected on a parcel of for shops and office at an Interest attributable to Yunji Road, land, which has a site area of annual rental of the Group Shangxieqiao approximately 5,329.27 sq.m. RMB500,000 (see Note 4 Village, (57,364 sq.ft.). The building below). 99.9% Keqiao Town, was completed in or about Shaoxing County, 2000. The other portion of the Capital value in Zhejiang Province, property is leased out from existing state the PRC. The building has a total gross the Group for shops and attributable to the floor area of approximately office together with Group as at 5,467.89 sq.m. (58,856 sq.ft.). Property 26. (see Note 5 30 April, 2003 below) The property is held under a RMB12,128,000 land use rights for a term expiring on 28 December, 2045 for residential/commercial uses.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shaoxing Xian Guo Yong (GF-1103-66 Zi No. 11931)) dated 29 November 2002 issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 5,329.27 sq.m. was vested in Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd. (referred hereinafter as Baoye Real Estate) for a term expiring on 28 December, 2045 for residential/commercial uses.
2. Pursuant to a Building Ownership Certificate (Document No.: Shao Fang Quan Zheng Keqiao Zi No. 05631) dated 29 March, 2001 issued by Shaoxing County Real Estate Administration Bureau, the property with gross floor area of approximately 5,467.89 sq.m. was vested in Baoye Real Estate.
3. Pursuant to a State-owned Land Use Rights Grant Contract dated 5 May, 1995, the land use rights of the land with a site area of approximately 43,811.02 sq.m. (covering property Nos. 8, 9, 10, 16, 23 and 26) for a term of 40 years for “Baoye Plaza and supplementary facilities” uses has been granted to Zhejiang Baoye Construction Group Company, the predecessor of Baoye Group Company Limited. As advised by the Group, the Land Use Rights Grant Contract is entered into by Zhejiang Baoye Construction Group Company on behalf of Baoye Real Estate. According to the confirmation letter dated 13 June, 2003 signed by Baoye Real Estate and Zhejiang Baoye Construction Group Company, Baoye Real Estate confirmed that they instructed Zhejiang Baoye Construction Group Company to sign the Land Use Rights Grant contract on behalf of them.
4. Pursuant to a tenancy agreement entered between Baoye Real Estate and 紹興縣工商行政管理局 (Shaoxing County Industrial and Commerce Executive Bureau) (“the Lessee”) dated 15 September, 2000, the property with gross floor areas of approximately 2,112 sq.m. (Levels 3-4) has been leased to the Lessee for a term of 3 years commencing from 28 September, 2000 to 28 September, 2003 at an annual rental of RMB500,000.
5. Pursuant to a tenancy agreement entered between Baoye Real Estate and Shaoxing County Baoye Decorative Material Market Company Limited (the “Lessee”) dated 11 June, 2003, the property with total gross floor area of approximately 3,491.05 sq.m. has been leased to the Lessee for a term commencing from 1 May, 2002 to 31 October, 2003 at an annual rental of RMB35,800.
6. Pursuant to a Business Licence (Registration No. 3306211000192) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Real Estate on 10 July, 2000, Baoye Real Estate is permitted to register with a registered capital of RMB20,000,000. The term of operation is commencing from 8 February, 1995 to 24 January, 2005. The scope of operation mainly covers real estate development.
– 258 – APPENDIX II PROPERTY VALUATION
7. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:-
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates Yes (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes (e) Tenancy Agreement Yes
8. We have been provided with a legal opinion on the property prepared by the Group’s legal advisers, which contains, inter alia, the following information:
(a) Baoye Real Estate had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) Baoye Real Estate has obtained the building ownership rights of the buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
(c) By virtue of having obtained its business licence, Baoye Real Estate has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Baoye Real Estate has obtained all necessary licenses to operate in the location where the property is situated.
9. According to the information provided by the Group, the Group holds 99.9% interests in the property as at 30 April, 2003.
10. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”) and Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of the Joint venture company: Baoye Real Estate
(b) Term of operation: 10 years
(c) Registered capital: RMB20,000,000
(d) Proportion of capital contribution/ – the Company: 90% profit sharing: – Baoye Construction: 10%
(e) Baoye Construction is owned as to 99.0% by the Company, while the remaining 1.0% is owned equally by three Promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
– 259 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
17. Levels 8-11, Fa Zhan Building (referred Level 8 and portion of RMB12,190,000 Fa Zhan Building, hereinafter as the “Building”), Level 9 are subject to a No. 208 Jianhu which comprises a 11-storey property lease agreement Interest attributable to Road, Jinkeqiao composite building erected over for a term of 3 years from the Group Main Road West, a 3-storey commercial podium 28 September, 2000 to 28 Keqiao Town, plus one level of storage September, 2003 at an 99.9% Shaoxing County, basement underneath, annual rental of Zhejiang Province, constructed on a parcel of RMB270,000. Capital value in the PRC. rectangular shaped level land existing state with a site area of The other portion of Level 9 attributable to approximately 10,101.4 sq.m. and whole of Levels 10 and the Group as at (108,731 sq.ft.) located at the 11 are subject to a property 30 April, 2003 junction of Jinkeqiao Main lease agreement for a term Road and Jianhu Road amid of 3 years from 28 RMB12,178,000 Keqiao Town in Shaoxing. September, 2000 to 28 September, 2003 at an The property comprises four annual rental of levels of office and its RMB430,000. accommodation are as follows:–
Level Gross Floor Area (Approximately) (sq.m.) (sq.ft.)
8 762.124 8,204 9 762.124 8,204 10 762.124 8,204 11 762.124 8,204
3,048.496 32,816
The Building was completed in 1999.
The property is held under a land use rights for a term expiring on 25 February, 2049 for residential/commercial uses.
– 260 – APPENDIX II PROPERTY VALUATION
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shao Guo Yong (GF-1103 Zi No. 056) dated 11 May, 1999 issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of Fa Zhan Building with a total site area of approximately 10,101.40 sq.m. was vested in Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd. (referred hereinafter as “Baoye Real Estate”) for a term expiring on 25 February, 2049 for residential/commercial uses.
2 Pursuant to a Building Ownership Certificate (Document No. Shao Fang Quan Zheng Keqiao Zi No. 07643) dated 12 April, 2002 issued by the Shaoxing Xian Real Estate Administration Bureau, the building ownership of Fa Zhan Building which comprises a total gross floor area of approximately 13,464.31 sq.m., was vested in Baoye Real Estate. The property comprises portion of Fa Zhan Building.
3. Pursuant to a State-owned Land Use Rights Grant Contract dated 12 January, 1999, the land use rights of the property with a site area of approximately 10,101.4 sq.m. for a term of 50 years for residential/commercial uses has been granted to Baoye Real Estate at the consideration of RMB3,333,462.
4. Pursuant to a tenancy agreement entered between Baoye Real Estate and 紹興縣勞動和社會保障局 (Shaoxing County Physical Labour and Society Guarantee Bureau) (“the Lessee”) dated 6 September, 2000, portion of Level 9 and Levels 10 and 11 of the property with a total area of approximately 1,905 sq.m. were leased to the Lessee for a term of 3 years commencing from 28 September, 2000 to 28 September, 2003 at an annual rental of RMB430,000.
5. Pursuant to a tenancy agreement entered between Baoye Real Estate and 紹興縣民政局 Shaoxing County Civil Administration Bureau (“the Lessee”) dated 6 September, 2000, Level 8 and portion of Level 9 of the property with a total area of approximately 1,143 sq.m. were leased to the Lessee for a term of 3 years commencing from 28 September, 2000 to 28 September, 2003 at an annual rental of RMB270,000.
6. Pursuant to a Business Licence (Registration No. 3306211000192) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Real Estate on 10 July, 2000, Baoye Real Estate is permitted to register with a registered capital of RMB20,000,000. The term of operation is commencing from 8 February, 1995 to 24 January, 2005. The scope of operation mainly covers real estate development.
7. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates Yes (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes (e) Tenancy Agreement Yes
8. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Baoye Real Estate had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) Baoye Real Estate has obtained the building ownership rights of the buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium.
(c) By virtue of having obtained its business licence, Baoye Real Estate has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Baoye Real Estate has obtained all necessary licenses to operate in the location where the property is situated.
(e) The tenancy agreement is legally binding between the landlord and the tenant.
– 261 – APPENDIX II PROPERTY VALUATION
9. According to the information provided by the Group, the Group holds 99.9% interests in the property as at 30 April, 2003.
10. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”) and Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of the Joint venture company: Baoye Real Estate
(b) Term of operation: 10 years
(c) Registered capital: RMB20,000,000
(d) Proportion of capital contribution/ – the Company: 90% profit sharing: – Baoye Construction: 10%
(e) Baoye Construction is owned as to 99.0% by the Company, while the remaining 1.0% is owned equally by three Promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
– 262 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Group III – Property interests held by the Group for development and sales in the PRC
A. Property interests held by Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd.
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
18. The remaining Keqiao City Garden (the The construction works of RMB13,730,000 unsold commercial “Development”) is a large scale the Development were and residential units composite development completed and the property Interest attributable to of Keqiao City comprises a parcel of land (the is at present vacant. the Group Garden, “site”) with a site area of (also known as approximately 74,012 sq.m. 99.9% Bei Zi Tan Area (796,665 sq.ft.) and developed Phase I and II) by three phases (including Capital value in located at Property 25 of the Valuation existing state cross Yu Cai Road, Report). Site area for Phase I attributable to Shanyin Road, and II is 61,478.60 sq.m. whilst the Group as at Keqiao Town, site area for Phase III is 30 April, 2003 Shaoxing County, 12,533.4 sq.m. Zhejiang Province, RMB13,716,000 the PRC. The property comprises various unsold units within Phases I and II of the Development completed in 2001. Details of the unsold units are listed out in Note 8 below.
Details of the property’s accommodation are as follows:
Portion Gross Floor Area (approximately) (sq.m.) (sq.ft.)
Commercial 870.06 9,365 Residential 329.76 3,550 Car Park 3,071.43 33,061 Bicycle Park 153.48 1,652
1,199.82 12,915
(Remarks: According to the General Rules for Estate Surveying the total GFA does not include the area for car park)
The property is held under a land use rights for terms expiring on 30 July, 2070 and 5 February, 2071 for residential uses.
– 263 – APPENDIX II PROPERTY VALUATION
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. 紹興縣國用(2003)字第3-20號) dated 3 March, 2003 issued by Shaoxing County State-owned Land Resources Bureau (referred hereinafter as the “Bureau”), the land use rights to the property (Lot No. 3-57-0-44) with a site area of approximately 74,012 sq.m. was granted to Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd. (referred hereinafter as Baoye Real Estate) for a term expiring on 30 July, 2070 for residential uses.
2. Pursuant to two Contracts for Grant of State-owned Land Use Rights entered into between Zhejiang Province Shaoxing County Land Administration Bureau and the Group on various dates, the Bureau agreed to grant the land use rights to the property with a total site area of approximately 74,012 sq.m. to the Group at a total consideration of RMB39,485,250. The maximum gross floor area permitted to build is approximately 114,475.36 sq.m.. Details of the contracts contain, inter-alia, the following salient conditions:–
Document No. 紹縣地合(2000)第123號 紹縣地合(2001)第2號 Total
(a) Grantee Baoye Real Estate Shaoxing Baoye Real Estate Development Co., Ltd.
(b) Location Keqiao Development Zone Keqiao Development Zone South of Shanyin Road and South of Shanyin Road East of Yu Cai Road and East of Yu Cai Road (Lot No. 097) (Lot No. 3-57-0-22)
(c) Phase of Development Phase I Phase II
(d) Land grant fee (RMB) 23,317,875 16,167,375 39,485,250
(e) Site Area (sq.m.) 43,217 30,795 74,012
(f) User Residential Residential
(g) Land use term 70 year (expiring on 70 year (expiring on 30 July, 2070) 30 July, 2070)
(h) Plot ratio 1.58 1.5
(i) Maximum gross 68,282.86 46,192.5 114,475.36 floor area*
(j) Site coverage 33.4% 37%
(k) Green area ratio 39.3% 36%
(l) Maximum height 6 storey 6 storey
(m) Contract date 10 July, 2000 8 Jan 2001
(n) Land use fee RMB0.3 per sq.m. RMB0.3 per sq.m. per annum per annum
(* Maximum gross floor area is calculated by multiplying the plot ratio with the site area.)
3. Pursuant to a Modification Agreement (Document No.紹縣土變合字(2002)第 10號 ) to the Contracts for Grant of State-owned Land Use Rights mentioned in Note 2 above dated 31 December 2002 issued by the Bureau, Baoye Real Estate agreed to pay a land premium of RMB930,123 to compensate for building extra gross floor area of approximately 17,752 sq.m. for residential use; and another land premium of RMB253,980 for changing a residential gross floor area of 12,000 sq.m. to commercial use. Baoye Real Estate had fully settled the above said land premium.
4. Pursuant to two Construction Land Use Planning Permits (Document No. (2000)浙規批0620086號（ 柯 ）and (2000)浙規批0620126號（柯）) dated 1 June, 2000 and 1 August, 2000 respectively issued by Shaoxing County Construction Bureau, the permitted site area for construction of the property is approximately 75,210 sq.m..
– 264 – APPENDIX II PROPERTY VALUATION
5. Pursuant to three Construction Permits (Document No. (2000)浙規證C-0620007號、(2001)浙規證C-0620013 號、(2002)浙規證C-0620039號) dated 25 December, 2000, 27 February, 2001 and 1 April, 2002 respectively issued by Shaoxing County Construction Bureau, the development scale for Phase I and II the Development is permitted to comprises 33 buildings with a total gross floor of approximately 121,360.54 sq.m..
6. Pursuant to four Commencement of Construction Permits (Document Nos.柯開10《補》及330621200103040101) dated 19 February, 2001, 4 March, 2001 and 10 March, 2001 issued by Shaoxing County Construction Bureau, the construction for 24 buildings namely Block 1, 2, 2B, 3-21 and 29 with a development scale of approximately 88,514 sq.m. is permitted to develop.
7. Pursuant to two Certificates for Completion and Acceptance of Planning Notification (Document No. 紹縣規 驗字(2001) 035號及紹縣規驗字(2003) 003號) dated 27 December, 2001 and 15 January, 2003 respectively issued by Shaoxing County Planning and Construction Administration Department, the construction for portion of the Development, including Blocks 8#, 12#, 29# & the Kindergarten and Blocks 1#, 2A#, 2B#, 3#-7#, 9#-11#, 13#, 14#, 16# &18-21#, comprising of a total gross floor area of 102,055.34 sq.m. fulfil the planning requirements set out in Note 4 mentioned above.
8. Pursuant to the following Certificates of Pre-sales issued by Shaoxing County Construction Bureau, a portion of the Development, comprising of a total gross floor area of 102,533.45 sq.m. is permitted to pre-sold:
Block No. Document No. Date of Document of the Development Area (sq.m.)
售許字(2000)第59號 13 September, 2000 5, 6, 7, 9 & 14 20,863.21 (residential) 售許字(2000)第69號 29 December, 2000 11, 15-19 18,686.92 (residential) 2,117.03 (others) 售許字(2001)第01號 21 January, 2001 3 & 4 7,768.84 (residential) 5,022.84 (commercial) 1,098.77 (others) 售許字(2001)第09號 11 April, 2001 2A, 2B & 20 5,360.30 (residential) 2,296.64 (commercial) 696.16 (car park) 售許字(2001)第13號 10 September, 2001 1, 2C, 2D, 8 30,618.86 (residential) 10, 12, 13, 21 & 29 4,770.93 (commercial) 3,232.95 (car park)
Total: 102,533.45
9. The property comprises the following unsold units:–
Sub-total GFA Open Market Value Block Unit Unit (sq.m.) (RMB)
Commercial Portion 2 103-104 203-204 263.71 108 208 112.20 4 112 212 246.17 113 213 127.93
750.01 2,770,000
Residential Portion 1 406 141.04 2A 302 94.36 303 94.36
329.76 660,000
Car Park 3,071.43 10,070,000
Bicycle Park 153.48 230,000
Grand Total GFA 1,079.77 13,730,000
10. Pursuant to a Business Licence (Registration No. 3308211000192) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Real Estate on 10 July, 2000, Baoye Real Estate is permitted to register with a registered capital of RMB20,000,000. The term of operation is commencing from 8 February, 1995 to 24 January, 2005. The scope of operation mainly covers real estate development.
– 265 – APPENDIX II PROPERTY VALUATION
11. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”) and Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of the Joint venture company: Baoye Real Estate
(b) Term of operation: 10 years
(c) Registered capital: RMB20,000,000
(d) Proportion of capital contribution/ – the Company: 90% profit sharing: – Baoye Construction: 10%
(e) Baoye Construction is owned as to 99.0% by the Company, while the remaining 1.0% is owned equally by three Promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
12. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates N/A (c) Contracts for Grant of State-owned Land Use Rights Yes (d) the Certificate for Pre-sales Yes (e) Construction Permits Yes (f) Certificate for Completion and Acceptance of Construction Works Yes (g) Business Licence Yes (h) Articles of Association Yes N/A: not applicable
13. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
Land Portion
(a) Baoye Real Estate had settled all land premia and obtained the land use rights of the property legally by grant;
(b) Baoye Real Estate is entitled to use the land of the property during the term of the land use rights under the State-owned Land Use Rights Certificate. Its rights to use and occupy the land does not breach the terms set out in the documents mentioned in Note 1 and 2 above.
(c) The land use rights to the property held by Baoye Real Estate is not subject to any undertaking, mortgage or any other forms of legal restrictions.
Building Portion
(d) Baoye Real Estate has gained approvals and permissions from relevant Government Authorities and obtained development and construction permits to built Block Nos. 1, 2A, 2B, 2C, 2D, 3 to 21 and 29 of the Development.
(e) Baoye Real Estate has obtained the Building Pre-sell permits for Block Nos. 1, 2A, 2B, 2C, 2D, 3 to 21 and 29 of the Development, thus is entitled to pre-sell the units in the captioned buildings to individual domestic purchasers with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government. The signed Pre-sell Contracted should be registered in the relevant government authorities.
(f) Baoye Real Estate has obtained Certificates for Completion and Acceptance of Planning Notification for Block Nos. 1, 2A, 2B, 3 to 7, 9 to 11, 13, 14, 16, 18 to 21, thus is entitled to sell the units in the captioned buildings to individual domestic purchasers or obtained Building Ownership Certificate from relevant government authorities.
Business Portion
(g) By virtue of having obtained its business licence, Baoye Real Estate has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(h) Baoye Real Estate has obtained all necessary licenses to operate in the location where the property is situated.
14. According to the information provided by the Group, the Group holds 99.9% interests in the property as at 30 April, 2003. – 266 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
19. The remaining Shaoxing Oriental Green Court The construction works of RMB6,190,000 unsold residential (referred hereinafter as the the Development were units and “Development”) is a low completed and the property Interest attributable to underground car density residential development, is currently vacant. the Group parking spaces of constructed on a parcel of Shaoxing Oriental rectangular shaped level land 99.9% Green Court, with a site area of (also known as approximately 33,896 sq.m. Capital value in Dong Fang Hua (364,857 sq.ft.) located, at the existing state Yuan-Nan Yuan) river bank of Pingshui Xi River, attributable to located at the at the junction of Danqi Road the Group as at junction of Danqi and Tiyu Chang Road in 30 April, 2003 Road and Tiyu Shaoxing. Chang Road in RMB6,184,000 Shaoxing City, The Development comprises of Zhejiang Province, twenty-eight 4-storey low-rise the PRC residential buildings with one level of car-parking basement underneath. The Development was completed in November 2002.
The property comprises 7 unsold residential units on various levels in the residential buildings and 11 car-parking/ bicycle parking spaces in the basement level. (Details please see Note 8)
Details of the property’s accommodation are as follows:–
Portion Gross Floor Area (Approximately) (sq.m.) (sq.ft.)
Residential 1,350.37 14,535 Cockloft 304.58 3,278 Underground Car Park 233.05 2,509 Underground Bicycle Parking 34.26 369
1,922.26 20,691
(Remarks: According to the Contract for Grant of State- owned Land Use Rights, the total gross floor area does not include the area for basement car park.)
The property is held under land use rights for a term of 70 years expiring on 19 April, 2071 for residential uses.
– 267 – APPENDIX II PROPERTY VALUATION
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. 紹市國用 (2002) 字第 1-839號 ) dated 4 February, 2002 issued by Shaoxing State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 33,896 sq.m. was granted to Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd. (referred hereinafter as Baoye Real Estate) for a term expiring on 19 April, 2071 for residential uses. It is further provided in the State-owned Land Use Rights Certificate that:–
(a) the Certificate shall be valid until 30 April, 2003. Upon completion of the construction works and approval of the same by the relevant government department, the property is subject to modification registration;
(b) the land grant fee for the land is RMB39,400,000;
(c) the total gross floor area of the Development is 24,744 sq.m.; plot ratio is 0.73; site coverage is 0.19; building height is four storeys; coefficient of building distance is equal to or more than 1.3; and green area ratio is equal to or more than 0.68.
2. Pursuant to a Contract for Grant of State-owned Land Use Rights (Document No. 紹市土（開）讓合字(2001) 第 11號） entered into between Zhejiang Province Shaoxing City Land Administration Bureau (referred hereinafter as the “Bureau”) and Baoye Real Estate on 20 April, 2001, the Bureau agreed to grant the land use rights to the property with a total site area of approximately 33,896 sq.m. to Baoye Real Estate at a total consideration of RMB39,400,000. Details of the contracts contain, inter-alia, the following salient conditions:–
(a) Grantee Baoye Real Estate
(b) Location East of Pingshui Xi River and South of Tiyuchang Road
(c) Land grant fee (RMB) 39,400,000
(d) Site area (sq.m.) 33,896
(e) Use Residential
(f) Land use term 70 years (expiring on 19 April, 2071)
(g) Plot ratio ≥ 0.73
(h) Maximum Gross floor area* 24,744 sq.m.
(i) Site coverage ≥ 19%
(j) Green area ratio ≥ 68%
(k) Maximum height Maximum 4 storey
(l) Coefficient of building distance ≥ 1.3
(* Maximum gross floor area is calculated by multiplying the plot ratio with the site area.)
– 268 – APPENDIX II PROPERTY VALUATION
3. Pursuant to 28 Building Ownership Certificates all dated 12 February, 2003 issued by Shaoxing Real Estate Administration Bureau, the Development comprising a total gross floor area of approximately 25,210.58 sq.m. is vested in Baoye Real Estate for residential and car parking uses. Details of the Certificates are being cited out as follows:
Use Building Ownership Certificate Bicycle Property (Document No.) Residential Car park park Cockloft Owner
Shaoxing Oriental Green 房權證紹自始字第0000004801號 760.42 101.46 85.32 Baoye Real Estate Court Block 1 Shaoxing Oriental Green 房權證紹自始字第0000004800號 1,239.42 247.41 160.80 Baoye Real Estate Court Block 2 Shaoxing Oriental Green 房權證紹自始字第0000004799號 986.88 131.38 121.42 Baoye Real Estate Court Block 3 Shaoxing Oriental Green 房權證紹自始字第0000004798號 706.42 101.46 85.32 Baoye Real Estate Court Block 4 Shaoxing Oriental Green 房權證紹自始字第0000004797號 986.88 131.38 121.42 Baoye Real Estate Court Block 5 Shaoxing Oriental Green 房權證紹自始字第0000004796號 986.88 131.38 121.42 Baoye Real Estate Court Block 6 Shaoxing Oriental Green 房權證紹自始字第0000004795號 858.08 109.82 100.87 Baoye Real Estate Court Block 7 Shaoxing Oriental Green 房權證紹自始字第0000004794號 932.21 125.54 117.94 Baoye Real Estate Court Block 8 Shaoxing Oriental Green 房權證紹自始字第0000004793號 858.08 109.82 100.87 Baoye Real Estate Court Block 9 Shaoxing Oriental Green 房權證紹自始字第0000004792號 1,239.42 196.14 51.28 160.82 Baoye Real Estate Court Block 10 Shaoxing Oriental Green 房權證紹自始字第0000004791號 932.21 125.54 117.94 Baoye Real Estate Court Block 11 Shaoxing Oriental Green 房權證紹自始字第0000004811號 858.08 109.82 100.87 Baoye Real Estate Court Block 12 Shaoxing Oriental Green 房權證紹自始字第0000004810號 858.08 109.82 100.87 Baoye Real Estate Court Block 13 Shaoxing Oriental Green 房權證紹自始字第0000004809號 858.08 109.82 100.87 Baoye Real Estate Court Block 14 Shaoxing Oriental Green 房權證紹自始字第0000004808號 858.08 109.82 100.87 Baoye Real Estate Court Block 15 Shaoxing Oriental Green 房權證紹自始字第0000004807號 1,239.42 196.14 51.28 160.80 Baoye Real Estate Court Block 16 Shaoxing Oriental Green 房權證紹自始字第0000004806號 416.60 42.91 176.07 Baoye Real Estate Court Block 17 Shaoxing Oriental Green 房權證紹自始字第0000004805號 416.60 42.91 151.02 Baoye Real Estate Court Block 18 Shaoxing Oriental Green 房權證紹自始字第0000004804號 932.21 125.54 117.94 Baoye Real Estate Court Block 19 Shaoxing Oriental Green 房權證紹自始字第0000004803號 932.21 125.54 117.94 Baoye Real Estate Court Block 20 Shaoxing Oriental Green 房權證紹自始字第0000004802號 858.08 109.82 100.87 Baoye Real Estate Court Block 21 Shaoxing Oriental Green 房權證紹自始字第0000004818號 706.42 101.46 85.32 Baoye Real Estate Court Block 22 Shaoxing Oriental Green 房權證紹自始字第0000004817號 1,239.42 196.14 51.28 160.80 Baoye Real Estate Court Block 23 Shaoxing Oriental Green 房權證紹自始字第0000004816號 417.28 64.88 48.86 115.84 Baoye Real Estate Court Block 24 Shaoxing Oriental Green 房權證紹自始字第0000004815號 932.21 125.54 117.94 Baoye Real Estate Court Block 25 Shaoxing Oriental Green 房權證紹自始字第0000004814號 986.88 131.38 121.42 Baoye Real Estate Court Block 26 Shaoxing Oriental Green 房權證紹自始字第0000004813號 1,107.16 117.30 94.84 149.70 Baoye Real Estate Court Block 27 Shaoxing Oriental Green 房權證紹自始字第0000004812號 1,107.16 117.30 94.84 149.70 Baoye Real Estate Court Block 28
Total: 25,210.87 3,447.47 392.38 3,422.98
As at the date of valuation, a large portion of the Development is sold to various individual owners. The remaining unsold units include 7 residential units and 11 car parking/bicycle parking spaces with a total gross floor area of approximately 1,654.85 sq.m. and 267.31 sq.m. respectively. (Details of the unsold units are being cited out in Note 4 below.)
– 269 – APPENDIX II PROPERTY VALUATION
4. The property comprises the following unsold units:–
Residential Car Park and Bicycle Park
Unit Area (sq.m.) Unit Area (sq.m.)
1 Block 8 Unit 101 232.48 1 Bicycle Park 23-01 25.64 2 Block 8 Unit 301 240.37 2 Bicycle Park 27-06 8.62 3 Block 13 Unit 302 214.74 3 Car park 8-01 26.34 4 Block 17 Unit 101 191.21 4 Car park 8-02 36.43 5 Block 18 Unit 101 191.21 5 Car park 13-01 26.06 6 Block 23 Unit 101 158.97 6 Car park 13-04 26.06 7 Block 26 Unit 402 121.39 7 Car park 17-01 20.43 8 Car park 18-01 20.43 Sub-total: 1,350.37 9 Car park 23-01 23.09 10 Car park 25-04 26.34 Cockloft and garden 11 Car park 26-01 27.87
1 Cockloft 8-301 53.57 Sub-total: 267.31 2 Cockloft 13-302 45.25 3 Cockloft 17-101 81.78 Total: 1,922.26 4 Cockloft 18-101 69.51 5 Cockloft 26-402 54.47 6 Private garden 2#102 N/A 7 Private garden 4#101 N/A 8 Private garden 8#101 N/A 9 Private garden 17#101 N/A 10 Private garden 17#102 N/A 11 Private garden 18#101 N/A 12 Private garden 18#102 N/A 13 Private garden 23#101 N/A 14 Private garden 23#102 N/A 15 Private garden 24#101 N/A 16 Private garden 24#102 N/A
Sub-total: 304.58
5. Pursuant to a Business Licence (Registration No. 3308211000192) issued by Shaoxing County Industrial and Commerce Executive Bureau to the Company on 10 July, 2000, the Company is permitted to register with a registered capital of RMB20,000,000. The term of operation is commencing from 8 February, 1995 to 24 January, 2005. The scope of operation mainly covers real estate development.
6. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”) and Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of the Joint venture company: Baoye Real Estate
(b) Term of operation: 10 years
(c) Registered capital: RMB20,000,000
(d) Proportion of capital contribution/ – the Company: 90% profit sharing: – Baoye Construction: 10%
(e) Baoye Construction is owned as to 99.0% by the Company, while the remaining 1.0% is owned equally by three Promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
– 270 – APPENDIX II PROPERTY VALUATION
7. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates Yes (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes (e) Articles of Association Yes
8. We have been provided with a legal opinion on the property prepared by the Group’s legal advisers, which contains, inter alia, the following information:
(a) Baoye Real Estate had settled all land premium and obtained the land use rights of the property legally by transfer;
(b) Baoye Real Estate has obtained the Building Ownership Certificates of the Development and is entitled to transfer the unsold units of the property, to individual domestic owners with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
(c) By virtue of having obtained its business licence, Baoye Real Estate has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Baoye Real Estate has obtained all necessary licenses to operate in the location where the property is situated.
9. According to the information provided by the Group, the Group holds 99.9% interests in the property as at 30 April, 2003.
– 271 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
20. The remaining Baoye Garden (referred The unsold units in the RMB23,050,000 unsold commercial, hereinafter as the Development are vacant and and residential units “Development”), which ready for sale whilst Phase Interest attributable to in various blocks of comprises a composite IV of the Development is the Group Baoye Garden development, is constructed on still a vacant site. located at four adjoining plots of level 99.9% Zhenzhong Road, land with a total site area of Xinan Village, approximately 29,640.9 sq.m. Capital value in Yangxunqiao Area, (319,055 sq.ft.) and developed existing state Zhejiang Province, by four phases. The site area of attributable to the PRC. Phase I to III is approximately the Group as at 28,285.9 sq.m. whilst the site 30 April, 2003 area for Phase IV is approximately 1,355.5 sq.m.. RMB23,027,000 The Development is located at the southern side of Zhenzhong Road amid Xinan Village in Yangxunqiao.
Phase I to III comprises 22 villas and 14 blocks of 4 to 5-storey residential buildings. Phase (I and II) and III of the Development were completed in November 2002 and March 2003 respectively whilst Phase IV is still a vacant site.
The property comprises the unsold commercial and residential units in various blocks in Phase I to III with a total gross floor area of approximately 14,225.39 sq.m. (153,122 sq.ft.). (Details please see Note 8)
Details of the accommodation are as follows:–
Portion Gross Floor Area (Approximately) (sq.m.) (sq.ft.)
Commercial 401.27 4,319
Low-rise residential units with 914.43 9,843 Cockloft 197.70 2,128
Villa 12,711.99 136,832
14,225.39 153,122
The property is held under four land use rights, all for a term of 70 years expiring on 26 October, 2068, 30 November, 2069, 20 January, 2071 and 19 December, 2071 respectively for residential uses.
– 272 – APPENDIX II PROPERTY VALUATION
Notes:
1. Pursuant to four State-owned Land Use Rights Certificates all issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 28,285.9 sq.m. were granted for a term of 70 years for residential uses. Details of four State-owned Land Use Rights Certificates are cited out below:
State-owned Land Use Rights Certificate Site Area (Document No.) (sq.m.) Use Tenure Expiry Date Owner Dated
a) Shaoxing Xian Guo Yong 19,029.5 Residential 70 years 20 January, 2071 Shaoxing Baoye Real Estate 18 May, 2001 (2001) Zi No. 7-12 Development Co., Ltd.
b) Shaoxing Xian Guo Yong 2,502.0 Staff residential 70 years 30 November, 2069 Zhejiang Shaoxing Baoye 4 November, 2002 (2002) Zi No. 7-44 Real Estate Development Co., Ltd. (referred hereinafter as Baoye Real Estate)
c) Shaoxing Xian Guo Yong 6,776.0 Residential 70 years 19 December, 2071 Baoye Real Estate 4 November, 2002 (2002) Zi No. 7-45
d) Shaoxing Xian Guo Yong 1,333.4 Staff residential 70 years 26 October, 2068 Baoye Real Estate 4 November, 2002 (2002) Zi No. 7-46
Total: 29,640.9
2. Pursuant to four Contracts for Grant of State-owned Land Use Rights entered into between Zhejiang Province Shaoxing County Land Administration Bureau (referred hereinafter as the “Bureau”) and the Group on various dates, the Bureau agreed to grant the land use rights to the property with a total site area of approximately 32,763.43 sq.m. to the Group at a total consideration of RMB8,481,658. The maximum gross floor area permitted to be built is approximately 39,916.1595 sq.m.. Details of the contracts contain, inter-alia, the following salient conditions:–
Document 紹縣地合(1998) 紹縣地合(1999) 紹縣地合(2001) 紹縣地合(2001) No. 第 182號第35號第1號第126號 Total
a) Grantee 浙江寶業建築 Zhejiang Baoye Shaoxing Baoye Baoye Real Estate 裝飾工程有限 Construction Real Estate 責任公司 Works Group Development (Zhejiang Baoye Co., Ltd. Co., Ltd. Jianzhu Zhuangshi Gongcheng Co., Ltd.)
b) Location Yangxun Qiao Zhen Yangxun Qiao Zhen Yangxun Qiao Zhen Yangxun Qiao Zhen Xing An Chun Xing An Chun South of Xin An Juwei Hui Southern side of Both sides of Zhenzhong Road North of Zhongxin Avenue Zhenjia Road Huan Shan Road
c) Land grant fee (RMB) 324,816 1,327,860 4,401,450 2,427,532 8,481,658
d) Site Area (sq.m.) 1,333.43 5,624.50 19,029.50 6,776.00 32,763.43
e) Use Staff Quarters Staff Quarters Baoye Ph.2 Baoye Ph.3 Residential Residential
f) Land use term 70 years 70 years 70 years 70 years (expiring on (expiring on (expiring on (expiring on 26 October, 30 November, 20 January, 19 December, 2068) 2069) 2071) 2071)
g) Plot ratio 1.65 1.2 1.2 1.2
h) Maximum gross 2,200.1595 6,749.4 22,835.4 8,131.2 39,916.1595 floor area*
i) Site coverage 47% 49% 29.1% 23.63%
j) Green area ratio 35% 25% 35% 33.7%
k) Maximum height 3-4 storey 3-4 storey 1-4 storey 5-6 storey
l) Contract date 28 September, 1998 5 December, 1999 31 December, 2000 25 October, 2001
(* Maximum gross floor area is calculated by multiplying the plot ratio with the site area.)
– 273 – APPENDIX II PROPERTY VALUATION
3. Pursuant to a Construction Land Use Planning Permit (Document No. (2000)浙規證0620211) dated 17 July, 2000 issued by Shaoxing County Construction Bureau, the permitted site area for the Development (Baoye Garden Phase II) for construction is approximately 19,562 sq.m..
4. Pursuant to two Construction Permits (Document No. (2001)浙規證0620097 and (2001)浙規證0620108 respectively) dated 7 June, 2001 and 18 July, 2001 issued by Shaoxing County Construction Bureau, the development scale of the property is permitted to comprises a gross floor area of approximately 29,962.95 sq.m..
5. Pursuant to a Commencement of Construction Permit (Document No. 330621200107230103) dated 23 July, 2001 issued by Shaoxing County Construction Bureau, Baoye Real Estate is permitted to commence the construction work of the property with a construction scale of approximately 30,063 sq.m.. The construction work is scheduled to be completed on 20 August, 2002.
6. Pursuant to the Certificate for Pre-sales (Document No. 售許字 (2002) 第5號) issued by Shaoxing County Construction Bureau dated 14 June, 2002, Baoye Real Estate was permitted to pre-sell a total gross floor area
of 16,268.08 sq.m. in the property for residential use (including Blocks A1 to A8, B1 to B8 and D1 to D6).
7. The property comprises the following unsold units:–
Block Unit GFA (sq.m.)
Commercial portion E1 101 252.86 102 148.41
Sub-total: 401.27
Residential portion E4 407 153.42 E4 508 151.39 Cockloft 608 65.9 E5 409 153.42 410 153.42 Cockloft 510 65.9 E6 412 151.39 E6 512 151.39 Cockloft 612 65.9
Sub-total: 1,112.13
Villas A1-A13 8,459.854 B1-B9 4,252.14
Sub-total: 12,711.994
8. Pursuant to a Business Licence (Registration No. 3308211000192) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Real Estate on 10 July, 2000, Baoye Real Estate is permitted to register with a registered capital of RMB20,000,000. The term of operation is commencing from 8 February, 1995 to 24 January, 2005. The scope of operation mainly covers real estate development.
9. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”) and Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of the Joint venture company: Baoye Real Estate
(b) Term of operation: 10 years
(c) Registered capital: RMB20,000,000
(d) Proportion of capital contribution/ – the Company: 90% profit sharing: – Baoye Construction: 10%
(e) Baoye Construction is owned as to 99.0% by the Company, while the remaining 1.0% is owned equally by three Promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
– 274 – APPENDIX II PROPERTY VALUATION
10. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificate N/A (c) Contract for Grant of State-owned Land Use Rights Yes (d) Certificate(s) for Pre-sell Yes (e) Construction Permits Yes (f) Construction Work Commencement Permit Yes (g) Business Licence Yes (h) Certificate for Completion and Acceptance of Construction Works Yes N/A: not applicable
11. We have been provided with a legal opinion on the property prepared by the Group’s legal advisers, which contains, inter alia, the following information:
(a) Baoye Real Estate had settled all land premium and obtained the land use rights of the property legally by transfer;
(b) By virtue of having obtained its business licence, Baoye Real Estate has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(c) Baoye Real Estate has obtained all necessary licenses to operate in the location where the property is situated.
12. According to the information provided by the Group, the Group holds 99.9% interests in the property as at 30 April, 2003.
– 275 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
21. 2 shops, 4 levels of The property comprises 2 shops, The property is at present RMB6,370,000 office, 2 bicycle 4 levels of office, 2 bicycle vacant and held for sale parking spaces and parking spaces and 5 car purpose by the Group. Interest attributable to 5 car parking spaces parking spaces of a the Group of Tian Shi Yuan, development comprising 7 Yanxi Road, blocks of 5 to 7-storey 99.9% Renmin East Road, commercial and residential Shaoxing City, building built over a parcel of Capital value in Zhejiang Province, land with a site area of existing state the PRC. approximately 11,478 sq.m.. attributable to They are completed in or about the Group as at 2001. 30 April, 2003
The property has a gross floor RMB6,364,000 areas (excluding the bicycle parking spaces and car parking spaces) as follows:
Gross Floor Area (sq.m.) (sq.ft.)
Office Block Levels 4 to 7 1,532.00 16,490
Shops 221-223 251.58 2,708
Total: 1,783.58 19,198
The total floor area of the bicycle parking spaces and car parking spaces are approximately 28.50 sq.m. (307 sq.ft.) and 113.26 sq.m. (1,219 sq.ft.) respectively.
The property is held under a land use rights for a term of 70 years for residential use and 40 years for commercial use.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shao Shi Guo Yong (2000) Zi No. 1-3964) dated 8 March, 2000 issued by Shaoxing City State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 11,478 sq.m. was vested in Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd. (referred hereinafter as Baoye Real Estate) for a term of 70 years for residential use and 40 years for commercial use.
2. Pursuant to eight Building Ownership Certificates (Document Nos. Fang Quan Zheng Shao Zi Shi Zi Nos. 4539, 4540, 4541, 4542, 4543, 4544, 4545, 4546) dated 22 June, 2001 issued by Shaoxing City Real Estate Administration Bureau, the property with a total gross floor area of approximately 2,010.92 sq.m., was vested in Baoye Real Estate.
3. Pursuant to a State-owned Land Use Rights Grant Contract date 28 December, 1999, the property with a site area of approximately 11,478 sq.m. for terms of 70 years for residential use and 40 years for commercial use has been granted to Shaoxing Baoye Real Estate Development Co., Ltd..
– 276 – APPENDIX II PROPERTY VALUATION
4. Pursuant to a Business Licence (Registration No. 3308211000192) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Real Estate on 10 July, 2000, Baoye Real Estate is permitted to register with a registered capital of RMB20,000,000. The term of operation is commencing from 8 February, 1995 to 24 January, 2005. The scope of operation mainly covers real estate development.
5. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates Yes (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes
6. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Baoye Real Estate had settled all land premium and obtained the land use rights of the property legally by grant from the government;
(b) Baoye Real Estate has obtained the building ownership rights of the buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
(c) By virtue of having obtained its business licence, Baoye Real Estate has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Baoye Real Estate has obtained all necessary licenses to operate in the location where the property is situated.
7. According to the information provided by the Group, the Group holds 99.9% interests in the property as at 30 April, 2003.
8. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”) and Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of the Joint venture company: Baoye Real Estate
(b) Term of operation: 10 years
(c) Registered capital: RMB20,000,000
(d) Proportion of capital contribution/ – the Company: 90% profit sharing: – Baoye Construction: 10%
(e) Baoye Construction is owned as to 99.0% by the Company, while the remaining 1.0% is owned equally by three Promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
– 277 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
22. 1 residential unit, 6 The property comprises 1 The property is at present RMB2,040,000 Shops and 1 car residential unit, 6 shops and 1 vacant and held for sale parking space of car parking space located at purpose by the Group. Interest attributable to Guazhu Lake various levels of a 7-storey the Group Commercial/ commercial/residential building Residential built over a parcel of land with 99.9% Building located at a site area of approximately Jiangyi Road East, 4,882 sq.m. (52,550 sq.ft.). The Capital value in Keqiao Town, property was completed in or existing state Shaoxing County, about 2000. attributable to Zhejiang Province, the Group as at the PRC. The property has a gross floor 30 April, 2003 area (excluding car parking space) as follows:– RMB2,038,000
Gross Floor Area (sq.m.) (sq.ft.)
Room 203 Block B 131.53 1,416 Shop No. 6 89.00 958 Shop Nos. 13, 14 89.27 961 Shop No. 15 49.61 534 Shop No. 19 48.69 524 Shop No. 20 40.58 437
Total: 448.68 4,830
The floor area of the car parking space is approximately 30.13 sq.m. (324 sq.ft.)
The property is held under a land use rights for terms expiring on 15 June, 2034 for commercial uses and expiring on 15 June, 2064 for residential uses.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shao Guo Yong (GF-11) Zi No. 105) dated 30 December, 1999 issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 4,882 sq.m. was vested in Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd. (referred hereinafter as Baoye Real Estate) for terms expiring on 15 June, 2034 for commercial uses and expiring on 15 June, 2064 for residential uses.
2. Pursuant to a Building Ownership Certificate (Document No. Shao Fang Quan Zheng Keqiao Zi No. 05421) date 19 March, 2001 issued by the Shaoxing County Real Estate Administration Bureau, the property, which comprises a block of building with a total gross floor area of approximately 10,955.36 sq.m., was vested in Baoye Real Estate.
3. Pursuant to a Land Transfer Contract dated 7 August, 1999 entered into between 紹興縣中國輕紡城運營所 (Shaoxing County China Qing Fang Cheng Yun Ying Suo) and Shaoxing Baoye Real Estate Co., Ltd., the property with a site area of 4,831.2 sq.m. was sold to Shaoxing Baoye Real Estate Development Co., Ltd..
– 278 – APPENDIX II PROPERTY VALUATION
4. Pursuant to a Business Licence (Registration No. 3308211000192) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Real Estate on 10 July, 2000, Baoye Real Estate is permitted to register with a registered capital of RMB20,000,000. The term of operation is commencing from 8 February, 1995 to 24 January, 2005. The scope of operation mainly covers real estate development.
5. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates Yes (c) Land Transfer Contract Yes (d) Business Licence Yes
6. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Baoye Real Estate had settled all land premia and obtained the land use rights of the property legally by transfer from Shaoxing County China Qing Fang Cheng Yun Ying Suo;
(b) Baoye Real Estate has obtained the building ownership rights of the buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
(c) By virtue of having obtained its business licence, Baoye Real Estate has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Baoye Real Estate has obtained all necessary licenses to operate in the location where the property is situated.
7. According to the information provided by the Group, the Group holds 99.9% interests in the property as at 30 April, 2003.
8. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”) and Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of the Joint venture company: Baoye Real Estate
(b) Term of operation: 10 years
(c) Registered capital: RMB20,000,000
(d) Proportion of capital contribution/ – the Company: 90% profit sharing: – Baoye Construction: 10%
(e) Baoye Construction is owned as to 99.0% by the Company, while the remaining 1.0% is owned equally by three Promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
– 279 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
23. The remaining The property comprises two The remaining unsold units RMB8,970,000 unsold units and parcels of land with a total site are at present vacant and for Block No. 1 of area of approximately 9,010.75 sale. Block No. 1 is still Interest attributable to Material Market sq.m. (96,992 sq.ft.) and four under construction and the Group Phase II located at items of buildings (Block Nos. expected to be completed in Weiyi Road South, 2-5) erected thereon. They are June, 2003. 99.9% Shangxie Village, of 4-storey and completed in or Keqiao Town, about 2002. There is another Capital value in Shaoxing County, Block No. 1 under construction. existing state Zhejiang Province, attributable to the PRC. Block Nos. 2-5 have a total the Group as at gross floor areas of 30 April, 2003 approximately 8,363.04 sq.m. (90,020 sq.ft.). There are 5 units RMB8,961,000 unsold and the details are listed in Note 7 below.
Block No. 1 will have a gross floor area of approximately 3,725 sq.m.. It will be a 6-storey office building and will be completed in or about June, 2003.
The property is held under a land use rights for terms expiring on 10 March, 2045 and 28 December, 2045 respectively for residential/commercial uses.
Notes:
1. (a) Pursuant to a State-owned Land Use Rights Certificate (Document No. Shaoxing Xian Guo Yong (2000) Zi No. 3-166) dated 18 July, 2000 issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with a site area of approximately 3,918.1 sq.m. was vested in Shaoxing Baoye Real Estate Development Co., Ltd. for a term expiring on 10 March, 2045 for residential/commercial uses.
1. (b) Pursuant to a State-owned Land Use Rights Grant Contract dated 1 September, 1994, the land use rights of the land with a site area of approximately 3,918.05 sq.m. for a term of 50 years for 新建別 墅商廈 (new develop house or commercial building) uses has been granted to 紹興縣江市紡織印染 股份有限公司 (Shaoxing County Jiang Shi Fang Zhi Yin Ran Holdings Company Limited). Refer to Note 2(b) below for details of the contract contained for this lot (“Lot A”).
1. (c) Pursuant to a 土地使用權變更登記審批表 (Change of Land Use Rights Registration Approval) dated 17 July, 2000, the original user of Shaoxing County Jiang Shi Fang Zhi Yin Ran Holdings Company Limited of a land with a site area of approximately 3,918.09 sq.m. has been changed to Baoye Real Estate for a term of expiring on 9 March, 2045 for residential/commercial uses.
2. (a) Pursuant to a State-owned Land Use Rights Certificate (Document No. Shao Guo Yong (GF-1103) Zi No. 067) dated 6 September, 1999 issued by Shaoxing County State-owned Land Administration Bureau, the property with a site area of approximately 5,092.65 sq.m. was vested in Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd. (referred hereinafter as Baoye Real Estate) for a term expiring on 28 Decemeber, 2045 for residential/commercial uses.
– 280 – APPENDIX II PROPERTY VALUATION
2. (b) Pursuant to a State-owned Land Use Rights Grant Contract dated 5 May, 1995, the land use rights of the land with a site area of approximately 43,811.02 sq.m. (covering property Nos. 8, 9, 10, 16, 23 and 26) for a term of 40 years for “Baoye Plaza and supplementary facilities” uses has been granted to Zhejiang Baoye Construction Group Company, the predecessor of Baoye Group Company Limited. As advised by the Group, the Land Use Rights Grant Contract is entered into by Zhejiang Baoye Construction Group Company on behalf of Baoye Real Estate. Details of the contract contain for this lot (“Lot B”) inter-alia, the following salient conditions:–
Lot A B Total
(a) Grantee Shaoxing County Jiang Shi Zhejiang Baoye Fang Zhi Yin Ran Holdings Construction Group Company Limited Company
(b) Location China Qing Fang Cheng China Qing Fang Cheng Motor Station West Weiyi Road South, Qing Fang Cheng Motor Station West
(c) Land grant 1,057,873.5 17,086,297 18,144,170.5 fee (RMB)
(d) Site Area 3,918.05 43,811.2 47,729.25 (sq.m.)
(e) User new develop house or Baoye Plaza and commercial building Supplementary facilities
(f) Land Use term 50 years 40 years
(g) Plot ratio 1.84 1.03
(h) Maximum gross 7,209.212 45,125.536 52,334.748 floor area *
(i) Site coverage 38% 55%
(j) Green area ratio not specified 15%
(k) Maximum 7 – storey 6 – storey height
(l) Contract date 1 September, 1994 5 May, 1995
(* Maximum gross floor area is calculated by multiplying the plot ratio with the site area.)
3. Pursuant to the Construction Works Planning Permit (Document No. (2001)浙規證C-0620014號) issued by Shaoxing County Construction Bureau dated 1 March, 2001, the development scale of the property is permitted to comprises 5 buildings with a total gross floor area of approximately 12,088.46 sq.m..
4. Pursuant to a Construction Works Commencement Permit (Document No. 330621200105240102) dated 14 May, 2001, the development scale is permitted to have a total gross floor area of approximately 11,700 sq.m..
5. Pursuant to a Certificate for Completion and Acceptance of Planning Notification (Document No. 紹縣規驗 字 (2002) 018號) dated 22 May, 2002, the construction for portion of the development including Blocks 2-5 comprising of a total gross floor area of 8,364.46 sq.m. fulfil the planning requirement set out in Note 3 mentioned above.
6. Pursuant to the Certificate for Pre-sales (Document No. 售許字(2002)第 3號 ) issued by Shaoxing County Real Estate Administrative Bureau dated 3 July, 2002, Baoye Real Estate has been permitted to pre-sell a total gross floor area of 6,223.28 sq.m. in the property for residential uses and 2,139.76 sq.m. for commercial uses.
– 281 – APPENDIX II PROPERTY VALUATION
7. The property comprises the following unsold units:
Unit Gross Floor Area (sq.m.)
Block 4-101 261.35 Block 4-102 130.67 Block 4-103 130.67 Block 4-105 130.67 Block 4-106 130.67
Total: 784.03
8. Pursuant to a Business Licence (Registration No. 3308211000192) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Real Estate on 10 July, 2000, Baoye Real Estate is permitted to register with a registered capital of RMB20,000,000. The term of operation is commencing from 8 February, 1995 to 24 January, 2005. The scope of operation mainly covers real estate development.
9. As advised by the Group, the outstanding construction cost to complete Block No. 1 as at 30 April, 2003 was approximately RMB500,000 and the incurred construction cost as at 30 April, 2003 was approximately RMB3,000,000. In the course of our valuation, we have taken into account the said construction cost.
10. The “Capital Value of Block No. 1 when completed” is approximately RMB9,313,000.
11. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificate N/A (c) Contract for Grant of State-owned Land Use Rights Yes (d) the Certificate for Pre-sales Yes (e) Construction Permit Yes (f) Business Licence Yes (g) Certificate for Completion and Acceptance of Planning Yes
12. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Baoye Real Estate had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) Baoye Real Estate has obtained the building pre-sell permit and is entitled to sell the building in the market with the residual term of its land use rights at no extra land premium and without other onerous charges payable to the government.
(c) By virtue of having obtained its business licence, Baoye Real Estate has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Baoye Real Estate has obtained all necessary licenses to operate in the location where the property is situated.
13. According to the information provided by the Group, the Group holds 99.9% interests in the property as at 30 April, 2003.
– 282 – APPENDIX II PROPERTY VALUATION
14. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”) and Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of the Joint venture company: Baoye Real Estate
(b) Term of operation: 10 years
(c) Registered capital: RMB20,000,000
(d) Proportion of capital contribution/ – the Company: 90% profit sharing: – Baoye Construction: 10%
(e) Baoye Construction is owned as to 99.0% by the Company, while the remaining 1.0% is owned equally by three Promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
– 283 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
24. Guazhu Fengqing The property comprises two The property is at present a RMB226,380,000 (瓜諸風情) site parcels of land with a total site construction site and the located at area of approximately 81,404 site formation works are Interest attributable to Huxi Road West, sq.m. (876,233 sq.ft.) located at undergoing. the Group Shangyin Road Huxi Road West, Shangyin South, Road South and adjacent to the 99.9% Keqiao Town, Guazhu Lake in Keqiao Town of Shaoxing County, Shaoxing County. Capital value in Zhejiang Province, existing state the PRC. The property will be developed attributable to into a residential housing estate the Group as at with a gross floor area for 30 April, 2003 residential portion of approximately 119,147.75 RMB226,154,000 sq.m.. The development will comprise 41 blocks of 3 to 18 storey residential buildings.
The whole development was developed in two phases. The construction works commenced in October 2002, and the first phase is expected to be completed in December 2003 and the second phase is expected to be completed in June 2004.
The property is held under two land use rights for terms expiring on 2 March, 2070 for residential uses and expiring on 2 March, 2050 for residential/ commercial uses.
Notes:
1. (a) Pursuant to a State-owned Land Use Rights Certificate (Document No. Shaoxing Xian Guo Yong (2002) Zi No. 3-20) dated 12 April, 2002 issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 36,796 sq.m. was vested in Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd. (referred hereinafter as Baoye Real Estate) for a term expiring on 2 March, 2070 for residential uses.
(b) Pursuant to a State-owned Land Use Rights Certificate (Document No. Shaoxing Xian Guo Yong (2002) Zi No. 3-19) dated 12 April, 2002 issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 44,608 sq.m. was vested in Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd. (referred hereinafter as Baoye Real Estate) for terms expiring on 2 March, 2070 for residential uses and expiring on 2 March, 2050 for residential/commercial uses.
2. (a) Pursuant to a State-owned Land Use Rights Grant Contract dated 27 August, 1999, the land use rights of the property with a site area of approximately 39,716 sq.m. for a term of 70 years for residential use has been granted to Shaoxing Baoye Real Estate Development Co., Ltd. for the consideration of RMB32,200,000. Refer to Note (b) below for details of the contract for this lot (“Lot A”).
– 284 – APPENDIX II PROPERTY VALUATION
(b) Pursuant to a State-owned Land Use Rights Grant Contract dated 27 August, 1999, the land use rights of the property with a site area of approximately 53,688 sq.m. (50,308 sq.m. for residential use and 3,380 sq.m. for residential/commercial uses) for a term of 70 years for residential use and 50 years for residential/commercial uses has been granted to Shaoxing Baoye Real Estate Development Co., Ltd. for the consideration of RMB42,000,000. Details of the contract for this Lot (“Lot B”) inter alia, the following salient conditions:–
Lot A Lot B Total
(a) Grantee Shaoxing Baoye Real Shaoxing Baoye Real Estate Development Estate Development Co., Ltd. Co., Ltd.
(b) Location Keqiao Shanyin Road Keqiao Shanyin Road South, Huxi Road West South, Huxi Road West
(c) Land grant fee (RMB) 32,200,000 42,000,000 74,200,000
(d) Site Area (sq.m.) 39,716 53,688 93,404 (residential: 50,308) Commercial: 3,380
(e) User Residential Residential (portion Commercial)
(f) Land Use term 70 years residential: 70 years commercial: 50 years
(g) Plot ratio 1.60 1.21
(h) Maximum gross 63,545.6 64,962.48 128,508.08 floor area*
(i) Site Coverage 27.6% 25.5%
(j) Green area ratio 34% 33.1%
(k) Maximum height not specified not specified
(l) Contract date 27 August, 1999 27 August, 1999
(* Maximum gross floor area is calculated by multiplying the plot ratio with the site areas.)
3. Pursuant to two Land Transfer Contracts entered between Zhejiang Province Shaoxing County Industrial and Commerce Executive Bureau (“Party A”) and Baoye Real Estate (“Party B”) both dated 21 March, 2002, the land use rights of a parcel of land with total site area of approximately 12,000 sq.m. has been transferred from Party B to Party A for a total consideration of RMB10,440,000.
4. Pursuant to a Construction Land Use Planning Permit (Document No. (2002)浙規證C-0520130號 dated 19 November, 2002 issued by Shaoxing County Construction Bureau, the permitted site area of the property for construction is approximately 81,404 sq.m..
5. Pursuant to three Construction Works Planning Permit (Document Nos: (2002) C-0620163, (2003) 浙規證 C-0620017 and (2003) 浙規證 C-0620018) issued by Shaoxing County Construction Bureau dated 6 December, 2002, 6 March, 2003 and 7 March, 2003 respectively, the development scale of the property is permitted to comprise 33 buildings and a car park with a total gross floor area of approximately 77,498.05 sq.m..
6. Pursuant to two Construction Works Commencement Permit (Document Nos: 330621200212160201 and 330621200303140101) issued by Shaoxing County Construction Bureau dated 16 December, 2002 and 14 March, 2003 respectively, the development scale is permitted to have a total gross floor area of approximately 83,419.79 sq.m..
7. Pursuant to two Commodity Building Pre-sales Permit (Document Nos: 售許字(2002)第16號 and 售許字 (2003)第 004號) issued by Shaoxing County Construction Bureau dated 24 December, 2002 and 27 March, 2003, Baoye Real Estate has been permitted to pre-sell a total gross floor area of 67,499.55 sq.m. in the property for residential use, 3,642.27 sq.m. for commercial use and 8,103.86 for other uses.
– 285 – APPENDIX II PROPERTY VALUATION
8. Pursuant to a Business Licence (Registration No. 3308211000192) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Real Estate on 10 July, 2000, Baoye Real Estate is permitted to register with a registered capital of RMB20,000,000. The term of operation is commencing from 8 February, 1995 to 24 January, 2005. The scope of operation mainly covers real estate development.
9. As advised by the Group, the outstanding construction cost to complete the development as at 30 April, 2003 was approximately RMB135,130,000 and the incurred construction cost as at 30 April, 2003 was approximately RMB92,000,000. In the course of our valuation, we have taken into account the said construction cost. The Group expects that the remaining investment amount will financed through a combination of internal resources and short-term bank loans.
10. The “Capital value of the development when completed” is approximately RMB459,000,000.
11. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates N/A (c) Contract for Grant of State-owned Land Use Rights Yes (d) Certificate for Pre-sale Yes (e) Construction Permit Yes (f) Business Licence Yes (g) Construction Works Planning Permit Yes
12. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Baoye Real Estate had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) By virtue of having obtained its business licence, Baoye Real Estate has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(c) Baoye Real Estate has obtained all necessary licenses to operate in the location where the property is situated.
13. According to the information provided by the Group, the Group holds 99.9% interests in the property as at 30 April, 2003.
14. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”) and Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of the Joint venture company: Baoye Real Estate
(b) Term of operation: 10 years
(c) Registered capital: RMB20,000,000
(d) Proportion of capital contribution/ – the Company: 90% profit sharing: – Baoye Construction: 10%
(e) Baoye Construction is owned as to 99.0% by the Company, while the remaining 1.0% is owned equally by three Promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
– 286 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
25. The remaining Keqiao City Garden (the The construction work of RMB14,580,000 undevelope site area “Development”) comprises a the subject property is in of Keqiao City parcel of land (the “site”) with progress. Interest attributable to Garden a site area of approximately the Group (also known as Bei 74,012 sq.m. (796,665 sq.ft.) Zi Tan Area Phase I and developed by three phases 99.9% and II) located at (including Property 18 of the cross Yu Cai Road, Valuation Report). Capital value in Shanyin Road, existing state Keqiao Town, According to the information attributable to the Shaoxing County, given by the Group, the Group as at Zhejiang Province, property comprises the 30 April, 2003 the PRC. remaining undevelope site area of Keqiao City Garden with a RMB14,565,000 site area of approximately 12,533.4 sq.m. (134,910 sq.ft.). The total gross floor area scheduled to be built is approximately 14,104.90 sq.m., which is scheduled to completion on mid of 2004.
The property is held under a land use rights for terms expiring on 30 July, 2070 and 5 February, 2071 for residential uses.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. 紹興縣國用(2003)字第3-20號) dated 3 March, 2003 issued by Shaoxing County State-owned Land Resources Bureau (referred hereinafter as the “Bureau”), the land use rights to the property (Lot No. 3-57-0-44) with a site area of approximately 74,012 sq.m. was granted to Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd. (referred hereinafter as Baoye Real Estate) for a term expiring on 30 July, 2070 for residential uses.
2. Pursuant to two Contracts for Grant of State-owned Land Use Rights entered into between Zhejiang Province Shaoxing County Land Administration Bureau and the Group on various dates, the Bureau agreed to grant the land use rights to the property with a total site area of approximately 74,012 sq.m. to the Group at a total consideration of RMB39,485,250. The maximum gross floor area permitted to build is approximately 114,475.36 sq.m.. Details of the contracts contain, inter-alia, the following salient conditions:–
Document No. 紹縣地合(2000)第123號 紹縣地合(2001)第2號 Total
(a) Grantee Baoye Real Estate Shaoxing Baoye Real Estate Development Co., Ltd.
(b) Location Keqiao Development Zone Keqiao Development Zone South of Shan Yin Road and South of Shan Yin Road and East of Yu Cai Road East of Yu Cai Road (Not No. 097) (Lot No. 3-57-0-22)
(c) Phase of Phase I Phase II Deveopoment
– 287 – APPENDIX II PROPERTY VALUATION
Document No. 紹縣地合(2000)第123號 紹縣地合(2001)第2號 Total
(d) Land grant fee (RMB) 23,317,875 16,167,375 39,485,250
(e) Site Area (sq.m.) 43,217 30,795 74,012
(f) User Residential Residential
(g) Land use term 70 year (expiring on 70 year (expiring on 30 July 2070) 30 July 2070)
(h) Plot ratio 1.58 1.5
(i) Maximum gross 68,282.86 46,192.5 114,475.36 floor area*
(j) Site coverage 33.4% 37%
(k) Green area ratio 39.3% 36%
(l) Maximum height 6 storey 6 storey
(m) Contract date 10 July, 2000 8 January, 2001
(n) Land use fee RMB0.3 per sq.m. RMB0.3 per sq.m. per annum per annum
(* Maximum gross floor area is calculated by multiplying the plot ratio with the site area.)
3. Pursuant to a Modification Agreement (Document No. 紹縣土變合字(2002) 第10號 ) to the Contracts for Grant of State-owned Land Use Rights mentioned in Note 2 above dated 31 December 2002 issued by the Bureau, Baoye Real Estate agreed to pay a land premium of RMB930,123 to compensate for building extra gross floor area of approximately 17,752 sq.m. for residential use; and another land premium of RMB253,980 for changing a residential gross floor area of 12,000 sq.m. to commercial use. Baoye Real Estate had fully settled the above said land premia.
4. Pursuant to two Construction Land Use Planning Permits (Document No. (2000) 浙規批0620086號（柯）and (2000)浙規批0620126號（柯）) dated 1 June, 2000 and 1 August, 2000 respectively issued by Shaoxing County Construction Bureau, the permitted site area for construction of the property is approximately 75,210 sq.m..
5. Pursuant to Construction Permits (Document No. (2002)浙規證C-0620091號) dated 7 August, 2002 issued by Shaoxing County Construction Bureau, the development scale of the property is permitted to comprises 6 buildings (Blocks 23 to 28) with a total gross floor of approximately 14,104.9 sq.m..
6. Pursuant to Commencement of Construction Permit (Document No. 330621200305230101) dated 23 May, 2003 issued by Shaoxing Xian Construction Bureau, the construction work for Blocks 23 to 28 of the Development with a total gross floor of approximately 14,100 sq.m. is permitted to commence.
7. Pursuant to a Business Licence (Registration No. 3308211000192) issued by Shaoxing County Industrial and Commerce Executive Bureau to the Company on 10 July, 2000, Baoye Real Estate is permitted to register with a registered capital of RMB20,000,000. The term of operation is commencing from 8 February, 1995 to 24 January, 2005. The scope of operation mainly covers real estate development.
8. As advised by the Group, the estimated total construction cost to complete Phase III development of Keqiao City Garden as at 30 April, 2003 is approximately RMB84,000,000 and the incurred construction cost as at 30 April, 2003 was approximately RMB1,080,000. In the course of our valuation, we have taken into account the said construction costs.
– 288 – APPENDIX II PROPERTY VALUATION
9. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”) and Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of the Joint venture company: Baoye Real Estate
(b) Term of operation: 10 years
(c) Registered capital: RMB20,000,000
(d) Proportion of capital contribution/ – the Company: 90% profit sharing: – Baoye Construction: 10%
(e) Baoye Construction is owned as to 99.0% by the Company, while the remaining 1.0% is owned equally by three Promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
10. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates N/A (c) Contracts for Grant of Land Use Rights Yes (d) Business Licence Yes (e) Articles of Association Yes
11. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Baoye Real Estate had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) Baoye Real Estate is entitled to use the land of the property during the term of the land use rights under the State-owned Land Use Rights Certificate. Its rights to use and occupy the land does not breach the terms set out in the documents mentioned in Note 1 and 2 above.
(c) The land use rights to the property held by Baoye Real Estate is not subject to any undertaking, mortgage or any other forms of legal restrictions.
(d) By virtue of having obtained its business licence, Baoye Real Estate has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(e) Baoye Real Estate has obtained all necessary licenses to operate in the location where the property is situated.
12. According to the information provided by the Group, the Group holds 99.9% interests in the property as at 30 April, 2003.
– 289 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
26. 2 shop units of The property comprises 2 shop Shop 6 is leased out from RMB1,130,000 Supplementary units in a 3-storey residential/ the Group together with Block of commercial building erected on Property No. 9 for shops Interest attributable to Block No. 10 of a parcel of land, which has a and office uses. (see Note 4 the Group Decorative Material site area of approximately below) Market located at 5,329.27 sq.m. (57,364 sq.ft.). 99.9% Yunji Road, The building was completed in Shop 5 is leased out from Shangxieqiao or about 2000. the Group for shops and Capital value in Village, office together with portion existing state Keqiao Town, The property has a gross floor of property No. 16. (see attributable to the Shaoxing County, area of approximately as Note 5 below) Group as at Zhejiang Province, follows: 30 April, 2003 the PRC. Gross Floor Area RMB1,129,000 Unit (sq.m.) (sq.ft.)
Shop 5 135.16 1,455 Shop 6 204.36 2,200
Total: 339.52 3,655
The property is held under a land use rights for a term expiring on 28 December, 2045 for residential/commercial uses.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shaoxing Xian Guo Yong (GF-1103-66 Zi No. 11931)) dated 29 November, 2002 issued by Shaoxing County State-owned Land Administration Bureau, the property with a total site area of approximately 5,329.27 sq.m. was vested in Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd. (referred hereinafter as Baoye Real Estate) for a term expiring on 28 December, 2045 for residential/commercial uses.
2. Pursuant to a Building Ownership Certificate (Document No.: Shao Fang Quan Zheng Keqiao Zi No. 05630) dated 29 March, 2001 issued by Shaoxing County Real Estate Administration Bureau, the building ownership of the property with gross floor area of approximately 1,304.3 sq.m. was vested in Baoye Real Estate.
3. Pursuant to a State-owned Land Use Rights Grant Contract dated 5 May, 1995, the land use rights of the land with a site area of approximately 43,811.02 sq.m. (covering property Nos. 8, 9, 10, 16, 23 and 26) for a term of 40 years for “Baoye Plaza and supplementary facilities” uses has been granted to Zhejiang Baoye Construction Group Company, the predecessor of Baoye Group Company Limited. As advised by the Group, the Land Use Rights Grant Contract is entered into by Zhejiang Baoye Construction Group Company on behalf of Baoye Real Estate. According to the confirmation letter dated 13 June, 2003 entered between Zhejiang Baoye Construction Group Company and Baoye Real Estate, Baoye Real Estate confirmed that they instructed Zhejiang Baoye Construction Group Company to sign the Land Use Rights Grant Contract on behalf of them.
4. Pursuant to a tenancy agreements entered between Baoye Real Estate and 紹興縣工商行政管理局 (Shaoxing County Industrial and Commerce Executive Bureau) (“the Lessee”) dated 15 September, 2000, the property with gross floor areas of approximately 670.39 sq.m. (supplementary Block: 462.93 sq.m. and Room 6: 207.46 sq.m.) has been leased to the Lessee for a term of 3 years commencing from 28 September, 2000 to 28 September, 2003 at an annual rental of RMB100,000.
5. Pursuant to a tenancy agreement entered between Baoye Real Estate and Shaoxing County Baoye Decorative Material Market Company Limited (the “Lessee”) dated 11 June, 2003, the property with total gross floor area of approximately 3,491.05 sq.m. has been leased to the Lessee for a term commencing from 1 May, 2002 to 31 October, 2003 at an annual rental of RMB35,800.
– 290 – APPENDIX II PROPERTY VALUATION
6. Pursuant to a Business Licence (Registration No. 3306211000192) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Real Estate on 10 July, 2000, Baoye Real Estate is permitted to register with a registered capital of RMB20,000,000. The term of operation is commencing from 8 February, 1995 to 24 January, 2005. The scope of operation mainly covers real estate development.
7. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates Yes (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes (e) Tenancy Agreement Yes
8. We have been provided with a legal opinion on the property prepared by the Group’s legal advisers, which contains, inter alia, the following information:
(a) Baoye Real Estate had settled all land premia and obtained the land use rights of the property legally by grant from the government;
(b) Baoye Real Estate has obtained the building ownership rights of the buildings under the Building Ownership Certificate and is entitled to transfer, lease, mortgage or deal with these buildings by way of other legal means in the market with the residual term of its land use rights at no extra land premium.
(c) By virtue of having obtained its business licence, Baoye Real Estate has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(d) Baoye Real Estate has obtained all necessary licenses to operate in the location where the property is situated.
(e) The tenancy agreement is legally binding between the landlord and the tenant.
9. According to the information provided by the Group, the Group holds 99.9% interests in the property as at 30 April, 2003.
10. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”) and Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of the Joint venture company: Baoye Real Estate
(b) Term of operation: 10 years
(c) Registered capital: RMB20,000,000
(d) Proportion of capital contribution/ – the Company: 90% profit sharing: – Baoye Construction: 10%
(e) Baoye Construction is owned as to 99.0% by the Company, while the remaining 1.0% is owned equally by three Promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
– 291 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Group IV – Property interests held by the Group for future development and sales in the PRC
A. Property interests held by Hefei Qingfangcheng Baoye Real Estate Co., Ltd.
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
27. A parcel of land The property comprises two The property is at present a RMB111,000,000 located at Tong parcels of land with a total site site with existing buildings Ling Road, area of approximately 254,730 to be demolished for new Interest attributable to He Ping Road, sq.m. (2,741,914 sq.ft.). development. the Group Hefei, Anhai Province, According to information 50% the PRC provide by the Group, the proposed development will Capital value in comprise a residential existing state development with shops. attributable to the Construction works are Group as at expected to commence in the 30 April, 2003 third quarter of 2003 and schedule to be completed in late RMB55,500,000 2005.
The property is held under a land use rights for a term expiring on September, 2072 for residential uses.
Notes:
1. Pursuant to two State-owned Land Use Rights Certificates (Document Nos. He Guo Yong (2002) Zi Nos. 0575 and 0576) dated 29 September, 2002 issued by Hefei City State-owned Land Administration Bureau, the land use rights of the property with site areas of approximately 198,530 sq.m. and 56,200 sq.m. was vested in Hefei Qingfangcheng Baoye Real Estate Co., Ltd. (referred hereinafter as Hefei Baoye) for a term expiring on September 2072 for residential uses.
2. Pursuant to a State-owned Land Use Rights Grant Contract dated 27 June, 2002, the land use rights of the property with a total site area of approximately 254,730 sq.m. for a term of 70 years for residential use has been granted to Hefei Baoye for the consideration of RMB148,864,212. As at the date of valuation, Hefei Baoye has already paid a total of RMB111,000,000 land premium to the relevant Land Administration Bureau and the outstanding land premium is RMB37,864,212 which shall be settled by no later than 31 August, 2003.
Details of the contract contain, inter-alia, the following salient conditions:
(a) Grantee Hefei Baoye
(b) Location He Ping Road South, Tong Ling Road
(c) Land grant fee (RMB) 148,864,212
(d) Site Area (sq.m.) 254,730
(e) User residential
(f) Land Use term 70 years
(g) Plot ratio not specified
(h) Maximum gross floor area not applicable
(i) Site Coverage not specified
(j) Green area ratio not specified
– 292 – APPENDIX II PROPERTY VALUATION
(k) Maximum height not specified
(l) Contract date 27 June, 2002
(m) Requirement in accordance with City Planning Management requirement
(n) Building covenant the construction work of the development is require to be commerced on or before 30 September 2003.
(* Maximum gross floor area is calculated by multiplying the plot ratio with the site area.)
3. Pursuant to a Business Licence (Registration No. 3401002007175) issued by Hefei Province Industrial and Commerce Executive Bureau to Hefei Baoye on 14 March, 2002, Hefei Baoye is permitted to register with a registered capital of RMB30,000,000. The term of operation is commencing from 14 March, 2002 to 8 March, 2012. The scope of operation mainly covers real estate development.
4. Pursuant to a mortgage agreement, the land use rights of the land with a State-owned Land Use Rights Certificate (Document No.: He Guo Yong (2002) Zi No. 0576) is subject to a mortgage in favour of 中國建設 銀行合肥金寨路支行(China Construction Bank Hefei Jin Zhai Road Branch) for a consideration of RMB30,000,000 for a term of 1 year commencing from 30 October, 2002.
5. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:-
(a) State-owned Land Use Rights Certificate Yes (b) Building Ownership Certificates N/A (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes
N/A: not applicable
6. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) Hefei Baoye had not settled all land premia but it has the right legally to occupy, use, lease or mortgage and without paying any land premium. However, Hefei Baoye has to pay all the outstanding land grant premium before it can transfer the land use rights;
(b) By virtue of having obtained its business licence, Hefei Baoye has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(c) Hefei Baoye has obtained all necessary licenses to operate in the location where the property is situated.
6. According to the information provided by the Group, the Group holds 50% interests in the property as at 30 April, 2003.
7. Pursuant to an Article of Association dated 8 March, 2002, Baoye Group Company Limited (“the Company”) and Shaoxing China Qingfangcheng Shidai Real Estate Co., Ltd. agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are sated below:
(a) Name of the Joint venture company: Hefei Baoye
(b) Term of operation: 14 March, 2002 to 8 March, 2012
(c) Registered capital: RMB30,000,000
(d) Proportion of capital contribution/ Company: 50% profit sharing: Shaoxing China Qingfangcheng Shidai Real Estate Co., Ltd.: 50%
8. In our valuation of the open market value of the property, we have taken into account the outstanding land premium to be payable to the government.
9. As at the date of valuation, the Group has not formulated any architectural plan or obtained any planning consent from the local planning authority.
– 293 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
B. Property interests held by Baoye Group Company Limited
Capital value in Description and existing state as at Property tenancy particulars Particulars of occupancy 30 April, 2003
28. A parcel of land The property comprises eight The property is at present RMB182,450,000 located at north of pieces of land with a total site vacant. Keqiao Shanyin area of approximately 506,820 Interest attributable to Road, sq.m. (5,455,410 sq.ft.). the Group west of Xihuan Road, The property is held under eight 100% Kexi Industrial land use rights each for a term District, Keqiao of 50 years expiring on 24 Capital value in Economic November, 2052 for industrial existing state Development Area, use. attributable to the Shaoxing County, Group as at Zhejiang Province, According to information 30 April, 2003 the PRC. provided by the Group, the proposed development will RMB182,450,000 mainly comprise manufacturing facilities for the Group. Construction works are expected to commence in mid 2003 and schedule to be completed in late 2004.
Notes:
1. Pursuant to eight State-owned Land Use Rights Certificates (Document No. Shaoxing Xian Guo Yong (2003) Zi Nos. 6-17, 6-18, 4-23 4-24, 4-25, 4-26, 4-27 and 4-28) dated 3 March, 2003 and 5 March, 2003 respectively issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with a total site area of approximately 506,820 sq.m. has vested in Baoye Group Company Limited (referred hereinafter as the “Company”) for a term expiring on 24 November, 2052 for industrial use.
2. Pursuant to a State-owned Land Use Rights Grant Contract dated 29 October, 2002, the land use rights of the property with a total site area of 507,527 sq.m. for a term of 50 years for industrial use has been granted to Zhejiang Baoye Building Materials Industrialisation Company Limited (referred hereinafter as Building Materials Industrialisation Company) for a consideration of RMB45,677,430. As advised by the Group, the Land Use Rights Grant Contract is entered into by Building Materials Industrialisation Company on behalf of the Company. According to the confirmation letter dated 13 June, 2003 entered between the Company and Building Material Industrialization Company, the Company confirmed that they instructed Building Material Industrialisation Company to sign the Land Use Rights Grant Contract on behalf of them. Details of the contract contain, inter-alia, the following salient conditions:–
(a) Grantee Building Materials Industrialisation Company
(b) Location Kexi Industrial District
(c) Land grant fee (RMB) 45,677,430
(d) Site Area (sq.m.) 507,527
(e) User Industrial
(f) Land Use term 50 years
(g) Plot ratio 0.701
(h) Maximum gross floor area* 355,776,427
(i) Site coverage 44.57%
(j) Green area ratio 31.8%
– 294 – APPENDIX II PROPERTY VALUATION
(k) Maximum height 4-storey
(l) Contract date 29 October, 2002
(m) Building covenant the construction work of the development is required to be commenced on or before 30 December, 2002 and the grantee has the right to extend the commencement date of the development for another one year.
(* Maximum gross floor area is calculated by multiplying the plot ratio with the site area)
3. Pursuant to a Business Licence (Registration No. 3300001008966) issued by Zhejiang Province Industrial and Commerce Executive Bureau to the Company on 30 August, 2002, the Company is permitted to register with a registered capital of RMB350,742,053. The term of operation is unlimited commencing from 30 June, 1994. The scope of operation mainly covers construction works, machine installation, new construction materials research, development, production and sales, high technology products research, development and promotion, corporate investment, intra-company asset management.
4. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Right Certificate Yes (b) Building Ownership Certificates N/A (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes N/A: Not applicable
5. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) The Company had settled all land premia and obtained the land use rights of the property legally by grant from the government;
6. According to the information provided by the Group, the Group holds 100% interests in the property as at 30 April, 2003.
– 295 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in Description and existing state as at Property tenancy particulars Particulars of occupancy 30 April, 2003
29. A parcel of land The property comprises a piece The property is at present RMB9,155,000 located at Lingjiang of land with a site area of vacant. Village, approximately 28,170.4 Interest attributable to Qianqing Town, sq.m. (303,226 sq.ft.). the Group Shaoxing County, Zhejiang Province, The property is held under a 100% the PRC. land use rights for a term of 50 years expiring on 30 December, Capital value in 2048 for industrial use. existing state attributable to the According to the information Group as at provided by the Group, the 30 April, 2003 proposed development will mainly comprise of production RMB9,155,000 facilities for the Group Construction works are expected to commence in mid 2004 and schedule to be completed in mid 2005.
Notes:
1. Pursuant to a State-owned Land Use Rights Certificate (Document No. Shaoxing Xian Guo Yong (2003) Zi No. 6-26) dated 19 March, 2003 issued by Shaoxing County State-owned Land Administration Bureau, the land use rights of the property with a site area of approximately 28,170.4 sq.m. was vested in Baoye Group Company Limited (referred hereinafter as the “Company”) for a term expiring on 30 December, 2048 for industrial use.
2. Pursuant to a State-owned Land Use Rights Grant Contract dated 13 December, 1998, the land use rights of the land with a site area of approximately 28,170.4 sq.m. for a term of 50 years for industrial use has been granted to Zhejiang Baoye Construction Works Group Co., Ltd., the predecessor of the Company, for the consideration of RMB3,816,536. Details of the contract contain, inter-alia, the following salient conditions: –
(a) Grantee Zhejiang Baoye Construction Works Group Co., Ltd.
(b) Location Qianqing Tower, Lingjiang Village
(c) Land grant fee (RMB) 3,816,526
(d) Site Area (sq.m.) 28,170.4
(e) User Production of concrete piece
(f) Land Use term 50 years
(g) Plot ratio 0.3607
(h) Maximum gross floor area* 10,161
(i) Site Coverage not specified
(j) Green area ratio not specified
(k) Maximum height not specified
(l) Contract date 13 December, 1998
(m) Building covenant not specified
(* Maximum gross floor area is calculated by multiplying the plot ratio with the site area.) – 296 – APPENDIX II PROPERTY VALUATION
3. Pursuant to a Business Licence (Registration No. 3300001008966) issued by Zhejiang Province Industrial and Commerce Executive Bureau to the Company on 30 August, 2002, the Company is permitted to register with a registered capital of RMB350,742,053. The term of operation is unlimited commencing from 30 June, 1994. The scope of operation mainly covers construction works, machine installation, new construction materials research, development, production and sales, high technology products research, development and promotion, corporate investment, intra-company asset management.
4. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Right Certificate Yes (b) Building Ownership Certificates N/A (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes N/A: Not applicable
5. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) The Company had settled all land premia and obtained the land use rights of the property legally by grant from the government;
6. According to the information provided by the Group, the Group holds 100% interests in the property as at 30 April, 2003.
– 297 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Group V – Property interests to be acquired by the Group in the PRC
A. Property interests to be acquired by Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd.
Capital value in Description and existing state as at Property tenancy particulars Particulars of occupancy 30 April, 2003
30. A parcel of land The property comprises three The property is at present a No commercial value located at pieces of land with a total site vacant site. Yan Jia Tan, area of approximately 48,804 Interest attributable to Shaoxing City, sq.m. (525,326 sq.ft.). the Group Zhejiang Province, the PRC The property is held under a 99.9% land use rights for terms of 70 years for residential use and 40 Capital value in years for commercial/office existing state uses commencing from 23 attributable to the April, 2003. Group as at 30 April, 2003 According to the information provided by the Group, the No commercial value proposed development will mainly comprise of a compositive commercial, residential and offices development for Baoye Real Estate. Construction works are expected to commence in late 2003 and schedule to be completed in late 2005.
Notes:
1. Pursuant to a State-owned Land Use Rights Grant Contract dated 22 April, 2003, the land use rights of the land with a site area of approximately 48,804 sq.m. for terms of 70 years for residential use and 40 years for commercial/office uses commencing from 23 April, 2003 has been granted to Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd. (referred hereinafter as “Baoye Real Estate”) for the consideration of RMB232,200,000. As at the date of valuation, the outstanding land premium is RMB232,200,000 and is required to be settled on or before 30 June, 2003.
(a) Grantee Baoye Real Estate
(b) Location Yanjiatan
(c) Land grant fee (RMB) 232,200,000
Lot 1 Lot 2 Lot 3 Total
(d) Site area (sq.m.) 4,394 31,662 12,748 48,804
(e) Use Residential, Office Residential Residential & Commercial
(f) Land use term 40 years for Office 70 Years 70 Years and commercial uses 70 years for residential uses
(g) Plot ratio <1.1 <1.35 <1.3
– 298 – APPENDIX II PROPERTY VALUATION
(h) Maximum Gross Floor 4,833 42,744 16,572 64,149 Area (sq.m.)
(i) Site coverage <30% <30% <30%
(j) Green area ratio >35% >35% >35%
(k) Maximum height not specified <4-storey <4-storey
(l) Coefficient of building not specified 1:1.1 1:1.1 distance
(* Maximum gross floor area is calculated by multiplying the plot ratio with the site area.)
2. Pursuant to a Business Licence (Registration No. 3308211000192) issued by Shaoxing County Industrial and Commerce Executive Bureau to Baoye Real Estate on 10 July, 2000, Baoye Real Estate is permitted to register with a registered capital of RMB20,000,000. The term of operation is commencing from 8 February, 1995 to 24 January, 2005. The scope of operation mainly covers real estate development.
3. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate No (b) Building Ownership Certificates N/A (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes N/A: Not applicable
4. Since the Group has signed State-owned Land Use Rights Grant Contract and paid portion of the land grant fee. Thus, if the Group has fulfilled all the items set out in the Contract, it can obtain the property interest of the property.
5. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) By virtue of having obtained its business licence, Baoye Real Estate has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(b) Baoye Real Estate has obtained all necessary licenses to operate in the location where the property is situated.
6. According to the information provided by the Group, the Group holds 99.9% interests in the property as at 30 April, 2003.
7. Pursuant to an Articles of Association dated 1 September, 2002, Baoye Group Company Limited (“the Company”) and Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of the Joint venture company: Baoye Real Estate
(b) Term of operation: 10 years
(c) Registered capital: RMB20,000,000
(d) Proportion of capital contribution/ – the Company: 90% profit sharing: – Baoye Construction: 10%
(e) Baoye Construction is owned as to 99.0% by the Company, while the remaining 1.0% is owned equally by three Promoters, namely Mr. Wang Liequan, Mr. Chen Baorong and Mr. Xia Weimin.
– 299 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
B. Property interests to be acquired by Hefei Qingfangcheng Baoye Real Estate Co., Ltd.
Capital value in existing state as at Property Description and tenure Particulars of occupancy 30 April, 2003
31. A parcel of land The property comprises a parcel The property is at present a No commercial value located at Xin Zhan of land with a site area of vacant site. Lot 14, Bianhe approximately 106,666.67 sq.m. Interest attributable to Road South, Dangtu (1,148,160 sq.ft.). the Group Road East, Hefei, The property is a leveled site 50% Anhai Province, and of a irregular shape. the PRC Capital value in The property is held under a existing state land use rights for a term of 50 attributable to the years commencing from the Group as at issue date of the State-owned 30 April, 2003 Land Use Rights Certificate for industrial and storage uses. No commercial value
Construction works are expected to commence in first quarter of 2004 and schedule to be completed in the first quarter of 2005 and the total gross floor area is approximately 500,000 sq.m..
Notes:
1. Pursuant to a State-owned Land Use Rights Grant Contract dated 15 April, 2002, the land use rights of the property having a site area of approximately 106,666.67 sq.m. for a term of 50 years has been granted to Hefei Qingfangcheng Baoye Real Estate Co., Ltd. (referred hereinafter as Hefei Baoye) for industrial and storage uses for the consideration of RMB17,280,000. As at the date of valuation, Hefei Baoye has paid RMB8,640,000 to the Government. The outstanding land premium is RMB8,640,000 and is required to be settled within six months from date of the Land Grant Contract (that is 15 April, 2002).
2. Pursuant to a Business Licence (Registration No. 3401002007175) issued by Hefei Province Industrial and Commerce Executive Bureau to Hefei Baoye on 14 March, 2002, Hefei Baoye is permitted to register with a registered capital of RMB30,000,000. The term of operation is commencing from 14 March, 2002 to 8 March, 2012. The scope of operation mainly covers real estate development.
3. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:-
(a) State-owned Land Use Rights Certificate No (b) Building Ownership Certificates N/A (c) Contract for Grant of State-owned Land Use Rights Yes (d) Business Licence Yes
N/A: not applicable
4. Since the Group has signed State-owned Land Use Rights Grant Contract and paid portion of the land grant fee. Thus, if the Group has fulfilled all the items set out in the Contract, it can obtain the property interest of the property.
5. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) By virtue of having obtained its business licence, Hefei Baoye has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
– 300 – APPENDIX II PROPERTY VALUATION
(b) Hefei Baoye has obtained all necessary licenses to operate in the location where the property is situated.
(c) Hefei Baoye has obtained the project notarization.
6. Since Hefei Baoye has not yet paid all the land premium and the State-owned Land Use Rights Certificate has not been obtained, so we assign no commercial value to the property. For indicative purpose, the open market value of the property as at 30 April, 2003, on the assumption that the State-owned Land Use Rights Certificate had been obtained, was RMB17,300,000.
7. According to the information provided by the Group, the Group holds 50% interests in the property as at 30 April, 2003.
8. Pursuant to an Article of Association dated 8 March, 2002, Baoye Group Company Limited (“the Company”) and Shaoxing China Qingfangcheng Shidai Real Estate Co., Ltd. agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are sated below:
(a) Name of the Joint venture company: Hefei Baoye
(b) Term of operation: 14 March, 2002 to 8 March, 2012
(c) Registered captial: RMB30,000,000
(d) Proportion of capital contribution/ Company: 50% profit sharing: Shaoxing China Qingfangcheng Shidai Real Estate Co., Ltd.: 50%
9. As at the valuation date, the Group has not formulated any architectural plan or obtained any planning consent from the local planning authority.
– 301 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
C. Property interests to be acquired by Shanghai Zibao Real Estate Development Co., Ltd.
Capital value in Description and existing state as at Property tenancy particulars Particulars of occupancy 30 April, 2003
32. A parcel of land The property comprises a parcel The property is at present a No commercial value located at of land with a site area of 8,313 site with existing buildings Nos. 332-398 sq.m. (89,481 sq.ft.). to be demolished for new Interest attributable to Jiang Ning Road, development. the Group Jing An District, According to the information Shanghai City, provided by the Group, the 54.9% the PRC. proposed development will mainly comprise a compositive Capital value in residential and commercial existing state development. Construction attributable to the works are expected to Group as at commerce in late 2003 and 30 April, 2003 schedule to be completed in mid 2005. No commercial value
Notes:
1. Pursuant to a Land Use Rights Transfer Contract dated 29 May, 2003, the land use rights of the land with a site area of approximately 8,391.9 sq.m. has been transferred to Shanghai Zibao Real Estate Development Co., Ltd. (referred hereinafter as Shanghai Zibao) for the consideration of RMB141,000,000. As at the date of valuation, Shanghai Zibao has already settled RMB101,000,000 for the land premium. The outstanding land premium is RMB40,000,000 and which is required to be settled on or before 18 May 2003.
2. Pursuant to a Business Licence (Registration No. 3101061013025) issued by Shanghai City Industrial and Commerce Executive Bureau to Shanghai Zibao Real Estate Development Co., Ltd. on 26 December, 2002, Shanghai Zibao is permitted to register with a registered capital of RMB18,000,000. The term of operation is commencing from 26 December, 2002 to 25 December, 2012. The scope of operation mainly covers real estate development.
3. Pursuant to the PRC Legal Opinion, we understand that the current status of titles, grant of major approvals, licences and documents of the property are as follows:–
(a) State-owned Land Use Rights Certificate No (b) Building Ownership Certificates N/A (c) Contract for Transfer of State-owned Land Use Rights Yes (d) Business Licence Yes
N/A: not applicable
4. Since the Group has signed State-owned Land Use Rights Grant Contract and paid portion of the land grant fee. Thus, if the Group has fulfilled all the items set out in the Contract, it can obtain the property interest of the property.
5. We have been provided with a legal opinion on the property prepared by the Group’s PRC legal advisers, which contains, inter alia, the following information:
(a) By virtue of having obtained its business licence, Shanghai Zibao has been duly incorporated and is validly existing under the PRC laws as a limited liability company.
(b) Shanghai Zibao has obtained all necessary licenses to operate in the location where the property is situated.
6. According to the information provided by the Group, the Group holds 54.9% interests in the property as at 30 April, 2003.
– 302 – APPENDIX II PROPERTY VALUATION
7. Pursuant to an Articles of Association dated 11 December, 2002, Zhejiang Shaoxing Baoye Real Estate Development Co., Ltd. (“Baoye Real Estate”), Shanghai Zide Real Estate Development Co., Ltd., Mr. Tong Yingqiang and Mr. Xu Jianjun agreed to establish a PRC joint venture company. The major terms stipulated in the contract, inter alia, are stated below:
(a) Name of the Joint venture company: Shanghai Zibao
(b) Term of operation: 10 years
(c) Registered capital: RMB18,000,000
(d) Proportion of capital contribution/ – Baoye Real Estate: 55% profit sharing: – Shanghai Zide Real Estate Development Co., Ltd. 15%
– Mr. Tong Yingqiang 15%
– Mr. Xu Jianjun 15%
(e) Baoye Real Estate is owned as to 99.9% by the Company.
8. As at the date of valuation, the Group has not formulated any architectural plan or obtained any planning consent from the local planing authority.
– 303 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Group VI – Property interests rented by the Group in the PRC
Capital value in Description and existing state as at Property tenancy particulars Particulars of occupancy 30 April, 2003
33. Rooms 301, 302 The property comprises three The property is occupied by No commercial value and 402 of Block 1, units in a 14-storey building the Group as staff quarters Milan Apartment, completed in or about 2001. and ancillary office. No. 36-2 Huanchengdong The property has a total gross Road, floor area of approximately Hangzhou City, 552.78 sq.m. (5,950 sq.ft.). Zhejiang Province, the PRC According to a tenancy agreement dated 19 October, 2001, the property is leased to Hangzhou branch of Zhejiang Baoye Construction Group Co., Ltd. (the “tenant”) by 杭州嘉園 物業管理有限公司 (Hangzhou Jiayuan Property Management Company Limited), (the “leasing agent”), the leasing agent of Zhejiang Province Department of Construction (the “landlord”) from 20 May, 2001 to 19 May, 2003 at a total annual rental of RMB211,852.94.
Notes:
1. The landlord is an independent third party which is not connected with and is independent from, the directors, the chief executive, the initial management shareholders, the substantial shareholders of the Company or any of their respective associates. Pursuant to the agreement dated 20 June, 2001, the landlord authorised the leasing agent to lease the property and to sign the tenancy agreement on its behalf.
2. We have been provided with a legal opinion on the tenancy agreement prepared by the Group’s PRC legal adviser, which states that, inter alia, the property is subject to a tenancy agreement dated 19 October, 2001 entered into between the leasing agent and the tenant for office use.
3. Pursuant to the PRC legal opinion, the tenant has the right to use the property during the lease term in accordance with the terms of the tenancy agreement which are legal and effective if the building ownership and grant land use rights are obtained or if permit or consent in relation to the tenancy agreement is obtained from the relevant government authorities. However, the tenant has no right to continue to use the property should the landlord sign a tenancy agreement with a third party and register it. Then the tenant can require the landlord to bear the responsibility of the breach of the contract and to compensate the resultant loss.
4. The property is subject to a renewed tenancy agreement dated 1 May 2003 for a term from 20 May, 2003 to 19 May, 2005 at a month rental of RMB211,852 inclusive of water and electricity charges, lift charges and management fees.
5. The status of the title and grant of major approvals, consents and licences in accordance with the information provided by the Group and the aforesaid legal opinion are as follows:–
Tenancy Agreement Yes
– 304 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in Description and existing state as at Property tenancy particulars Particulars of occupancy 30 April, 2003
34. No. 42 of The property comprises a The property is occupied by No commercial value Lane 1100, 3-storey composite building the Group as staff quarters Zhongshanbeiyi completed in or about 1945. and ancillary office. Road, Hongkou District, The property has a gross floor Shanghai City, area of approximately 351 sq.m. the PRC (3,778 sq.ft.).
According to a tenancy agreement dated 25 April, 2001, the property is leased to Zhejiang Baoye Construction Group Co., Ltd. (the “tenant”) by 南空上海新軍一部干休所 (Nankong Shanghai Xinjunyibu Retirement Village) (the “landlord”) from 30 May, 2001 to 29 May, 2003 at an annual rental of RMB115,000.
Notes:
1. The landlord is an independent third party which is not connected with and is independent from, the directors, the chief executive, the initial management shareholders, the substantial shareholders of the Company or any of their respective associates.
2. We have been provided with a legal opinion on the tenancy agreement prepared by the Group’s PRC legal adviser, which states that, inter alia, the property is subject to a tenancy agreement dated 25 April, 2001 entered into between the aforesaid landlord and the tenant for office use.
3. The PRC legal opinion states that the tenant has the right to use the property during the lease term accordance with the terms of the tenancy agreement which are legal and effective if permit or consent in relation to the tenancy agreement is obtained from the relevant government authorities. However, if the permit or consent is not obtained, the tenancy agreement is ineffective. Then the tenant, being the non-defaulting party, can require the defaulting party i.e. the landlord to compensate its loss and will not be regarded as the illegal user of the property and required to compensate the building owner or make any payment.
4. The status of the title and grant of major approvals, consents and licences in accordance with the information provided by the Group and the aforesaid legal opinion are as follows:–
Tenancy Agreement Yes
– 305 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in Description and existing state as at Property tenancy particulars Particulars of occupancy 30 April, 2003
35. Levels 3 & 4 of The property comprises two The property is occupied by No commercial value Nos. 16-18, Unit 5, levels in a 5-storey building the Group as staff quarters Block 2, completed in or about 1997. and ancillary office. International Building, The property has a total gross Chouzhoubei Road, floor area of approximately 300 Yiwu County, sq.m. (3,229 sq.ft.). Zhejiang Province, the PRC According to a tenancy agreement dated 8 June, 2000, the property is leased to 浙江寶 業建設集團有限公司第三工 程公司 (No. 3 Construction Company of Zhejiang Baoye Construction Group Co., Ltd.) (the “tenant”), the Yiwu branch of Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) by Mr. Chen Yi Jun and Mr. Huang Ke You (the “landlord”) from 8 June, 2000 to 8 June, 2003 at a total annual rental of RMB30,000.
Notes:
1. According to the building ownership certificate (document no. 義烏房稠城共字第0060971號), the landlords are the building owners. They are independent third parties which are not connected with and are independent from, the directors, the chief executive, the initial management shareholders, the substantial shareholders of the Company or any of their respective associates.
2. The tenant is the Yiwu branch of Zhejiang Baoye Construction Group Co., Ltd. and has the capacity to enter into the tenancy agreement with the landlords on behalf of Zhejiang Baoye.
3. We have been provided with a legal opinion on the leasing agreement prepared by the Group’s PRC legal adviser, which states that, inter alia, the following information:
(a) The property is subject to a tenancy agreement dated 8 June, 2000 entered into between the landlords and the tenant for office and domestic uses.
(b) The tenant has the right to use the property during the lease period.
(c) Pursuant to the PRC legal opinion, the tenant has the right to use the property during the lease term in accordance with the terms of the tenancy agreement which are legal and effective if the grant land use rights are obtained or if permit or consent in relation to the tenancy agreement is obtained from the relevant government authorities. However, the tenant has no right to continue to use the property should the landlord sign a tenancy agreement with a third party and register it. Then the tenant can require the landlords to bear the responsibility of the breach of the contract and to compensate the resultant loss.
4. The status of the title and grant of major approvals, consents and licences in accordance with the information provided by the Group and the aforesaid legal opinion are as follows:–
Tenancy Agreement Yes Building Ownership Certificate Yes
– 306 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in Description and existing state as at Property tenancy particulars Particulars of occupancy 30 April, 2003
36. A showroom for The property comprises a The property is occupied by No commercial value new wall material portion of a 3-storey building the Group as staff quarters of Block 5 completed in or about 1999. and ancillary office. Xinqiang Court, No. 77 Tianhe The property has a gross floor Road, area of approximately 388.54 Xiucheng District, sq.m. (4,182 sq.ft.). Jiaxing City, Zhejiang Province, According to a tenancy the PRC agreement dated 13 January, 2003, the property is leased to Jiaxing branch of Zhejiang Baoye Construction Group Co., Ltd. (the “tenant”) by 嘉興市 體材料改革辦公室(Wall Materials Reformation Office of Jiaxing City) (the “landlord”) from 1 January, 2003 to 31 December, 2003 at an annual rental of RMB50,000.
Notes:
1. According to the building ownership certificate (document no. 嘉房權證禾字第0004808號), the landlord is the building owner. It is an independent third party which is not connected with and is independent from, the directors, the chief executive, the initial management shareholders, the substantial shareholders of the Company or any of their respective associates.
2. Pursuant to the Tenancy Permit (document no.: 嘉房租證第03956號) issued to the building owner by Jiaxing Real Estate Administration Bureau dated 16 April, 2003, the landlord is permitted to lease the property to the tenant.
3. We have been provided with a legal opinion on the tenancy agreement prepared by the Group’s PRC legal adviser, which contains, inter alia, the following information:
(a) The property is subject to a tenancy agreement dated 13 January, 2003 entered into between the landlord and the tenant without having stated the use.
(b) The landlord has completed the tenancy registration of the property.
(c) The tenant has the right to use the property during the lease term.
(d) The tenancy agreement is effective and legally binding on both parties to the agreement.
4. The status of the title and grant of major approvals, consents and licences in accordance with the information provided by the Group and the aforesaid legal opinion are as follows:–
Tenancy Agreement Yes Building Ownership Certificate Yes Tenancy Registration Permit Yes
– 307 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in Description and existing state as at Property tenancy particulars Particulars of occupancy 30 April, 2003
37. Unit 201 of The property comprises a unit The property is occupied by No commercial value Unit 1, of a 3-storey building the Group as staff quarters Block 64 and a completed in or about 1998 and and ancillary office. carparking space, a carparking space. Yunxi New Village, Jiaojiang District, The property has a gross floor Taizhou City, area of approximately 155.82 Zhejiang Province, sq.m. (1,677 sq.ft.). the PRC According to a tenancy agreement dated 30 November, 2002, the property is leased to Zhejiang Baoye Construction Group Co., Ltd. (the “tenant”) by Mr. Xiang Yun Lai (the “landlord”) from 5 March, 2001 to 4 March, 2006 at an annual rental of RMB13,000.
Notes:
1. According to the building ownership certificate, the landlord is the building owner. He is an independent third party which is not connected with and is independent from, the directors, the chief executive, the initial management shareholders, the substantial shareholders of the Company or any of their respective associates.
2. We have been provided with a legal opinion on the tenancy agreement prepared by the Group’s PRC legal adviser, which states that, inter alia, the property is subject to a tenancy agreement dated 30 November, 2002 entered into between the aforesaid landlord and the tenant without having stated the use.
3. Pursuant to the PRC legal opinion, the tenant has the right to use the property during the lease term in accordance with the terms of the tenancy agreement which are legal and effective if the grant land use rights are obtained or if permit or consent in relation to the tenancy agreement is obtained from the relevant government authorities. However, the tenant has no rights to continue to use the property should the landlord sign a tenancy agreement with a third party and register it. Then the tenant can require the landlord to bear the responsibility of the breach of the contract and to compensate the resultant loss.
4. The status of the title and grant of major approvals, consents and licences in accordance with the information provided by the Group and the aforesaid legal opinion are as follows:–
Tenancy Agreement Yes Building Ownership Certificate Yes
– 308 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in Description and existing state as at Property tenancy particulars Particulars of occupancy 30 April, 2003
38. Room 103 of The property comprises a unit The property is occupied by No commercial value Block 30, of a 6-storey building the Group as staff quarters Feihong New Village, completed in or about 1996. and ancillary office. Ningbo City, Zhejiang Province, The property has a gross floor the PRC area of approximately 80 sq.m. (861 sq.ft.).
According to a tenancy agreement dated 24 November, 2000, the property is leased to 浙江寶業建設集團有限公司 寧波工程公司 (Ningbo Branch of Zhejiang Baoye Construction Group Co., Ltd.) (the “tenant”), the Ningbo branch of Zhejiang Baoye Construction Group Co., Ltd. (“Baoye Construction”) by Mr. Li Wah (the “landlord”) for a term of 3 years from 1 December, 2000 at an annual rental of RMB9,000.
Notes:
1. The landlord is Mr. Li Wah. He is an independent third party which is not connected with and is independent from, the directors, the chief executive, the initial management shareholders, the substantial shareholders of the Company or any of their respective associates.
2. The tenant is the Ningbo branch of Zhejiang Baoye Construction Group Co., Ltd. and has the capacity to enter into the tenancy agreement on behalf of Baoye Construction.
3. We have been provided with a legal opinion on the tenancy agreement prepared by the Group’s PRC legal adviser, which states that, inter alia, the property is subject to a tenancy agreement dated 24 November, 2000 entered into between the aforesaid landlord and the tenant without having stated the use.
4. The PRC legal opinion states that the tenant has the right to use the property during the lease term in accordance with the terms of the tenancy agreement which are legal and effective if permit or consent in relation to the tenancy agreement is obtained from the relevant government authorities or if the building ownership and grant land use rights are obtained. However, the tenant has no right to continue to use the property should the landlord sign a tenancy agreement with a third party and register it. Then the tenant can require the landlord to bear the responsibility of the breach of the contract and to compensate the resultant loss.
5. The status of the title and grant of major approvals, consents and licences in accordance with the information provided by the Group and the aforesaid legal opinion are as follows:–
Tenancy Agreement Yes
– 309 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in Description and existing state as at Property tenancy particulars Particulars of occupancy 30 April, 2003
39. No. 1406, The property comprises a unit The property is occupied by No commercial value Xinhua Building, of a 30-storey commercial the Group as staff quarters No. 45 Liuan Road, building completed in or about and ancillary office. Hefei City, 1999. Anhai Province, the PRC The property has a gross floor area of approximately 85.66 sq.m. (922 sq.ft.).
According to a tenancy agreement dated 20 July, 2002, the property is leased to Hefei branch of Zhejiang Baoye Construction Group Co., Ltd. (the “tenant”) by Mr. Yao Kan (the “landlord”) from 1 August, 2002 to 31 July, 2003 at an annual rental of RMB37,200.
Notes:
1. The landlord is an independent third party which is not connected with and is independent from, the directors, the chief executive, the initial management shareholders, the substantial shareholders of the Company or any of their respective associates.
2. We have been provided with a legal opinion on the tenancy agreement prepared by the Group’s PRC legal adviser, which states that, inter alia, the property is subject to a tenancy agreement dated 20 July, 2002 entered into between the aforesaid landlord and the tenant for office use.
3. The PRC legal opinion states that the tenant has the right to use the property during the lease term in accordance with the terms of the tenancy agreement which are legal and effective if permit or consent in relation to the tenancy agreement is obtained from the relevant government authorities or if the building ownership and grant land use rights are obtained. However, the tenant has no right to continue to use the property should the landlord sign a tenancy agreement with a third party and register it. Then the tenant can require the landlord to bear the responsibility of the breach of the contract and to compensate the resultant loss.
4. The status of the title and grant of major approvals, consents and licences in accordance with the information provided by the Group and the aforesaid legal opinion are as follows:–
Tenancy Agreement Yes
– 310 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in Description and existing state as at Property tenancy particulars Particulars of occupancy 30 April, 2003
40. Room 401 of The property comprises a unit The property is occupied by No commercial value Block 1, of a 14-storey building the Group as staff quarters Milan Apartment, completed in or about 2001. and ancillary office. No. 36-2 Huanchengdong The property has a gross floor Road, area of approximately Hangzhou City, 184.26 sq.m. (1,983 sq.ft.). Zhejiang Province, the PRC. According to a tenancy agreement dated 19 October, 2001, the property is leased to Zhejiang Building Materials Industrialisation and Design Research Institute Co., Ltd. (the “tenant”) by 杭州嘉園物業管 理有限公司(Hanghou Jiayuan Property Management Company Limited) (the “leasing agent”), the leasing agent of Zhejiang Provincial Department of Construction (the “landlord”) from 20 May, 2001 to 19 May, 2003 at a total annual rental of RMB28,247.06.
Notes:
1. The landlord is an independent third party which is not connected with and is independent from, the directors, the chief executive, the initial management shareholders, the substantial shareholders of the Company or any of their respective associates. Pursuant to the agreement dated 20 June, 2001, the landlord authorised the leasing agent to lease the property and to sign the tenancy agreement on its behalf.
2. There is also a supplemental agreement dated 19 October, 2001 which states that the tenant has to pay the energy charges and management fees of RMB42,370.58 each year to the landlord in additional to the annual rental.
3. We have been provided with a legal opinion on the tenancy agreement prepared by the Group’s PRC legal adviser, which states that, inter alia, the property is subject to a tenancy agreement dated 19 October, 2001 entered into between the leasing agent and the tenant for office use.
4. Pursuant to the PRC legal opinion, the tenant has the right to use the property during the lease term in accordance with the terms of the tenancy agreement and the supplemental agreement which are legal and effective if the ownership of the building ownership and grant land use rights are obtained or if permit or consent in relation to the tenancy agreement and supplemental agreement is obtained from the relevant government authorities. However, the tenant has no right to continue to use the property should the landlord sign a tenancy agreement and a supplemental agreement with a third party and register them. Then the tenant can require the landlord to bear the responsibility of the breach of the contracts and to compensate the resultant loss.
5. The property is subject to a renewed tenancy agreement dated 7 May, 2003 for a term from 20 May, 2003 to 19 May, 2005 at a month rental of RMB70,617 inclusive water and electricity charges, lift charges and management fees.
6. The status of the title and grant of major approvals, consents and licences in accordance with the information provided by the Group and the aforesaid legal opinion are as follows:–
Tenancy Agreement Yes
– 311 – APPENDIX II PROPERTY VALUATION
VALUATION CERTIFICATE
Capital value in Description and existing state as at Property tenancy particulars Particulars of occupancy 30 April, 2003
41. Nos. 1-6 The property comprises 6 units The property is occupied by No commercial value of Western District, in a 5-storey composite building the Group as office. Shaoxing completed in or about 1998. Commercial City, No. 240 Yanandong The property has a total gross Road, floor area of approximately 165 Shaoxing City, sq.m. (1,776 sq.ft.). Zhejiang Province, the PRC According to a tenancy agreement dated 17 February, 2003, the property is leased to Zhejiang Baoye Infrastructure Construction Co., Ltd. (the “tenant”) by 紹興商城有限責 任公司(Shaoxing Commercial City Company Limited) (the “landlord”) from 18 February, 2003 to 17 February, 2004 at a total annual rental of RMB36,000.
Notes:
1. According to the building ownership certificate (document no. 房權證紹自始字第3530號), the landlord is the building owner is 紹興商城有限責任公司 (Shaoxing Commercial City Company Limited). It is an independent third party which is not connected with and is independent from, the directors, the chief executive, the initial management shareholders, the substantial shareholders of the Company or any of their respective associates.
2. We have been provided with a legal opinion on the leasing agreement prepared by the Group’s PRC legal adviser, which contains, inter alia, the following information:
(a) The property is subject to a tenancy agreement dated 17 February, 2003 entered into between the landlord and the tenant for office use; and
(b) The tenancy agreement is legal, effective and legally binding on both parties to the agreement.
(c) The tenant has the right to use the property during the lease period.
(d) The tenant has no right to continue to use the property should the landlord sign a tenancy agreement with a third party and register it. Then the tenant can require the landlord to bear the responsibility of the breach of the contract and to compensate the resultant loss.
3. The status of the title and grant of major approvals, consents and licences in accordance with the information provided by the Group and the aforesaid legal opinion are as follows:–
Tenancy Agreement Yes Building Ownership Certificate Yes
– 312 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
This Appendix sets out summaries of PRC company and securities regulations, certain material differences between the Company Law and Hong Kong company law, additional regulatory provisions introduced by the Stock Exchange in relation to PRC joint stock limited companies and the Articles of Association. The main objective is to provide investors with an overview of the rights and obligations of shareholders of the Company and the principal legal and regulatory provisions applicable to the Company.
1. PRC LEGAL AND REGULATORY PROVISIONS
(A) Company Law
On 29 December, 1993, the Standing Committee of the Eighth NPC adopted the Company Law which came into effect on 1 July, 1994 and was amended on 25 December, 1999. Companies established under laws, administrative regulations, local laws and the Standard Opinion for Limited Liability Companies, and the Standard Opinion for Joint Stock Limited Companies formulated by the relevant departments of the State Council before the implementation of the Company Law will not be affected by the Company Law and shall continue to be recognised. Those companies which have not wholly complied with the provisions of the Company Law shall comply with the relevant requirements within a specified period of time. The State Council may separately promulgate detailed implementing measures.
Set out below is a summary of the major provisions of the Company Law, the Special Regulations and Mandatory Provisions. On 4 July, 1994, the Special Regulations were passed at the Second Standing Committee Meeting of the State Council, and they were promulgated and implemented on 4 August, 1994. The Special Regulations are formulated according to the provisions of Sections 85 and 155 of the Company Law in respect of the overseas share subscription and listing of joint stock limited companies. The Mandatory Provisions were issued jointly by the Securities Commission and the State Economic Restructuring Commission on 27 August, 1994, prescribing provisions which must be incorporated into the articles of association of joint stock limited companies to be listed overseas. Accordingly, the Mandatory Provisions have been incorporated in the Articles of Association (which are summarised in this Appendix III). References to a “company” are to a joint stock limited company established under the Company Law with overseas listed foreign invested shares.
Copies of the Chinese text of the Company Law, Special Regulations and the Mandatory Provisions together with copies of their unofficial English translations thereof are available for inspection as mentioned in the section headed “Documents available for inspection Registrar of Companies” in Appendix V.
General
A “joint stock limited company” is a corporate legal person incorporated under the Company Law, whose registered capital is divided into shares of equal par value. The liability of its shareholders is limited to the extent of the shares held by them, and the liability of the company is limited to the full amount of all the assets owned by it.
– 313 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
A State-owned enterprise that is restructured into a company must comply with the conditions and requirements specified by law and administrative regulations, for the modification of its operation mechanisms, the systematic handling and evaluation of the company’s assets and liabilities and the establishment of internal management organs.
A company must conduct its business in accordance with law and professional ethics, promote the concept of a socialist market economy and be subject to the supervision of the government and the general public.
A company may invest in other limited liability companies and joint stock companies and the company’s liabilities with respect to such invested companies are limited to the amount invested. However, apart from investment companies and holding companies specified by the State Council, the amount of a company’s aggregate investment in other companies may not exceed 50% of its net assets.
Incorporation
A company may be incorporated by promotion or public subscription.
A company may be incorporated by a minimum of five promoters, but at least half of the promoters must reside within the PRC. According to the Special Regulations, State-owned enterprises or enterprises with the majority of their assets owned by the PRC government can be restructured in accordance with the relevant regulations to become joint stock limited companies which may issue shares to overseas investors. These companies if incorporated by public subscription may have less than five subscribers and can issue new shares once incorporated.
Companies incorporated by promotion are companies the entire registered capital of which is subscribed for by the promoters. Where companies are incorporated by public subscription, not less than 35% of their total shares must be subscribed for by the promoters and the remainder of their shares shall be offered to the public.
The registered capital of a company is the amount of its total paid up capital as registered with the relevant administration for industry and commerce. The minimum registered capital of a company is RMB10 million. The total capital of a company which proposes to apply for its shares to be listed on a stock exchange must not be less than RMB50 million.
The establishment of a company must be approved by the department authorised by the State Council or by the provincial level people’s government.
The promoters shall convene an inaugural meeting within 30 days after the issued shares have been fully paid up, and shall give notice to all subscribers or make an announcement of the date of the inaugural meeting 15 days before the meeting. The inaugural meeting may be convened only with the presence of shareholders holding shares representing more than 50% of the voting rights in the company. At the inaugural meeting, matters including the adoption of draft articles of association proposed by the promoter(s) and the election of the board of directors and the
– 314 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
supervisory committee of the company will be dealt with. All resolutions of the meeting require the approval of subscribers with at least half of the voting rights present at the meeting.
Within 30 days after the conclusion of the inaugural meeting, the board of directors shall apply to the registration authority for registration of the establishment of the company. A company is formally established and has the status of a legal person after the approval for registration has been given by the relevant administration for industry and commerce and a business licence has been issued. Companies established by the public subscription method shall file a report on the offer of shares with the securities administration department of the State Council for record.
A company’s promoters shall individually and collectively be liable for: (i) the payment of all expenses and liabilities incurred in the incorporation process if the company cannot be incorporated; (ii) the repayment of subscription monies to the subscribers together with interest at bank rates for a deposit of the same term if the company cannot be incorporated; and (iii) damages suffered by the company as a result of the default of the promoters in the course of incorporation of the company. According to the Provisional Regulations Concerning the Issue and Trading of Shares promulgated by the State Council on 22 April, 1993 (which is only applicable to issue and trading of shares in the PRC and their related activities), if a company is established by means of subscription, the promoters of such company are required to assume joint responsibility for the accuracy of the contents of the prospectus and to ensure that the prospectus does not contain any misleading statement or omit any material information.
Share capital
The promoters may make capital contribution in cash, or in kind or by way of injection of assets, industrial property rights, non-patented technology or land use rights based on their appraised value. The amount of investment made in the form of industrial property rights and non-patented technology may not exceed 20% of the registered capital of the company.
If capital contribution is made other than in cash, valuation and verification of the property contributed must be carried out and converted into shares.
A company may issue registered or bearer share certificates. However, shares issued to promoters, state-authorised investment organisations and PRC legal persons shall be in the form of registered share certificates, and may not be registered under a different name or in the name of an agent.
The Special Regulations and the Mandatory Provisions provide that shares issued to foreign investors and are listed overseas be issued in registered form and shall be denominated in Renminbi and subscribed for in foreign currency.
– 315 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
Under the Special Regulations and the Mandatory Provisions, shares issued to foreign investors and investors from the territories of Hong Kong, Macau and Taiwan and listed overseas are known as overseas listed foreign invested shares, and those shares issued to investors within the PRC other than the territories specified above are known as domestic invested shares.
A company may offer its shares to the public overseas with approval by the securities administration department of the State Council. Specific measures shall be specifically formulated by the State Council. Under the Special Regulations, upon approval of CSRC, a company may agree, in the underwriting agreement in respect of an issue of overseas listed foreign invested shares, to retain not more than 15% of the aggregate number of overseas listed foreign invested shares proposed to be issued after accounting for the number of underwritten shares.
The Offer Price may be equal to or greater than the par value, but may not be less than par value.
The transfer by a shareholder of its shares must be carried out through a lawfully established stock exchange. Transfer of registered shares by a shareholder must be made by means of an endorsement or by other means stipulated by a law or by administrative regulations. Bearer share certificates are transferred by delivery of the certificates to the transferee.
Shares held by a promoter of a company may not be transferred for three years after the company’s establishment. Directors, supervisors and the manager of a company shall not transfer the shares they hold in the company during their term of office. There is no restriction under the Company Law as to the percentage of shareholding a single shareholder may hold in a company. However, according to the Provisional Regulations Concerning the Issue and Trading of Shares, a PRC individual shareholder cannot own more than 0.5% of the outstanding domestically issued common shares of a listed company.
Transfers of shares may not be entered in the register of shareholders within 30 days before the date of a shareholders’ meeting or within five days before the record date set for the purpose of distribution of dividends.
Increase in capital
Under the Company Law, an increase in capital in a company by means of an issue of new shares must be approved by shareholders in general meeting and meet the following conditions:
(i) the previous issue of shares has been fully subscribed for and at least one year has elapsed since that issue, but under the Special Regulations, if a company increases its capital for the issue of overseas listed foreign invested shares, the time period elapsed since the last issue of shares may be less than 12 months;
(ii) the company has been profitable for the last three consecutive years and is able to make dividend payments to its shareholders;
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(iii) there has been no false reporting in the company’s financial and accounting documents during the last three years; and
(iv) the company’s expected profit rate is comparable to the bank deposit rate for the same term.
Once the shareholders in general meeting have passed a resolution to issue new shares, the board of directors must apply to the authorised department of the State Council or to the provincial level people’s government for approval. Public offers require the approval of the securities administration department of the State Council.
After payment in full for the new shares issued, a company must change its registration with the relevant state bureau for the administration for industry and commerce and issue a public notice accordingly.
Reduction of share capital
Subject to the minimum registered capital requirements, a company may reduce its registered capital in accordance with the following procedures prescribed by the Company Law:
(i) the company shall prepare a balance sheet and an inventory of the assets;
(ii) the reduction of registered capital must be approved by shareholders in general meeting;
(iii) the company shall inform its creditors of the reduction in capital within 10 days and publish an announcement of the reduction in the newspaper at least three times within 30 days after the resolution approving the reduction has been passed;
(iv) the creditors of the company may within the statutory prescribed time limit require the company to pay its debts or provide guarantees covering the debts; and
(v) the company must apply to the relevant administration for industry and commerce for registration of the reduction in registered capital.
Repurchase of shares
A company may not purchase its own shares other than for the purpose of reducing its capital by cancelling its shares or merging with another company holding its shares or such other purposes permitted by law and administrative regulations. The Mandatory Provisions provide that upon obtaining approvals in accordance with the articles of association of the company and from the relevant supervisory authorities, a company may repurchase its issued shares for the foregoing purposes by way of a general offer to its shareholders or purchase on a stock exchange or an off-market contract.
– 317 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
Under the Company Law, within 10 days following the purchase of a company’s own shares, a company must in accordance with applicable law and administrative regulations cancel that portion of its shares, change its registration and issue a public notice.
Transfer of shares
Shares may be transferred in accordance with the relevant laws and regulations.
A shareholder may only effect a transfer of its shares on a stock exchange established in accordance with law. Registered shares may be transferred after the shareholders endorse their signatures on the back of the share certificates or in any other manner specified by applicable laws and regulations.
Shares issued to promoters may not be transferred within three years after the establishment of the company. Shares held by directors, supervisors and the manager of a company may not be transferred during their term of office with the company.
There is no restriction under the Company Law as to the percentage shareholding of a single shareholder of a company.
Shareholders
Shareholders have such rights and obligations as set down in the articles of association of the company. The articles of association of a company are binding on each shareholder.
Under the Company Law, the rights of a shareholder include:
(i) to attend in person or appoint a proxy to attend shareholders’ general meetings, and to vote in respect of the number of shares held;
(ii) to transfer his shares at a legally established stock exchange in accordance with the Company Law and the articles of association of the company;
(iii) to inspect the company’s articles of association, minutes of shareholders’ general meetings and financial and accounting reports and to make proposals or enquiries in respect of the company’s operations;
(iv) if a resolution adopted by a shareholders’ general meeting or the board of directors violates any law or administrative regulations or infringes the lawful rights and interests of shareholders, to institute an action in the People’s Court demanding that the illegal infringing action be stopped;
(v) to receive dividends in respect of the number of shares held;
(vi) to receive surplus assets of the company upon its termination in proportion to his or her shareholding; and
(vii) any other shareholders’ rights specified in the company’s articles of association. – 318 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
The obligations of a shareholder include the obligation to abide by the company’s articles of association, to pay the subscription monies in respect of the shares subscribed for, to be liable for the company’s debts and liabilities to the extent of the amount of subscription monies agreed to be paid in respect of the shares taken up by him and any other shareholders’ obligation specified in the company’s articles of association.
General meetings
The shareholders’ general meeting is the organ of authority of the company, which exercises its powers in accordance with the Company Law.
The shareholders’ general meeting exercises the following powers:
(i) to decide on the company’s operational policies and investment plans;
(ii) to elect or remove the directors and decide on matters relating to the remuneration of directors;
(iii) to elect or remove the supervisors who are representatives of shareholders and decide on matters relating to the remuneration of supervisors;
(iv) to examine and approve reports of the board of directors;
(v) to examine and approve reports of the supervisory committee;
(vi) to examine and approve the company’s proposed annual financial budget and final accounts;
(vii) to examine and approve the company’s proposals for profit distribution and for recovery of losses;
(viii) to decide on any increase or reduction in the company’s registered capital;
(ix) to decide on the issue of bonds by the company;
(x) to decide on issues such as merger, division, dissolution and liquidation of the company and other matters; and
(xi) to amend the articles of association of the company.
Shareholders’ general meeting is required to be held once every year. An extraordinary shareholders’ general meeting is required to be held within two months after the occurrence of any of the following circumstances:
(i) the number of directors is less than the number provided for in the Company Law or less than two-thirds of the number specified in the company’s articles of association;
(ii) the aggregate losses of the company which are not made up reach one- third of the company’s total share capital; – 319 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
(iii) a request by shareholders holding 10% or more of the company’s shares;
(iv) when deemed necessary by the board of directors; or
(v) when the supervisory committee proposes convening it.
Shareholders’ general meetings shall be convened by the board of directors, and presided over by the chairman of the board of directors.
Notice of the meeting shall be given to all shareholders 30 days before the meeting under the Company Law and 45 days under the Special Regulations and the Mandatory Provisions, stating the matters to be considered at the meeting. Under the Special Regulations and the Mandatory Provisions, shareholders wishing to attend are required to give to the company written confirmation of their attendance 20 days prior to the meeting. Under the Special Regulations, at an annual general meeting of a company, shareholders holding 5% or more of the voting rights in the company are entitled to propose to the company in writing new resolutions to be considered at that meeting, which if within the powers of a shareholders’ general meeting, are required to be added to the agenda of that meeting.
Shareholders present at a shareholders’ general meeting have one vote for each share they hold.
Resolutions of the shareholders’ general meeting must be adopted by more than half of the votes cast by shareholders present in person (including those represented by proxies) at the meeting, with the exception of matters relating to merger, division or dissolution of a company or amendments to the articles of association which must be adopted by shareholders with more than two-thirds of the voting rights held by shareholders present (including those represented by proxies) at the meeting. According to the Mandatory Provisions, the increase or reduction of share capital, the issue of bonds or debentures, and any other matters in respect of which the shareholders by ordinary resolution so decide, must be approved by more than two-thirds of the voting rights held by the shareholders present in person or by proxy in the general meeting. Amendments to the articles of association of a company must be approved by more than two-thirds of the shareholders present in general meeting.
Shareholders may appoint representatives to attend shareholders’ general meetings by a written appointment document stating the scope of exercising the voting rights.
There is no specific provision in the Company Law regarding the number of shareholders constituting a quorum in a shareholders’ meeting. However, the Special Regulations and the Mandatory Provisions provide that a company’s annual general meeting may be convened when replies to the notice of that meeting from shareholders holding shares representing 50% of the voting rights in the company have been received 20 days before the proposed date, or if that 50% level is not achieved, the company shall within five days of the last day for receipt of the replies notify shareholders by public announcement of the matters to be considered at the meeting
– 320 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
and the date and place of the meeting and the annual general meeting may be held thereafter. The Mandatory Provisions require class meetings to be held in the event of a variation or derogation of the class rights of a class. Holders of domestic invested shares and holders of overseas listed foreign invested shares are deemed to be different classes of shareholders for this purpose.
Directors
A company shall have a board of directors, which shall consist of five to nineteen members. Under the Company Law, each term of office of a director shall not exceed three years. A director may serve consecutive terms if re-elected.
Meetings of the board of directors shall be convened at least twice a year. Notice of meeting shall be given to all directors at least 10 days before the meeting. The board of directors may provide for a different method of giving notice and notice period for convening an extraordinary meeting of the board of directors.
Under the Company Law, the board of directors exercises the following powers:
(i) to convene the shareholders’ general meeting and report on its work to the shareholders;
(ii) to implement the resolutions of the shareholders’ general meeting;
(iii) to decide on the company’s business plans and investment plans;
(iv) to formulate the company’s proposed annual financial budget and final accounts;
(v) to formulate the company’s proposals for profit distribution and for recovery of losses;
(vi) to formulate proposals for the increase or reduction of the company’s registered capital and the issue of corporate bonds;
(vii) to prepare plans for the merger, division or dissolution of the company;
(viii) to decide on the company’s internal management structure;
(ix) to appoint or dismiss the company’s general manager, and based on the general manager’s recommendation, to appoint or dismiss deputy general managers and financial officers of the company and to decide on their remuneration; and
(x) to formulate the company’s basic management system.
In addition, the Mandatory Provisions provide that the board is also responsible for formulating the proposals for amendment of the articles of association of a company.
– 321 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
Meetings of the board of directors shall be held only if more than half of the directors are present. Resolutions of the board of directors require the approval of more than half of all directors, provided that, according to the Mandatory Provisions, resolutions in respect of plans for increase or deduction of share capital, issue of bonds, merger, division or dissolution of the company and amendment to the articles of association must be approved by more than two-thirds of the directors.
If a director is unable to attend a board meeting, he may appoint another director by a written power of attorney specifying the scope of the authorisation to attend the meeting on his behalf.
If a resolution of the board of directors violates the laws, administrative regulations or the company’s articles of association as a result of which the company sustains serious losses, the directors participating in the resolution are liable to compensate the company. However, if it can be proven that a director expressly objected to the resolution when the resolution was voted on, and that such objections were recorded in the minutes of the meeting, such director may be relieved of that liability.
Under the Company Law, the following persons may not serve as a director of a company:
(i) persons without civil capacity or with restricted civil capacity;
(ii) persons who have committed the offence of corruption, bribery, taking of property, misappropriation of property or destruction of the social economic order, and have been sentenced to criminal punishment, where less than five years have elapsed since the date of completion of the sentence; or persons who have been deprived of their political rights due to criminal offense, where less than five years have elapsed since the date of the completion of implementation of this deprivation;
(iii) persons who are former directors, factory managers or managers of a company or enterprise which has become bankrupt and been liquidated due to a mismanagement and who are personally liable for the bankruptcy of such company or enterprise, where less than three years have elapsed since the date of the completion of the bankruptcy and liquidation of the company or enterprise;
(iv) persons who were legal representatives of a company or enterprise which had its business licence revoked due to violation of the law and who are personally liable, where less than three years have elapsed since the date of the revocation of the business licence;
(v) persons who have a relatively large amount of debt due and outstanding; or
(vi) persons who are State civil servants.
– 322 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
Other circumstances under which a person is disqualified from acting as a director of a company are set out in the Mandatory Provisions (which have been incorporated in the Articles of Association, a summary of which is set out in this Appendix).
The board of directors shall appoint a chairman, who is elected with approval of more than half of all the directors. The chairman of the board of directors is the legal representative of the company and exercises, amongst others, the following powers:
(i) to preside over shareholders’ general meetings and convene and preside over meetings of the board of directors;
(ii) to check on the implementation of the resolutions of the board of directors; and
(iii) to sign the company’s share certificates and bonds.
The Special Regulations provide that a company’s directors, supervisors, managers and other officers bear fiduciary duties and the duty to act diligently. They are required to faithfully perform their duties, protect the interests of the company and not to use their positions for their own benefit. The Mandatory Provisions (which have been incorporated into the Articles of Association, a summary of which is set out in this Appendix) contains further elaborations of such duties.
Supervisors
A company shall have a supervisory committee composed of not less than three members. Each term of office of a supervisor is three years and he may serve consecutive terms if re-elected.
The supervisory committee is made up of representatives of the shareholders and an appropriate proportion of representatives of the company’s staff and workers. Directors, managers and financial officers may not act concurrently as supervisors.
The supervisory committee exercises the following powers:
(i) to review the company’s financial position;
(ii) to supervise the directors and managers in their performance of their duties and to ascertain whether or not they have violated laws, regulations or the articles of association of the company;
(iii) when the acts of a director or manager are harmful to the company’s interests, to require correction of those acts;
(iv) to propose the convening of extraordinary shareholders’ general meetings; and
(v) other powers specified in the company’s articles of association.
– 323 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
The circumstances under which a person is disqualified from being a director of a company described above apply mutatis mutandis to supervisors of a company.
As mentioned above, the Special Regulations provide that a company’s supervisors, among other persons, shall bear fiduciary duties. They are required to faithfully perform their duties, protect the interests of the company and not to use their positions for their own benefit. A supervisor is also required to attend board meetings as a non-voting attendant.
Managers and officers
A company shall have a manager who shall be appointed or removed by the board of directors. The manager is accountable to the board of directors and may exercise the following powers:
(i) supervise the production, business and administration of the company and arrange for the implementation of resolutions of the board of directors;
(ii) arrange for the implementation of the company’s annual business and investment plans;
(iii) formulate plans for the establishment of the company’s internal management structure;
(iv) formulate the basic administration system of the company;
(v) formulate the company’s internal rules;
(vi) recommend the appointment and dismissal of deputy managers and any financial controller and appoint or dismiss other administration officers (other than those required to be appointed or dismissed by the board of directors);
(vii) attend board meetings as a non-voting attendant; and
(viii) other powers conferred by the board of directors or the company’s articles of association.
The Special Regulations and Mandatory Provisions provide that the other senior management of a company includes the financial controller, secretary of the board of directors and other executives as specified in the articles of association of the company.
The circumstances under which a person is disqualified from being a director of a company described above apply mutatis mutandis to managers and officers of the company.
The articles of association of a company shall have binding effect on the shareholders, directors, supervisors, managers and other senior management of the company. Such persons shall be entitled to exercise their rights, apply for arbitration
– 324 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
and issue legal proceedings according to the articles of association of the company. The provisions of the Mandatory Provisions regarding the senior management of a company have been incorporated in the Articles of Association (a summary of which is set out in this Appendix).
Duties of directors, supervisors, managers and officers
A director, supervisor, manager and an officer of a company are required under the Company Law to comply with the relevant laws, regulations and the company’s articles of association, carry out their duties honestly and protect the interests of the company. A director, supervisor, manager and an officer of a company is also under a duty of confidentiality to the company and is prohibited from divulging the secret information of the company save as permitted by the relevant laws and regulations or by the shareholders.
A director, supervisor, manager and an officer who contravenes any law, regulation or the company’s articles of association in the performance of his duties which results in any loss to the company shall be personally liable to the company.
The Special Regulations and the Mandatory Provisions provide that a director, supervisor, manager and an officer of a company owe fiduciary duties to the company and are required to perform their duties faithfully and to protect the interests of the company and not to make use of their positions in the company for their own benefit.
Finance and accounting
A company shall establish its financial and accounting systems according to laws, administrative regulations and the regulations of the responsible financial department of the State Council and at the end of each financial year prepare a financial report which shall be audited and verified as provided by law.
A company shall deposit its financial statements at the company for the inspection by the shareholders at least 20 days before the convening of the annual general meeting of shareholders. A company established by the public subscription method must publish its financial statements.
When distributing each year’s after-tax profits, the company shall set aside 10% of its after-tax profits for the company’s statutory surplus reserve fund (except where the fund has reached 50% of the company’s registered capital) and 5% to 10% of its after-tax profit for the company’s statutory public welfare fund.
When the company’s statutory surplus reserve fund is not sufficient to make up for the company’s losses of the previous year, current year profits shall be used to make good the losses before allocations are set aside for the statutory surplus reserve fund or the statutory public welfare fund.
– 325 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
The company’s statutory public welfare fund is used for the collective welfare of the company’s staff and workers.
The shareholders in general meeting may resolve to transfer any amount from the after-tax profit of the company to the discretionary surplus reserve after transferring the requisite amount to the statutory surplus reserve fund.
After the company has made good its losses and made allocations to its statutory surplus reserve fund and statutory public welfare fund, the remaining profits could be available for distribution to Shareholder in proportion to the number of shares held by the shareholders.
The common reserve of a company comprises the statutory surplus reserve, discretionary common reserve and the capital common reserve.
The capital common reserve of a company is made up of the premium over the nominal value of the shares of the company on issue and other amounts required by the relevant governmental authority to be treated as the capital common reserve.
The common reserve of a company shall be applied for the following purposes:
(i) to make up the company’s losses;
(ii) to expand the business operations of the company; and
(iii) to pay up the registered capital of the company by the issue of new shares to shareholders in proportion to their existing shareholdings in the company or by increasing the par value of the shares currently held by the shareholders provided that if the statutory surplus reserve is converted into registered capital, the balance of the statutory surplus reserve after such conversion shall not be less than 25% of the registered capital of the company.
Appointment and retirement of auditors
The Special Regulations require a company to employ an independent PRC qualified accounting firm to audit the company’s annual report and review and check other financial reports.
The auditors are to be appointed for a term commencing from the close of an annual general meeting and ending at the close of the next following annual general meeting.
If a company removes or ceases to continue to appoint the auditors, it is required by the Special Regulations to give prior notice to the auditors and the auditors are entitled to make representations before the shareholders in general meeting. The appointment, removal or non re-appointment of auditors shall be decided by the shareholders and shall be registered with the CSRC.
– 326 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
Distribution of profits
The Special Regulations provide that the dividends and other distributions to be paid to holders of overseas listed foreign invested shares shall be declared and calculated in Renminbi and paid in foreign currency. Under the Mandatory Provisions, the payment of foreign currency to shareholders shall be made through a receiving agent.
Amendments to articles of association
Any amendments to the company’s articles of association must be made in accordance with the procedures set forth in the company’s articles of association. Any amendment of provisions incorporated in the articles of association in accordance with the Mandatory Provisions will only be effective after approval by the companies approval department authorised by the State Council and CSRC. In relation to matters involving the company’s registration, its registration with the companies registration authority must also be changed.
Termination and liquidation
A company may apply for the declaration of insolvency by reason of its inability to pay debts as they fall due. After the People’s Court has made a declaration of the company’s insolvency, the shareholders, the relevant authorities and the relevant professionals shall form a liquidation committee to conduct the liquidation of the company.
Under the Company Law, a company shall be dissolved in any of the following events:
(i) the term of its operations set down in the company’s articles of association has expired or events of dissolution specified in the company’s articles of association have occurred;
(ii) the shareholders in general meeting have resolved to dissolve the company; or
(iii) the company is dissolved by reason of its merger or demerger.
Where the company is dissolved in the circumstances described in (i) or (ii) above, a liquidation committee must be established within 15 days. Members of the liquidation committee shall be appointed by the shareholders in the general meeting.
If a liquidation committee is not established within the stipulated period, the company’s creditors can apply to the People’s Court for its establishment.
The liquidation committee shall notify the company’s creditors within 10 days after its establishment, and issue at least 3 public notices in the newspapers within 60 days. A creditor shall lodge his claim with the liquidation committee within 30 days after receiving notification, or within 90 days of the first public notice if he did not receive any notification.
– 327 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
The liquidation committee shall exercise the following powers during the liquidation period:
(i) to handle the company’s assets and to prepare a balance sheet and an inventory of the assets;
(ii) to notify creditors or issue public notices;
(iii) to deal with and settle any outstanding business of the company;
(iv) to pay any tax overdue;
(v) to settle the company’s financial claims and liabilities;
(vi) to handle the surplus assets of the company after its debts have been paid off; and
(vii) to represent the company in civil lawsuits.
If the company’s assets are sufficient to meet its liabilities, they shall be applied towards the payment of the liquidation expenses, wages owed to the employees and labor insurance expenses, tax overdue and debts of the company. Any surplus assets shall be distributed to the shareholders of the company in proportion to the number of shares held by them.
A company shall not engage in new business operations during the liquidation period.
If the liquidation committee becomes aware that the company does not have sufficient assets to meet its liabilities, it must immediately apply to the People’s Court for a declaration for bankruptcy. Following such declaration, the liquidation committee shall hand over all affairs of the liquidation to the People’s Court.
Upon completion of the liquidation, the liquidation committee shall submit a liquidation report to the shareholders’ general meeting or the relevant supervisory department for verification. Thereafter, the report shall be submitted to the companies registration authority in order to cancel the company’s registration, and a public notice of its termination shall be issued.
Members of the liquidation committee are required to discharge their duties honestly and in compliance with relevant laws. A member of the liquidation committee is liable to indemnify the company and its creditors in respect of any loss arising from his wilful or material default.
Overseas listing
The shares of a company shall only be listed overseas after obtaining approval from the securities regulatory authority of the State Council and the listing must be arranged in accordance with procedures specified by the State Council.
– 328 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
According to the Special Regulations, a company’s plan to issue overseas listed foreign invested shares and domestic invested shares which has been approved by the Securities Commission may be implemented by the board of directors of a company by way of separate issues, within 15 months after approval is obtained from CSRC.
Loss of share certificates
A shareholder may apply, in accordance with the relevant provisions set out in the PRC Civil Procedure Law, to a People’s Court in the event that share certificates in registered form are either stolen or lost, for a declaration that such certificates will no longer be valid. After such a declaration has been obtained, the shareholder may apply to the company for the issue of replacement certificates.
The Mandatory Provisions provide for a separate procedure regarding loss of H share certificates (which has been incorporated in the Articles of Association, a summary of which is set out in this Appendix).
Suspension and termination of listing
The trading of shares of a company on a stock exchange may be suspended if so decided by the securities administration department of the State Council under one of the following circumstances:
(i) the registered capital or shareholding distribution no longer comply with the necessary requirements for a listed company;
(ii) the company failed to make public its financial position in accordance with the requirements or there is false information in the company’s financial report;
(iii) the company has committed a major breach of the law; or
(iv) the company has incurred losses for each of the preceding three years.
Under the circumstances referred to in (ii) and (iii) above, an investigation has revealed that the consequences are serious, or under the circumstances referred to in (i) and (iv) above, the situation has not been rectified within the time stipulated, the securities administration department of the State Council may decide to terminate the listing of a company’s shares.
The securities administration department of the State Council may also terminate the listing of a company’s shares in the event that the company resolves to cease operation or is so instructed by its government supervisory body, or the company is declared bankrupt.
Merger and demerger
The merger or demerger of a company is to be decided by the shareholders in general meeting subject to the approval of departments authorised by the State Council or the approval of the provincial government.
– 329 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
Companies may merge through merger by absorption or through the establishment of a newly merged entity. If it merges by absorption, the company which is absorbed shall be dissolved. If it merges by forming a new corporation, both companies will be dissolved.
A merger agreement must be signed in the case of a merger of companies and the relevant companies shall draw up their respective balance sheets and inventory of property. The companies should within 10 days of the resolution of the merger inform their respective creditors and publish a notice to the creditors in newspapers at least 3 times, within 30 days of the resolution to merge. Those creditors who had not received written notice may within 90 days of the first published notice, or within 30 days after receiving written notice, request the company to satisfy any unpaid debt or provide equivalent guarantees in cases of guarantees. Companies unable to repay such debts or provide alternative guarantees will not be allowed to merge. Newly merged entities shall be responsible for the debts and obligations of the companies involved in the merger.
When a company demerges into two companies, their respective assets must be separated and separate financial accounts must be drawn up.
When a company’s shareholders approve the demerger of the company, the company should notify all its creditors within 10 days of such resolution being passed and advertise the same at least three times in newspapers within 30 days. A creditor may within 30 days after receiving written notice or, a creditor who has not received such notice may within 90 days from the first public advertisement, demand that the company repay any outstanding debts or to provide an appropriate guarantee.
Changes in registrable particulars of the companies caused by merger or demerger must be registered in accordance with applicable laws.
(B) Securities law and regulations
Since 1992, the PRC has promulgated a number of regulations in relation to the issue of and trading in securities and disclosure of information.
In early 1993, the State Council established the Securities Commission and the CSRC. The Securities Commission is responsible for coordinating the drafting of securities regulations, formulating securities-related policies, planning the development of securities markets, directing, coordinating and supervising all securities-related institutions in the PRC and administering the CSRC. The CSRC is the regulatory arm of the Securities Commission and is responsible for the drafting of regulatory provisions governing securities markets, supervising securities companies, regulating public offers of securities by PRC companies in the PRC or overseas, regulating the trading of securities, compiling securities- related statistics and undertaking research and analysis. In early 1998, the State Council dissolved the Securities Commission, and the former functions of the Securities Commission were assumed by the CSRC.
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On 22 April, 1993, the State Council promulgated the Provisional Regulations Concerning the Issue and Trading of Shares. These regulations deal with the application and approval procedures for public Global Offering of equity securities, trading in equity securities, the acquisition of listed companies, deposit, settlement, and transfer of listed equity securities, the disclosure of information with respect to a listed company, enforcement and penalties and dispute settlement. These regulations specifically provide that separate provisions will be promulgated in relation to the issue of and trading in special Renminbi- denominated shares. However, (i) if a PRC joint stock limited company proposes to issue Renminbi-denominated ordinary shares as well as special Renminbi-denominated shares, it has to comply with these regulations in respect of its issue of Renminbi-denominated ordinary shares; (ii) if a PRC company proposes to offer shares directly or indirectly outside the PRC, it will require the approval of the Securities Commission; and (iii) provisions of these regulations in relation to acquisitions of listed companies and disclosure of information are expressed to apply to listed companies in general without being confined to listed companies on any particular stock exchange. Hence it is possible that such provisions may be applicable to joint stock limited companies with shares listed on a stock exchange outside the PRC including, for instance, joint stock limited companies with shares listed on the Stock Exchange, such as the Company.
On 12 June, 1993, pursuant to the Provisional Regulations Concerning the Issue and Trading of Shares, the CSRC promulgated the Implementation Measures (Provisional) on Disclosure of Information. Pursuant to these measures, the CSRC is responsible for supervising the disclosure of information by companies which have offered shares to the public both in the PRC and overseas. These measures contain provisions regarding prospectuses and listing reports to be issued in connection with a public Global Offering of shares in the PRC, publication of interim and final reports and announcement of material transactions or matters by companies which have offered shares to the public. Material transactions or matters are those the occurrence of which may have a material effect on the share price of a company. They include, without limitation, changes to a company’s articles of association or registered capital, removal of auditors, mortgage or disposal of major operating assets or writing down the value of such assets where the amount being written down exceeds 30% of the total value of such assets, revocation by a court of any resolution passed by the shareholders or the supervisors of a company and the merger or demerger of a company. These measures also contain disclosure provisions in relation to acquisition of listed companies which supplement the requirements contained in the Provisional Regulations Concerning the Issue and Trading of Shares.
On 2 September, 1993, the Securities Commission promulgated the Provisional Measures Prohibiting Fraudulent Conduct relating to Securities. The prohibitions imposed by these measures include the use of insider information in connection with the issue of or trading in securities (insider information being defined to include undisclosed material information known to any insider, which may affect the market price of securities); the use of funds or information or the abuse of power in creating a false or disorderly market or influencing the market price of securities or inducing investors to make investment decisions without knowledge of actual circumstances; and the making of any statement in connection with the issue of and trading in securities which is false or materially misleading and in respect of which there is any material omission. Penalties imposed for contravening any of the provisions of the measures include fines, confiscation of profits and suspension of trading. In serious cases, criminal liability may be imposed.
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On 4 July, 1994, the State Council promulgated the Special Regulations. These provisions deal with primarily the issue, subscription, trading and declaration of dividends and other distributions of foreign capital stock listed abroad and disclosure of information, articles of association of joint stock limited companies having foreign capital stock listed abroad.
On 25 December, 1995, the State Council promulgated the Regulations of the State Council Concerning the Domestic Listed Foreign Shares of Joint Stock Limited Companies. These regulations deal mainly with the issue, subscription and trading of, and declaration of dividends and other distributions on, domestic listed Foreign Shares and disclosures of information by joint stock limited companies having domestic listed Foreign Shares.
On 29 December, 1998, the Standing Committee of the National People’s Congress promulgated the Securities Law of the PRC. This is the first national securities law in the PRC and is the fundamental law comprehensively regulating activities such as the issuance and trading of securities in the PRC securities market. The Securities Law became effective on 1 July, 1999. The Securities Law is applicable to the issuance and trading in the PRC of shares, company bonds and other securities designated by the State Council according to law. Where the Securities Law does not apply, the provisions of the Company Law and other applicable laws and administrative regulations regarding securities will apply.
On 29 March, 1999, the State Economic and Trade Commission and the CSRC promulgated the Opinion on the Further Promotion of the Regular Operation and In-Depth Reform of Companies Listed Overseas which is aimed at regulating the internal operation and management of PRC companies listed overseas. The Company will be subject to the Opinion upon listing of the H Shares on the Stock Exchange. The Opinion regulates, amongst others, the appointments and functions of external directors and independent directors in the board of directors; and the appointment and functions of external supervisors and independent supervisors in the supervisory committee.
(C) Joint ventures
Joint ventures in the PRC between domestic and foreign entities may take two forms; equity joint ventures and cooperative joint ventures. Equity joint ventures are governed by the Sino-foreign Equity Joint Venture Law of the PRC (the “Equity Joint Venture Law”) adopted on 1 July, 1979 and amended on 15 March, 2001 by the NPC and the Implementing Regulations of the Sino-foreign Equity Joint Venture Law of the PRC promulgated on 20 September, 1983 and amended on 15 March, 2001 by the State Council. Cooperative joint ventures are governed by the Sino-foreign Cooperative Joint Venture Law of the PRC (the “Cooperative Joint Venture Law”) promulgated on 13 April, 1988 and amended on 31 October, 2000 and the Implementing Rules of the Sino-foreign Cooperative Joint Venture Law of the PRC promulgated by MOFTEC on 4 September, 1995.
(a) Procedures for establishment of a joint venture
The establishment of a joint venture requires the approval of MOFTEC (or its delegated authorities). Certain documents including a feasibility study report, joint venture contract and articles of association of joint venture are required to be submitted
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to MOFTEC or its delegated authorities for approval. Within 30 days after the issue of the approval certificate by MOFTEC, and applicant is required to apply to the State Administration Bureau for Industry and Commerce (“SAIC”) (or its local bureau) for the issue of a business license. A joint venture entity is formally established on the date its business license is issued.
(b) Sino-foreign equity joint ventures
Under the Equity Joint Venture Law and its Implementing Regulations, an equity joint venture takes the form of a limited liability company. It is an independent legal person which may independently assume civil obligations, enjoy civil rights and own, use and dispose of its assets. The liability of the joint venture partners is limited to the amount of the registered capital they have respectively agreed to contribute under the joint venture contract. The registered capital must be paid in accordance with the terms and conditions of the joint venture contract and may take the form of cash, land use rights, capital goods, intellectual property rights and know-how. Transfer of the contribution(s) in the registered capital of a joint venture partner to any other person(s) requires the consent of the other joint venture partner(s) and the approval of the original approval authority.
The total amount of investment of an equity joint venture is the sum of capital construction funds and circulating funds required for the scale of its operations and production. The proportion of the investment contributed by a foreign joint venture partner in the registered capital of the joint venture in general shall not be less than 25%. Under the Provisional Regulations concerning the Ratio of Registered Capital and Total investment of Sino-foreign Equity Joint Venture () promulgated by the SAIC on 1 March, 1987, the ratios between the amount of registered capital and the amount of total investment are prescribed. For example, where the amounts of total investment is between US$10 million and US$30 million, the amount of registered capital must not be less than 40% of the amount of total investment.
The profit, risks and losses of an equity joint venture are shared by the joint venture partners in proportion to their contributions to the registered capital.
The operations of an equity joint venture are regulated by an extensive body of laws and regulations, both national and regional, governing such matters as registration, capital contribution, foreign exchange, accounting, taxation and labour.
(c) Sino-foreign cooperative joint ventures
A co-operative joint venture may or may not be registered as an independent legal entity. If a co-operative joint venture is registered as an independent legal person, the joint venture entity will take the form of a limited liability company. The joint venture partners of a co-operative joint venture that has not applied for the status of an independent legal person are required to assume civil liabilities in accordance with the applicable PRC civil law.
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Matters relating to the establishment, approval procedures, capital contribution, foreign exchange, accounting, taxation and labour of a co-operative joint venture are substantially the same as those of and equity joint venture.
Under the Cooperative Joint Venture Law and its Implementing Rules, the joint venture partners have a greater degree of flexibility to structure the joint venture arrangements and to determine their respective rights, obligations and liabilities. Profits and losses of a cooperative joint venture may be distributed to and shared by the joint venture partners in such manner as those partners may agree to, instead of in proportion to their respective contribution to the registered capital of the joint venture. In addition, where the cooperative joint venture contract provides for the reversion of all fixed assets of the cooperative joint venture to the local joint venture partner upon the expiry of the term of the joint venture, the joint venture partners may agree in the relevant joint venture contract the mechanism of profit distribution whereby the foreign joint venture partner may have priority in recovering investment during the term of the joint venture.
(d) Management
Under the Equity Joint Venture Law and the Cooperative Joint Venture Law, the highest authority of a joint venture is vested in its board of directors. There is no requirement under the applicable law for the holding of meetings of joint venture partners.
The powers and functions of the board of directors are generally governed by the provisions of the joint venture contract and the articles of association of the joint venture. Meetings of the board of directors of a joint venture are required to be held at least once every year. In general, major decisions affecting the joint venture (such as development plans, production and business plans, budget, distribution of profits, termination of business and appointment of key personnel) are to be determined by the board of directors. The daily operation and management of a joint venture is vested in the management office which has a general manager and several deputy managers who assist the general manager. The general manager and deputy general managers of a joint venture are engaged by its board of directors. A general manager is required to act in accordance with the directions and guidance of the board of the directors.
(D) The Arbitration Law
The Arbitration Law of the PRC (the “Arbitration Law”) was promulgated by the Standing Committee of the NPC on 31 August, 1994 and came into effect on 1 September, 1995. It is applicable to, among other matters, trade disputes involving foreign parties where the parties have entered into a written agreement to refer the matter to arbitration before an arbitration committee constituted in accordance with the Arbitration Law. Under the Arbitration Law, an arbitration committee may, before the promulgation by the PRC Arbitration Association of arbitration regulations, formulate interim arbitration rules in accordance with the Arbitration Law and the PRC Civil Procedure Law. Where the parties have by agreement provided arbitration as a method for dispute resolution, the parties are not permitted to institute legal proceedings in a People’s Court except when the arbitration agreement is not valid.
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The Listing Rules and the Mandatory Provisions require an arbitration clause to be included in the articles of association of a company listed in Hong Kong and in the case of the Listing Rules, also in a contract between the company and each director and supervisor, to the effect that whenever any dispute or claim arises from any rights or obligations provided in the Articles of Association, the Company Law and other relevant laws and administrative regulations concerning the affairs of a company between (i) a holder of overseas listed foreign shares and the company; (ii) a holder of overseas listed Foreign Shares and a holder of Domestic Shares, unless otherwise specified in the Articles of Association, such parties shall submit that dispute or claim to arbitration before either the China International Economic and Trade Arbitration Commission (“CIETAC”) or the Hong Kong International Arbitration Centre (“HKIAC”) for arbitration. If the party seeking arbitration elects to arbitrate the dispute or claim at the HKIAC, then either party may apply to have such arbitration conducted in Shenzhen according to the securities arbitration rules of the HKIAC. CIETAC is an economic and trade affairs arbitration organ in the PRC. Pursuant to the China International Economic and Trade Arbitration Commission Arbitration Rules, effective on 1 October, 2000, CIETAC’s jurisdiction covers disputes relating to the Hong Kong Special Administrative Region. CIETAC is located in Beijing with branches in Shenzhen and Shanghai.
Under the Arbitration Law, an arbitral award is final and binding on the parties and if a party fails to comply with an award, the other party to the award may apply to the People’s Court for enforcement. A People’s Court may refuse to enforce an arbitral award made by an arbitration commission if there are certain procedural or membership irregularities or the award exceeds the scope of the arbitration agreement or is outside the jurisdiction of the arbitration commission.
A party seeking to enforce an arbitral award of a foreign affairs arbitration organ of the PRC against a party who or whose property is not within the PRC may apply to a foreign court with jurisdiction over the case for enforcement. Similarly, an arbitral award made by a foreign arbitration body may be recognised and enforced by the PRC courts in accordance with the principles of reciprocity or any international treaty concluded or acceded to by the PRC. The PRC acceded to the New York Convention adopted on 10 June, 1958 pursuant to a resolution of the Standing Committee of the NPC passed on 2 December, 1986. The New York Convention provides that all arbitral awards made by a state which is a party to the New York Convention shall be recognised and enforced by other parties to the New York Convention subject to their right to refuse enforcement under certain circumstances including where the enforcement of the arbitral award is against the public policy of the state to which the application for enforcement is made. It was declared by the Standing Committee of the NPC simultaneously with the accession of the PRC that (1) the PRC will only recognize and enforce foreign arbitral awards on the principle of reciprocity and (2) the PRC will only apply the New York Convention in disputes considered under PRC laws to be arising from contractual and non-contractual mercantile legal relations. Following the resumption of sovereignty over Hong Kong by the PRC on 1 July, 1997, the New York Convention no longer applies to the enforcement of Hong Kong arbitration awards in other parts of the PRC. A Memorandum of Understanding on the arrangement for reciprocal enforcement of arbitral awards between Hong Kong and China has been signed on 21 June, 1999. The new arrangement is made in accordance with the spirit of the New York Convention. To meet present day’s needs, it will allow awards made over 100 China arbitral authorities with relevant experience to be enforced in Hong Kong. Under the agreed arrangement, Hong
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Kong arbitration awards will also be enforceable in China. This new arrangement has been approved by the Hong Kong Legislative Council and the Supreme People’s Court of the PRC and became effective on 1 February, 2000.
2. HONG KONG LEGAL AND REGULATORY PROVISIONS
(A) Hong Kong company law and its comparison with the PRC law applicable to a joint stock limited company incorporated under the Company Law
Hong Kong company law is primarily set out in the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) (the “Companies Ordinance”) and supplemented by common law. There are material differences between Hong Kong company law and the PRC law applicable to a joint stock limited company incorporated under the Company Law, to which the Company is and will be subject, particularly in the area of investor protection. Certain material differences between the Company Law and Hong Kong Company law are summarised below. This summary, however, is not intended to be an exhaustive comparison. It should also be noted that the summary relates only to joint stock limited companies incorporated under the Company Law.
Derivative action by minority shareholders
Hong Kong law allows minority shareholders to start a derivative action on behalf of the general body of shareholders in cases where, for example, one or more of the directors are in breach of duty and where their actions are shielded by the majority shareholders.
The PRC Civil Procedure Law does not provide for such a procedure. Although the Company Law gives (a) shareholder(s) of a company the right to initiate proceedings in the People’s Court to restrain any resolution adopted by shareholders in general meeting or at a meeting of the board of directors which is in violation of any law or infringes the lawful rights and interests of the shareholder(s), there is no form of proceedings which is the same as a derivative action under the Companies Ordinance. However, each of the Directors and Supervisors (as required by the Listing Rules) has given a written undertaking to the Company (acting as agent for each shareholder) to observe and comply with his obligations to shareholders stipulated in the Articles of Association. This allows minority shareholders to commence direct actions against defaulting Directors.
Remedies of the Company
Under the Company Law, if a director, supervisor or manager in carrying out his duties infringes any law or administrative regulation or the articles of association of a company, resulting in damage to the company, that director, supervisor or manager should be responsible to the company for such damages. In addition, in compliance with the Listing Rules, remedies of the Company similar to those available under Hong Kong law (including rescission of the relevant contract and recovery of profits made by a Director, Supervisor or officer) have been set out in the Articles of Association.
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Directors, officers and supervisors
The Company Law provides for the disqualification of directors, supervisors and managers in circumstances where they enter into business contracts with the Company, and for prohibitions of certain unauthorized benefits, but contains no provision restricting the authority of the directors to make major dispositions or prohibiting payment to them for loss of office without shareholders’ approval. The Company Law, unlike Hong Kong company law, does not contain restrictions on directors’ authority in making major dispositions, restrictions on companies providing certain benefits such as loans to directors and guarantees in respect of directors’ liability and prohibitions against compensation for loss of office without shareholders’ approval. Neither does the Company Law contain any requirements relating to the declaration of material interests in contracts with the Company as is required under Hong Kong company law, nor restrictions on interested directors being counted towards the quorum of, and voting at, a meeting of the board of directors at which a transaction in which a director is interested is being considered. However, the Mandatory Provisions contain certain restrictions on major dispositions and specify the circumstances under which a director may receive compensation for loss of office, all of which provisions have been incorporated in the Articles of Association, a summary of which is set out in this Appendix.
Under Hong Kong company law, there is no concept of a supervisory committee for a company in addition to its board of directors, but a PRC joint stock limited company must have supervisors whose main duties include ensuring compliance with laws and regulations, and the Articles of Association of the company, by its directors and managers.
Each supervisor owes a duty, in the exercise of his powers, to act in good faith and honestly in what he or she considers to be the best interests of the company and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
Minority protection
Under Hong Kong law, a shareholder who complains that the affairs of a company incorporated in Hong Kong are conducted in a manner unfairly prejudicial to his interests may present a petition to the court either to wind up the company or to make an appropriate order regulating the affairs of the company. In addition, at an application of a specified number of members, the financial secretary may appoint investigators who are given extensive statutory powers to investigate the affairs of a company incorporated in Hong Kong. There is no specific provision in the Company Law to guard against oppression by the majority shareholders of minority shareholders but the Company, as required by the Mandatory Provisions and the Listing Rules, has adopted in the Articles of Association minority protection provisions similar to (though not as comprehensive as) those available under Hong Kong law, to the effect that a controlling shareholder may not exercise its voting rights in a manner prejudicial to the interests of other shareholders to relieve a director or supervisor of his or her duty to act honestly in the best interests of the company or to approve the expropriation by a director or supervisor of the company’s assets or the individual rights of other shareholders.
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Receiving agent
Under both PRC and Hong Kong law, dividends once declared become debts payable to shareholders, but the limitation of action period is two years in the PRC as opposed to six years in Hong Kong. The Articles of Association provide for the appointment of an agent in Hong Kong which must be a trust corporation registered under the Trustee Ordinance in Hong Kong to receive all dividends payable to H Share holders and all other monies owing by a joint stock limited company in respect of such H Shares on behalf of such shareholders as required by the Listing Rules.
Financial assistance for the acquisition of shares
The Company Law does not contain any provision prohibiting or restricting a joint stock limited company or its subsidiaries from providing financial assistance for the purpose of an acquisition of its own or its holding company’s shares. The Mandatory Provisions contain certain restrictions on a company and its subsidiaries providing such financial assistance similar to those under Hong Kong company law.
Variation of class rights
The Company Law makes no specific provision relating to variation of class rights. However, the Company Law states that the State Council can promulgate regulations relating to other kinds of shares. The Mandatory Provisions contain elaborate provisions relating to the circumstances which are deemed to be variations of class rights and the approval procedures required to be followed in respect thereof. These provisions have been incorporated in the Articles of Association, which are summarised in this Appendix. Under the Companies Ordinance, no rights attached to any class of shares can be varied except with the approval of a special resolution of the holders of the relevant class at a separate meeting or the consent in writing of the holders of three-fourths in nominal value of the issued shares of the class in question or by agreement of all the members of the Company or if there are provisions in the articles of association relating to the variation of those rights, then in accordance with those provisions. The Company (as required by the Listing Rules and the Mandatory Provisions) has adopted in the Articles of Association provisions protecting class rights in a similar manner to those found in Hong Kong law. Holders of overseas listed foreign invested shares and domestic invested shares are defined in the Articles of Association as different classes, except where (i) the Company issues and allots, in any 12-month period, pursuant to a shareholders’ special resolution, not more than 20% of each of the issued overseas listed foreign invested shares and the issued domestic invested shares existing as at the date of the shareholders’ special resolution; and (ii) the plan for the issue of domestic invested shares and listed foreign invested shares upon its establishment is implemented within 15 months following the date of approval by the Securities Commission. The Mandatory Provisions contain detailed provisions relating to circumstances which are deemed to constitute a variation of class rights.
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Corporate reorganisations
Corporate reorganisations involving compromises with creditors and members in respect of Hong Kong incorporated companies are dealt with under section 166 of the Companies Ordinance and require court sanction. Corporate reorganisation involving Hong Kong incorporated companies may also be effected by the transfer of the whole or part of the business or property of the company in the course of being wound up voluntarily to another company pursuant to section 237 of the Companies Ordinance. For PRC companies, such reorganisations are administratively considered and sanctioned under the Company Law.
Share capital
For a joint stock limited company formed under the Company Law, the registered share capital and the issued share capital are the same. For a Hong Kong company, the authorized share capital may be larger than the issued share capital. Hence, the directors of a Hong Kong company may, with the prior approval of the shareholders if required, cause the company to issue new shares. In the case of a PRC company, any increase of the registered capital must be approved by the shareholders in general meeting and the relevant PRC government and regulatory authorities. After completion of an approved new issue, the company has to register the increase in share capital with the relevant administration for industry and commerce.
The minimum registered capital of a company which has applied for the listing of its shares on a stock exchange is RMB50 million under the Company Law. Hong Kong law does not prescribe any minimum capital requirements for a Hong Kong company.
Under the Company Law, the shares subscribed for in the form of intangible assets (excluding land use rights) may not exceed 20% of a joint stock limited company’s registered capital. There is no such restriction under Hong Kong law on a Hong Kong company.
Restriction on shareholding and transfer of shares
The Company Law makes no reference to the class of shares which may be subscribed for or traded by overseas investors but has provisions that shares of a company to be listed overseas must comply with the Special Regulations. The Special Regulations and the Mandatory Provisions provide, among other things, that H shares must be in registered form and include other matters some of which are referred to above. There is no restriction under Hong Kong law on a person’s ability to deal in shares in a Hong Kong company on the basis of his residence or nationality.
Under the Company Law, shares in a joint stock limited company held by its promoters, directors or managers may not be transferred within certain periods of time. There is no such restriction under Hong Kong law.
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Notice of meetings
Under the Company Law, shareholders of a joint stock limited company must be given 30 days’ notice of a general meeting or, in the case of bearer shares, such notice should be published 45 days before the meeting. Under the Special Regulations and the Mandatory Provisions, 45 days’ written notice must be given to all shareholders, and shareholders wishing to attend the meeting must reply in writing to reach the company 20 days before the date of the meeting. For a Hong Kong limited company, the minimum period of notice of a general meeting where convened for the purpose of considering ordinary resolutions is 14 days and where convened for the purpose of considering special resolutions, is 21 days. The notice period for an annual general meeting is also 21 days.
Quorum
Under Hong Kong company law, any two shareholders personally present will constitute a quorum for a general meeting, unless the articles of association provide otherwise. The Company Law makes no specific provision as to when a quorum is regarded as being present but the Special Regulations and the Mandatory Provisions provide that a company’s annual general meeting can be convened when replies to the notice of that meeting have been received from shareholders whose shares represent 50% of the voting rights in the company at least 20 days before the proposed date of the meeting, or if that 50% level is not achieved, that the company shall within 5 days notify shareholders in a public announcement and the annual general meeting may be held thereafter.
Voting
Under the Hong Kong company law, ordinary resolutions are passed by more than one-half of the votes cast by those shareholders voting in person or by proxy at a general meeting and special resolutions are passed by not less than three-quarters of such votes. Under the Company Law, the passing of any resolution requires the passing by more than half of the votes of the shareholders attending and voting except in cases of proposed amendment to the articles of association, merger, division or dissolution of a company, where the approval of a two-thirds majority is required.
Dividends
The Articles of Association empower the Company to withhold, and pay to the relevant tax authorities, any tax payable under PRC law on any dividends or other distributions payable to a shareholder. Under Hong Kong law, the limitation period for an action to recover a debt (including the recovery of dividends) is six years, whereas under PRC laws, the relevant limitation period is two years.
Financial disclosure
A joint stock limited company is required under the Company Law to make available at its office for inspection by shareholders its annual balance sheet, profit and loss account, statement of changes in financial situation and other relevant annexes 20 days before the annual general meeting of shareholders. In addition, a company
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established by the public subscription method under the Company Law must publish its financial statements. The annual balance sheet has to be audited by registered accountants. The Companies Ordinance requires a company to send to every shareholder a copy of its balance sheet, auditors’ report and directors’ report, which are to be laid before the company in its annual general meeting not less than 21 days before such meeting.
Under the Articles of Association (as required by the Listing Rules and the Mandatory Provisions), in addition to preparing accounts according to PRC accounting standards, the Company must have its accounts prepared and audited in accordance with HKGAAP. The Company is further required to publish its interim and annual accounts within 60 days from the end of the first six months of a financial year and within 120 days form the end of a financial year, respectively.
The Special Regulations require that there should not be any inconsistency between the information disclosed within and outside the PRC and that, to the extent that there are differences in the information disclosed in accordance with the relevant PRC and overseas laws, regulations and requirements of the relevant stock exchanges, such differences should also be disclosed simultaneously.
Information on directors and shareholders
The Company Law gives shareholders the right to inspect the Company’s Articles of Association, minutes of the shareholders’ general meetings and financial and accounting reports. Under the Articles of Association, shareholders have the right to inspect and copy (at reasonable charges) certain information on shareholders and on directors similar to that available to shareholders of Hong Kong companies under Hong Kong law.
Arbitration of disputes
In Hong Kong, disputes between shareholders and a company or its directors, managers and other senior officers can be resolved through the courts. The Articles of Association provide that disputes between a holder of H Shares and the Company and its directors, managers or other senior administrative officers or a holder of Domestic shares arising from the Articles of Association, the Company Law or other relevant law or administrative regulation which concerns the affairs of the Company must, with certain exceptions, be submitted to arbitration at either the HKIAC or the CIETAC, at the claimant’s choice. Such arbitration is final and conclusive.
Mandatory deductions
Under the Company Law, after tax profits of a company are subject to deductions of contributions to the statutory common reserve fund and the statutory public welfare fund of a company before they can be distributed to shareholders. There are prescribed limits under the Company Law for such deductions. There are no corresponding provisions under the Companies Ordinance.
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Fiduciary duties
In Hong Kong, there is the common law concept of the fiduciary duty of directors. Under the Company Law and the Special Regulations, directors, supervisors, officers, and managers owe a fiduciary duty towards their company and are not permitted to engage in any activities, which compete with or damage the interests of their company.
Closure of register of shareholders
The Companies Ordinance of Hong Kong requires that the register of shareholders of a company must not generally be closed for the registration of transfers of shares for more than 30 days (extendable to 60 days in certain circumstances) in a year, whereas the Company’s Articles of Association provide, as required by the Company Law, that share transfers may not be registered within 30 days before the date of a shareholders’ meeting or within five days before the record date set for the purpose of distribution of dividends.
(B) Other legal and regulatory provisions
Upon the listing of the Company on the Stock Exchange, the provisions of the Securities Ordinance, the Securities (Disclosure of Interests) Ordinance, the Securities (Insider Dealing) Ordinance of Hong Kong, the Takeovers Code and the Share Repurchases Code and such other relevant ordinances and regulations as may be applicable to companies listed on the Stock Exchange will apply to the Company.
(C) Securities Arbitration Rules
The Articles of Association provide that certain claims arising under the Articles of Association or the Company Law shall be arbitrated at either CIETAC or HKIAC in accordance with their respective rules.
The Securities Arbitration Rules of HKIAC contain provisions allowing an arbitral tribunal to conduct a hearing in Shenzhen for cases involving disputes concerning the affairs of companies listed by the Stock Exchange and incorporated in the PRC (other than Hong Kong, Macau and Taiwan) so that PRC parties and witnesses may attend. Where any party applies for a hearing to take place in Shenzhen, the tribunal shall, where satisfied that such application is based on bona fide grounds, order the hearing to take place in Shenzhen conditionally upon all parties including witnesses and the arbitrators being permitted to enter Shenzhen for the purpose of the hearing. Where any party (other than a PRC party) or any of its witnesses or any arbitrator is not permitted to enter Shenzhen, then the tribunal shall order that the hearing be conducted in any practicable manner, including the use of electronic media. For the purpose of the Securities Arbitration Rules, a PRC party means a party domiciled in the PRC other than the territories of Hong Kong, Macau and Taiwan.
(D) Listing Rules
The Listing Rules contain certain provisions specifically relating to the primary listing of equity securities of companies incorporated or otherwise established in the PRC. Set out below is a summary of the major provisions which apply to the Company.
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Sponsor
The Company is required to retain, for at least one year (or such shorter period as the Stock Exchange may, at its absolute discretion, permit) following its listing, the services of its sponsor or other financial adviser or professional firm which is acceptable to the Stock Exchange, to provide the Company with professional advice on continuous compliance with the Listing Rules and its listing agreement, and to act at all times as the Company’s principal channel of communication with the Stock Exchange, in addition to the two authorized representatives of the Company appointed pursuant to the Listing Rules.
The Company must ensure that its sponsor has access at all times to its authorized representatives, Directors and other officers and is given such information and assistance as it may request in connection with the performance of its duties. The Company should also ensure that there are adequate and efficient means of communication between itself, its authorized representatives, Directors and other officers and the sponsor and should keep the sponsor fully informed of all communications and dealings between it and the Stock Exchange. The Company must not terminate the services of its sponsor until a replacement acceptable to the Stock Exchange is appointed. Where such sponsor’s role is terminated by the Company, both the Company and the former sponsor should immediately notify the Stock Exchange of such termination, in each case stating the reason why such appointment was terminated, and the Company and the new sponsor should immediately notify the Stock Exchange of the new sponsor’s appointment.
If the Stock Exchange is not satisfied that the sponsor is fulfilling its responsibilities adequately under the Listing Rules, it may require the Company to terminate the sponsor’s appointment and appoint a replacement as soon as possible. The Company and the new sponsor should immediately notify the Stock Exchange of the new sponsor’s appointment.
The sponsor must be satisfied that the Company is suitable to be listed, that the Directors and the Supervisors appreciate the nature of their responsibilities and can be expected to honor their obligations under their respective undertakings, the Listing Rules, the listing agreement and applicable laws and regulations and that the Directors understand what is required of them under the Listing Rules, the listing agreement and applicable laws and regulations.
The sponsor must keep the Company informed on a timely basis of changes in the Listing Rules and any new or amended law, regulation or code in Hong Kong applicable to the Company. The sponsor must provide advice to the Company on the continuing requirements under the Listing Rules, the listing agreement and applicable laws and regulations. It must act as the Company’s principal channel of communication with the Stock Exchange if the authorized representatives of the Company are expected to be frequently outside Hong Kong.
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Accountants’ reports
An accountants’ report will not normally be regarded as acceptable by the Stock Exchange unless the relevant accounts have been audited to a standard comparable to that required in Hong Kong, which means that it must conform with either Hong Kong or international accounting standards.
Process agent
The Company must appoint and maintain throughout the period its securities are listed on the Stock Exchange the appointment of a person authorized to accept service of process and notices on its behalf in Hong Kong and must notify the Stock Exchange of his or her appointment and any termination of his or her appointment and his or her contact particulars.
Public shareholdings
If at any time there are existing issued securities of the Company other than H Shares which are listed on the Stock Exchange, the Listing Rules require that (i) all H Shares must be held by the public except as otherwise permitted by the Stock Exchange in its discretion; (ii) the H Shares held by the public must constitute not less than 10% of the Company’s total existing issued share capital; and (iii) the aggregate amount of H Shares and other securities held by the public must constitute not less than 25% of the Company’s total existing issued share capital.
If the Company does not have existing issued securities other than H Shares, the H Shares held by the public must constitute not less than 25% of the Company’s total existing issued share capital unless the expected market value of the H shares at the time of listing is over HK$4,000 million in which case, the Stock Exchange will normally accept a prescribed percentage of H Shares (as a portion of total existing issued share capital) to be held by the public of between 10% and 25% as the number of securities concerned will normally be sufficient to ensure that there is an open market.
Independent non-executive directors and supervisors
The independent non-executive Directors are required to demonstrate an acceptable standard of competence and adequate commercial or professional expertise to ensure that the interests of the general body of shareholders will be adequately represented. At least one of the independent non-executive Directors must be ordinarily resident in Hong Kong. The Supervisors must have the character, experience and integrity and be able to demonstrate a standard of competence commensurate with their position as supervisors.
Restrictions on purchase and subscription
The Company may purchase its own Shares on the Stock Exchange in accordance with the Listing Rules. Shareholders’ approvals must first be obtained prior to carrying out a share repurchase, by way of the special resolutions of shareholders in general meetings and of the holders of Domestic Shares and the holders of H Shares at
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separate class meetings, in accordance with the procedures prescribed by the Articles of Association. When seeking shareholders’ approval to make purchases of its securities on the Stock Exchange or when reporting such purchases, the Company should provide information to its shareholders on the proposed or actual purchase of any or all of its equity securities, whether or not listed or traded on the Stock Exchange. There should also be a statement as to the consequences of any purchases which will arise under either or both of the Hong Kong Code on Takeovers and Mergers and any similar applicable law of which the Directors are aware, if any. Any specific approval or general mandate given to the Directors to repurchase H Shares must not exceed 10% of the total amount of existing issued H shares of the Company.
With a view to increasing the level of protection afforded to investors, the Stock Exchange requires the incorporation, in the articles of association of a PRC company whose primary listing is on the Stock Exchange, of the Mandatory Provisions and provisions including those relating to the change, removal and resignation of auditors, classification of shareholders and the conduct of the supervisory committee of the Company. Such provisions have been incorporated into the Articles of Association, a summary of which is set out in this Appendix.
Listing agreement
The Company’s listing agreement with the Stock Exchange is in substantially the same form as the listing agreement for an overseas company seeking a listing on the Stock Exchange, subject to certain modifications and additional requirements which may be summarised as follows:
(1) Redeemable shares
The Company shall not issue any redeemable shares unless the Stock Exchange is satisfied that the relative rights of the holders of the H Shares are adequately protected. The Company shall inform the Stock Exchange as soon as possible after any purchase, sale, drawing or redemption by the Company, or any of its subsidiaries, of its securities.
(2) Preemptive rights
Except in the circumstances mentioned below, the Directors must obtain the approval by a special resolution of Shareholders in general meeting, and the approvals by special resolutions of holders of Domestic Shares and holders of H Shares (each being otherwise entitled to vote at general meetings) at separate class meetings conducted in accordance with the Articles of Association prior to:
(i) authorizing, allotting, issuing or granting;
(a) shares;
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(b) securities convertible into shares; or
(c) options, warrants or similar rights to subscribe for any shares or such convertible securities; or
(ii) any major subsidiary of the Company making any such authorization, allotment, issue or grant so as materially to dilute the percentage equity interest of the Company and its shareholders in such subsidiary.
Notwithstanding in the circumstances mentioned below, the Directors shall obtain the approval by special resolution of the Shareholders in general meeting prior to allotting any voting shares if such allotment would effectively alter the control of the Company.
No such approval shall be required in the case of authorizing, allotting or issuing shares if, but only to the extent that, the existing shareholders of the Company have by special resolution in general meeting given approval, either unconditionally or subject to such terms and conditions as may be specified in the resolution, for the Company to authorise, allot or issue either separately or concurrently once in every 12 months (commencing on the date on which the Shareholders pass such resolutions), not more than 20% of each of the existing Domestic Shares and H Shares as at the date of the passing of the relevant special resolution or such shares are part of the Company’s plan at the time of its establishment to issue Domestic Shares and H Shares and which plan is implemented within 15 months from the date of approval by the State Council Securities Policy Committee.
(3) Changes to articles of association
The Company shall inform the Stock Exchange of any decision made in regard to any proposed alteration of the Company’s Articles of Association and any proposed request by the Company to a PRC competent authority to waive or otherwise notify any provision of the Special Regulations.
(4) Documents for inspection
The Company must make available at a place in Hong Kong for inspection by the public and shareholders free of charge, and for copying by shareholders at reasonable charges, the following:
(a) a complete duplicate register of shareholders;
(b) a report showing the state of the issued share capital of the Company;
(c) the Company’s latest audited financial statements and the Directors’, auditors’ and Supervisors’ reports thereon;
(d) special resolutions of the Company;
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(e) reports showing the number and nominal value of securities repurchased by the Company since the end of the last financial year, the aggregate amount paid for such securities and the maximum and minimum prices paid in respect of each class of securities repurchased (with a breakdown between Domestic Shares and H Shares);
(f) a copy of the latest annual return filed with the PRC State Administration for Industry and Commerce or other competent PRC authority; and
(g) for shareholders only, copies of the minutes of meetings of shareholders.
(5) Appointment of receiving agents
The Company must appoint one or more receiving agents in Hong Kong and pay to such agents dividends declared and other monies owing by the Company in respect of H Shares listed on the Stock Exchange to be held, pending payment, in trust for holders of the H Shares.
(6) Statements to be made on acquisition of shares
The Company must ensure that all its listing documents and share certificates include the statements stipulated below and must instruct and cause its share registrar not to register the subscription, purchase or transfer of any of its Shares in the name of any particular holder unless and until such holder delivers to such share registrar a signed form in respect of such shares bearing statements to the following effect:
(a) The acquirer of Shares agrees with the Company and each shareholder of the Company, and the Company agrees with each shareholder, to observe and comply with the Company Law, the Special Regulations and the Articles of Association.
(b) The acquirer of Shares agrees with the Company, each shareholder, Director, Supervisor, manager and officer of the Company and the Company acting for itself and for each Director, Supervisor, manager and officer agrees with each shareholder to refer all differences and claims arising from the Articles of Association or any rights or obligations conferred or imposed by the Company Law or other relevant laws and administrative regulations concerning the affairs of the Company to arbitration in accordance with the Articles of Association. Any reference to arbitration shall be deemed to authorize the arbitration tribunal to conduct its hearing in open session and to publish its award. Such arbitration shall be final and conclusive.
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(c) The acquirer of Shares agrees with the Company and each shareholder of the Company that H Shares in the Company are freely transferable by the holder thereof.
(d) The acquirer of Shares authorizes the Company to enter into a contract on his behalf with each Director and officer whereby such Directors and officers undertake to observe and comply with their obligations to shareholders stipulated in the Articles of Association.
(7) Compliance with the Company Law, the Special Regulations and Articles of Association
The Company must observe and comply with the Company Law, the Special Regulations and the Articles of Association.
(8) Contract between the Company and every Director and officer
The Company must enter into a contract in writing with every Director and officer containing at least the following provisions:
(a) an undertaking by the Director or officer to the Company to observe and comply with the Company Law, the Special Regulations, the Articles of Association, the Hong Kong Code on Takeovers and Mergers and the Code on Share Repurchases and an agreement that the Company shall have the remedies provided in the Articles of Association and that neither the contract nor his office is capable of assignment;
(b) an undertaking by the Director or officer to the Company acting as agent for each shareholder to observe and comply with his obligations to shareholders stipulated in the Articles of Association; and
(c) an arbitration clause which provides that whenever any disputes or claims arise from the listing agreement, the Articles of Association or any rights or obligations conferred or imposed by the Company Law or other relevant laws and administrative regulations concerning the affairs of the Company between (1) the Company and its Directors or officers and (2) a holder of overseas listed foreign invested shares and a Director or officer of the Company, such disputes or claims shall be resolved through arbitration at either CIETAC in accordance with its arbitration rules or HKIAC in accordance with its Securities Arbitration Rules, at the election of the party seeking arbitration. Where a dispute or claim described above is referred to arbitration, the entire dispute or claim shall be resolved through that arbitration; all persons who have a cause of action based on the same facts giving rise to the dispute or claim or whose participation is necessary for the
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resolution of such dispute or claim, if they are shareholders, Directors, Supervisors, managers or other officers of the Company or the Company, shall submit to arbitration.
Disputes over who is a shareholder and over the share register do not have to be resolved through arbitration.
If the party seeking arbitration elects to arbitrate the dispute or claim at HKIAC, then either party may apply to have such arbitration conducted in Shenzhen according to the Securities Arbitration Rules of HKIAC. Once the party seeking arbitration submits a dispute or claim to arbitration, the other party must submit to the arbitral body selected by the party seeking the arbitration.
PRC laws shall govern the arbitration of disputes or claims referred to above, unless otherwise provided by law or administrative regulations. The award of the arbitral body is final and shall be binding on the parties thereto.
The agreement to arbitrate is made by the Director or officer with the Company on its own behalf and on behalf of each shareholder. Any reference to arbitration is deemed to authorize the arbitral tribunal to conduct hearings in open session and to publish its award.
(9) Contract between the Company and every Supervisor
The Company must enter into a contract in writing with every Supervisor containing at least the following provisions:
(a) an undertaking by the Supervisor to the Company to observe and comply with the Company Law, the Special Regulations and the Articles of Association and an agreement that the Company will have the remedies provided in the Articles of Association and that neither the contract nor his office is capable of assignment;
(b) an undertaking by the Supervisor to the Company acting as agent for each shareholder to observe and comply with his obligations to shareholders stipulated in the Articles of Association; and
(c) the arbitration clause in terms set out in sub-paragraph (8)(c) above subject to necessary modifications.
The Company is required to adopt rules governing dealings by its Supervisors in securities of the Company in terms no less favorable than those of the Model Code for Securities Transactions by Directors of Listed Companies (set out in Appendix 10 of the Listing Rules) issued by the Stock Exchange which applies to directors of companies listed on the Stock Exchange.
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(10) Subsequent listing
The Company must apply for the listing of any further securities, which are of the same class as securities already listed, prior to their issue, and must not issue such securities unless it has applied for the listing of these securities. The Company must not apply for the listing of any of its foreign invested shares on a PRC stock exchange unless the Stock Exchange is satisfied that the relative rights of the holders of overseas listed foreign shares are adequately protected.
(11) English translation
All notices or other documents required under the listing agreement to be sent by the Company to the Stock Exchange or to holders of H Shares shall be in the English language, or accompanied by a certified English translation.
General
If changes in the PRC law or market practices materially alter the validity or accuracy of any of the bases upon which the above requirements have been prepared, then the Stock Exchange may impose additional requirements or make the listing of the equity securities of a PRC issuer, including the Company, subject to such special conditions as the Stock Exchange considers appropriate. Whether or not any such changes in the PRC law or market practices occur, the Stock Exchange retains its general power under the Listing Rules to impose additional requirements and make special conditions in respect of the listing of the shares of the Company.
(E) Taxation in Hong Kong
The following summary of certain taxation provisions relevant to investing in H Shares is based on current law and practice, is subject to change and does not constitute legal or tax advice. The discussion does not deal with all possible tax consequences relating to an investment in H Shares. Accordingly, each prospective investor should consult its own tax adviser regarding the tax consequences of an investment in H Shares. The discussion is based on laws and relevant interpretations thereof in effect as at the date of this prospectus, all of which are subject to changes.
(i) Taxation of dividends
Under current practice of the Hong Kong Inland Revenue Department, no profits tax is payable in Hong Kong in respect of dividends paid by a company which is not chargeable to Hong Kong profits tax.
(ii) Taxation of gains
No profits tax is imposed in Hong Kong in respect of capital gains from the sale of property, such as shares. Trading gains from the sale of property by persons who carry on a trade, profession or business in Hong Kong where such gains are derived from or arise in Hong Kong from such trade, profession or business are liable
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to profits tax. Gains from the sale of shares effected on the Stock Exchange will be considered to be derived from or arise in Hong Kong. Securities dealers carrying on a trade or business in Hong Kong will therefore be subject to profits tax on trading gains from the sale and purchase of H Shares from such trade or business. Currently, profits tax for corporations is payable at the rate of 16% of their assessable profits. Profits tax for individuals is levied on a progressive scale and the maximum flat rate is 15%.
(iii) Stamp duty
The sale and purchase of H Shares will be subject to stamp duty payable by both the seller and the buyer at the current rate of HK$1 per HK$1,000, or part thereof, of the consideration or, if higher, the fair value of the H Shares transferred (i.e. a total of HK$2 per HK$1,000 or part thereof is currently payable on a typical sale and purchase transaction involving H Shares). A fixed rate of duty of HK$5 is also payable in respect of every instrument of transfer of H Shares.
(iv) Estate duty
Properties situated in Hong Kong which pass or are deemed to pass upon the death of a person, wherever domiciled or resident, are liable to estate duty based on the value of the property in question. H Shares will constitute property situated in Hong Kong for estate duty purposes by virtue of them being on the Hong Kong H Share register of the Company. Hong Kong estate duty is imposed on a progressive scale from 5% to 15%. The rate of and the threshold for estate duty have, in the past, been adjusted on a fairly regular basis. No estate duty is payable where the aggregate value of the dutiable estate does not exceed HK$7.5 million, and the maximum rate of duty of 15% applies where the aggregate value of the dutiable estate exceeds HK$10.5 million.
3. ARTICLES OF ASSOCIATION
Set out below is a summary of the principal provisions of the Articles of Association adopted at the extraordinary general meetings of the Company which constitutes an instrument defining the constitution of the Company. Copies of the full English and Chinese texts of the Articles of Association are available for inspection as mentioned in the section headed “Documents available for inspection” in Appendix V.
(a) Directors
(i) Power to allot and issue shares
There are no provisions in the Articles empowering the Directors to allot and issue shares.
In order to increase the share capital of the Company, the Board shall prepare a detailed plan and draft amendments of the Articles to permit the increase for approval by shareholders in general meeting by way of special resolution and shall comply with the relevant procedures.
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(ii) Power to dispose of the assets of the Company or any subsidiary
The Board shall not, without the prior approval of shareholders in general meeting, dispose or agree to dispose of any fixed assets of the Company where the aggregate of:
(A) the amount or value of the consideration for the proposed disposition, and
(B) where any fixed assets of the Company have been disposed of in the period of four months immediately preceding the proposed disposition, the amount or value of the consideration for any such disposition.
exceeds 33% of the value of the Company’s fixed assets as shown in the latest balance sheet placed before the shareholders in general meeting. The validity of a disposition by the Company shall not be affected by the breach of the relevant Article. For the purpose of that Article, disposition includes an act involving transfer of some interests in property other than by way of security.
During the decision-making process of the board of directors in relation to market development, merger and acquisition, investments in a new domain etc. and where the amount of investment of such project or value of assets under the merger or acquisition represents more than 10% of its total asset value, the Company shall appoint a public consultancy institution to provide professional advice as the key reference for the board of directors in their decision making.
(iii) Remuneration and payments for loss of office
The Company shall, with the prior approval of shareholders in general meeting, enter into a contract in writing with a Director or a Supervisor wherein his emoluments are stipulated, including:
(A) emoluments in respect of his service as Director, Supervisor or senior management officer of the Company;
(B) emoluments in respect of his service as Director, Supervisor or senior management officer of any subsidiary of the Company;
(C) emoluments in respect of the provision of other services in connection with the management of the affairs of the Company and any of its subsidiaries; and
(D) payment by way of compensation for loss of office, or as consideration for or in connection with his retirement from office.
Except under a contract entered into in accordance with the foregoing, no proceedings may be brought by a Director or Supervisor against the Company for anything due to him in respect of the above matters.
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The contract concerning the emoluments between the Company and its Directors or Supervisors should provide that in the event of a takeover of the Company, the Company’s Directors and Supervisors shall, subject to the prior approval of the shareholders in general meeting, have the right to receive compensation or other payment in respect of his loss of office or retirement. A “takeover of the Company” referred to in this paragraph means any of the following:
(A) an offer made by any person to the general body of shareholders; or
(B) an offer made by any person with a view to the offeror becoming a “controlling shareholder” within the meaning set out in the Articles.
If the relevant Director or Supervisor does not comply with the above, any sum so received by him shall belong to those persons who have sold their Shares as a result of the said offer made. The expenses incurred in distributing that sum pro rata amongst those persons shall be borne by the relevant Director or Supervisor and not paid out of the sum distributed.
(iv) Loans to Directors, Supervisors and other senior management officers
The Company shall not directly or indirectly make a loan to or provide any guarantee in connection with the making of a loan to a Director, Supervisor, manager, or other senior management officer of the Company or of the Company’s holding company or a person connected with any of them. However, the following transactions are not subject to such prohibition:
(A) the provision by the Company of a loan or a guarantee of a loan to a company which is a subsidiary of the Company;
(B) the provision by the Company of a loan or a guarantee in connection with the making of a loan or any other funds to any of its Directors, Supervisors, managers, and other senior management officers to meet expenditure incurred or to be incurred by him for the purposes of the Company or for the purpose of enabling him to perform his duties properly, in accordance with the terms of a service contract approved by the shareholders in general meeting; or
(C) the Company may make a loan to or provide a guarantee in connection with a loan by another person to any of its Directors, Supervisors, managers and other senior management officers or persons connected to him in the ordinary course of its business on normal commercial terms, where the ordinary course of business of the Company includes the lending of money or the giving of guarantees.
A loan made by the Company in breach of the prohibition described above shall be repayable forthwith by the recipient of the loan regardless of the terms of the loan.
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A guarantee provided by the Company in breach of the prohibition described above shall be unenforceable against the Company, unless:
(A) the guarantee was provided in connection with a loan to a person connected with a Director, Supervisor, manager or other senior management officer of the Company or its holding company and at the time the loan was advanced the lender was not aware of the relevant circumstances; or
(B) the security provided by the Company has been lawfully disposed of by the lender to a bona fide purchaser.
For the purpose of this paragraph:
(A) a guarantee includes an undertaking or property provided to secure the performance of obligations by the obligor; and
(B) the definition of a connected person in sub-paragraph (xii) below shall, mutatis mutandis, apply.
(v) Financial assistance to purchase shares in the Company or any of its subsidiaries
Save as described below, no financial assistance shall be provided at any time and in any manner by the Company and its subsidiaries to any person acquiring or intending to acquire the shares of the Company. The person(s) acquiring the shares of the Company aforesaid shall include the person(s) who undertake(s), directly or indirectly, obligations as a result of an acquisition of shares of the Company.
Save as described below, no financial assistance shall be provided at any time and in any manner by the Company and its subsidiaries to reduce or release the obligations of the said person(s) undertaking such obligations.
The following transactions are not prohibited:
(A) the provision of financial assistance where the financial assistance is given in good faith in the interests of the Company and the principal purpose in giving that assistance is not for the acquisition of shares in the Company, or the assistance is but an incidental part of some larger purpose of the Company;
(B) a distribution of the Company’s assets by way of dividend in accordance with law;
(C) the allotment of bonus shares as dividends;
(D) a reduction of share capital, a repurchase of shares of the Company, a reorganisation of the capital structure or other restructuring of the Company effected in accordance with the Articles;
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(E) the lending of money by the Company in the ordinary course of its business where the lending of money is part of the scope of business, provided that the Company’s net assets are not thereby reduced or, to the extent that those assets are thereby reduced, that financial assistance is provided out of distributable profits of the Company; and
(F) the provision of money by the Company for contributions to employees’ shares schemes, provided that the Company’s net assets are not thereby reduced or, to the extent that those assets are thereby reduced, that financial assistance is provided out of distributable profits of the Company.
For the purposes of the foregoing provisions:
(A) “financial assistance” includes without limitation:
(1) assistance given by way of gift;
(2) assistance given by way of guarantee (including the provision of an undertaking or property to secure the performance of obligations by the obligor), or indemnity (other than an indemnity in respect of the Company’s own neglect or default), or by way of release or waiver;
(3) assistance given by way of a loan or any other agreement under which the obligations of the Company are to be fulfilled before the obligations of another party to the agreement, or by way of the novation of, or the assignment of rights arising under, a loan or such other agreement; or
(4) any other assistance given by the Company when the Company is unable to pay its debts or has no net assets or when its net assets would thereby be reduced by a material extent, and
(B) “undertaking” includes changing one’s financial position by making an agreement or arrangement (whether enforceable or not, and whether made on his own account or with any other person) or by any other means.
(vi) Disclosure of interests in contracts with the Company or any of its subsidiaries
Where a Director, Supervisor, manager or other officer of the Company is in any way, directly or indirectly, materially interested in a contract, transaction or arrangement or proposed contract, transaction or arrangement with the Company, other than his contract of service, he shall declare the nature and extent of his interest to the Board at the earliest opportunity, whether or not the aforesaid matters are under normal circumstances subject to the approval of the Board. Unless the interested Director, Supervisor, manager or other officer has disclosed his interest in accordance with the Articles and the contract, transaction or arrangement has been approved by the Board at a meeting in which such interested Director is not counted in the quorum and has refrained from voting, that contract, transaction or arrangement is voidable at
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the instance of the Company except as against a bona fide party thereto acting without notice of the breach of duty by the Director, Supervisor, manager or other officer concerned. For the purposes of the foregoing, a Director, Supervisor, manager or senior management other officer is deemed to be interested in a contract, transaction or arrangement in which a person connected with him is interested.
Where a Director, Supervisor, manager or other senior management officer gives to the Board a general notice in writing stating that, by reason of the facts specified in the notice, he is interested in contracts, transactions or arrangements of any description which may subsequently be made by the Company, that notice shall be deemed for the purposes of the Articles to be a sufficient declaration of his interest, so far as attributable to those facts, in relation to any contract, transaction or arrangement of that description which may subsequently be made by the Company, provided that such general notice shall have been given before the date on which the question of entering into the relevant contract, transaction or arrangement is first taken into consideration on behalf of the Company.
(vii) Remuneration
The emoluments of a Director shall be approved by shareholders in general meeting as referred to under the paragraph headed “Remuneration and payments for loss of office”.
(viii) Retirement, appointment and removal
The term of office of the Chairman and other Directors shall be three years commencing from the date of appointment or re-election, renewable upon re-election. A Director may concurrently hold other senior positions in the Company other than the position of Supervisor.
A Director is not required to hold any shares in the Company.
The Directors shall be elected by the shareholders at shareholders’ general meeting.
The Board shall consist of nine members, one of the directors will be elected as Chairman of the Board. The Board shall have executive directors, non-executive directors and independent non-executive directors. The Chairman shall be elected and removed by a simple majority of the Directors.
Directors shall be elected at the shareholders’ general meeting for a term of three years. Upon the expiry of the term, a director shall be eligible for re-election.
External Directors shall have sufficient time and the necessary knowledge and skills in order to be capable of performing their duties. In performing his duties by an external director, the Company shall provide all the necessary information. Among other things, independent (non-executive) Directors may report directly to the shareholders’ general meeting, the securities supervisory and regulatory body of the State Council and to other relevant departments.
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A Director other than an external Director or an independent (non-executive) Director may assume the office of any other senior management staff of the Company save and except the office of Supervisor.
A Director may be removed prior to the expiration of his term of office with the sanction of an ordinary resolution at a shareholders’ general meeting.
There is no stipulation that a Director must retire at a certain age.
(ix) Borrowing powers
The Board has powers to formulate proposals for the issue of bonds of the Company and Company’s borrowing and financial strategies.
There are no provisions in the Articles stipulating the manner of varying the borrowing powers exercisable by the Board. However, such powers, as with other provisions in the Articles, may be altered by special resolution of shareholders in general meeting.
(x) Connected transactions
Board resolutions in relation to connected transactions shall take effect only after the signing by the independent (non-executive) directors.
(xi) Notice and minutes of board meetings
All such major and important matters which require the approval of the board of directors shall be notified to all executive directors and external directors within the prescribed time limit under Articles, sufficient information shall be supplied and the stipulated requirements in relation to the conduct of such procedures shall be strictly adhered to. Directors may request the provision of supplemental materials. When more than one-fourth of directors or more than two external directors are of the view that the materials are not sufficient or the submission is inaccurate, they may propose to postpone the meeting of the board of directors or to postpone the discussion of certain matters in the meeting of the board of directors, the board of directors shall so adopt.
(xii) Duties
Each Director, Supervisor, manager or other senior management officer owes a duty, in the exercise of his powers and the discharge of his duties, to exercise the care, diligence and skill that a reasonable prudent person would exercise in comparable circumstances.
In addition to obligations imposed by laws, administrative regulations or required by the stock exchanges on which shares of the Company are listed, each Director, Supervisor, manager and other senior management officer owes a duty to each shareholder, in the exercise of the powers of the Company entrusted to him:
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(A) not to cause the Company to exceed the scope of business stipulated in its business licence;
(B) to act honestly in what he considers to be in the best interests of the Company;
(C) not to expropriate in any guise the Company’s property, including without limitation, opportunities beneficial to the Company; and
(D) not to expropriate the individual rights of shareholders, including, without limitation, rights to distribution and voting rights, save and except pursuant to a restructuring of the Company submitted to shareholders for approval in accordance with the Articles.
Each Director, Supervisor, manager or other senior management officer owes a duty, in the exercise of powers of the Company entrusted to him, to observe his fiduciary obligations and not to place himself in a position where his duty and his interest may conflict. This principle includes, without limitation, the following obligations:
(A) to act honestly in what he considers to be in the best interests of the Company;
(B) to exercise the powers within his authority without abuse;
(C) to exercise the discretion vested in him personally and not allow himself to act under the direction of another and, unless and to the extent permitted by law or the informed consent of shareholders in general meeting, not to delegate the exercise of his discretion;
(D) to treat shareholders of the same class equally and to treat shareholders of different classes fairly;
(E) except in accordance with the Articles or otherwise permitted by informed shareholders in general meeting, not to enter into any contract, transaction or arrangement with the Company;
(F) unless otherwise permitted by informed shareholders in general meeting, not to use the Company’s property for his own benefit;
(G) not to obtain money from bribery or other illegal income by using his authority or to expropriate in any manner the Company’s property, including, without limitation, not to usurp the opportunities beneficial to the Company;
(H) unless otherwise permitted by informed shareholders in general meeting, not to accept commissions in connection with the Company’s transactions;
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(I) to abide by the Articles, faithfully execute his official duties and protect the Company’s interests, and not to exploit his position and power in the Company to advance his own private interests;
(J) unless otherwise permitted by informed shareholders in general meeting, not to compete in any form with the Company;
(K) not to embezzle the Company’s funds or lend them to others, and not to deposit the Company’s funds in accounts opened in his own name or in the name of other persons and not to use the Company’s assets to provide security for the debts of the Company’s shareholders or other individuals; and
(L) unless otherwise permitted by informed shareholders in general meeting, not to disclose confidential information of the Company acquired by him in the course of and during his tenure and not to use such information other than in furtherance of the interests of the Company, save and except that disclosure of such information to the court or other governmental authorities is permitted if (i) disclosure is made under compulsion of law; (ii) there is a duty to the public to disclose; or (iii) such disclosure is necessary to protect the interests of that Director, Supervisor, manager or senior management officer.
In accordance with his fiduciary obligations, a Director, Supervisor, manager or other senior management officer shall not cause a person connected with him to do what he is prohibited from doing. A person is connected with a Director, Supervisor, manager or other senior management officer if he is:
(A) the spouse or minor child of that Director, Supervisor, manager or other senior management officer;
(B) a person acting in the capacity of trustee of that Director, Supervisor, manager or other senior management officer or any person referred to in (A) above;
(C) a person who is a partner of that Director, Supervisor, manager or other senior management officer or any person referred to in (A) and (B) above;
(D) a company in which that Director, Supervisor, manager or other senior management officer, alone or jointly with one or more persons referred to in (A), (B) and (C) above or other Director, Supervisors, managers or other senior management officers, has de facto control; or
(E) a Director, Supervisor, manager or other officer of a company referred to in (D) above.
The fiduciary duties of a Director, Supervisor, manager or other senior management officer under the Articles do not necessarily cease with the termination of his term of office.
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Their duty of confidence in relation to trade secrets of the Company survives the termination of their term of office. Other duties may continue for such period as fairness may require depending on the time lapse between such termination and the act concerned and the circumstances and the terms under which the relationship with the Company was terminated.
Subject to the provisions with regard to the duties of controlling shareholders defined in paragraph (r) below towards other shareholders as set out in the Articles, a Director, Supervisor, manager or other senior management officer may be relieved of liability for specific breaches of his duty by the informed consent of shareholders in general meeting.
(b) Alterations to constitutional documents
The Company may amend the Articles in accordance with the following procedures:
(i) the Board shall adopt a proposal to amend the Articles in accordance with the Articles and shall formulate proposal for amendments;
(ii) shareholders shall be informed of the proposal for amendments and a meeting of shareholders shall be convened to vote on the amendments;
(iii) the amendments shall require the sanction of a special resolution at shareholders’ general meeting; and
(iv) any amendments to the Articles involving the contents of the Mandatory Provisions shall be effective only after approved by the companies approving department authorized by the State Council. With respect to matters involving registration, any change of registration shall be effected according to law.
(c) Variation of rights of existing shares or classes of shares
Rights conferred on any class of shareholders in the capacity of shareholders (“class rights”) may not be varied or abrogated unless approved by a special resolution of shareholders in general meeting and by holders of shares of that class at a separate meeting conducted in accordance with the Articles. The following circumstances shall be deemed to be a variation or abrogation of the class rights of a class:
(i) the increase or decrease in the number of shares of such class, or an increase or decrease in the number of shares of a class having voting or distribution rights or other privileges equal or superior to the shares of such class;
(ii) the exchange of all or part of the shares of such class or the exchange or the grant of a right of exchange of all or part of the shares of another class into the shares of such class;
(iii) the removal or reduction of rights to accrued dividends or rights to cumulative dividends of such class;
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(iv) the reduction or removal of any preference to dividends or any preference to a distribution of asset upon the Company’s liquidation;
(v) the addition, removal or reduction of conversion privileges, options, voting, transfer or pre-emptive rights or rights to acquire securities of the Company of such class;
(vi) the removal or reduction of rights to receive payment in particular currencies from the Company of such class;
(vii) the creation of a new class of shares having voting or distribution rights or other privileges equal or superior to the shares of such class;
(viii) the imposition of restrictions on the transfer or ownership of the shares of such class or the addition of such restrictions;
(ix) the allotment and issue of rights to subscribe for, or convert into, shares in the Company of such class or another class;
(x) the increase of the rights or privileges of another class;
(xi) the restructuring of the Company which will result in different classes of shareholders bearing a disproportionate burden of such proposed restructuring; and
(xii) the variation or abrogation of provision in Chapter 9 of the Articles.
(d) Ordinary and special resolutions – majority required
Resolutions of shareholders’ general meetings shall be divided into ordinary resolutions and special resolutions.
An ordinary resolution shall be passed by more than one half of the votes represented by the shareholders (including proxies) present at the meeting in favour of the resolution. A special resolution shall be passed by more than two thirds of the votes represented by the shareholders (including proxies) at the shareholders’ general meeting exercised in favour of the resolution.
Shareholders (including proxies) present at the shareholders’ general meeting in exercising their voting rights have to show explicitly whether they vote for or against each resolution proposed to be passed at that meeting. Abstention or failure to vote shall be disregarded by the Company as voting rights for the purpose of calculating the result of that resolution.
(e) Voting rights (generally, on a poll and right to demand a poll)
Holders of Domestic Shares and H Shares present at a shareholders’ general meeting have one vote for each share they hold.
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At any meeting of shareholders a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or after any vote by show of hands) demanded:
(i) by the chairman of the meeting;
(ii) by at least two shareholders having the right to vote either present in person or by proxy; or
(iii) by one or more shareholders present in person or by proxy and representing not less than one-tenth of all shares carrying the right to vote at the meeting.
Unless a poll be so demanded, a declaration by the chairman as to the passing of the resolution based on the results of a show of hands and an entry to that effect in the minutes of the Company, shall be conclusive evidence of that fact without proof of the number or proportion of the votes recorded in favour of or against such resolution.
The demand for a poll may be withdrawn by the person who made the demand. A poll demanded on the election of the chairman of the meeting, or on a question of adjournment, shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the chairman of the meeting directs, and any business other than that upon which a poll has been demanded may be proceeded with , pending the taking of the poll. The result of the poll shall be deemed to be a resolution of the meeting at which the poll was demanded.
On a poll taken at a meeting, a shareholder entitled to two or more votes need not cast all his votes in the same way.
In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takes place or at which the poll is demanded shall be entitled to one extra vote.
(f) Requirements for general meetings
Shareholders’ general meetings are divided into annual general meetings and extraordinary general meetings. Shareholders’ general meetings shall be convened by the Board. Annual general meetings are held once every year within six months after the last financial year end.
Under any of the following circumstances, the Board shall convene an extraordinary general meeting within two months of the occurrence of the following events:
(i) when the number of directors falls below the number required by the PRC Company Law or two-thirds of the number required by the Articles;
(ii) when the losses of the Company which have not been made up amount to one- third of the total share capital of the Company;
(iii) upon requisition of shareholders holding 10% or more of the issued shares carrying voting rights for the convening of an extraordinary general meeting;
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(iv) when the Board deems necessary or the supervisory committee proposes to convene the same;
(v) when the auditors appointed by the Company pursuant to the relevant provision in the Articles of Association propose to convene the same; or
(vi) when more than two independent Directors propose to convene the same.
(g) Accounts and audit
The Company shall formulate its own financial and accounting system in accordance with the relevant requirements of PRC laws, administrative regulations and the PRC accounting standards formulated by the State Council finance department.
The financial year of the Company shall coincide with the calendar year, which is from 1 January, to 31 December, on the Gregorian calendar.
The Company shall adopt Renminbi as its accounts keeping unit. All accounts shall be written in Chinese.
The board of directors of the Company shall place before the shareholders at every annual general meeting such financial reports as are required by any laws, administrative regulations or directives promulgated by competent local and central governmental authorities to be prepared by the Company.
The financial reports of the Company shall be deposited at the Company for inspection by its shareholders not later than 20 days before the annual general meeting. Each shareholder of the Company shall be entitled to receive the financial statements referred to in this article.
The Company shall send by prepaid mail 21 days before the annual general meeting the above reports to each holder of overseas listed foreign shares. The service address shall be the address in the register of shareholders.
The financial statements of the Company shall, in addition to being prepared in accordance with PRC accounting standards and regulations, be prepared in accordance with either international accounting standards, or that of the place overseas where the Company’s H Shares are listed. If there is any material difference between the financial statements prepared respectively in accordance with the two accounting standards, such difference shall be stated in an appendix to the financial statements. When the Company is to distribute its after-tax profits, the lower of the after-tax profits as shown in the two financial statements shall be adopted.
Any interim results or financial information published or disclosed by the Company prepared in accordance with either international accounting standards or that of the place overseas where the Company’s H Shares are listed may also be prepared and presented in accordance with PRC accounting standards and regulations.
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The Company shall publish its financial reports twice every financial year, that is, the interim reports shall be published within 60 days after the end of the first six months of each financial year and annual reports shall be published within 120 days after the end of the financial year.
The appointment, dismissal or termination of the office of an auditor shall be determined at shareholders’ general meetings and reported to the relevant State Council securities regulatory authorities for record.
Shareholders in general meeting may by ordinary resolution remove an auditor before his term of office expires, irrespective of any provisions contained in the contract entered into between the Company and the auditor. Any right of the auditor to claim against the Company in connection with his removal shall not be affected by such removal.
In the event of the dismissal or termination of the services of an auditor, such auditor who is to be dismissed or whose services are to be terminated shall be given notice in advance. Such auditor shall have the right to present its views at the following shareholders’ general meetings:
(i) the shareholders’ general meeting at which its term of office would otherwise have expired;
(ii) any shareholders’ general meeting at which it is proposed to fill the casual vacancy caused by its removal; or
(iii) any shareholders’ general meeting convened on its resignation.
(h) Notice of meetings and business to be conducted thereat
The shareholders’ general meeting is the authority of the Company.
Notice of meetings of shareholders shall be given 45 days before the meeting. A notice of meeting of shareholders shall:
(i) be in writing;
(ii) specify the place, the date and the time of the meeting;
(iii) state the general nature of the business to be transacted at the meeting;
(iv) provide such information and explanation as are necessary for the shareholders to exercise an informed judgment on the proposals before them. Without limiting the generality of the foregoing, where a proposal is made to amalgamate the Company with another, to repurchase shares of the Company, to reorganize the share capital, or to restructure the Company in any other way, the terms of the proposed transaction must be provided in detail together with copies of the proposed agreement, if any, and the cause and effect of such proposal must be properly explained;
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(v) contain a disclosure of the nature and extent, if any, of material interests of any Director, Supervisor, manager or other senior management officer in the transaction proposed and the effect of the proposed transaction on such Director, Supervisor, manager or other senior management officer in his capacity as shareholder in so far as it is different from the effect on the interests of other shareholders of the same class;
(vi) contain the full text of any special resolution proposed to be moved at the meeting;
(vii) contain conspicuously a statement that a shareholder entitled to attend and vote is entitled to appoint one or more proxies to attend and vote instead of him and that a proxy need not also be a shareholder; and
(viii) specify the time and place for lodging proxy forms for the relevant meeting.
In respect of holders of H Shares, notice of general meetings of shareholders shall be served on each shareholder, whether or not entitled to vote thereat, by delivery or prepaid mail to the address of any such shareholder as appearing on the register of holders of H Shares. In respect of holders of Domestic Shares, notice of general meetings of shareholders can be published on any one day within the period of 45 of 50 days prior to the meeting in one or more publications specified by the State Council securities regulatory authority. Once published, all holders of Domestic Shares shall be deemed to have received the notice of the relevant general meeting.
The accidental omission to give notice of a meeting to, or the non-receipt of notice of a meeting by, any person entitled to receive notice shall not invalidate that meeting or any resolutions passed thereat.
(i) Transfer of shares
All fully paid H shares listed in Hong Kong are freely transferable pursuant to the Articles. The Board may refuse to recognize any instrument of transfer without giving any reason unless such transfer is carried out in compliance with the following conditions:
(i) payment of HK$2.50 or higher charge as agreed by the Stock Exchange has been made to the Company for the purpose of registering the instrument of transfer and other documents relating to or which may affect the title to the shares;
(ii) the instrument of transfer only involves H Shares listed in Hong Kong;
(iii) the stamp duty payable on the instrument of transfer has been paid;
(iv) relevant share certificate and evidence that the transferor has the right to transfer such shares as reasonably required by the Board have been provided;
(v) if the shares are to be transferred to joint holders, the number of joint holders shall not exceed 4; and
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(vi) the Company has no lien over the relevant shares.
The overseas listed foreign shares of the Company shall be transferred by written instrument in an ordinary or regular way of Hong Kong; such instrument of transfer may be executed by signature of transferer and transferee or by way of affixing of seal in mode of printing. Such transfer of shares shall be registered in the register of shareholders of overseas listed foreign shares.
(j) Register of shareholders
The Company shall keep a register of shareholders and enter therein the following particulars:
(i) the names, addresses, occupations or descriptions of shareholders, the class and the number of each class of shares held, the amount paid or agreed to be paid on the shares and, the serial number of the share certificates held by each shareholder;
(ii) the date on which each person was entered in the register as a shareholder; and
(iii) the date on which any person ceased to be a shareholder.
The Company shall have a complete register of shareholders which shall be comprised of the following parts:
(i) a part maintained at the Company’s legal address in relation to shares not required to be registered in the parts of the register referred to in (ii) and (iii) below;
(ii) a part maintained in the place of the stock exchange where the securities listed overseas is located; and
(iii) any part in such other places as the Board may deem necessary for listing purposes.
The Company may appoint overseas agents to manage the register of shareholders outside the PRC. A duplicate of parts of the register of shareholders maintained pursuant to (ii) and (iii) above shall be maintained at the Company’s legal address. The appointed overseas agents shall ensure that the original of any overseas part of the register of shareholders is consistent with the duplicate thereof. In the event of discrepancy, the information recorded in the original part shall prevail. Different parts of the register of shareholders shall not overlap. No transfer of any shares registered in any part of the register shall, during the continuance of that registration, be registered in any other part of the register of shareholders. The alteration and rectification of each part of the register of shareholders shall be made in accordance with the laws of its situs. The register of shareholders shall be conclusive evidence, in the absence of evidence to the contrary, of a shareholding in the Company.
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(k) Power of the Company to purchase its own shares and reduce its share capital
Subject to governmental approvals, the Company may, subject to the provisions set out in the Articles, repurchase its own shares. A share repurchase may only be made:
(i) under a general offer to all shareholders in proportion to their respective holdings;
(ii) on a stock exchange; or
(iii) by an off-market contract.
The Company may, with the prior sanction of shareholders obtained in accordance with the Articles, repurchase its shares by an off-market contract, but the Company may release or modify its rights under a contract so entered into by the Company with the prior approval of shareholders obtained in the same manner. A contract to repurchase shares includes but is not limited to an agreement to become obliged to repurchase or to acquire rights to repurchase shares of the Company. The Company shall not assign its rights under a contract to repurchase its own shares.
Unless the Company has commenced liquidation:
(i) Where the Company repurchases its own shares at nominal value, payment may be made out of distributable profits in the books of the Company and out of proceeds of a fresh issue of shares made for that purpose;
(ii) Where the Company repurchases its own shares at a premium, payment of the portion equivalent to the nominal value may be made out of the distributable profits in the books of the Company and out of the proceeds of a fresh issue of shares made for that purpose. Payment of the portion in excess of the nominal value shall be effected as follows:
(A) if the shares being repurchased were issued at nominal value, payment shall be made out of distributable profits in the books of the Company;
(B) if the shares being repurchased were issued at a premium, payment shall be made out of distributable profits in the books of the Company and out of proceeds of a fresh issue of shares made for that purpose, provided that the amount paid out of the proceeds of the fresh issue may not exceed the aggregate of premiums received by the Company on the issue of the shares repurchased nor the amount of the Company’s capital reserve fund account at the time of such repurchase including the premiums on the fresh issue of shares;
(iii) payment by the Company in consideration for:
(A) the acquisition of rights to repurchase shares of the Company;
(B) the variation of any contract to repurchase shares of the Company; or
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(C) the release of any of the Company’s obligations under any contract to repurchase shares of the Company;
shall be made out of the Company’s distributable profits.
Shares redeemed or repurchased by the Company shall be cancelled and the amount of the Company’s registered capital shall be reduced by the par value of those shares accordingly. The amount which has been deducted from the distributable profits and which has been used for repurchasing the nominal value of the shares shall be credited to the capital surplus reserve fund account.
Upon the reduction of registered capital, the Company shall prepare a balance sheet and a list of its assets. The Company shall notify its creditors within 10 days from the date of passing of the resolution for the reduction of registered capital and shall publish the notice at least three times in a newspaper within 30 days thereof. Creditors who receive this notice shall have the right within 30 days from the date of receiving the notice, and the creditors who have not received the notice shall have the right within 90 days from the date of the notice was first published in the newspaper, to require the Company to settle the debt or to provide corresponding security in respect of the debt.
The registered capital shall not be less than the minimum statutory requirement after the reduction of capital.
(l) Power for any subsidiary of the Company to own shares in the Company
There are no provisions in the Articles relating to ownership of shares in the Company by a subsidiary.
(m) Dividends and other methods of distribution
Unless otherwise resolved at a shareholders’ general meeting, the board of directors as authorised by shareholders in general meeting has the authority to distribute interim or special dividend.
The Company may distribute dividends by way of cash dividends and/or bonus shares.
Cash dividends and other distributions payable on Domestic Shares shall be paid in Renminbi. Cash dividends and other distributions payable in respect of H Shares shall be declared in Renminbi and payable in Hong Kong dollars in accordance with relevant provisions of foreign exchange control of the PRC.
When distributing dividends, the Company shall make such withholdings for income tax from dividends payable to shareholders as may be required in accordance with PRC tax law.
The Company shall appoint a receiving agent to receive on behalf of holders of H Shares dividends declared and all other monies owing by the Company in respect of H Shares. Such receiving agent shall be registered as a trust company under the Trustee Ordinance of Hong Kong.
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There is no stipulation of any time limit after which any entitlement to dividends lapses. However, the Company shall not exercise its power to forfeit any unclaimed dividend until after the expiry of the applicable limitation period.
(n) Proxies
Any shareholder entitled to attend and vote at a meeting of the Company shall be entitled to appoint one or more persons (whether a shareholder or not) as his proxies to attend and vote instead of him, and a proxy so appointed shall:
(i) have the same rights as the shareholder to speak at the meeting;
(ii) have authority to demand or join in demanding a poll; and
(iii) have the right to vote on a show of hands or on a poll, but a proxy of a shareholder who has appointed more than one proxy may only vote on a poll.
The instrument appointing a proxy shall be in writing under the hand of the appointor or his attorney duly authorised in writing, or if the appointor is a company either under seal or under the hand of a director or attorney duly authorised. The instrument appointing a proxy and, if such instrument is signed by a person under a power of attorney or other authority on behalf of the appointor, a notarially certified copy of that power of attorney or other authority shall be deposited at the legal address of the Company or at such other place specified in the notice convening the meeting, not less than 24 hours before the time for holding the meeting or adjourned meeting at which the proxy proposes to vote or the time appointed for the taking of the poll.
Any form issued to a shareholder by the Board for use by him for appointing a proxy to attend and vote at a meeting of the Company shall be such as to enable the shareholder, according to his intention, to instruct the proxy to vote in favour of or against each resolution dealing with the business to be transacted at the meeting. Such a form shall contain a statement that, in the absence of such instructions, the proxy may vote as he thinks fit. A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or loss of capacity of the principal or revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the shares in respect of which the proxy is given, provided that no notice in writing of such death, loss of capacity, revocation or transfer as aforesaid shall have been received by the Company before the commencement of the meeting or adjourned meeting at which the proxy is used.
(o) Calls on Shares and forfeiture of Shares
There are no provisions in the Articles relating to the making of call on Shares or for the forfeiture of Shares.
(p) Inspection of register of shareholders and shareholders’ other rights to information
The ordinary shareholders of the Company shall enjoy the following rights:
(i) to receive dividends and other distributions in proportion to the number of Shares held;
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(ii) to attend or appoint a proxy to attend on his behalf shareholders’ general meetings and to vote thereat;
(iii) to supervise the business operations and activities of the Company and to give advice or raise questions;
(iv) to transfer his Shares according to applicable laws, administrative regulations and the provisions of the Articles;
(v) to receive any relevant information in accordance with the Articles;
(vi) to participate in the event of the termination or liquidation of the Company, in the distribution of surplus assets of the Company in proportion to the number of Shares held; and
(vii) other rights conferred by the Articles and the relevant laws and regulations.
The right of the shareholders to information includes, without limitation, the following:
(i) the right to a copy of the Articles for a nominal fee;
(ii) the right to inspect and copy for reasonable charges:
(A) all parts of the register of shareholders;
(B) particulars of Directors, Supervisors, managers and other senior management officers as follows:
(1) his present forename and surname and any former forename or surname and any aliases;
(2) his principal residential address;
(3) his nationality;
(4) his primary and all other business occupations; and
(5) his identification document and its number;
(C) the state of the Company’s share capital;
(D) reports showing the number and par value of Shares repurchased by the Company since the end of the last financial year, the aggregate amount paid by the Company for the Shares repurchased and the maximum and minimum price paid in respect of each class of Shares repurchased; and
(E) minutes of shareholders’ meetings.
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(q) Quorum for shareholder’s meetings and class meetings
A shareholder proposing to attend a shareholder’s general meeting shall deposit a written reply confirming his attendance 20 days prior to the holding of the meeting. The Company shall, according to the written replies received 20 days prior to the holding of a shareholders’ general meeting, calculate the number of shares carrying the right to vote represented by the shareholders proposing to attend the meeting. If the number of shares carrying the right to vote represented by the shareholders proposing to attend the meeting reaches half of the total number of shares of the Company carrying the right to vote, then the Company may hold the shareholders’ general meeting; if that number is not reached, the Company shall within five days notify the shareholders again of the matters proposed to be considered at the meeting, the date and the place of the meeting by way of public announcement. After such public announcement, the company may hold the shareholder’s general meeting.
The above procedure applies mutatis mutandis to shareholders of the relevant class of shares in respect of class meetings.
(r) Rights of minority shareholders in relation to fraud or oppression
In addition to obligations imposed by laws, administrative regulations or required by the stock exchanges on which H Shares of the Company are listed, a Controlling Shareholder (defined below) shall not exercise his voting rights in a manner prejudicial to the interests of all or part of the shareholders of the Company in respect of the following matters:
(i) to relieve a Director or Supervisor of his duty to act honestly in the best interests of the Company;
(ii) to approve a Director or Supervisor (for his own benefit or for the benefit of another person) taking in any manner, the Company’s assets, including without limitation, opportunities beneficial to the Company; or
(iii) to approve a Director or Supervisor (for his own benefit or for the benefit of another person) taking the individual rights of other shareholders, including without limitation, rights to distributions and voting rights save and except pursuant to a restructuring of the Company submitted to the shareholders for approval in accordance with the Articles.
For these purposes, a “Controlling Shareholder” means a person who satisfies any one of the following conditions:
(i) he alone or acting in concert with others has the power to elect more than half of the Directors;
(ii) he alone or acting in concert with others has the power to exercise or to control the exercise of 30% or more of the voting rights in the Company;
(iii) he alone or acting in concert with others holds 30% or more of the Shares of the Company; or
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(iv) he alone or acting in concert with others in any other manner controls the Company in fact.
(s) Shareholders’ rights relating to, and procedures on, liquidation
Shareholders have the right to participate in the distribution of the surplus assets of the Company in proportion to the number of shares held by them in the event of a liquidation of the Company.
The Company shall be dissolved and liquidated upon the occurrence of any of the following events:
(i) where the shareholders’ general meeting resolves that the Company should be dissolved;
(ii) where dissolution is necessary as a result of the merger or division of the Company;
(iii) where the Company is adjudged insolvent according to law because it is unable to pay its debts as they fall due; and
(iv) when the Company is ordered to be closed down by reason of its violation of laws or administrative regulations.
Where the Board decides to liquidate the Company otherwise than because of a declaration of insolvency, the Board shall, in the notice convening a general meeting of shareholders for this purpose, include a statement to the effect that, after having made full inquiry into the affairs of the Company, the Board of the opinion that the Company will be able to pay its debts in full within 12 months from the commencement of the liquidation.
In the event the Company shall be dissolved under the provisions of (i) above, it shall set up within 15 days thereof a liquidation team, the members of which shall be determined by an ordinary resolution passed in the general meeting; if the team has not been set up within the said period, its creditors may petition to the People’s Court for the designation of the members of the liquidation team so as to proceed with the liquidation thereof.
In the event the Company shall be dissolved under the provisions of (iii) above, the People’s Court shall form a liquidation team comprising of the shareholders, relevant authorities and relevant professionals in accordance with the laws to proceed with the liquidation thereof.
In the event the Company shall be dissolved under (iv) above, the relevant competent authorities shall form a liquidation team comprising of the shareholders, relevant authorities and relevant professionals in accordance with the laws to proceed with the liquidation thereof. Upon the passing of a resolution to liquidate the Company, all powers of Directors shall cease. The liquidation team shall:
(i) not less than once each year report to the shareholders on the team’s receipts and payments, the business of the Company and the progress of liquidation;
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(ii) present a final report to the shareholders’ general meeting on completion of the liquidation; and
(iii) comply with the instructions from shareholders in general meeting.
(t) Other provisions material to the Company or its shareholders
(i) Scope of Business
The major scope of the Company’s operations include the undertaking of construction projects and facilities installation; the research and development, production and sale of new building materials; the research and development and promotion of high technology products; investment holding and; management of the assets within the Group.
(ii) Effect of the Articles
The Articles have become effective upon approval by the approving department authorized by the State Council. From the date when the Articles take effect, the Articles constitute a legally binding document regulating the relationship between the Company and each shareholder and among the shareholders. A shareholder may bring an action against the Company and vice versa and against each other or against the Directors, Supervisors, managers or other senior management officers in respect of rights and obligations concerning the affairs of the Company arising out of the Articles. For these purposes, actions include court proceedings and arbitration proceedings.
(iii) Legal form of the Company
(A) The Company is a joint stock limited company. It is an independent legal entity, governed and protected by laws, regulations and other governmental provisions of the PRC.
The Company has perpetual existence unless and until terminated and liquidated in accordance with the Articles.
The Company may invest in other limited liability companies and joint stock limited companies, and shall be liable to the investee companies to the extent of its capital contribution. The Company shall not become a shareholder with unlimited liability of any other economic bodies.
(B) Shares and transfers.
Upon approval by the State Council securities regulatory authority, the Company may issue Domestic Shares and Foreign Shares. Foreign Shares are subscribed by foreign investors (including investors from the regions of Hong Kong, Macau and Taiwan) in foreign currencies. Domestic Shares are subscribed for in Renminbi by investors within the PRC other than investors from the territories referred to above.
– 373 – APPENDIX III SUMMARY OF PRINCIPAL LEGAL AND REGULATORY PROVISIONS AND ARTICLES OF ASSOCIATION
Foreign Shares listed overseas are known as overseas listed foreign shares (including, but not limited to H shares). H Shares are foreign shares listed on the Stock Exchange, which are subscribed for and traded in Hong Kong dollars.
Save as otherwise provided in the Articles, holders of Domestic Shares and holders of Foreign Shares shall respectively enjoy the same rights and assume the same obligations. The rights and obligations in respect of the Company enjoyed and assumed by shareholders shall be limited to the extent of the number of Shares held by them. The Company shall be liable to its creditors to the extent of all of its assets.
The total amount of Shares to be issued by the Company under the Articles as currently constituted shall be not less than 531,427,353 Shares and shall not exceed 558,530,148 Shares including 350,742,053 promoter Shares already in issue at the time of establishment of the Company and 180,684,000 H Shares (if the Over-allotment Option is exercised, 207,786,000 H Shares).
The Company may, based on its business development requirements and in accordance with the Articles, increase its total registered capital. The increase in registered capital may be effected by the following methods:
(1) by an issue of new shares to unspecified investors;
(2) by a placing of new shares to the existing shareholders;
(3) by a bonus issue of shares to the existing shareholders; and
(4) by any other method authorised by law and/or administrative regulations.
Any increase or alteration of the registered capital of the Company shall be effected in accordance with the Articles and procedures required by laws and administrative regulations of PRC. The actual registered capital of the Company shall be determined with reference to the actual funds contributed. The Company shall file the figure of actual registered capital to the administration for company scrutinizing and approving body for record upon all capital becoming available.
(iv) Legal notices
Notices, information and written statements to be given by the Company to holders of H shares must be served on the H Shareholders by delivery to the registered address of each H Shareholder or by post addressed to each H Shareholder at the address shown in the register of shareholders. Notices to be given by the Company to holders of Domestic Shares shall be published in or one or more publications specified by PRC securities regulatory authority. Once published, all holders of Domestic Shares shall be deemed to have received such notice.
Where a notice is sent by post, the notice shall be deemed to have been effected by properly addressing, prepaying and posting the letter containing the notice and which shall be deemed to have been effected 5 days after the letter containing the same is posted.
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(v) Shareholders’ obligations
Ordinary shareholders of the Company shall assume the followings obligations:
(A) to abide by the Articles;
(B) to pay subscription monies according to the number of Shares subscribed and the method of subscription; and
(C) other obligations imposed by the Articles and relevant laws and regulations.
(vi) Company secretary
The Company shall have a secretary of the Board. The secretaries are senior management officers of the Company.
The secretary shall be a natural person who have the requisite professional knowledge and experience appointed by the Board.
The secretary shall be mainly responsible for ensuring that the constitutional documents and records of the Company are in order, that the necessary reports and documents are prepared and submitted to relevant PRC authorities in accordance with the laws, that the register of shareholders of the Company is properly maintained and that persons entitled to records and documents of the Company are furnished with such records and documents without delay for reporting and submitting relevant information and documents to the Stock Exchange in accordance with the Hong Kong Listing Rules, preparing various documents in connection with the shareholders’ general meetings and meetings of Board and submitting to the registrar of companies in Hong Kong documents relating to the Company in accordance with the instructions of the Board.
(vii) Supervisory committee
The Company shall have a supervisory committee. The supervisory committee is the Company’s standing internal supervisory organ. Its responsibilities are to exercise supervision over the Board and its members and other senior management officers to prevent any abuse of powers, infringement of the legitimate rights of the Company, its shareholders and workers.
The supervisory committee shall comprise of five members (each a “Supervisor”).
Four members of the supervisory committee shall be representatives of shareholders (including persons qualified to be an external Supervisor and an independent Supervisor) and the remaining one Supervisor shall be representatives of the staff and workers of the Company. The representatives of the shareholders shall be elected and removed by the shareholders’ general meeting; the representatives of the staff and workers shall be elected and removed through democratic election by the staff and workers of the Company.
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The supervisory committee is accountable and reports to shareholders in general meetings and shall exercise the following powers:
(1) to examine the Company’s financial affairs;
(2) to supervise the Directors, managers and other senior management officers to see whether they violate any laws, regulations or the Articles in performing their duties;
(3) to require the Directors, managers and other senior management officers to rectify their acts which are harmful to the Company;
(4) to verify financial reports, business reports, profit distribution plans and such other information proposed to be tabled at a shareholders’ general meeting and to appoint, in the name of the Company, a registered accountant or practicing auditor to assist in reviewing them should any queries arise;
(5) to propose to convene extraordinary general meetings of shareholders;
(6) to represent the Company in negotiating with any Director or in initiating legal proceeding against any Director; and
(7) other powers as stipulated in the Articles.
Supervisors are entitled to observe Board meetings. The supervisory committee may opine on the appointment of the accounting firm of the Company, and where necessary, may separately appoint accounting firm in the name of the Company to audit the accounts of the Company, and may directly report to the securities supervisory and regulatory body of the State Council and to other relevant departments.
External supervisors shall report independently to the shareholders’ general meeting in relation to the performance of diligence and honesty of the Company’s senior management staff.
(viii) Dispute resolution
Whenever any disputes or claims arise in relation to the Articles or any rights or obligations conferred by any laws or regulations or the affairs of the Company between the parties set out below, such disputes or claims shall, unless otherwise provided in the Articles, be referred to arbitration to either the China International Economic and Trade Arbitration Commission in accordance with its rules or to Hong Kong International Arbitration Centre in accordance with its securities arbitration rules, at the election of the claimant. Once a claimant refers a dispute or claim or arbitration, the other party must submit to the arbitral body elected by the claimant. Such arbitration shall be final and conclusive.
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The above provisions apply to disputes or claims between the following parties:
(A) a holder of Foreign Shares and the Company;
(B) a holder of Foreign Shares and a Director, Supervisor, manager or other senior management officer of the Company; and
(C) a holder of Foreign Shares and a holder of Domestic shares.
Where a dispute or claim involves the above parties, the entire claim or dispute must be referred to arbitration and all persons (being shareholders, Directors, Supervisors, managers or other senior management officers of the Company or the Company), who have a cause of action based on the same facts giving rise to the dispute or claim or whose participation is necessary for the resolution of such dispute or claim, shall submit to arbitration.
Unless otherwise provided in laws and administrative regulations, any disputes or claims arising out of the Articles between the above mentioned parties shall be resolved in accordance with the laws of the PRC.
Jingtian & Gongcheng Attorneys at Law, the Company’s legal advisers on PRC laws, has sent to the Company a letter confirming that, inter alia, they have reviewed the summary of the Articles and that in their opinion, such summary is a correct summary of the Company’s Articles.
4. PRC LEGAL MATTER
Jingtian & Gongcheng Attorneys at Law, the Company’s legal adviser on PRC law, has sent to the Company a letter confirming that they have reviewed the summary of relevant laws and regulations contained in this Appendix and that in their opinion, the summary is a correct summary of the relevant PRC laws and regulations. A copy of this letter is available for inspection as referred to in the paragraph headed “Documents available for inspection” in Appendix V.
Any person wishing to have detailed advice on PRC laws is recommended to seek independent legal advice.
– 377 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
1. THE COMPANY
A. Incorporation
(1) The Company was established in the PRC under the Company Law as a joint stock company limited by shares on 30 August, 2002 by converting the economic entity of Baoye Holdings from a limited liability company into a joint stock limited company.
The Company has established a place of business in Hong Kong at 3705-6, 37th Floor, Gloucester Tower, The Landmark, Central, Hong Kong and is registered as an overseas company in Hong Kong under Part XI of the Companies Ordinance. Kwok & Yih of 37th Floor, Gloucester Tower, The Landmark, Central, Hong Kong has been appointed as the Company’s agent for the acceptance of service of process in Hong Kong.
As the Company is established in the PRC, it is required to comply with the laws and regulations of the PRC. A summary of the relevant laws and regulations of the PRC, and a summary of Articles of Association are set out in Appendix III to this prospectus.
(2) At the time of its establishment, the Company had a registered capital of RMB350,742,053, divided into 350,742,053 Domestic Shares of RMB1.00 each. Please refer to the Promoters’ respective amount of contribution in the section headed “Promoters” in the prospectus.
(3) The establishment of the Company involved, inter alia, the following procedures and approval documents:
(a) a shareholders’ meeting of Baoye Holdings was held on 8 July, 2002 to resolve that the economic entity of Baoye Holdings be converted from a limited liability company into a joint stock limited company;
(b) pursuant to the approval of Zhejiang Province People’s Government on 19 August, 2002, the Company was approved to be established as a joint stock limited company;
(c) on 25 August, 2002, the inaugural meeting of the Company was held at which, inter alia, the following resolutions were passed:
(i) the report on the establishment of the Company was approved;
(ii) the initial articles of association of the Company that were subsequently superseded by the Articles of Association were adopted;
(iii) Messrs. Pang Baogen, Gao Jiming, Gao Lin, Zhou Hanwan and Wu Weimin were appointed Directors for 3 years commencing from the establishment of the Company as a joint stock limited company; and
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(iv) Messrs. Sun Guofan, Sun Machuan and Xie Qisheng were appointed Supervisors for 3 years commencing from the establishment of the Company as a joint stock limited company.
(d) on 30 August, 2002, the business licence was issued by Zhejiang Province Administration for Industry and Commerce to the Company;
(e) on 15 October, 2002, the SETC issued an approval on the conversion of the Company into an oversea listed public subscription company;
(f) on 3 January, 2003, CSRC issued an approval approving the Offering (including issue of H Shares under the Over-allotment Option);
(g) on 3 September, 2002 and 8 June, 2003, extraordinary general meeting, and annual general meeting of the Company were held at which, inter alia, the following resolutions were passed:
(i) the conversion of the Company into a public subscription company was approved;
(ii) the Articles of Association were adopted;
(iii) conditional on (1) the Listing Committee of the Stock Exchange granting listing of and permission to deal in the H Shares; (2) the execution and delivery of the International Placing Underwriting Agreement on the date the Offer Price is fixed and (3) the obligations of the Underwriters under the Underwriting Agreement becoming unconditional and not being terminated in accordance with its terms, the issue of the Public Offer Shares and the International Placing Shares and the granting of the Over-allotment Option to First Shanghai Securities were approved and the Directors were authorized to allot and issue H Shares pursuant thereto;
(iv) Yi Deqing, Xu Yangsheng, Wang Youwei and Hu Shaozeng were appointed additional Directors commencing from 15 October, 2002 and ending on the date of the annual general meeting of the Company for 2005;
(v) Kwok Lam Kwong Larry was appointed as an independent non- executive Director with effect from 8 June, 2003 to the date of annual general meeting of 2005;
(vi) Yu Zengmin and Chen Xingquan were appointed additional Supervisors commencing from 15 October, 2002 up to the date of the annual general meeting of the Company for 2005; and
(vii) the signing of the listing agreement by Mr. Pang was approved and ratified.
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Immediately upon completion of the Offering but without taking into account any H Shares which may be issued on exercise of the Over-allotment Option, the registered capital of the Company will be increased to RMB531,426,053 divided into 350,742,053 Domestic Shares and 180,684,000 H Shares, fully paid or credited as fully paid, representing approximately 66% and approximately 34% of the registered capital of the Company.
B. Change in share capital
The predecessor of the Company was Baoye Works which was established in May 1998, and had a registered capital of RMB50,000,000. In May 2000, the Town Management Company transferred registered capital in the sum of RMB2,000,000 in Baoye Works to Staff Shareholding Committee. Baoye Works was renamed to Baoye Holdings in November 2000. At the same time, the registered capital of Baoye Holdings was increased from RMB50 million to RMB110 million, and was held by Mr. Pang, 19 other natural persons, Town Management Company and Staff Shareholding Committee as to approximately 6.6%, 12.4%, 7.3% and 73.7% respectively.
Save as disclosed above and in the paragraph headed “Reorganisation”, there has been no change in the share capital of the Company (or its predecessor) within the two years preceding the date of this prospectus.
2. SUBSIDIARIES
During the two years preceding the date of the prospectus, the following changes in the share capital of the subsidiaries of the Company and those set out in the paragraph headed “Reorganisation” had taken place:
(1) Baoye Construction
(a) In October 2001, Staff Shareholding Committee and 浙江寶業建築構件有限 公司 (Zhejiang Baoye Construction Accessories Co., Ltd.) (“Baoye Accessories”) transferred 30% and 5% interests respectively in Baoye Construction to Baoye Union, and the registered capital of Baoye Construction was increased from RMB100 million to RMB300 million with the additional capital injected by Town Management Company and Baoye Union in the sums of RMB70 million and RMB130 million, respectively; Baoye Construction was then owned by Baoye Holdings, Guangyi Decoration, Baoye Curtain Wall, Baoye Investment, Baoye Union and Town Management Company as to approximately 16.7%, 2%, 1.7%, 1.3%, 55% and 23.3%, respectively.
(2) Baoye Infrastructure
(a) In March 2001, Baoye Infrastructure was established with a registered capital of RMB15 million, which was held by Baoye Holdings and Concrete Company as to 75% and 25%, respectively; and
(b) in October 2001, the registered capital of Baoye Infrastructure was increased to RMB30 million and Baoye Holdings and Baoye Investment contributed RMB10 million and RMB5 million respectively to the registered capital. After that, Baoye Infrastructure was owned by Baoye Holdings, Concrete Company and Baoye Investment as to 70.8%, 12.5% and 16.7% respectively.
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(3) Building Materials Industrialisation Research Institute
(a) The registered capital of Building Materials Industrialisation Research Institute was increased from RMB1 million to RMB6 million in May 2001 and the increase was contributed fully by Baoye Holdings; thereafter, Building Materials Industrialisation Research Institute was owned by Baoye Holdings and 浙江省 建設廳招待所(the Reception Centre of Zhejiang Provincial Department of Construction) as to 90% and 10%, respectively; and
(b) after the Reorganisation, Building Materials Industrialisation Research Institute was owned by the Company and the Reception Centre of Zhejiang Provincial Department of Construction as to 90% and 10%, respectively.
(4) Baoye Curtain Wall
(a) In May 2000, the registered capital of 紹興寶業幕牆裝飾有限責任公司 (Shaoxing Baoye Curtain Wall Decoration Limited Liability Company) (the predecessor of Baoye Curtain Wall) was increased to RMB10.8 million and changed its name to Baoye Curtain Wall; the increase in the registered capital was contributed by Baoye Holdings, 紹興寶業幕牆裝飾有限公司工會委員 會 (Labour Union Committee of Shaoxing Baoye Curtain Wall Decoration Co., Ltd.) (“Baoye Curtain Wall Labour Union”), Mr. Pang Baisong, Mr. Wang Jianguo, Xia Xiaomin, Mr. Sun Baoxian and Shen Muquan in the sums of RMB4,308,000, RMB1,266,500, RMB750,700, RMB695,400, RMB405,600, RMB189,400 and RMB154,400, after which it was owned by Baoye Holdings, Baoye Curtain Wall Labour Union, Pang Baisong, Wang Jianguo, Xia Xiaomin, Sun Baoxian and Shen Muquan as to 51%, 17.92%, 10.63%, 9.84%, 5.74%, 2.68% and 2.19%.
(5) Building Materials Industrialisation Company
(a) In May 2001, Baoye Holdings transferred 88.9% interests in 浙江寶業住宅產 業化有限公司 (Zhejiang Baoye Building Materials Industrialisation Ltd.) (“Baoye Building Materials”) to Baoye Construction and Baoye Accessories transferred 11.1% interests in Baoye Building Materials to Pang Baogen for the consideration of RMB9.6 million and 1.2 million respectively;
(b) in June 2001, the registered capital of Baoye Building Materials was increased to RMB60 million and was contributed by Baoye Construction, Mr. Pang Baogen, 浙江省建築科學設計研究院 (Zhejiang Construction Science and Design Research Institute), Building Materials Industrialisation Research Institute and Mr. Hu Shaozeng in the sums of RMB26.4 million, RMB10.20 million, RMB9 million, RMB3 million and RMB0.6 million, respectively; thereafter, 浙江寶業住宅產業化有限公司 was owned by Baoye Construction, Mr. Pang Baogen, 浙江省建築科學設計研究院, Building Materials Industrialisation Research Institute and Mr. Hu Shaozeng as to 60%, 19%, 15%, 5% and 1%, respectively; and
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(c) in November 2001, Building Materials Industrialisation Company was established by converting Baoye Building Materials into a joint stock limited company, with a registered capital of RMB60.6 million divided into 60.6 million shares of RMB1 each, which was held by Baoye Construction, Mr. Pang Baogen, 浙江省建築科學設計研究院 (Zhejiang Construction Science and Design Research Institute), Building Materials Industrialisation Research Institute and Mr. Hu Shaozeng as to 60%, 19%, 15%, 5% and 1%, respectively.
(6) Shaoxing Baoye
In May 2002, Shaoxing Baoye was established with registered capital of RMB2 million and owned by Building Materials Industrialisation Company and Baoye Construction as to 75% and 25%, respectively.
(7) Shanghai Zibao
In December 2002, Shanghai Zibao was established with a registered capital of RMB18 million and owned by Baoye Real Estate, 上海紫德房地產開發有限公司 (Shanghai Zide Real Estate Development Co., Ltd.), 童英強 (Tong Yingqiang) and 徐建軍 (Xu Jianjun) as to 55%, 15%, 15% and 15% respectively.
3. REORGANISATION
The Group has undergone the Reorganisation commencing at the end of 2001 for the purpose of rationalizing the corporate structure in preparation for the listing of H Shares on the Stock Exchange.
(1) Baoye Construction
(a) Baoye Construction had a registered capital of RMB300 million held by Baoye Holdings, Baoye Union, Town Management Company, Guangyi Decoration, Baoye Curtain Wall and Baoye Investment as to approximately 16.7%, 55%, 23.3%, 2%, 1.7% and 1.3% respectively before the Reorganisation.
(b) Pursuant to the declaration dated 20 April, 2003 of the Company, Town Management Company, Guangyi Decoration, Baoye Curtain Wall and Baoye Investments, there were verbal agreements between each of the shareholders of Baoye Construction with Baoye Holdings. According to these verbal agreements, since the registered capital injected into Baoye Construction by them was financed by advances from Baoye Holdings and/or Baoye Construction (at the instruction of Baoye Holdings), all the shareholders of Baoye Construction (other than Baoye Holdings) agreed all their shareholders’ rights from the date of establishment of Baoye Construction belonged to Baoye Holdings from the date of establishment of Baoye Construction and would hold and exercise such rights on behalf of Baoye Holdings.
(c) Pursuant to the shareholders’ meeting of Baoye Construction on 1 April, 2002, and the Declarations, among other things:
(i) Baoye Holdings was entitled to dividends received by other shareholders of Baoye Construction on its behalf;
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(ii) Baoye Holdings would repay advances made by Baoye Construction and approximately 1% interest in Baoye Construction would be transferred to Wang Liequan, Chen Baorong and Xia Weimin;
(iii) Rectification in the shareholding structure would be made.
(d) On 12 June, 2002, the adjustment and rectification in the shareholding structure of Baoye Construction were confirmed by Shaoxing County Administration for Industry and Commerce.
(e) An agreement dated 13 June, 2002 was entered into between Baoye Union, Town Management Company, Baoye Investment, Guangyi Decoration, Baoye Curtain Wall, Baoye Holdings, Wang Liequan, Xia Weimin and Chen Baorong, pursuant to which Baoye Union, Town Management Company, Baoye Investment, Guangyi Decoration, Baoye Curtain Wall transferred their aggregate 82.3% interest in Baoye Construction to Baoye Holdings, and approximately 1% to Wang Liequan, Xia Weimin and Chen Baorong in equal shares.
(f) After completion of the Reorganisation, Baoye Construction is owned by the Company as to approximately 99%, and approximately 1% by Wang Liequan, Chen Baorong and Xia Weimin in equal shares.
(2) Concrete Company
(a) The economic entity of Concrete Company was transformed from 紹興市商品 混凝土公司 (Shaoxing Commodity Concrete Company) into a limited liability company on 20 June, 2002 and is owned by Baoye Holdings, Municipal Infrastructure and Zhejiang Huanyu as to 51.5%, 22.7% and 25.8% respectively.
After Reorganisation, Concrete Company was owned by the Company, Municipal Infrastructure and Zhejiang Huanya as to 51.5%, 22.7% and 25.8%.
(3) Baoye Real Estate
(a) Baoye Real Estate was owned by Baoye Holdings and Baoye Accessories as to 80% and 20% before the Reorganisation.
(b) Pursuant to the transfer agreement dated 21 March, 2002 entered into between Baoye Accessories, Baoye Holdings and Baoye Construction on the same date, Baoye Accessories transferred 10% interests in Baoye Real Estate to each of Baoye Holdings and Baoye Construction. The consideration for each of the transfers was RMB2 million.
(c) Upon completion of the Reorganisation, Baoye Real Estate is owned by the Company and Baoye Construction as to 90% and 10% respectively.
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(4) Fireproof Materials Company
(a) The Company injected the net assets of 浙江寶業集團建築防火材料廠 (Zhejiang Baoye Group Fireproof Materials Factory) (the predecessor of Fireproof Materials Company) and established Fireproof Materials Company as a limited liability company together with Building Materials Industrialisation Company on 19 March, 2002. Fireproof Materials Company is owned by the Company and Building Materials Industrialisation Company as to approximately 88.3% and 11.7% respectively.
(5) Baoye Infrastructure
(a) Baoye Infrastructure was owned as to approximately 70.83% by Baoye Holdings, approximately 12.5% by Concrete Company and 16.67% by Baoye Investment before the Reorganisation.
(b) Pursuant to the shareholders’ meeting dated 19 March, 2002 of Baoye Infrastructure, an agreement between Baoye Investment and Baoye Holdings dated 22 March, 2002 and an agreement between Concrete Company and Baoye Construction dated 22 March, 2002, Baoye Investment and Concrete Company transferred their respective interest in Baoye Infrastructure to the Company and Baoye Construction, respectively. The considerations for the aforesaid transfers are the respective amount of registered capital in cash. After completion of the transfers, Baoye Infrastructure was owned as to 87.5% by Baoye Holdings and 12.5% by Baoye Construction.
(c) After the Reorganisation, Baoye Infrastructure was owned as to 87.5% by the Company and 12.5% by Baoye Construction respectively.
(6) Baoye Curtain Wall
(a) Before the Reorganisation, Baoye Curtain Wall was owned as to 51% by Baoye Holdings, 17.92% by Baoye Curtain Wall Labour Union, 10.63% by Pang Baisong, 9.84% by Wang Jianguo, 5.74% by Xia Xiaomin, 2.68% by Sun Baoxian, 2.19% by Shen Muquan.
(b) Baoye Curtain Wall Labour Union, Pang Baisong, Wang Jianguo, Xia Xiaomin, Sun Baoxian and Shen Muquan transferred part of their interest in Baoye Curtain Wall to Baoye Holdings pursuant to the shareholders’ meeting of Baoye Curtain Wall and respective transfer agreements all dated 22 March, 2002 for cash consideration in the sum of the respective amount of the registered capital being transferred.
(c) After the completion of the Reorganisation, Baoye Curtain Wall was owned as to approximately 83.1% by the Company, 6.2% by Baoye Curtain Wall Labour Union, approximately 3.7% by Pang Baisong, 3.4% by Wang Jianguo, approximately 2.0% by Xia Xiaomin, approximately 0.9% by Sun Baoxian and approximately 0.7% by Shen Muquan.
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(7) Others
In order to streamline the corporate structure, certain companies which were members of the Group before the Reorganisation were carved out from the Group during the Reorganisation:
(a) Baoye Holdings transferred its 83.33% interest in Baoye Investment to 李文江 (Li Wenjiang) for a consideration of RMB10,000,000 pursuant to a transfer agreement dated 10 December, 2001.
(b) (i) On 26 February, 2002, 紹興市聯合發展總公司 (Shaoxing Joint Development Co.) transferred its 16.445% and 13.555% interest in 紹興 商城有限責任公司(“Shaoxing Commercial”) to Baoye Real Estate and Baoye Holdings respectively for an aggregate consideration of RMB3,000,000;
(ii) In May 2002, Baoye Holdings transferred 50% interest in Shaoxing Commercial to Baoye Investment and 33.555% interest in Shaoxing Commercial to 謝秋珍 (Xie Qiuzhen), and Baoye Real Estate transferred its 16.445% interest in Shaoxing Commercial to 郭根華 (Guo Ganhua) for an aggregate consideration of RMB10,000,000.
(c) On 12 March, 2002, Guangyi Decoration and Concrete Company transferred 80% and 20% interest respectively in 紹興縣寶業裝飾材料市場有限公司 (Shaoxing County Baoye Decoration Market Co. Ltd.) to Baoye Investment and Shaoxing Commercial for an aggregate consideration of RMB5,000,000.
(d) Pursuant to the two transfer agreements, both dated 22 March, 2002, Baoye Real Estate and Concrete Company transferred 50% and 50% interest in 紹興 市寶業物業管理有限公司to Baoye Investment and Shaoxing Commercial for an aggregate consideration of RMB1,000,000.
(e) 浙江寶業建築構件有限公司(Zhejiang Baoye Construction Accessaries Co., Ltd.) transferred all its operating assets to Building Materials Industrialisation Company and was dissolved on 12 April, 2002.
(f) Pursuant to an agreement dated 28 March, 2003 entered into between Baoye Construction and 紹興飛亞印染有限公司 (Shaoxing Feiye Dyeing Co. Ltd.), Baoye Construction has transferred all of its interests and debts owing to it by Fuzhou Baoye to 紹興飛亞印染有限公司 (Shaoxing Feiye Dyeing Co. Ltd.).
(8) The Company
(a) Immediately before the Reorganisation, Baoye Holdings had a registered capital of RMB110 million which was owned as to approximately 19% by Mr. Pang and 19 other natural persons, approximately 7.3% by Town Management Company and approximately 73.7% by Staff Shareholding Committee.
(b) In March 2001, Town Management Company transferred RMB3 million to Mr. Pang at a consideration of RMB3 million.
– 385 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
(c) The interests in Baoye Holdings held by Town Management Company, which is equivalent to approximately 4.6% interest was held for the interest of Mr. Pang, and was confirmed in writing by Town Management Company and Shaoxing County Yangxunqiao Township People’s Government in December 2001. The interests was transferred back to Mr. Pang at nil consideration.
(d) As confirmed in the members’ resolutions of the Staff Shareholding Committee dated 16 December 2001, since the cancellation of the legal status of the Staff Shareholding Committee, the interests of Staff Shareholding Committee in Baoye Holdings was held by the Baoye Union on its behalf, and such interests were approved to be transferred to Mr. Pang and other 30 natural persons for an aggregate cash consideration of RMB81,043,900.
(e) Pursuant to the shareholders’ meeting on 8 July, 2002, it was resolved to convert Baoye Holdings from a limited liability company to a joint stock limited company and to capitalize its net assets value, including all of its retained earnings and reserves, in an aggregate amount of RMB350,742,053 as at 31 March, 2002, as paid-up capital of the Company.
(f) On 30 August, 2002, Baoye Holdings was converted to the Company, a joint stock company with a registered capital of RMB350,742,053.
4. FURTHER INFORMATION ABOUT THE SUBSIDIARIES AND JOINT VENTURE
As at the date of this prospectus, the Company has interests in the following companies. The particulars of such companies are as follows:
1. Building Materials Industrialisation Company
Nature: a joint stock company limited by shares
Registered capital: RMB60,600,000 divided into 60,600,000 shares
Equity holders and Baoye Construction (60%), Mr. Pang (19%), 浙江省 percentage of their 建築科學設計研究院 (Zhejiang Construction respective interests: Science and Design Research Institute) (15%), Building Materials Industrialisation Research Institute (5%) and Mr. Hu Shaozeng (1%)
Date of establishment: 8 July, 1999
– 386 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
2. Building Materials Industrialisation Research Institute
Nature: a limited liability company
Registered capital: RMB6,000,000
Equity holders and The Company (90%) and 浙江省建設廳招待所 percentage of their (The Reception Centre of Zhejiang Provincial respective interests: Department of Construction) (10%)
Date of establishment: 6 December, 1999
Expiry of operation: 5 December, 2009
3. Concrete Company
Nature: a limited liability company
Registered capital: RMB21,500,000
Equity holders and The Company (approximately 51.5%), 浙江環宇建 percentage of their 設集團有限公司 (Zhejiang Huanyu Construction respective interests: Group Co., Ltd.) (approximately 25.8%) and 紹興市 市政工程公司 (Shaoxing Municipal Infrastructure Company) (approximately 22.7%)
Date of establishment: 7 April, 1994
Expiry of operation: 31 December, 2011
4. Baoye Real Estate
Nature: a limited liability company
Registered capital: RMB20,000,000
Equity holders and The Company (90%) and Baoye Construction (10%) percentage of their respective interests:
Date of establishment: 24 January, 1995
Expiry of operation: 24 January, 2005
– 387 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
5. Baoye Infrastructure
Nature: a limited liability company
Registered capital: RMB30,000,000
Equity holders and The Company (approximately 87.5%) and Baoye percentage of their Construction (approximately 12.5%) respective interests:
Date of establishment: 16 March, 2001
Expiry of operation: 31 January, 2011
6. Baoye Construction
Nature: a limited liability company
Registered capital: RMB300,000,000
Equity holders and The Company (approximately 99%) and percentage of their (approximately 1%) owned by Wang Liequan, respective interests: Chen Baorong and Xia Weimin in equal shares
Date of establishment: 15 February, 2001
Expiry of operation: 14 August, 2010
7. Baoye Curtain Wall
Nature: a limited liability company
Registered capital: RMB10,800,000
Equity holders and The Company (approximately 83.1%), The Labour percentage of their Union Committee of Zhejiang Baoye Curtain Wall respective interests: Decoration Co., Ltd. (approximately 6.2%), Pang Baisong (approximately 3.7%), Wang Jianguo (approximately 3.4%), Xia Xiaomin (approximately 2.0%), Sun Baoxian (approximately 0.9%) and Shen Muquan (approximately 0.7%)
Date of establishment: 1 December, 1999
Expiry of operation: 1 December, 2009
– 388 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
8. Guangyi Decoration
Nature: a limited liability company
Registered capital: RMB15,000,000
Equity holders and The Company (approximately 93.3%) and Baoye percentage of their Construction (approximately 6.7%) respective interests:
Date of establishment: 16 June, 1995
Expiry of Operation: 16 June, 2005
9. Fireproof Materials Company
Nature: a limited liability company
Registered capital: RMB3,000,000
Equity holders and The Company (88.3%) and Building Materials percentage of their Industrialisation Company (11.7%) respective interests:
Date of establishment: 19 March, 2002
Expiry of Operation: 19 March, 2009
10. Shaoxing Baoye
Nature: a limited liability company
Registered capital: RMB2,000,000
Equity holders and Building Materials Industrialisation Company (75%) percentage of their and Baoye Construction (25%) respective interests:
Date of establishment: 25 May, 2002
Expiry of operation: 31 May, 2004
– 389 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
11. Hefei Baoye
Nature: a limited liability company
Registered capital: RMB30,000,000
Equity holders and The Company (50%) and 紹興中國輕紡城時代房 percentage of their 地產有限公司 (Shaoxing China Qingfangcheng respective interests: Shidai Real Estate Co., Ltd.) (50%)
Date of establishment: 14 March, 2002
Expiry of operation: 8 March, 2012
Major terms of the relevant articles of association of Hefei Baoye are as follows:
(1) Transfer of interests of a shareholder must obtain consent by half of the shareholders. Shareholder not consenting to the transfer shall acquire interests of the shareholder who offers to sell its interests.
(2) Dividend distribution is subject to approval by shareholders.
(3) Among other circumstances, Hefei Baoye may undergo winding up by resolution of shareholders who shall be entitled to distribution of assets according to their shareholding ratio.
12. Shanghai Zibao
Nature: a limited liability company
Registered capital: RMB18,000,000
Equity holders and Baoye Real Estate (55%), 上海紫德房地產開發有 percentage of their 限公司 (Shanghai Zide Real Estate Development Co., respective interests: Ltd.) (15%), 童英強 (Tong Yingqiang) (15%) and 徐建軍(Xu Jianjun) (15%)
Date of establishment: 26 December, 2002
Expiry of operation: 26 December, 2012
5. FURTHER INFORMATION ABOUT DIRECTORS, SUPERVISORS AND SUBSTANTIAL SHAREHOLDERS
(1) Particulars of service contracts
Each of the executive Directors and Supervisors has entered into a service contract with the Company on or around 30 October, 2002 and shall continue until the conclusion of the annual general meeting of the Company in 2005 and thereafter, subject to the approval of the shareholders’ meeting of the Company, each service contract may be renewed each time for three years.
The aggregate annual remuneration payable to all Directors and all Supervisors for the year ended 31 December, 2002 are approximately RMB1,463,257 and RMB186,522, respectively.
– 390 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
(2) Annual salary and allowance
The aggregate annual remuneration payable to all Directors, estimated for the year ended 31 December, 2003 is approximately RMB2,170,196.
The aggregate annual remuneration payable to the Supervisors, estimated for the year ended 31 December, 2003 is approximately RMB280,000.
(3) Disclosure of the Directors’ and Supervisors’ interests and short positions in the issued share capital of the Company and its associated corporations
(i) Immediately following the completion of the Offering, save as disclosed below, none of the Directors nor Supervisors has any interest and short position in the Shares, debentures or underlying Shares of the Company and its associated corporation (within the meaning of Part XV of the SFO), which will have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are deemed or taken to be under such provisions of the SFO), or which will be required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which will required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in each case once H Shares are listed. For this purpose, the relevant provisions of the SFO will be interpreted as if they applied to the Supervisors:
(a) The Company – interests in shares
Approximate percentage of holding immediately after the Offering (assuming the Number of Over-allotment Domestic Shares Nature of Option Name directly held interest is not exercised)
Mr. Pang Baogen 198,753,054 personal 37.4%
(b) Associated corporations – interests in shares
Percentage of interests in the registered capital Associated Nature of of the associated Name corporation interest corporation
Mr. Pang Baogen Building Materials personal 19% Industrialisation Company
Mr. Hu Shaozeng Building Materials personal 1% Industrialisation Company
– 391 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
(4) Persons who have an interest or short position discloseable under Divisions 2 and 3 of Part XV of the SFO and substantial shareholder
So far as the Directors or chief executives of the Company are aware, and taking no account of any Shares which may be taken up under the Offering, the following will immediately following completion of the Offering, have an interest or short position in the Shares or the underlying Shares which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO, or be directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any members of the Group.
(i) The Company Approximate percentage of holding immediately after the Offering Number of (assuming the Domestic Shares Nature of Over-allotment Name directly held interest Option is not exercised)
Mr. Pang 198,753,054 personal 37.4%
(ii) other members of the Group
Number of Shares or equity interests held in members of the Group Approximate Name (except the Company) Nature of interest percentage
Baoye Construction 36,360,000 shares in Building Direct 60% Materials Industrialisation Company
浙江省建築科學 9,090,000 shares in Direct 15% 設計研究院 (Zhejiang Building Materials Construction Science Industrialization Company and Design Research Institute)
Mr. Pang 11,514,000 shares in Direct 19% Building Materials Industrialization Company
浙江省建設廳招待所 RMB600,000 in the registered Direct 10% (The Reception Centre of capital of Building Materials Zhejiang Provincial Industrialisation Research Department of Institute Construction)
浙江環宇建設集團 RMB5,547,000 in the registered Direct 25.8% 有限公司 (Zhejiang capital of Concrete Company Huanyu Construction Group Co., Ltd.)
– 392 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
Number of Shares or equity interests held in members of the Group Approximate Name (except the Company) Nature of interest percentage
紹興市市政工程公司 RMB4,880,500 in the registered Direct 22.7% (Shaoxing Municipal capital of Concrete Company Infrastructure Company)
Baoye Construction RMB2,000,000 in the registered Direct 10% capital of Baoye Real Estate
Baoye Construction RMB3,750,000 in the Direct 12.5% registered capital of Baoye Infrastructure
Building Materials RMB351,000 in the Direct 11.7% Industrialisation registered capital of Fireproof Company Materials Company
Baoye Construction RMB500,000 in the registered Direct 25% capital of Shaoxing Baoye
Building Materials RMB1,500,000 in the registered Direct 75% Industrialisation capital of Shaoxing Baoye Company
Baoye Real Estate RMB9,900,000 in the registered Direct 55% capital of Shanghai Zibao
上海紫德房地產開發 RMB2,700,000 in the registered Direct 15% 有限公司 (Shanghai Zide capital of Shanghai Zibao Real Estate Development Co., Ltd.)
童英強 (Tong RMB2,700,000 in the registered Direct 15% Yingqiang) capital of Shanghai Zibao
徐建軍 (Mr. Xu Jianjun) RMB2,700,000 in the registered Direct 15% capital of Shanghai Zibao
Save as disclosed herein, but not taking into account any Shares which may be taken up under the Offering, the Directors are not aware of any legal person or individual (not being a Director or Supervisor) who will, immediately following the completion of the Offering, be directly or indirectly interested in any interest or long position in the shares or underlying shares of the Company who would fall to be disclosed to the Company under the provision of Decision 2 and 3 of Part XV of the SFO, or, who is, directly or indirectly, interested in ten percent or more of the nominal value of any class of share capital carrying right to vote in all circumstances at general meeting of any other members of the Group.
– 393 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
(5) Connected transactions and related party transactions
The connected transactions and related party transactions entered into by the Company within the two years immediately preceding the date of this prospectus are set out in the paragraph headed “Connected transactions” under the section headed “Business” of this prospectus and note 31 of the paragraph headed “Related party transations” in the “Accountants’ report” set out in Appendix I to this prospectus respectively.
(6) Disclaimers
Save as disclosed herein:
(i) none of the Directors, Supervisors or chief executives of the Company has any interests and short positions in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which will have to be notified to us and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he is taken or deemed to have under such provisions of SFO) or which will be required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or will be required, pursuant to the Model Code for Securities Transactions by Directors and Listed Companies to be notified to us and the Stock Exchange, in each case once our H Shares are listed. For this purpose, the relevant provisions of the SFO will be interpreted as if they applied to the Supervisors;
(ii) none of the Directors nor Supervisors has entered or has proposed to enter into any service contracts with the Company (other than contracts expiring or determinable by the employer within one year without payment of compensation other than statutory compensation);
(iii) none of the Directors nor Supervisors nor any of the experts whose names are listed in the paragraph headed “Consent of experts” in this appendix has any direct or indirect interest in the promotion of, or in any assets which have been acquired or disposed of by or leased to the Company within the two years immediately preceding the date of this prospectus, or which are proposed to be acquired or disposed of by or leased to the Company;
(iv) none of the Directors nor Supervisors nor any of the experts whose names are listed in the paragraph headed “Consent of experts” in this appendix is materially interested in any contract or arrangement subsisting at the date of this prospectus which is significant in relation to the business of the Group;
(v) none of the experts whose names are listed in the paragraph headed “Consents of experts” in this appendix has any shareholding in the Company or the right (whether legally enforceable or not) to subscribe for or to nominate other persons to subscribe for securities in the Group; and
(vi) no capital of the Company is under any options, or agreed conditionally or unconditionally to be put under any option.
– 394 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
6. FURTHER INFORMATION ABOUT BUSINESS
(a) Summary of material contracts
The following contracts (not being contracts in the ordinary course of business) have been entered into by any member of the Group within the two years preceding the date of this prospectus and are or may be material:
1. a promoters’ agreement dated 20 September, 2001 (in Chinese) entered into between Baoye Construction, Mr. Pang, Zhejiang Construction Science Design Institute (浙江省建築科學設計研究院), Building Materials Industrialisation Research Institute and Hu Shaozeng, pursuant to which the parties agreed to establish Building Materials Industrialisation Company and contribute to the registered capital of Building Materials Industrialisation Company;
2. a co-operation agreement dated 6 March, 2002 (in Chinese) entered into between the Company and Shaoxing China Qingfang City Shidai Real Estate Co. Ltd. (紹興中國輕紡城時代房地產有限公司), pursuant to which both parties agreed to establish the joint venture company, Hefei Qingfang City Baoye Real Estate Co. Ltd. (合肥輕紡城寶業房地產有限公司) and contribute to the registered capital of the joint venture company;
3. a restructuring agreement dated 7 February, 2002 (in Chinese) entered into between 寶業建設控股集團有限公司(Baoye Construction Holdings Group Co., Ltd.) (“Baoye Holdings”), and 浙江中國輕紡城集團股份有限公司 (Zhejiang China Qingfangcheng Group Company Limited) (“Qingfangcheng Group”) and 合肥市機械工業管理局 (Hefei City Machinery Industry Administration Bureau) (“Machinery Bureau”), pursuant to which Baoye Holdings and Qingfangcheng Group agreed to, among others, acquire assets of a tractor factory of an initial amount of RMB210,000,000 from Machinery Bureau and a supplemental agreement dated 7 February, 2003 (in Chinese) entered into between Baoye Holdings, Qingfangcheng Group and Machinery Bureau pursuant to which Baoye Holdings and Qingfangcheng Group agreed to provide subsidy of not more than RMB4,000,000 to the unemployed staff of the tractor factory as referred to in the restructuring agreement in this paragraph;
4. Deed of non-competition dated 8 June, 2003 (in Chinese) made between Mr. Pang and the Company pursuant to which Mr. Pang has given non-competition undertakings to the Company, details of which please refer to paragraph headed “Non-competition Undertakings” in the section headed “Business” of the prospectus;
5. sponsorship agreement dated 16 June, 2003 entered into between the Company and the Sponsor pursuant to which the Sponsor will provide sponsorship service to the Company;
6. The Public Offer Underwriting Agreement;
7. The deed of indemnity (in Chinese) in relation to tax dated 8 June, 2002 executed by Mr. Pang in favour of the Group containing indemnities on taxation matter; and
8. The deed of indemnity dated 16 June, 2003 executed by Mr. Pang in favour of the Group containing indemnities against, among others, claims relating to government grant, shareholding structure of Baoye Construction and losses and expense incurred by the Group as a result of forfeiture of any tenancy agreements in respect of properties leased in the PRC.
– 395 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
(b) Intellectual property rights
As at the latest Practicable Date, the Group possesses the ownership of the following trademarks which are registered under the names of members of the Group:
Place of Principal items Registration Trademark Registration Class covered Number Expiry Date
PRC 37 Building construction; 1359984 27 January, 2010 寶 業 Repair; Installation services
PRC 19 Building materials 1628827 6 September, 2011 寶 業 (non-metallic); non-metallic pipes for building; asphalt, pitch and bitumen; non-metallic transportable buildings; monuments
PRC 42 Design and development 1615977 6 August, 2011 寶 業 of computer hardware and software
PRC 6 Common metals and 1637621 20 September, 2011 寶 業 their alloys
As at the Latest Practicable Date, the Group had applied for registration of the following trademarks:
Place of Principal items Application Application Trademark application Class covered Number date
PRC 36 Services rendered in 3302489 10 September, 2002 financial and monetary affairs
PRC 33 Alcoholic beverage 3302449 10 September, 2002
PRC 28 Games and playthings 3302450 10 September, 2002
PRC 23 Yarns and threads, 3302452 10 September, 2002 for textile use
– 396 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
Place of Principal items Application Application Trademark application Class covered Number date
PRC 11 Apparatus for lighting, 3302451 10 September, 2002 heating and cooling
PRC 9 Calculators, televisions, 3302453 10 September, 2002 vendor machines
PRC 2 Paints, colorants and 3302454 10 September, 2002 preparations used for the protection against corrosion
PRC 1 Chemical products used 3302455 10 September, 2002 寶 業 BAOYE in industry
PRC 2 Paints, colorants and 3302456 10 September, 2002 寶 業 BAOYE preparations used for the protection against corrosion
PRC 3 Cleaning preparations and 3302457 10 September, 2002 寶 業 BAOYE toilet preparations
PRC 4 Industrial oils greases, 3302458 10 September, 2002 寶 業 BAOYE fuels and illuminants
PRC 5 Pharmaceuticals and other 3302459 10 September, 2002 寶 業 BAOYE preparations for medical purposes
PRC 6 Unwrought and partly 3302460 10 September, 2002 寶 業 BAOYE wrought common metals
PRC 7 Machines, machine tools 3302491 10 September, 2002 寶 業 BAOYE motor and engines
PRC 8 Hand-operated implement 3302461 10 September, 2002 寶 業 BAOYE
– 397 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
Place of Principal items Application Application Trademark application Class covered Number date
PRC 9 Apparatus and instruments 3302462 10 September, 2002 寶 業 BAOYE for scientific research, protractor, electrical soldering irons
PRC 10 Medical apparatus, 3302463 10 September, 2002 寶 業 BAOYE instruments and articles
PRC 12 Apparatus for locomotion 3302464 10 September, 2002 寶 業 BAOYE by land, sea or water
PRC 13 Firearms and pyrotechnical 3302465 10 September, 2002 寶 業 BAOYE products
PRC 14 Precious metals, goods in 3302466 10 September, 2002 寶 業 BAOYE precious metals
PRC 16 Paper, goods made from 3302490 10 September, 2002 寶 業 BAOYE that material and office requisition
PRC 17 Electrical, thermal and 3302468 10 September, 2002 寶 業 BAOYE acoustic insulating material
寶 業 PRC 18 Leather, leather imitations, 3302469 10 September, 2002 BAOYE travel goods
PRC 19 Non-metallic building 3302470 10 September, 2002 寶 業 BAOYE materials
PRC 20 Furniture and its parts 3302471 10 September, 2002 寶 業 BAOYE
PRC 21 Utensil and apparatus for 3302472 10 September, 2002 寶 業 BAOYE household and kitchen use
PRC 22 Rope, stuffing materials 3302473 10 September, 2002 寶 業 BAOYE and textile materials
– 398 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
Place of Principal items Application Application Trademark application Class covered Number date
PRC 24 Textile and textile covers 3302474 10 September, 2002 寶 業 BAOYE for household use
PRC 25 Clothing, footwear, 3302475 10 September, 2002 寶 業 BAOYE headgear
PRC 26 Dressmakers’ articles 3302476 10 September, 2002 寶 業 BAOYE
PRC 27 Products intended to be 3302477 10 September, 2002 寶 業 BAOYE added as furnishings to previously constructed floor
PRC 29 Foodstuff and vegetable 3302478 10 September, 2002 寶 業 BAOYE
PRC 30 Coffee, tea, candy 3302479 10 September, 2002 寶 業 BAOYE
PRC 31 Agricultural, horticultural 3302480 10 September, 2002 寶 業 BAOYE and forestry products
PRC 32 Non-alcoholic beverage, 3302481 10 September, 2002 寶 業 BAOYE a well as beer
PRC 34 Tobacco 3302482 10 September, 2002 寶 業 BAOYE
PRC 37 Services including 3302483 10 September, 2002 寶 業 BAOYE rendered by contractor in the construction or making of permanent buildings
PRC 38 Services allowing one 3302484 10 September, 2002 寶 業 BAOYE person to communicate with another a sensory means
– 399 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
Place of Principal items Application Application Trademark application Class covered Number date
PRC 39 Services rendered in 3302485 10 September, 2002 寶 業 BAOYE transporting people from one place to another
PRC 40 Treatment of materials 3302486 10 September, 2002 寶 業 BAOYE
PRC 41 Education, entertainment 3302487 10 September, 2002 寶 業 BAOYE and training
PRC 44 Medical care, hygienic 3302488 10 September, 2002 寶 業 BAOYE and beauty care
Hong Kong 16 Paper, foods made from 2003/02416 17 February, 2003 寶 業 that material and office requisition
Hong Kong 19 Non-metallic building 2003/02417 17 February, 2003 寶 業 materials
Hong Kong 37 Services rendered by 2003/02418 17 February, 2003 寶 業 by contractor in the construction or making of permanent buildings
7. OTHER INFORMATION
(a) Estate duty, tax and other indemnities
The Directors have been advised that no material liability for estate duty under the PRC laws would be likely to fall upon the Group. Mr. Pang, the controlling shareholder of the Company, has pursuant to deed of indemnity in relation to tax dated 8 June, 2003 (document no. 7 of material contracts as set out in sub-paragraph (a) of paragraph headed “Further information about business”) given indemnities in respect of taxation resulting from any income, profits or gains earned, accrued or received on or before 13 June, 2003 which might be payable by the Group. Mr. Pang has further given indemnities in respect of loss, expenses, levy, penalty arising from or in connection with government grant by Shaoxing County government, shareholding structure of Baoye Construction and forfeiture of tenancy agreements in respect of properties leased in the PRC pursuant to the deed of indemnity dated 14 June, 2003 (document no. 8 of material contract as set out in sub-paragraph (a) of paragraph headed “Further information about business”).
– 400 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
(b) Litigation
No members of the Group is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against the Company that would have an effect on the Company’s results of operations or financial condition.
(c) Sponsor
First Shanghai Capital has made an application, for and on behalf of the Company, to the Listing Committee for the listing of, and permission to deal in, any of the H Shares to be issued under the Offering and to be allotted and issued pursuant to the exercise of the rights of over-allotment pursuant to the Over-allotment Option. All necessary arrangements have been made to enable the H Shares to be admitted into CCASS.
(d) Preliminary expenses
The preliminary expenses of the Company are estimated to be approximately RMB321,200.
(e) Promoters
The Promoters in connection with the establishment of the Company are set out in the section headed “Promoters” of this prospectus. Save as disclosed in this prospectus, within two years preceding the date of this prospectus, no cash amount or security or other benefit has been paid, allotted or given or proposed to be paid, allotted or given to the Promoters in connection with the Offering or the related transactions described in this prospectus.
(f) No material adverse change
Save as disclosed in this prospectus, the Directors believe that there has been no material adverse change in the financial or trading position or prospect of the Company since 31 December, 2002.
(g) Binding effect
This prospectus shall have the effect, if any application is made in pursuance hereof, of rendering all persons concerned bound by all of the provisions (other than the penal provisions) of sections 44A and 44B of the Companies Ordinance insofar as applicable.
(h) Taxation liability of holders of H shares
Dealings in H Shares are subject to Hong Kong stamp duty.
– 401 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
(i) Qualifications of experts
Name Qualification
First Shanghai Capital Deemed licensed corporation to carry on a business in type 6 regulated activity (advising on corporate finance) under the SFO
Vigers Hong Kong Ltd. Professional property surveyors and valuers
Jingtian & Gongcheng PRC lawyers
PricewaterhouseCoopers Certified public accountants
(j) Consents of experts
Each of First Shanghai Capital, Vigers Hong Kong Ltd., Jingtian & Gongcheng and PricewaterhouseCoopers has given and has not withdrawn its respective written consent to the issue of this prospectus with the inclusion of its report and/or letter and/or advice and/or valuation certificate and/or the references to its name in the form and context in which they are respectively included.
(k) Miscellaneous
(i) Save as disclosed in this prospectus:
(aa) within the two years preceding the date of this prospectus, no share or loan capital of the Company has been issued or agreed to be issued fully or partly paid either for cash or for a consideration other than cash;
(bb) no share or loan capital of the Company is under any option or is agreed conditionally or unconditionally to be put under option;
(cc) within the two years preceding the date of this prospectus, no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any share or loan capital of the Group;
(dd) within the two years preceding the date of this prospectus, no commission paid or payable for subscribing or agreeing to subscribe or procuring subscription of or agreeing to procure subscription of any shares in the Company;
(ee) the Company has no founders or management or deferred shares; and
(ff) none of the experts referred to in Appendix IV is an officer or servant, or a partner of or in the employment of an officer or servant of the Group.
– 402 – APPENDIX IV STATUTORY AND GENERAL INFORMATION
(ii) None of the equity and debt securities of the Company is listed or dealt in any other stock exchange nor is any listing or permission to deal being or proposed to be sought.
(iii) The Company does not have any outstanding convertible debt securities.
(iv) The Company has no present intention to apply for the status of sino-foreign investment joint stock limited company and it is not subject to the PRC sino- foreign Joint Venture Law.
– 403 – APPENDIX V DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES AND AVAILABLE FOR INSPECTION
DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES
The documents attached to the copy of this prospectus registered by the Registrar of Companies in Hong Kong were copies of the white and yellow application forms, the written consents referred to in the paragraph in the paragraph headed “Consents of experts”, copies of the material contracts referred to in the paragraph headed “Summary of material contracts” in Appendix IV to this prospectus, and a statement of adjustments to the accountants’ report set out in Appendix I to this prospectus prepared by PricewaterhouseCoopers.
DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the offices of Kwok & Yih, 37th Floor, Gloucester Tower, The Landmark, Central, Hong Kong, during normal business hours from 9:00 a.m. to 5:30 p.m. up to and including 30 June, 2003:
(a) the Articles (in Chinese) together with a certified English translation;
(b) the accountants’ report of the Company prepared by PricewaterhouseCoopers, the text of which is set out in Appendix I to this prospectus, together with the statement of adjustments;
(c) The statutory consolidated financial statements of the Group for the year ended 31 December, 2002 prepared in accordance with the PRC GAAP, and consolidated financial statements of the Group for each of the years ended 31 December, 2000, 2001 and three-month period ended 31 March, 2002 in accordance with PRC GAAP;
(d) the letter and valuation certificate relating to the property interest of the Company prepared by Vigers (Hong Kong) Limited, the text of which is set out in Appendix II;
(e) the material contracts referred to in the paragraph headed “Summary of material contracts” in paragraph 6(a) in Appendix IV to this prospectus;
(f) the service contracts referred to in the paragraph headed “Particulars of service contracts” in paragraph 5(1) in Appendix IV to this prospectus;
(g) the written consents referred to in paragraph 7(j) in Appendix IV to this prospectus;
(h) the PRC legal opinion dated 16 June, 2003 issued by Jingtian & Gongcheng, confirming that, inter alia, the summary of relevant PRC laws and principal regulatory provisions set out in Appendix III to this prospectus is a correct summary of the relevant PRC laws and regulatory provisions;
(i) the Company Law, together with an unofficial English translation;
(j) the Special Regulation, together with an unofficial English translation; and
(k) the Mandatory Provisions, together with an unofficial English translation.
– 404 –