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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ACTION
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If you are in doubt as to any aspect of this circular or as to the action to
be taken, you should consult your stockbroker or other registered dealer in
securities, bank manager, solicitor, professional accountant or other
professional advisers.
If you have sold or transferred all your shares in China Petroleum & Chemical
Corporation, you should at once hand this circular together with the
accompanying form of proxy to the purchaser or to the bank, stockbroker or
other agent through whom the sale or transfer was effected for delivery to the
purchaser or transferee.
The Stock Exchange of Hong Kong Limited takes no responsibility for the
contents of this circular, makes no representation as to its accuracy or
completeness and expressly disclaims any liability whatsoever for any loss
howsoever arising from or in reliance upon the whole or any part of the
contents of this circular.
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[GRAPHIC OMITTED][GRAPHIC OMITTED]
CHINA PETROLEUM & CHEMICAL CORPORATION
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
On-going Connected Transactions
Independent Financial Adviser to Independent Directors
[GRAPHIC OMITTED][GRAPHIC OMITTED]
CLSA EQUITY CAPITAL MARKETS LIMITED
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A letter from the Independent Directors of China Petroleum & Chemical
Corporation is set out on page 18 of this circular. A letter from CLSA Equity
Capital Markets Limited containing its advice to the Independent Directors is
set out on pages 19 to 27 of this circular.
A notice convening the third extraordinary general meeting of Sinopec Corp.
for the year 2003 to be held at Sinopec Corp.'s Offices at ▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ on Thursday, 18 December 2003 at 9:00
a.m. is set out on pages 31 to 33 of this circular. Whether or not you are
able to attend the meeting, please complete and return the enclosed form of
proxy in accordance with the instructions printed thereon as soon as
practicable and in any event not less than 24 hours before the time appointed
for holding the meeting.
Completion and return of the form of proxy will not preclude you from
attending and voting in person at the meeting or at any adjourned meeting
should you so wish.
31 October 2003
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CONTENTS
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Page
Definitions .............................................................1
Letter from the Chairman ................................................5
1. Introduction ................................................5
2. On-going Connected Transactions ..............................6
3. Recommendation ..............................................17
4. EGM .........................................................17
5. General Information .........................................17
Letter from the Independent Directors ...................................18
Letter from CLSA Equity Capital Markets Limited .........................19
Appendix 1 -- General Information ......................................28
Notice of EGM ...........................................................31
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DEFINITIONS
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In this circular, unless otherwise indicated in the context, the
following expressions have the meaning set out below:
"Agency Agreement" the agency agreement dated 3 June 2000
regarding the appointment of Sinopec Corp. as the
exclusive sales agent of the Ethylene Enterprises
(as amended by the On-going Connected Transaction
Adjustment Agreement)
"associates" has the meaning ascribed to it in the Listing Rules
"Board" the board of the directors of Sinopec Corp.
"Circular" the circular of Sinopec Corp. dated 30 June 2001
"CLSA" CLSA Equity Capital Markets Limited
"Community Services the community services agreement dated 3 June 2000
Agreement" and the supplemental agreement dated 26 September
2000 (as amended by the On-going Connected
Transaction Adjustment Agreement) regarding the
provision of, inter alia, certain cultural,
educational, hygiene and community services by
Sinopec Group to the Company
"Company" Sinopec Corp. and its subsidiaries
"Computer Software the computer software licence agreement dated 3
Licence Agreement" June 2000 regarding the granting of licence by the
Sinopec Group to the Company to use certain
computer software of the Sinopec Group
"De-minimus On-going the on-going connected transactions, being the
Connected Transactions" transactions under the Intellectual Property
Licence Agreements, the Agency Agreement, the
Land Use Rights Leasing Agreement and the
Properties Leasing Agreement
"Directors" the directors of Sinopec Corp.
"EGM" the extraordinary general meeting of Sinopec
Corp. to be held for shareholders of Sinopec
Corp. to consider and to approve the Major
On-going Connected Transactions and the
De-minimus On-going Connected Transactions
"Ethylene Enterprises" Maoming Petrochemical Ethylene Industrial
Company, Tianjin Petrochemical United Chemical
Company Limited and Zhongyuan Petrochemical
Company Limited which are owned by the Sinopec
Group. The Ethylene Enterprises will not include
the Ethylene Assets (as defined in Sinopec
Corp.'s announcement dated 28 October 2003) of
Maoming Petrochemical Ethylene Industrial Company
after completion of the proposed purchase of the
Ethylene Assets
"Existing Waiver" the waiver granted by the Stock Exchange on 29
June 2001 in relation to the On-going Connected
Transactions
"Independent Directors" the independent directors of Sinopec Corp.,
namely ▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇ Tsu ▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇ ▇▇▇ ▇▇▇▇▇▇▇ and ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, who are
invited to advise the Independent Shareholders in
connection with the Major On-going Connected
Transactions and the New Caps
"Independent Shareholders" the shareholders of Sinopec Corp. other than
Sinopec Group Company and its associates
"Intellectual Property the Trademarks Licence Agreement, the Computer
Licence Agreements" Software Licence Agreement and the Patents and
Proprietary Technology Licence Agreement
"Land Use Rights Leasing the land use rights leasing agreement dated 3 June
Agreement" 2000 (as amended by the On-going Connected
Transaction Adjustment Agreement) regarding the
leasing of certain land use rights by Sinopec
Group to the Company
"Latest Practicable Date" 22 October 2003, being the latest practicable
date for ascertaining certain information
referred to in this circular prior to the
printing of this circular
"Listing Rules" the Rules Governing the Listing of Securities on
the Stock Exchange
"Major On-going the on-going connected transactions, being the
Connected Transactions" transactions under the SPI Fund Document, the
Mutual Supply Agreement (excluding the guarantees
by the Company to the Sinopec Group) and the
Community Services Agreement
"Mutual Supply Agreement" the mutual supply agreement dated 3 June 2000 and
the supplemental agreement dated 26 September
2000 (as amended by the On-going Connected
Transaction Adjustment Agreement) regarding the
provision of a range of products and services
from time to time (1) by Sinopec Group to the
Company; and (2) by the Company to Sinopec Group
"New Caps" the proposed new annual limits in respect of the
Mutual Supply Agreement and the Community
Services Agreement as referred to in paragraphs
(c) and (d) of the section headed "New cap
amounts of the On-going Connected Transactions"
"On-going Connected the agreement dated 11 June 2001 providing for the
Transaction Adjustment amendments to the terms of the On-going Connected
Agreement" Transactions as set out in the Circular
"On-going Connected the De-minimus On-going Connected Transactions and
Transactions" the Major On-going Connected Transactions
"Patents and Proprietary the patents and proprietary technology licence
Technology Licence agreement dated 3 June 2000 regarding the granting
Agreement" of licence by the Sinopec Group to the Company to
use certain patents and proprietary technology of
the Sinopec Group
"Properties Leasing the properties leasing agreement dated 3 June 2000
Agreement" (as amended by the On-going Connected Transaction
Adjustment Agreement) regarding the leasing of
certain properties by Sinopec Group to the
Company
"RMB" the lawful currency of the People's Republic of
China
"SFO" the Securities and Futures Ordinance, Chapter 571
of the Laws of Hong Kong
"Shanghai Stock Exchange" the Stock Exchange of Shanghai
"Shares" shares of Sinopec Corp. of RMB1.00 each
"Sinopec Corp." China Petroleum & Chemical Corporation, a joint
stock limited company incorporated in the PRC
with limited liability
"Sinopec Group" Sinopec Group Company and its subsidiaries (other
than the Company)
"Sinopec Group Company" China Petrochemical Corporation, being the
controlling shareholder of Sinopec Corp.
"SPI Fund Document" a document jointly issued in 1997 by the Ministry
of Finance and the ministerial level enterprise
of Sinopec Group Company and its associates
before the industry reorganisation in 1998 (Cai
Gong Zi [1997] No. 268) relating to the payment
of insurance premium by Sinopec Corp. to Sinopec
Group Company. Under the SPI Fund Document,
Sinopec Corp. is required to pay twice a year an
insurance premium. Each time Sinopec Corp. shall
pay 0.2% of the historical value of the fixed
assets and the average month-end inventory value
of the Company of the previous six months; after
Sinopec Group Company has received the premium
from Sinopec Corp., Sinopec Group Company will
refund 20% of the paid premium to Sinopec Corp.
if Sinopec Corp. pays the semi-annual premium on
time according to the SPI Fund Document
("Refund"). The Refund would be 17% of the paid
premium if Sinopec Corp. failed to pay the
semi-annual premium on time. The Refund shall be
used by Sinopec Corp. in the following manner:
60% shall be used in dealing with accidents and
potential risks and safety measures; 20% shall be
used in safety education and training and 20%
shall be used in preventing major accidents and
potential risks and as awards to units and
individuals who have made a special contribution
to safety production
"▇▇.▇▇." square kilometres
"sq.m." square metres
"Stock Exchange" The Stock Exchange of Hong Kong Limited
"Supervisor(s)" the members of the supervisory committee of
Sinopec Corp.
"Trademarks Licence the trademarks licence agreement dated 3 June 2000
Agreement" regarding the granting of licence by the Sinopec
Group to the Company to use certain trademarks of
the Sinopec Group
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LETTER FROM THE CHAIRMAN
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[GRAPHIC OMITTED][GRAPHIC OMITTED]
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
Directors: Registered Office:
▇▇▇▇ ▇▇▇▇▇▇▇ A6, Huixindong Street
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ District
Mou ▇▇▇▇▇▇▇ Beijing, 100029
▇▇▇▇▇ ▇▇▇▇▇▇ People's Republic of China
▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ Genyuan Place of Business in Hong Kong:
▇▇▇ ▇▇▇▇ 12th Floor, Office Tower
Fan Yifei Convention Plaza
▇ ▇▇▇▇▇▇▇ ▇▇▇▇
Independent Directors: ▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ Hong Kong
Ho ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
Employee Representative Director:
▇▇▇ ▇▇▇▇▇▇▇
31 October 2003
To the Shareholders
Dear Sir or Madam,
On-going Connected Transactions
1. INTRODUCTION
The Existing Waiver granted by the Stock Exchange on 29 June 2001 from
strict compliance with the relevant requirements of the Listing Rules in
respect of the On-going Connected Transactions as disclosed in the Circular
will expire on 31 December 2003. Sinopec Corp. has applied to the Stock
Exchange for new waivers.
The purpose of this circular is to provide you with further information
relating to the On-going Connected Transactions, the New Caps, the advice of
CLSA to the Independent Directors and the recommendation of the Independent
Directors.
2. ON-GOING CONNECTED TRANSACTIONS
2.1 Background
In preparation for its listing overseas, Sinopec Corp. and Sinopec Group
Company entered into a number of agreements in 2000 governing the on-going
connected transactions between them. These agreements include the Mutual
Supply Agreement, the Community Services Agreement, the Land Use Rights
Leasing Agreement, the Properties Leasing Agreement, the Intellectual Property
Licence Agreements, the Agency Agreement and the SPI Fund Document. On 11 June
2001, due to the on-going connected transactions arising from the acquisition
of Sinopec National Star Petroleum Company, Sinopec Corp. and Sinopec Group
Company entered into the On-going Connected Transaction Adjustment Agreement
to amend the terms of the Mutual Supply Agreement, the Community Services
Agreement, the Land Use Rights Leasing Agreement and the Properties Leasing
Agreement.
The On-going Connected Transactions are summarised below:
(1) Intellectual Property Licence Agreements
Sinopec Corp. and Sinopec Group Company entered into the
Intellectual Property Licence Agreements on 3 June 2000 with effect from
January 2000. Each of the Intellectual Property Licence Agreements is
for a term of 10 years commencing from 1 January 2000.
While the above intellectual property rights are granted to the
Company at no cost, Sinopec Corp. shall, before 31 December of each
year, pay to Sinopec Group Company all such expenses which Sinopec Group
Company paid in the relevant year according to the relevant laws and
regulations for maintaining the validity of the relevant trademarks,
patents and computer software.
(2) Safety Production Insurance Fund (the "SPI Fund")
With the approval of the Ministry of Finance, Sinopec Group
Company has established the SPI Fund which currently provides insurance
cover on a consolidated basis on certain assets used in the operations
of the Company.
Under the SPI Fund Document, Sinopec Corp. is required to pay
twice a year an insurance premium amounting to 0.2% of the historical
value of the fixed assets and the average month-end inventory value of
the Company of the previous six months.
After Sinopec Group Company has received the premium from Sinopec
Corp., Sinopec Group Company will refund 20% of the paid premium to
Sinopec Corp. if Sinopec Corp. pays the semi-annual premium on time
according to the SPI Fund Document ("Refund"). The Refund would be 17%
of the paid premium if Sinopec Corp. failed to pay the semi-annual
premium on time. The Refund shall be used by Sinopec Corp. in dealing
with accidents and potential risks and safety measures, in safety
education and training, in preventing major accidents and potential
risks, and as awards to units and individuals who have made a special
contribution to safety production.
(3) Agency Agreement
Effective 1 January 2000, Sinopec Group Company, representing the
Ethylene Enterprises, and Sinopec Corp. entered into the Agency
Agreement dated 3 June 2000 for a term of 3 years. As amended by the
On-going Connected Transaction Adjustment Agreement, the term of the
Agency Agreement is continuing until terminated by the parties. Sinopec
Corp. is appointed as the exclusive agent for the sale of all the
products produced by the Ethylene Enterprises. Sinopec Corp. will
receive an agency fee which is equal to 0.2% to 1% of the amount of
purchase price actually received by Sinopec Corp. Sinopec Corp. shall
bear the expenses incurred in collecting payment for the purchases.
(4) Mutual Supply Agreement
Sinopec Group Company and Sinopec Corp. entered into the Mutual
Supply Agreement dated 3 June 2000 with effect from 1 January 2000 for a
term of 3 years, whereby Sinopec Group Company agreed to provide the
Company with supply services, storage and transportation services,
ancillary production services and taking deposits by Sinopec Group
Company's financial institutions. According to the Mutual Supply
Agreement, Sinopec Corp. has agreed to provide certain products and
services to the Sinopec Group, namely, supply of crude oil, natural gas,
refined and petrochemical products and by-products, semi-finished
products, water, electricity, gas, heat, measurement, quality
inspection, provision of guarantee and other related or similar products
or services. As amended by the On-going Connected Transaction Adjustment
Agreement, the term of the Mutual Supply Agreement is continuing until
terminated by the parties. The above products and ancillary services
shall be provided at:
(i) government-prescribed price;
(ii) where there is no government-prescribed price but where
there is government-guidance price, the government-guidance
price will apply;
(iii) where there is neither a government-prescribed price nor a
government-guidance price, the market price will apply; or
(iv) where none of the above is applicable, the price is to be
agreed between the relevant parties for the provision of the
above products or services, which shall be the reasonable
cost incurred in providing the same plus not more than 6% of
such cost.
(5) Community Services Agreement
Sinopec Group Company and Sinopec Corp. entered into the Community
Services Agreement dated 3 June 2000 with effect from 1 January 2000 for
a term of 3 years, whereby Sinopec Group Company agreed to provide
cultural, educational and hygiene services and community services to the
Company. As amended by the On-going Connected Transaction Adjustment
Agreement, the term of the Community Services Agreement is continuing
until terminated by the parties.
The services under the Community Services Agreement are provided
in accordance with the same pricing policy as that of the Mutual Supply
Agreement.
(6) Land Use Rights Leasing Agreement
Effective 1 January 2000, Sinopec Group Company and Sinopec Corp.
entered into the Land Use Rights Leasing Agreement on 3 June 2000.
According to the Land Use Rights Leasing Agreement as amended by the
On-going Connected Transaction Adjustment Agreement, Sinopec Group
Company agreed to lease to the Company certain parcels of land, with an
aggregate area of approximately 370,074,262 square metres at an annual
rent of approximately RMB 1,977,181,695 which is lower than the
prevailing market rent. The rent may be reviewed every 3 years and any
such revised rent shall not be higher than the prevailing market rent as
confirmed by an independent valuer.
Regarding authorised lands for operation owned by members of the
Sinopec Group, lands for industrial use are leased to the Company for a
term of 50 years and lands for commercial use for 40 years. Regarding
lands over which members of the Sinopec Group have been granted land use
rights with consideration, they are leased for a term up to the date of
expiry of the respective land use rights certificates. The term of the
lease in each case commenced from 1 January 2000. The Company may
require members of the Sinopec Group to renew the term of the lease by
giving notice to it twelve months before the expiry of the lease.
(7) Properties Leasing Agreement
Effective 1 January 2000, Sinopec Group Company and Sinopec Corp.
entered into the Properties Leasing Agreement dated 3 June 2000 (as
amended by the On-going Connected Transaction Adjustment Agreement)
whereby members of the Sinopec Group have agreed to lease to the Company
certain properties with a gross floor area of approximately 2,593,490
square metres at an annual rent of RMB 566,635,194 which is lower than
the prevailing market rent. The rent may be reviewed once a year and any
such revised rent shall not be higher than the prevailing market rent.
Property taxes and land use fees in relation to the properties shall be
borne by Sinopec Group.
The properties are leased by the Sinopec Group to the Company for
a term of 20 years commencing from 1 January 2000.
If Sinopec Group Company negotiates to sell a property leased by
the Company to a third party, Sinopec Corp. shall have a pre-emptive
right to purchase such property under the same terms.
2.2 Existing Waiver and Historical Figures
The Stock Exchange granted the Existing Waiver on 29 June 2001 from
strict compliance with the relevant requirements of the Listing Rules in
respect of the On-going Connected Transactions for a period of three financial
years up to 31 December 2003. The relevant cap amount and the historical
figures of each of the On-going Connected Transactions for the following
periods are set out below:
for the
six-month
for the year for the year period ended
Transactions Caps 2001 2002 30 June 2003
Intellectual Property Licence
Agreements
annual payment by the Company RMB 35 million RMB 10 million RMB 10 million RMB 5 million
Safety Production Insurance Fund
Document
annual amount payable by the The amount RMB 0.65 RMB 0.787 RMB 0.395
Company specified in the billion billion billion
SPI Fund Document
Agency Agreement
agency fees payable by the RMB 50 million RMB 7 million RMB 37 million RMB 22 million
Ethylene Enterprises
Mutual Supply Agreement
(i) annual expenditures of the 18% of the total RMB 37,101 RMB 45,365 RMB 27,029
Company in respect of operating million million million
products and services expenses (12.74%) (14.55%) (14.69%)
(except financial services)
provided by the Sinopec
Group
(ii) annual revenues derived by 16% of the total RMB 37,261 RMB 36,343 RMB 19,861
the Company in respect of operating million million million
products and services revenues (11.7%) (10.69%) (9.81%)
(except provision of
guarantee) provided by the
Company to the Sinopec
Group
(iii) the aggregate of average 2.5% of the total RMB 7,018 RMB 5,263 RMB 6,442
month-end amount of operating million (2.2%) million (1.55%) million (1.59%)
deposits and total amount of revenues
interest received in respect
of these deposits
(iv) guarantees provided by the RMB 1,000 million RMB 0 million RMB 0 million RMB 0 million
Company to Sinopec Group at (RMB 55 million
any time in the year 2000)
Community Services Agreement
annual expenditures for the 3% of the total RMB 2,000 RMB 1,945 RMB 940 million
provision of products and operating expenses million (0.69%) million (0.62%) million (0.51%)
services by the Sinopec Group
to the Company
Land Use Rights Leasing
Agreement
annual rents payable by the RMB 2.05 billion RMB 2.007 RMB 2.018 RMB 1.03
Company billion billion billion
Properties Leasing Agreement
annual rents payable by the RMB 730 million RMB 482 RMB 619 RMB 356
Company million million million
2.3 New cap amounts of the On-going Connected Transactions
In the following proposed renewal of the waivers in relation to the
On-going Connected Transactions, the cap amounts remain the same as those in
the existing waiver, except for the two De-minimus On-going Connected
Transactions set out in paragraphs (a) and (b) below and two Major On-going
Connected Transactions set out in paragraphs (c) and (d) below:
(a) Agency Agreement: The new cap amount for the agency fees payable
by the Ethylene Enterprises under the Agency Agreement (taking
into account of the proposed purchase of the Ethylene Assets as
stated in Sinopec Corp.'s announcement dated 28 October 2003) is
proposed to be increased from RMB 50 million in the existing
waiver to RMB 70 million in the present application for waiver
renewal. The Board expects that there will be a steady increase in
the price of products produced by the Ethylene Enterprises. As the
agency fee received by Sinopec Corp. is determined by reference to
the amount of purchase price received by Sinopec Corp., the cap
amount is adjusted to cater for the expected increase in agency
revenue brought about by an increase in the price of Ethylene
Enterprises' products.
(b) Land Use Rights Leasing Agreement: The new cap amount for the
annual rents payable by the Company under the Land Use Rights
Leasing Agreement is also proposed to be increased from RMB 2.05
billion in the existing waiver to RMB 2.15 billion in the present
application for waiver renewal. Under the Land Use Rights Leasing
Agreement, the parties may review the rent every 3 years. Coupled
with the fact that there has been an increase in rents throughout
the country, it is anticipated that there will be a corresponding
rental increase under the Land Use Rights Leasing Agreement and
the adjusted annual rents payable by the Company may well exceed
the present cap amount. Therefore, the proposed increase in cap
amount for this de-minimus on-going connected transaction is
necessary. The rentals after such adjustments have been considered
by a PRC qualified property valuer to be lower than the market
value.
(c) Annual revenues under the Mutual Supply Agreement: After
consideration of the historical revenues and allowing flexibility
for changes of the actual amount of the total operating revenues
of the Company, the new cap amount for the annual revenues derived
by the Company in respect of products and services (except
provision of guarantee) provided by the Company to the Sinopec
Group under the Mutual Supply Agreement is proposed to be reduced
from the existing cap, 16% of the total operating revenues, to 14%
of the Company's total operating revenues.
(d) Community Services Agreement: After consideration of the
historical expenses, the new cap amount for the annual
expenditures for the provision of products and services by the
Sinopec Group to the Company under the Community Services
Agreement is proposed to be reduced from the existing cap, 3% of
the total operating expenses, to 2% of the Company's total
operating expenses.
(e) Intellectual Property Licence Agreements: The value of the
Intellectual Property Licence Agreements for the years ended 2001
and 2002 was approximately RMB 10 million, and for the six-month
period ended 30 June 2003 was approximately RMB 5 million. After
consideration of the historical figures, and the fact that (i)
some of the Research & Development units and design units of the
Sinopec Group are continuing in expansion in developing and
designing new technologies, and more intellectual property rights
licences may be obtained by the Company from the Sinopec Group,
and (ii) after China's accession into the WTO, licensing fees for
use of intellectual property rights may also be increased, it is
proposed that the new cap amount applied for should be the same as
the existing cap amount of RMB 35 million per year.
(f) Property Leasing Agreement: The amounts of the annual rentals paid
under the Property Leasing Agreement for the years ended 2001 and
2002 were approximately RMB 482 million and RMB 619 million
respectively, and for the six-month period ended 30 June 2003 was
approximately RMB 356 million. After consideration of the
historical figures, it is proposed to maintain the original cap
amount at RMB 730 million.
(g) Annual expenditures of the Company under the Mutual Supply
Agreement: The amounts of expenditures of the Company under the
Mutual Supply Agreement for the years ended 2001 and 2002 were
approximately RMB 37,101 million (representing approximately
12.74% of the total operating expenses) and RMB 45,365 million
(representing approximately 14.55% of the total operating
expenses), and for the six-month period ended 30 June 2003 was
approximately RMB 27,029 million (representing approximately
14.69% of the total operating expenses). After consideration of
the historical figures and allowing flexibility for changes of the
actual amount of the total operating expenditures of the Company,
it is proposed that the new cap amount applied for should be the
same as the existing cap amount, being 18% of the total operating
expenses.
(h) The total amount of deposits under the Mutual Supply Agreement:
The amounts of deposits with the Sinopec Group's financial
institutions under the Mutual Supply Agreement for the years ended
2001 and 2002 were approximately RMB 7,018 million (representing
approximately 2.2% of the total operating revenues) and RMB 5,263
million (representing approximately 1.55% of the total operating
revenues), and for the six-month period ended 30 June 2003 was
approximately RMB 6,442 (representing approximately 1.59% of the
total operating revenues). After consideration of the historical
figures, it is proposed that the annual cap amount of 2.5% of the
total operating revenues be maintained.
(i) The amount of guarantees under the Mutual Supply Agreement: China
Securities Regulatory Commission prohibits the giving of
guarantees by a listed company to its substantial shareholder. As
such, no guarantee will be provided by the Company to the Sinopec
Group in respect of the Mutual Supply Agreement and a new waiver
on the guarantee will not be sought.
2.4 New Waivers to be sought
As (i) Sinopec Group Company is the controlling shareholder of Sinopec
Corp. and (ii) the On-going Connected Transactions are of a continuing nature,
the On-going Connected Transactions constitute on-going connected transactions
of Sinopec Corp. for the purposes of the Listing Rules.
2.4.1 De-minimus On-going Connected Transactions
As (i) the annual amount payable under each of the De-minimus
On-going Connected Transactions is expected to be less than 3% of the
net tangible asset value of the Company and (ii) the Directors consider
that it would be impracticable for Sinopec Corp. to comply strictly with
the disclosure requirements of the Listing Rules in respect of the
De-minimus On-going Connected Transactions each year, Sinopec Corp. has
applied to the Stock Exchange for a new waiver of the De-minimus
On-going Connected Transactions from strict compliance with such
disclosure requirements, subject to the following conditions:
(a) each of the De-minimus On-going Connected Transactions:
(i) has been performed by Sinopec Corp. in the ordinary and
usual course of its business;
(ii) has been conducted either (a) on normal commercial
terms (which expression will be applied by reference
to transactions of a similar nature and to be made by
similar entities in the PRC); or (b) on terms no less
favourable than those available to (or from)
independent third parties, or (c) where there is no
available comparison for the purpose of determining
whether (a) or (b) is satisfied, on terms that are
fair and reasonable so far as the shareholders of
Sinopec Corp. are concerned;
(iii) has been performed in accordance with the terms of
each of the De-minimus On-going Connected Transactions
and is in the interest of shareholders of Sinopec
Corp. as a whole;
(iv) the aggregate value of each of the following
De-minimus On-going Connected Transactions (other than
the Land Use Rights Leasing Agreement and the
Properties Leasing Agreement will not exceed the
limits set out below or 3% of the net tangible asset
value of the Company (whichever is lower). For the
Land Use Rights Leasing Agreement and the Properties
Leasing Agreement, the value of the Land Use Rights
Leasing Agreement and the Properties Leasing Agreement
shall not exceed their respective limit set out below
or the aggregate value under the two agreements shall
not exceed 3% of the net tangible asset value of the
Company (whichever is lower):
De-minimus On-going Connected Transactions Caps
Intellectual Property Licence Agreements
annual payment by the Company RMB 35 million
Agency Agreement
agency fees payable by the Ethylene Enterprises RMB 70 million
Land Use Rights Leasing Agreement
annual rents payable by the Company RMB 2.15 billion
Properties Leasing Agreement
annual rents payable by the Company RMB 730 million
(b) the independent directors of Sinopec Corp. shall review
annually each of the De-minimus On-going Connected
Transactions and confirm in Sinopec Corp.'s annual report
that the De-minimus On-going Connected Transactions have
been conducted in the manner stated in condition (a) above;
(c) the auditors of Sinopec Corp. shall review annually each of
the De-minimus On-going Connected Transactions and confirm
to the Board (a copy of which shall be provided to the
Listing Division of the Stock Exchange) whether:
(i) each of the De-minimus On-going Connected Transactions
received the approval of the Board;
(ii) each of the De-minimus On-going Connected Transactions
has been entered into at amounts consistent with the
pricing policies as stated in the relevant agreements;
(iii) each of the De-minimus On-going Connected Transactions
has been performed in accordance with the terms of the
De-minimus On-going Connected Transactions or, where
there is no agreement, on terms no less favourable
than those terms available to (or from) independent
third parties; and
(iv) the total amount paid in that year has exceeded the
relevant cap amount stated above.
Where, for whatever reason, the auditors decline to accept
the engagement or are unable to provide the letter referred
to above, the Board shall contact the Listing Division of
the Stock Exchange immediately; and
(d) details of each of the De-minimus On-going Connected
Transactions shall be disclosed as required under rule
14.25(1)(A) to (D) of the Listing Rules in the next and each
successive annual report and accounts of Sinopec Corp. for
each financial year during the subsistence of each of the
De-minimus On-going Connected Transactions, together with a
statement of the opinion of the independent directors
referred to in condition (b) above.
If any term of each of the De-minimus On-going Connected
Transactions as mentioned above is altered or if Sinopec Corp. enters
into any new agreement with any connected persons (within the meaning of
the Listing Rules) in the future, Sinopec Corp. must comply with the
provisions of Chapter 14 of the Listing Rules governing connected
transactions unless it applies for and obtains a separate waiver from
the Stock Exchange.
2.4.2 Major On-going Connected Transactions
As the Directors of Sinopec Corp. consider that it would be
impracticable for Sinopec Corp. to comply strictly with the disclosure
and shareholders' approval requirements of the Listing Rules on each
occasion when the Major On-going Connected Transactions arise, Sinopec
Corp. has applied to the Stock Exchange for a new waiver of the Major
On-going Connected Transactions for a period of three financial years up
to 31 December 2006 from strict compliance with such disclosure and
shareholders' approval requirements, subject to the following
conditions:
(a) each of the Major On-going Connected Transactions:
(i) has been performed by Sinopec Corp. in the ordinary and
usual course of its business;
(ii) has been conducted either (a) on normal commercial
terms (which expression will be applied by reference
to transactions of a similar nature and to be made by
similar entities in the PRC); or (b) on terms no less
favourable than those available to (or from)
independent third parties, or (c) where there is no
available comparison for the purpose of determining
whether (a) or (b) is satisfied, on terms that are
fair and reasonable so far as the shareholders of
Sinopec Corp. are concerned;
(iii) has been performed in accordance with the terms of
each of the Major On-going Connected Transactions and
is in the interest of shareholders of Sinopec Corp. as
a whole;
(iv) the aggregate value of the following Major On-going
Connected Transactions will not exceed the limits set
out below:
Major On-going Connected Transactions Caps
Safety Production Insurance Fund Document
annual amount payable by the Company The amount
specified in the
SPI Fund Document
Mutual Supply Agreement
(i) annual expenditures of the Company in respect 18% of the total
of products and services (except financial services) operating expenses
provided by the Sinopec Group
(ii) annual revenues derived by the Company in 14% of the total
respect of products and services (except provision operating revenues
of guarantee) provided by the Company to
the Sinopec Group
(iii) the aggregate of average month-end amount of 2.5% of the total
deposits and total amount of interest received in operating revenues
respect of these deposits
Community Services Agreement
annual expenditures for the provision of products and services by 2% of the total
the Sinopec Group to the Company operating expenses
Sinopec Corp. is required to disclose in each of its annual
report the total amount of operating expenses and operating
revenues of the relevant financial year, and the historical
value of the fixed assets and the average month-end
inventory value of the Company for the purpose of
calculating the insurance premium payable by the Company;
(b) the independent directors of Sinopec Corp. shall review
annually each of the Major On-going Connected Transactions
and confirm in Sinopec Corp.'s annual report that the Major
On-going Connected Transactions have been conducted in the
manner stated in condition (a) above;
(c) the auditors of Sinopec Corp. shall review annually each of
the Major On-going Connected Transactions and confirm to the
Board (a copy of which shall be provided to the Listing
Division of the Stock Exchange) whether:
(i) each of the Major On-going Connected Transactions
received the approval of the Board;
(ii) each of the Major On-going Connected Transactions has
been entered into at amounts consistent with the
pricing policies as stated in the relevant agreements;
(iii) each of the Major On-going Connected Transactions has
been performed in accordance with the terms of the
Major On-going Connected Transactions or, where there
is no agreement, on terms no less favourable that
those terms available to (or from) independent third
parties; and
(iv) the total amount paid in that year has exceeded the
relevant cap amount stated above.
Where, for whatever reason, the auditors decline to accept
the engagement or are unable to provide the letter referred
to above, the Board shall contact the Listing Division of
the Stock Exchange immediately;
(d) details of each of the Major On-going Connected Transactions
shall be disclosed as required under rule 14.25(1)(A) to (D)
of the Listing Rules in the next and each successive annual
report and accounts of Sinopec Corp. for each financial year
during the subsistence of each of the Major On-going
Connected Transactions, together with a statement of the
opinion of the independent directors referred to in
condition (b) above; and
(e) the approval of the Major On-going Connected Transactions by
the Independent Shareholders at the EGM.
If any term of each of the Major On-going Connected Transactions
as mentioned above is altered or if Sinopec Corp. enters into any new
agreement with any connected persons (within the meaning of the Listing
Rules) in the future, Sinopec Corp. must comply with the provisions of
Chapter 14 of the Listing Rules governing connected transactions unless
it applies for and obtains a separate waiver from the Stock Exchange.
3. RECOMMENDATION
The Board (including the Independent Directors) considers that the terms
of each of the On-going Connected Transactions are based on normal commercial
terms, are fair and reasonable to its Independent Shareholders and are in the
interests of Sinopec Corp. and the shareholders as a whole.
▇▇▇▇ has been appointed as an independent financial adviser to advise
the Independent Directors in respect of the Major On-going Connected
Transactions and the New Caps.
The Independent Directors, namely ▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇ Tsu ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇ ▇▇▇ ▇▇▇▇▇▇▇ and ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, having taken into account the
advice of CLSA, consider that the Major On-going Connected Transactions and
the New Caps are fair and reasonable so far as the Independent Shareholders
are concerned and accordingly recommend the Independent Shareholders vote in
favour of the ordinary resolutions which will be proposed at the EGM.
The text of the letter from the Independent Directors is set out on page
18 of this circular and the text of the letter from CLSA containing its advice
is set out on pages 19 to 27 of this circular.
4. EGM
You will find on pages 31 and 33 of this circular a notice of the EGM to
be held at Sinopec Corp.'s Offices ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇ on Thursday, 18 December 2003 at 9:00 a.m.
A form of proxy for use in connection with the EGM is enclosed. Whether
or not you are able to attend the meeting, please complete and return the
enclosed form of proxy in accordance with the instructions printed thereon as
soon as practicable and in any event not less than 24 hours before the time
appointed for holding the meeting. Completion and return of the form of proxy
will not preclude you from attending and voting in person at the meeting or at
any adjourned meeting should you so wish.
Sinopec Group Company and its associates will abstain from voting at the
EGM.
5. GENERAL INFORMATION
Your attention is drawn to the texts of the letter from the Independent
Directors and from CLSA containing their recommendation regarding the Major
On-going Connected Transactions and the New Caps.
Yours faithfully,
China Petroleum & Chemical Corporation
▇▇▇▇ ▇▇▇▇▇▇▇
Chairman
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LETTER FROM THE INDEPENDENT DIRECTORS
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[GRAPHIC OMITTED][GRAPHIC OMITTED]
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
31 October 2003
To the Independent Shareholders
Dear Sir or Madam,
On-going Connected Transactions
INTRODUCTION
We refer to the circular (the "Circular") dated 31 October 2003 issued
by Sinopec Corp. to its shareholders of which this letter forms part. The
terms defined in the Circular shall have the same meanings when used in this
letter, unless the context otherwise requires.
We are writing to you to set out our recommendation on whether or not
the Major On-going Connected Transactions are fair and reasonable so far as
the Independent Shareholders are concerned. The terms of the Major On-going
Connected Transactions are summarised in the letter from the Chairman. In
considering the fairness and reasonableness, the Independent Directors have
been advised by CLSA. You are strongly urged to read ▇▇▇▇'s letter to the
Independent Directors which is set out on pages 19 to 27 of this Circular.
RECOMMENDATION
We have discussed with the management of Sinopec Corp. the Major On-going
Connected Transactions.
The Independent Directors concur with the views of CLSA and consider
that the Major On-going Connected Transactions and the New Caps are fair and
reasonable so far as the Independent Shareholders are concerned. Accordingly,
the Independent Directors unanimously recommend the Independent Shareholders
vote in favour of the ordinary resolution set out in the notice of the EGM.
Yours faithfully
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
Chairmen
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LETTER FROM CLSA EQUITY CAPITAL MARKETS LIMITED
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[GRAPHIC OMITTED][GRAPHIC OMITTED]
31 October 2003
To the Independent Directors of
China Petroleum & Chemical Corporation
Dear Sirs,
ON-GOING CONNECTED TRANSACTIONS
We refer to our engagement under which CLSA Equity Capital Markets
Limited ("CLSA") has been appointed to advise the Independent Directors in
connection with the terms of the Major On-going Connected Transactions.
Pursuant to the Listing Rules, transactions covered by Major On-going
Connected Transactions constitute connected transactions for Sinopec Corp. and
are subject to the approval of the Independent Shareholders at general
meeting. Details of the Major On-going Connected Transactions are summarised
in the letter from the Chairman included in the circular dated 31 October 2003
(the "Circular") issued by Sinopec Corp. to its shareholders ("Shareholders"
and individually each a "Shareholder"). This letter has been prepared for
inclusion in the Circular and terms used in this letter have the same meanings
as defined in the Circular unless the context otherwise requires.
In our capacity as independent financial adviser to the Independent
Directors, our role is to give an independent opinion as to whether the terms
of the Major On-going Connected Transactions are fair and reasonable insofar
as the Independent Shareholders are concerned. Our opinion letter to the
Independent Directors has been prepared and delivered in accordance with the
requirements of the Listing Rules for the purposes of assisting the
Independent Directors in their duties to evaluate the terms of the Major
On-going Connected Transactions and for no other reason. The assumptions made
and the analysis conducted in our letter were undertaken in accordance with
the customs and practices employed in similar transactions in Hong Kong.
In formulating our opinion, we have relied on the information, opinions
and facts supplied, and representations made to us, by the Directors and
representatives of the Company (including those contained or referred to in
the Circular) and have assumed that all such information, opinions, facts and
representations, which have been provided by the Directors and such
representatives, and for which they are wholly responsible, are true and
accurate in all respects. We have also relied on certain information available
to the public and we have assumed such information to be accurate and
reliable, and we have not independently verified the accuracy of such
information. Further, we have relied on the representations of the Directors
that they have made all reasonable inquiries, and to the best of their
knowledge and belief, that there are no other facts, the omission of which
would make any statement contained in the Circular untrue or misleading. We
have also assumed that statements and representations made or referred to in
the Circular were accurate at the time they were made and continue to be
accurate at the date of despatch of the Circular.
We consider that we have reviewed sufficient information to enable us to
reach an informed view and to justify relying on the accuracy of the
information provided in the Circular as well as to provide a reasonable basis
for our advice. We have not, however, made any independent evaluation or
appraisal of, nor have we conducted any form of independent investigation
into, the business affairs or assets and liabilities of the Company and
Sinopec Group. Additionally, we did not conduct any physical inspection of the
properties or facilities of the Company or Sinopec Group. It is not within our
terms of reference to comment on the commercial feasibility of the Major
On-going Connected Transactions, which remains the responsibility of the
Directors. As the independent financial adviser to the Independent Directors,
we have not been involved in the negotiations in respect of the terms of the
Major On-going Connected Transactions. Our opinion with regard to the terms
thereof has been made on the assumption that all obligations to be performed
by each of the parties to the Major On-going Connected Transactions will be
fully performed in accordance with the terms thereof.
Our opinion is necessarily based upon market, economic and other
conditions as they existed and could be evaluated on, and on the information
publicly available to us as of the date of the opinion. We have no obligation
to update this opinion to take into account events occurring after the date
that this opinion is delivered to the Independent Directors. As a result,
circumstances could develop prior to the taking effect of the Major On-going
Connected Transactions that, if known at the time we rendered our opinion,
would have altered our opinion.
CLSA is a deemed licensed corporation under the Securities and Futures
Ordinance for type 4 (advising on securities) and type 6 (advising on
corporate finance) regulated activity. Together with its affiliates, CLSA
provides a full range of investment banking and broking services, which, in
the course of normal trading activities, may from time to time effect
transactions and hold securities, including derivative securities, of the
Company for our own account and the accounts of customers. We will receive a
fee from Sinopec Corp. for rendering this opinion. Sinopec Corp. has also
agreed to indemnify CLSA and certain related persons against certain
liabilities and expenses in connection with this engagement.
PRINCIPAL FACTORS AND REASONS CONSIDERED
In arriving at our opinion with regard to the terms of the Major
On-going Connected Transactions, we have considered the principal factors and
reasons set out below. None of these factors or reasons considered by us was
assigned a greater significance than any other. We did not form a conclusion
as to whether any individual factors or reasons, considered in isolation,
supported or failed to support our opinion, although we are not aware of any
matter which would have rendered our opinion differently by the results of our
analyses of any such individual factors or reasons. Rather, in reaching our
conclusion, we have considered the results of the analyses in light of each
other and ultimately reached our opinion based on the results of all analyses
taken as a whole.
1. The Major On-going Connected Transactions:
In preparation for its listing, Sinopec Corp. and Sinopec Group Company
entered into a number of agreements in 2000 governing the on-going connected
transactions between their respective groups. These agreements include the
Mutual Supply Agreement, the Community Services Agreement, the Land Use Rights
Leasing Agreement, the Properties Leasing Agreement, the Intellectual Property
Licence Agreements, the Agency Agreement and the SPI Fund Document. On 11 June
2001, due to the on-going connected transactions arising from the acquisition
of Sinopec National Star Petroleum Company, Sinopec Corp. and Sinopec Group
Company entered into the On-going Connected Transaction Adjustment Agreement
to amend the terms of the Mutual Supply Agreement, the Community Services
Agreement, the Land Use Rights Leasing Agreement and the Properties Leasing
Agreement.
Additionally, Sinopec Corp. is required to make payment to the Safety
Production Insurance Fund (the "SPI fund") established by the Sinopec Group
Company under the SPI Fund Document. The on-going connected transactions
covered by the SPI Fund Document, the Mutual Supply Agreement and the
Community Services Agreement constitute the Major On-going Connected
Transactions.
We have reviewed the terms of agreements entered into between Sinopec
Corp. and Sinopec Group Company that govern the Major On-going Connected
Transactions, and we have noted the followings:
1) The SPI Fund
We note that the SPI Fund was established by Sinopec Group Company
with the approval of the Ministry of Finance with the aim to provide
insurance cover on a consolidated basis on certain assets used in the
operations of the Company.
We note that, under the SPI Fund Document, Sinopec Corp. is
required to pay twice a year an insurance premium amounting to 0.2% of
the historical value of the fixed assets and the average month-end
inventory value of the Company of the previous six months. After Sinopec
Group Company has received the semi-annual premium from Sinopec Corp.,
Sinopec Group Company will refund to Sinopec Corp. 20% of the paid
premium if Sinopec Corp. pays the premium on time or 17% of the paid
premium if Sinopec Corp. does not pay the premium on time. Such refunded
amount shall be used by Sinopec Corp. in dealing with accidents and
potential risks and safety measures, in safety education and training,
in preventing major accidents and potential risks, and as awards to
units and individuals who have made a special contribution to safety
production.
We understand that the above mentioned arrangements concerning the
SPI Fund are in accordance with the relevant regulations as specified by
the Ministry of Finance.
2) Mutual Supply Agreement
We note that Sinopec Corp. has entered into the Mutual Supply
Agreement with Sinopec Group Company, the term of which is continuing
until terminated by both parties as amended by the On-going Connected
Transaction Adjustment Agreement. According to the Mutual Supply
Agreement, Sinopec Group Company agrees to provide the Company supply
services, storage and transportation services, ancillary production
services and financial services, and Sinopec Corp. agreed to provide
Sinopec Group Company certain products and services, at:
(i) government-prescribed price;
(ii) where there is no government-prescribed price but where
there is government-guidance price, the government-guidance
price will apply;
(iii)where there is neither a government-prescribed price nor a
government-guidance price, the market price will apply; or
(iv) where none of the above is applicable, the price is to be
agreed between the relevant parties for the provision of the
above products or services, which shall be the reasonable
cost incurred in providing the same plus not more than 6% of
such cost.
We understand that the Directors believe that, due to the
location of the Company's facilities, the proximity between the Company
and Sinopec Group Company as well as the scarcity of third party
providers of comparable products and services, the arrangements as
covered by the Mutual Supply Agreement are beneficial to the continual
and effective operation of the Company.
We also note that the priority of the pricing mechanism is set
under (i) to (iv) above such that the pricing mechanism in (iv) would
only apply where the pricing mechanisms under (i) to (iii) are not
applicable. In case where the pricing mechanism in (iv) above applies,
we note that a margin will be charged by the provider of the above
products or services. We understand from the Directors that such margin
has been set after taking into account, inter-alia, the potential
administrative expenses incurred by the provider of such products and
services as well as the market profit rate required by companies
comparable to the provider of such products and services. We have
considered the Directors' views as to the potential volume of the
aforesaid expenses and profit rate and we also note that the margin in
(iv) above shall not be more than 6% of the relevant reasonable cost
and shall apply mutually between Sinopec Corp. and Sinopec Group
Company.
Based on the above, we are of the opinion that the above
mentioned pricing mechanism is fair and reasonable so far as the
Independent Shareholders are concerned.
3) Community Services Agreement
We note that Sinopec Group Company and Sinopec Corp. entered into
the Community Services Agreement, whereby Sinopec Group Company agreed
to provide cultural, educational and hygiene services and community
services to the Company. As amended by the On-going Connected
Transaction Adjustment Agreement, the term of the Community Services
Agreement is continuing until terminated by the parties.
The services under the Community Services Agreement are provided
in accordance with the same pricing policy as that of the Mutual Supply
Agreement. We have discussed with the Directors and understand that the
pricing policy for the Community Services Agreement is set on basis of
the same factors and reasons as set out above for the Mutual Supply
Agreement. We have considered these factors and reasons which are the
same as those set out above for the Mutual Supply Agreement and we are
of the opinion that the pricing mechanism for the Community Services
Agreement is fair and reasonable so far as the Independent Shareholders
are concerned.
Further details of Major On-going Connected Transactions are set
out in the letter from the Chairman contained in the Circular.
Having considered all of the above principal factors and reasons,
including the pricing mechanism of each of the Major On-going Connected
Transactions listed above, we are of the opinion that the terms of the
Major On-going Connected Transactions are fair and reasonable so far as
the Independent Shareholders are concerned.
2. New waivers to be sought
As the Directors consider that it would be impracticable for Sinopec
Corp. to comply strictly with the disclosure and shareholders' approval
requirements of the Listing Rules on each occasion when the Major On-going
Connected Transactions arise, Sinopec Corp. has applied to the Stock Exchange
for a new waiver of the Major On-going Connected Transactions for a period of
three financial years up to 31 December 2006 from strict compliance with such
disclosure and shareholders' approval requirements, subject to the following
conditions:
(a) each of the Major On-going Connected Transactions:
(i) has been performed by Sinopec Corp. in the ordinary and usual
course of its business;
(ii) has been conducted either (a) on normal commercial terms
(which expression will be applied by reference to
transactions of a similar nature and to be made by similar
entities in the PRC); or (b) on terms no less favourable
than those available to (or from) independent third parties;
or (c) where there is no available comparison for the
purpose of determining whether (a) or (b) is satisfied, on
terms that are fair and reasonable so far as the
shareholders of Sinopec Corp. are concerned;
(iii)has been performed in accordance with the terms of each of
the Major On-going Connected Transactions and is in the
interest of shareholders of Sinopec Corp. as a whole;
(iv) the aggregate value of the following Major On-going
Connected Transactions will not exceed the limits set out
below:
Major On-going Connected Transactions Caps
SPI Fund Document
annual amount payable by the Company The amount specified in
the SPI Fund Document
Mutual Supply Agreement
(i) annual expenditures of the Company in respect 18% of the total operating
of products and services (except financial expenses
services) provided by the Sinopec
Group
(ii) annual revenues derived by the Company in respect 14% of the total operating
of products and services (except provision of revenues
guarantee) provided by the Company to the Sinopec Group
(iii) the aggregate of average month-end amount of 2.5% of the total
deposits and total amount of interest received in operating revenues
respect of these deposits
Community Services Agreement
annual expenditures for the provision of products and 2% of the total operating
services by the Sinopec Group to the Company expenses
(b) the Independent Directors of Sinopec Corp. shall review annually
each of the Major On-going Connected Transactions and confirm in
Sinopec Corp.'s annual report that the Major On-going Connected
Transactions have been conducted in the manner stated in condition
(a) above;
(c) the auditors of Sinopec Corp. shall review annually each of the
Major On-going Connected Transactions, and confirm to the Board
annually (a copy of which shall be provided to the Listing
Division of the Stock Exchange) whether:
(i) each of the Major On-going Connected Transactions received the
approval of the Board;
(ii) each of the Major On-going Connected Transactions has been
entered into at amounts consistent with the pricing policies
as stated in the relevant agreements;
(iii) each of the Major On-going Connected Transactions has been
performed in accordance with the terms of the Major On-going
Connected Transactions or, where there is no agreement, on
terms no less favourable that those terms available to (or
from) independent third parties; and
(iv) the total amount paid in that year has been exceeded the
relevant cap amount stated above.
We note that if the auditors, for whatever reason, decline to
accept the engagement or are unable to provide the letter referred to
above, the Board shall contact the Listing Division of the Stock
Exchange immediately; and
(d) details of each of the Major On-going Connected Transactions shall
be disclosed as required under rule 14.25(1)(A) to (D) of the
Listing Rules in the next and each successive annual report and
accounts of Sinopec Corp. for each financial year during the
subsistence of each of the Major On-going Connected Transactions,
together with a statement of the opinion of the independent
directors referred to in condition (b) above.
We note that, other than:
-- the proposed cap in respect of the annual revenues derived
by the Company for products and services (except provision
of guarantee) provided by it to the Sinopec Group under the
Mutual Supply Agreement, which is proposed to decrease to
14% of the Company's total operating revenue under the new
waiver from the annual limit of 16% as set out in the
Existing Waiver; and
-- the proposed cap in respect of the Community Services
Agreement, which is proposed to decrease to 2% of the
Company's total operating expenses under the new waiver from
the annual limit of 3% as set out in the Existing Waiver,
all the other proposed annual caps applied for in respect of the Major
On-going Connected Transactions (other than the guarantees by the Company to
the Sinopec Group in respect of the Mutual Supply Agreement) under the new
waivers are the same as those under the Existing Waivers.
We note that for the three financial years ended 31 December 2002, the
expenditures of the Company for products and services provided by members of
the Sinopec Group (except financial services) being the subject matter of the
Mutual Supply Agreement were approximately RMB33,615 million, RMB37,101
million and RMB45,365 million respectively, representing approximately 11.43%,
12.74% and 14.55% respectively of the total operating expenses of the Company
for the relevant periods. The corresponding new cap is proposed to be the same
at 18% of the Company's total operating expenses as that under the Existing
Waivers.
In respect of the annual revenues derived by the Company for products
and services (except provision of guarantee) provided to the Sinopec Group
under the Mutual Supply Agreement, the annual limit as set out in the Existing
Waivers was 16% of the Company's total operating revenues. For the three
financial years ended 31 December 2002, the revenues derived by Sinopec Corp.
for the products and services provided to member of Sinopec Group (except
provision of guarantees) being the subject matter of the Mutual Supply
Agreement were approximately RMB42,515 million, RMB37,261 million and
RMB36,343 million respectively, representing approximately 12.93%, 11.70% and
10.69% respectively of the total operating revenues of the Company for the
relevant periods. Taking into consideration of the historical revenues derived
by the Company for the provision of products and services to the Sinopec
Group, as well as the Company's projection for each of the four financial
years ended 31 December 2006, the Company proposes that the corresponding
annual cap under the new waiver be lowered to 14% of the Company's total
operating revenues.
We note that for the three financial years ended 31 December 2002, the
aggregate of average month-end amount of deposits and total amount of interest
received in respect of these deposits under the Mutual Supply Agreement
represent approximately 1.26%, 2.20% and 1.55% respectively of the total
operating revenues of the Company for the relevant periods. The corresponding
new cap is proposed to be the same at 2.5% of the Company's total operating
revenues as that under the Existing Waivers.
In respect of the Community Services Agreement, the annual limit as set
out in the Existing Waivers was 3% of the Company's total operating expenses.
We note that for the three financial years ended 31 December 2002, the
expenditures of the Company for products and services provided by Sinopec
Group Company that are subject matter of the Community Services Agreement were
approximately RMB2,493 million, RMB2,000 million and RMB1,945 million
respectively, representing approximately 0.85%, 0.69% and 0.62% respectively
of the total operating expenses of the Company for the relevant periods.
Taking into consideration of the historical expenditures for the receiving of
products and services from the Sinopec Group as subject matters of the
Community Services Agreement, as well as the Company's projection for each of
the four financial years ended 31 December 2006, the Company proposes that the
corresponding annual cap under the new waiver be lowered to 2% of the
Company's total operating expenses.
The Company is also required to disclose in each of its annual report
the total amount of operating expenses and operating revenues of the relevant
financial year, and the historical value of the fixed assets and the average
month-end inventory value of the Company for the purpose of calculating the
insurance premium payable by the Company under the SPI Fund Document.
We have reviewed the historical figures provided by the Company for each
of the Major Ongoing Connected Transactions for the three financial years
ended 31 December 2002 and we have considered the Company's projection for
each of the Major Ongoing Connected Transactions for the four financial years
ended 31 December 2006, including but not limited to, the Directors' views as
to the potential impact of the volatility of future oil prices on the
Company's future total operating revenues and total operating expenses, and we
are of the opinion that, based on the aforesaid, the New Caps in the
application of new waivers for each of the Major On-going Connected
Transactions are fair and reasonable so far as the Independent Shareholders
are concerned.
We note that if any terms of each of the Major On-going Connected
Transactions as mentioned above is altered or if Sinopec Corp. enters into any
new agreements with any connected persons (within the meaning of the Listing
Rules) in the future, Sinopec Corp. must comply with the provisions of Chapter
14 of the Listing Rules governing connected transactions unless it applies for
and obtains a separate waiver from the Stock Exchange.
With the above mentioned conditions stipulated by the Stock Exchange and
considering that the Major On-going Connected Transactions will be carried out
in the ordinary course of business of the Company and on normal commercial
terms (but without conducting any independent confirmation) and in reliance
upon the representations made by Sinopec Corp. and its Directors, we are of
the view that the terms of such agreements and, in the case of the SPI Fund,
the terms of payment by Sinopec Corp., are fair and reasonable so far as the
Independent Shareholders are concerned
OPINION
Having considered the above-mentioned principal factors and reasons, we
are of the opinion that the terms of the Major On-going Connected Transactions
are fair and reasonable so far as the Independent Shareholders are concerned.
Yours faithfully
For and on behalf of
CLSA Equity Capital Markets Limited
▇▇▇ ▇▇▇▇▇▇▇▇▇
Managing Director
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APPENDIX 1 GENERAL INFORMATION
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1. RESPONSIBILITY STATEMENT
This circular includes particulars given in compliance with the Listing
Rules for the purpose of giving information on Sinopec Corp. The Directors
collectively and individually accept full responsibility for the accuracy of
the information contained in this document 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 herein
misleading.
2. DISCLOSURE OF INTERESTS
(a) As at the Latest Practicable Date, none of the Directors,
Supervisors or the chief executive had any interest or short
position in the Shares, underlying Shares and debentures of
Sinopec Corp. or any associated corporations (within the meaning
of the SFO) which (a) were required to be notified to Sinopec
Corp. and the Stock Exchange pursuant to Divisions 7 and 8 of Part
XV of the SFO (including interests and short positions which the
Director is taken or deemed to have under such provisions of the
SFO; or (b) were required, pursuant to section 352 of the SFO to
be entered into the register referred to therein; or (c) were
required, pursuant to the Model Code for Securities Transactions
by Directors of Listed Companies, to be notified to Sinopec Corp.
and the Stock Exchange.
(b) As at the Latest Practicable Date, so far as is known to the
Directors, Supervisors and chief executive of Sinopec Corp., the
following persons were directly or indirectly interested in 10 per
cent. or more of the nominal value of any class of share capital
of Sinopec Corp. and their short position in the Shares and
underlying Shares of Sinopec Corp. which would fall to be
disclosed to Sinopec Corp. under provisions of Divisions 2 and 3
of Part XV of the SFO:
Number of Percentage of total
Name of Shareholders H Shares issued H share capital
(in millions) (%)
HKSCC Nominee Limited 9,655 57.54
ExxonMobil Far East Holdings Ltd 3,169 18.88
Shell Eastern (PTE) Ltd 1,966 11.72
bp Oil Espana S.A. 1,829 10.90
Percentage of total
Number of domestic share capital
Name of Shareholders Domestic Shares (including A shares)
(in millions) (%)
China Petrochemical Corporation 47,742.561 68.28
State-owned shares
China Development Bank 8,775.57 12.55
State-owned shares
China ▇▇▇▇▇ Asset Management Corporation 8,720.65 12.47
State-owned shares
Save as disclosed above, so far as is known to the Directors,
Supervisors and the chief executive of Sinopec Corp., as at the
Latest Practicable Date, there was no other person who has an
interest in the shares and underlying shares of Sinopec Corp.
which would fall to be disclosed to Sinopec Corp. under the
provisions of Divisions 2 and 3 of Part XV of the SFO or who was
interested, directly or indirectly, in 10 per cent. or more of the
nominal value of any class of share capital carrying rights to
vote in all circumstances at general meetings of Sinopec Corp. or
particulars of any options in respect of such capital.
(c) As at the Latest Practicable Date, none of the Directors or
Supervisors was materially interested in any contract or
arrangement which was significant in relation to the business of
Sinopec Corp.
(d) As at the Latest Practicable Date, none of the Directors or
Supervisors had entered, or proposed to enter, into a service
contract with Sinopec Corp. or any member of the Company which is
not determinable by the employer within one year without payment
of compensation, other than statutory compensation.
(e) As at the Latest Practicable Date, none of the Directors or
Supervisors or parties referred to in paragraph 4 of this Appendix
had any direct or indirect interest in any asset which had been
acquired, or disposed of by, or leased to any member of the
Company, or was proposed to be acquired, or disposed of by, or
leased to any member of the Company since 30 June 2003, the date
to which the latest audited published financial statements of
Sinopec Corp. were made up.
(f) As at the Latest Practicable Date, none of the parties referred to
in paragraph 4 of this Appendix has any shareholding in any member
of the Company or the right (whether legally enforceable or not)
to subscribe for or to nominate persons to subscribe for
securities in any member of the Company.
3. MATERIAL ADVERSE CHANGE
The Directors are not aware of any material adverse change in the
financial or trading position of Sinopec Corp. since 30 June 2003, the date to
which the latest published audited consolidated financial statements of
Sinopec Corp. were made up.
4. QUALIFICATIONS OF EXPERT
Name Qualifications
CLSA deemed licensed corporation under the SFO for type 4
(advising on securities) and type 6 (advising on
corporate finance) regulated activity
5. CONSENT OF EXPERT
CLSA has given and has not withdrawn its respective written consent to
the issue of this circular with inclusion of its opinion and/or the references
to its name in the form and context in which it is included.
6. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following document will be available for inspection at the
registered office of Sinopec Corp. at A6 Huixindong Street, Chaoyang District,
Beijing, China during normal business hours up to and including 18 December
2003:
(a) the articles of association of Sinopec Corp.;
(b) copies of each of the agreements relating to the Major On-going
Connected Transactions;
(c) the letter from CLSA; and
(d) the letter from the Independent Directors.
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NOTICE OF EGM
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[GRAPHIC OMITTED][GRAPHIC OMITTED]
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
NOTICE OF THE THIRD EXTRAORDINARY GENERAL MEETING
FOR THE YEAR 2003
NOTICE IS ▇▇▇▇▇▇ GIVEN that the third extraordinary general meeting (the
"EGM") of China Petroleum & Chemical Corporation ("Sinopec Corp.") for the
year 2003 will be held at the Sinopec Corp.'s Offices at ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, the People's Republic of China ("PRC") on
Thursday, 18 December 2003 at 9:00 a.m. for the following purposes:
To consider and approve the following matter by way of Ordinary
Resolutions:
1. THAT the Major On-going Connected Transactions be and are hereby
approved and that the board of directors of Sinopec Corp. be and
is hereby authorised to do all such further acts and things and
execute all such further documents and take all such steps which
in its opinion may be necessary in connection with the Major
On-going Connected Transactions.
2. THAT the De-minimus On-going Connected Transactions be and are
hereby approved and that the board of directors of Sinopec Corp.
be and is hereby authorised to do all such further acts and things
and execute all such further documents and take all such steps
which in its opinion may be necessary in connection with the
De-minimus On-going Connected Transactions.
By Order of the Board
▇▇▇▇ ▇▇
Secretary to the Board of Directors
Beijing, PRC, 28 October 2003
Notes:
1. ELIGIBILITY FOR ATTENDING THE EGM
Holders of Sinopec Corp.'s H shares whose names appear on the register
of members of Sinopec Corp. maintained by Hong Kong Registrars Limited and
holders of domestic shares whose names appear on the domestic shares register
maintained by China Registration and Clearing Company Limited Shanghai Branch
Company at the close of business on Tuesday, 18 November 2003 are eligible to
attend the EGM. In order to be eligible to attend and vote at the EGM, all
transfers accompanied by the relevant share certificates must be lodged with
the share registrars for H shares of Sinopec Corp. in Hong Kong not later than
4:00 p.m. on Monday, 17 November 2003.
2. PROXY
(a) A member eligible to attend and vote at the EGM is entitled to
appoint, in written form, one or more proxies to attend and vote
on its behalf. A proxy need not be a shareholder.
(b) A proxy should be appointed by a written instrument signed by the
appointor or its attorney duly authorised in writing. If the form
of proxy is signed by the attorney of the appointor, the power of
attorney authorising that attorney to sign or other authorisation
document(s) must be notarised.
(c) To be valid, the power of attorney or other authorisation
document(s) which have been notarised together with the completed
form of proxy must be delivered, in the case of holders of
domestic shares, to Sinopec Corp. and, in the case of holders of H
shares, to Hong Kong Registrars Limited , not less than 24 hours
before the time designated for holding of the EGM.
(d) A proxy may exercise the right to vote by a show of hands or by
poll. However, if more than one proxy is appointed by a
shareholder, such proxies shall only exercise the right to vote by
poll.
3. REGISTRATION PROCEDURES FOR ATTENDING THE EGM
(a) A shareholder or his proxy shall produce proof of identity when
attending the meeting. If a shareholder is a legal person, its
legal representative or other persons authorised by the board of
directors or other governing body of such shareholder may attend
the EGM by producing a copy of the resolution of the board of
directors or other governing body of such shareholder appointing
such persons to attend the meeting.
(b) Shareholders intending to attend the EGM should return the reply
slip for attending the EGM to Sinopec Corp. on or before Thursday,
27 November 2003.
(c) Shareholders may send the above reply slip to Sinopec Corp. in
person, by post or by fax.
4. CLOSURE OF REGISTER OF MEMBERS
The register of members of Sinopec Corp. will be closed from Tuesday, 18
November 2003 to Thursday, 18 December 2003 (both days inclusive).
5. OTHER BUSINESS
(a) The EGM will not last for more than one day. Shareholders who
attend shall bear their own travelling and accommodation expenses.
(b) The address of the share registrar for H shares of Sinopec Corp.,
Hong Kong Registrars Limited, is at:
Rooms 1712-1716, 17th Floor
Hopewell Centre
▇▇▇ ▇▇▇▇▇'▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇
(c) The registered address of Sinopec Corp. is at:
A6 ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
The People's Republic of China
Telephone No.: (▇▇▇) ▇▇ ▇▇▇▇ ▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇ ▇▇▇▇ ▇▇▇▇
[GRAPHIC OMITTED][GRAPHIC OMITTED]
(a joint stock limited company incorporated in the People's Republic of China
with limited liability
Proxy Form for the Third Extraordinary General Meeting for the Year 2003
---------------------------
Number of Shares related
to this proxy form (note 1)
---------------------------
I (We) (note 2)
____________________________________________________________________________
of _________________________________________________________________________
being the holder(s) of (note 1) ____________________________ H Share(s)/
domestic Share(s) (note 3) of China Petroleum & Chemical Corporation
("Sinopec Corp.") of RMB1.00 each now appoint (note 4)______________________
(I.D. No.: _________________________ of ____________________________________
the chairman of the meeting as my (our) proxy to attend and vote for me (us)
on the following resolutions in accordance with the instruction(s) below and
on my (our) behalf at the third extraordinary general meeting of Sinopec
Corp. for the year 2003 ("EGM") to be held at 9:00 a.m. on Thursday, 18
December 2003 at Sinopec Corp.'s Offices at ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, the People's Republic of China ("PRC") (or at any
adjournment thereof) for the purpose of considering and, if thought fit,
passing the resolutions as set out in the notice convening the EGM. In the
absence of any indication, the proxy may vote for or against the resolutions
at his own discretion. (note 5)
--------------------------------------------------------------------------------------------------------------------
Ordinary Resolutions: For (note 5) Against (note 5)
--------------------------------------------------------------------------------------------------------------------
1. THAT the Major On-going Connected Transactions be and are hereby approved
and that the board of directors of Sinopec Corp. be and is hereby
authorised to do all such further acts and things and execute all such
further documents and take all such steps which in its opinion may be
necessary in connection with the Major Ongoing Connected Transactions.
--------------------------------------------------------------------------------------------------------------------
2. THAT the De-minimus On-going Connected Transactions be and are hereby
approved and that the board of directors of Sinopec Corp. be and is hereby
authorised to do all such further acts and things and execute all such
further documents and take all such steps which in its opinion may be
necessary in connection with the De-minimus On-going Connected
Transactions.
--------------------------------------------------------------------------------------------------------------------
Date: ___________________________________ 2003 Signature: _________________________________ (note 6)
Notes:
1. Please insert the number of share(s) registered in your name(s)
relating to this form of proxy. If no number is inserted, this form of
proxy will be deemed to relate to all of the shares in the capital of
Sinopec Corp. registered in your name(s).
2. Please insert full name(s) and address(es) in BLOCK LETTERS. 3. Please
delete as appropriate.
4. Please insert the name and address of your proxy. If this is left
blank, the chairman of the EGM will act as your proxy. One or more
proxies, who may not be member(s) of Sinopec Corp., may be appointed
to attend and vote in the meeting provided that such proxies must
attend the meeting in person on your behalf. Any alteration made to
his proxy form must be signed by the signatory.
5. Attention: If you wish to vote FOR any resolution, please indicate
with a "v" in the appropriate space under "For". If you wish to vote
AGAINST any resolution, please indicate with a "v" in the appropriate
space under "Against". In the absence of any such indication, the
proxy will vote or abstain at his discretion.
6. This form of proxy must be signed under hand by you or your attorney
duly authorized on your behalf. If the appointor is a corporation,
this form must be signed under its common seal or under hand by any
directors or agents duly appointed by such corporation.
7. This form of proxy together with the power of attorney or other
authorization document(s) which have been notarised must be delivered,
in the case of holders of domestic shares, to Sinopec Corp. at A6
Huixindong Street, Chaoyang District, Beijing 100029, the PRC or, in
the case of holders of H Shares, to Hong Kong Registrars Limited at
Rooms 1712-1716, 17th Floor, Hopewell Centre, ▇▇▇ ▇▇▇▇▇'▇ ▇▇▇▇ ▇▇▇▇,
▇▇▇▇ ▇▇▇▇ at least 24 hours before the time designated for the holding
of the EGM.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
Reply Slip for the Third Extraordinary General Meeting for the Year 2003
I (We) (1) ____________________________________________________________________
of_____________________________________________________________________________
being the holder(s) of (2)_____________________________________________________
H share(s)/domestic share(s) of RMB1.00 each in the capital of China Petroleum
& Chemical Corporation ("Sinopec Corp.") hereby confirm that I (we) or my
(our) proxy wish to attend the third extraordinary general meeting of Sinopec
Corp. for the year 2003 (the "EGM") to be held at Sinopec Corp.'s Offices at
A6 Huixindong Street, Chaoyang District, Beijing, the People's Republic of
China ("PRC") at 9.00 a.m. on Thursday, 18 December 2003.
Signature(s): _________________________
Date: _________________________________
Notes:
1. Please insert full name(s) (in Chinese or in English) and registered
address(es) (as shown in the register of members) in block letters.
2. Please insert the number of shares registered under your name(s).
3. The completed and signed reply slip should be delivered by post, by fax
or by hand to Sinopec Corp. (address: A6 Huixindong Street, Chaoyang
District, Beijing, PRC 100029 or fax no.: (▇▇▇) ▇▇ ▇▇▇▇ ▇▇▇▇) on or
before Thursday, 27 November 2003. Failure to sign and return this
reply slip, however, will not preclude an eligible shareholder from
attending the EGM.
