SHANDONG, China, Oct. 10, 2013 (Press Release) -The Company and all members of the board of directors (the "Board") hereby warrant the truthfulness, accuracy and completeness of the contents of information disclosure which do not contain any false information, misleading statements or material omissions, and jointly and severally accept responsibility for the truthfulness, accuracy and completeness of its contents.
Special risk reminder:
The investment object has inherent risks: The project is subject to risks in respect of natural environment, technology, environmental protection and project management, examination, approval, organisation implementation.
I.Overview of external investment
1. General description of external investment
On 27 September 2013, Jiangxi Chenming Paper Co., Ltd. (hereinafter referred to as "Jiangxi Chenming"), a subsidiary of the Company, and Nanchang Baolong Construction Co., Ltd. (hereinafter referred to as "Nanchang Baolong") entered into a joint venture contract. Jiangxi Chenming and Nanchang Baolong intends to jointly contribute to establish Jiangxi Chenming Port Co., Ltd. (tentative company name, hereinafter referred to as "Chenming Port"), which is primarily engaged in handling and transportation of bulk cargo and break bulk cargo, overseas and domestic transhipment, logistics services and storage operation.
The proposed registered capital of Chenming Port is RMB15.07 million. Jiangxi Chenming intends to make a contribution in the form of 192.494 metre coastline use right and a port construction site of 13,390 square metres, which were valued by the third party asset valuation institution authorised by both parties at RMB6.038 million, representing 40% of the registered capital of Chenming Port.
Nanchang Baolong intends to make a contribution in cash of RMB9.042 million, representing 60% of the registered capital of Chenming Port.
Upon establishment of Chenming Port it will construct a port with an annual throughput of 3,200,000 tonnes, including the annual throughput of 2,200,000 tonnes for bulk cargo and the annual throughput of 1,000,000 tonnes for break bulk cargo. It is intended to construct four 2,000 tonne port berths, two for bulk cargo and two for break bulk cargo. The expected total investment is RMB98.9760 million. Apart from the registered capital, the other funds for construction and operation of the port project will be raised by Nanchang Baolong.
As agreed in the joint venture contract, upon completion of the establishment of the said port, Jiangxi Chenming will have title over two of these terminals. Upon completion and acceptance of the terminals for which Jiangxi Chenming has title, Jiangxi Chenming intends to enter into a commissioned operation contract with Nanchang Baolong to commission Nanchang Baolong to operate and manage such two terminals for which Jiangxi Chenming has title for a period of 18 years. During the commissioned period, Jiangxi Chenming will not retain the operating profit nor receive fees due to the commissioned matters. Nanchang Baolong will charge Jiangxi Chenming for transportation, handling and storage of goods at a 10% discount of the lowest market price of companies with port operation in Nanchang.
2. Consideration and approval of the Board
The second extraordinary meeting of the seventh session of the Board of the Company was convened on 27 September 2013 through means of electronic communications. All of the 12 directors were present at the meeting. The resolution on "Cooperation in Port Construction by Jiangxi Chenming" was considered and approved at the meeting with a voting result of 12 votes for, 0 vote against and 0 vote abstained.
3. Necessary procedures for investment to become effective Upon approval by the Board of the Company, this external investment to establish Chenming Port is subject to approval at the general meeting. Nanchang Baolong and its ultimate beneficial owner were third parties which are independent of the Company and the connected persons of the Company. The external investment is not a connected transaction and will not constitute a material asset reorganisation under the Administrative Rules on Material Asset Reorganisation of Listed Companies.
II.General description of the investment entity
1. Company name of Party A: Jiangxi Chenming Paper Co., Ltd.
Address: Baishui Lake Industrial Park, Nanchang Economic and Technological Development Zone, Jiangxi Province
Legal representative: Xia Jigang
Registered capital: US$172.00 million
Company type: Limited liability company (Taiwan, Hong Kong, Macau and China joint venture)
Scope of business: Production and sales of high-end paper, paperboard (except newspaper) and self-made pulp
2. Company name of Party B: Nanchang Baolong Construction Co., Ltd.
Address: 240 Hongduzhong Avenue, Shunwai Village, Hufang Town, Qingshan Lake District, Nanchang City
Legal representative: Kuang Gangxia
Registered capital: RMB10.00 million
Company type: Limited liability company invested or controlled by a natural person
Scope of business: Domestic trade, construction and earthwork engineering
Substantial shareholders: Kuang Gangxia (55%) and Shu Na (45%)
III.General description of the investee
Company name: Jiangxi Chenming Port Co., Ltd. (tentative name, the final name to be approved by the registration authority)
Registered capital: RMB15.07 million
Registered address: Baishui Lake Industrial Park (to be confirmed by the final commercial registration)
Company type: Limited liability company
Shareholders' capital contribution: Jiangxi Chenming will contribute in the form of 192.494 metre coastline use right and a port construction site of 13,390 square metre, which were valued by the third party asset valuation institution authorized by both parties at RMB6.028 million, representing 40% of the registered capital.
Nanchang Baolong will contribute in the form of cash of RMB9.042 million, representing 60% of the registered capital. Apart from utilising the registered capital of Chenming Port for the funds required for the port construction, the other funds for construction and operation will be raised by Party B.
Scope of business: handling and transportation of bulk cargo and break bulk cargo, overseas and domestic transhipment, logistics services and storage operation (to be confirmed by the final commercial registration)
IV.Major terms of the external investment contract
On 27 September 2013, Jiangxi Chenming (Party A) and Nanchang Baolong (Party B) entered into a joint venture contract with major terms as follows:
1. Corporate structure:
The highest authority of the company is the general meeting, which decides all significant matters of the company. The legal representative of the company will be appointed by Party B and Party B is responsible for the overall operation of the company. The Company has no Supervisory committee but one supervisor, who will be appointed by Party A. The corporate structure and its authority and obligation will be implemented in accordance with the Companies Law and the articles of association of the company.
2. Obligations of both parties:
(1) Party A has the priority in transporting and handling goods at the terminals of the joint venture company.
(2) Party A will provide the joint venture company with necessary water supply, electricity and fuel for ordinary operation and the usage is measured based on the exports metering device of Party A. The charges for water and electricity supply are RMB1.98/m3 and RMB0.668/kwh, respectively. The charges will be adjusted in accordance with the national electric power tariff adjustment and fluctuation of raw material prices.
(3) Party B is responsible for the transfer of all assets of the two terminals within the area owned by Party A to Party A at nil cost and then Party A will appoint Party B to operate in accordance with the commissioned operation contract within 15 working days upon completion and acceptance of the project.
(4) Party B guarantees that sufficient investment will be provided on time and Party A will have the priority in transporting and handling goods at the terminals.
(5) The transportation, handling and storage of goods for Party A by Party B will be charged and settled by Party A at 10% discount of the lowest price offered by companies with port operation eligibility in the market of Nanchang City. Agreements regarding port transportation, handing and storage will be executed by both parties each year.
3. Equity transfer: During the joint venture period, Party B shall not transfer its equity interest to any legal person or natural person. Party A has the right to dispose of its equity interest at any time and Party B has to acquire such equity interest. The consideration will be determined with reference to the valuation data provided by the third party valuation institution authorised by both parties.
4. Term, termination and settlement
The operating period of the joint venture will commence from the date of execution of the agreement until 25 June 2053. If both parties agree to extend the operating period, application for extension of the operating period should be entered into at least 6 months before the expiration of the contract.
5. Obligation on default
If the joint venture company refuses to provide transportation services on its own decision, Party A has the right to request Party B to pay 30% of the total costs for transportation, handling and storage of goods for Party A in the prior year being damages for breach.
6. Change and termination of contract
This agreement may be revised in accordance with changes in existing laws, implementation of new laws and new regulations from regional authorities or upon an agreement by both parties through arm-length negotiation. If a party proposes alternation of the terms of the agreement when performing this agreement, it should give a 30-day prior written notice to the other party and the alternation may be made after an agreement has been reached by both parties.
Both parties may enter into a written supplemental agreement for outstanding issues of this agreement. The supplemental agreement will have the same legal effect as this agreement.
7. Dispute resolution
If any disagreement or dispute exists between both parties when performing this agreement, the dispute should be resolved through negotiation between both parties. If the dispute cannot be resolved, any party has the right to put litigation in a competent court.
V.Purpose of the external investment, its effect on the Company and its inherent risks
Purpose of the external investment and its effect on the Company: Such external investment will maintain the ordinary production of Jiangxi Chenming, lower the transportation cost of the Company and will fully utilise the coastal line and port construction site owned by Jiangxi Chenming to maximise the potential of terminal construction and operation. While fulfilling the transportation requirement of Jiangxi Chenming, we aim to improve the efficiency of the Company, enhance the profitability of Jiangxi Chenming and maintain the sustainable development of the Company. There will be no significant effect on the financial condition and operating result of the Company in a short term.
Inherent risks: The principal operation of Chenming Port consists of the shipment of the purchased raw materials and products of Jiangxi Chenming. The cost for shipment is lower as compared to other transportation methods. Hence, the effect of external factors is minimal with lower risks upon the completion of the terminals. The Company will perform its obligation in timely disclosure of relevant information based on the progress of the project. The corporate information will be published in designated websites and newspapers. Investors should be aware of investment risks.
VI.Documents available for inspection
Resolutions of the Second Extraordinary Meeting of the Seventh Session of the Board of Shandong Chenming Paper Holdings Limited
Notice is hereby given.
Board of Shandong Chenming Paper Holdings Limited
27 September 2013