CHINA OVERSEAS PROPERTY HOLDINGS LIMITED Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
CHINA OVERSEAS PROPERTY HOLDINGS LIMITED中 海 物 業 集 團 有 限 公 司
(Incorporated in the Cayman Islands with limited liability)
(Stock Code: 2669)
ANNOUNCEMENT CONTINUING CONNECTED TRANSACTIONS CONTINUING CONNECTED TRANSACTIONSOn 7 August 2017, the Company entered into various framework agreements with CSCEC and CSC, the connected persons of the Company, to govern the continuing connected transactions between the parties including property management services, engineering services, security services and leasing of premises.
IMPLICATION UNDER THE LISTING RULESCSCEC is the ultimate holding company of the Company. COHL, a non-wholly owned subsidiary of CSCEC, is the controlling shareholder of each of CSC and the Company. Therefore, members of each of CSCEC Group and CSC Group are connected persons of the Company, and the Services Transactions and the CSC Leasing Transactions constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules.
As the applicable percentage ratios for the CSC Leasing Caps, the COLI Leasing Caps and the COHL Licensing Caps, when aggregated, are 0.1% or more but less than 5% on an annual basis, the transactions contemplated under the CSC Leasing Agreement are subject to reporting, announcement and annual review requirements but will be exempt from Independent Shareholders' approval requirements pursuant to Chapter 14A of the Listing Rules.
As the applicable percentage ratios for the Services Caps, the COLI Services Caps and the COGO Services Caps, when aggregated, are 5% or more on an annual basis, the transactions contemplated under the Services Agreements are subject to reporting, announcement, annual review and Independent Shareholders' approval requirements pursuant to Chapter 14A of the Listing Rules.
The EGM will be convened for, among others, the Independent Shareholders to approve the Services Agreements, the Services Transactions and the Services Caps. A circular containing, amongst others, further information on the Services Agreements, the Services Transactions and the Services Caps, the recommendation from the Independent Board Committee, the advice and recommendation from the Independent Financial Adviser, and a notice to convene
the EGM will be despatched to the Shareholders on or before 1 September 2017 as the Company expects additional time will be required to prepare and finalise all information in the circular.
INTRODUCTIONOn 7 August 2017, the Company entered into various framework agreements with CSCEC and CSC, the connected persons of the Company, to govern the continuing connected transactions between the parties including property management services, engineering services, security services and leasing of premises.
CONTINUING CONNECTED TRANSACTIONS - SERVICES CSCEC Services TransactionsThe Directors expect that the Group will participate in competitive tender to provide property management services and engineering services to CSCEC Group's commercial properties, residential communities and other projects in the PRC, Hong Kong, Macau and other locations.
On 7 August 2017, CSCEC and the Company entered into the CSCEC Services Agreement, the principal terms of which are summarised as follows:
CSCEC Services Agreement
Date
7 August 2017
Parties
CSCEC
the Company
Duration
Subject to the fulfillment of the condition precedent to the CSCEC Services Agreement, the CSCEC Services Agreement will commence on 1 October 2017 and end on 30 June 2020.
Terms
Pursuant to the CSCEC Services Agreement, any member of the Group may provide property management services and engineering services including automation projects, specialised engineering, and repair and maintenance and upgrade projects of equipment and machinery to CSCEC Group's residential communities, commercial properties and other projects in the PRC, Hong Kong, Macau and other locations. The Group will go through a tender process before being selected and appointed as service provider of CSCEC Group.
The price and terms (including the pricing basis) of the Group's tenders submitted to CSCEC Group are subject to a standard and systematic tender submission procedure maintained by the
Group, which applies to tenders submitted to both connected persons and independent third parties, so as to ensure that the prices and terms of the proposed tenders submitted by the Group to CSCEC Group are no more favourable than those submitted to independent third parties.
Further details of the standard and systematic tender submission procedure of the Group is set out in the paragraph headed "Pricing Basis for Services Transactions" below.
Condition Precedent
The transactions contemplated under the CSCEC Services Agreement (together with the CSCEC Services Caps) are conditional upon the passing of the resolution by the Independent Shareholders at the EGM approving the CSCEC Services Agreement and the transactions contemplated thereunder.
Historical Transaction Amount
The historical amount paid to the Group by CSCEC Group for the three years ended 31 December 2016 and the half year ended 30 June 2017 were as follows:
For the year ended 31 December 2014 | For the year ended 31 December 2015 | For the year ended 31 December 2016 | For the half year ended 30 June 2017 | |
Historical Transaction Amount | HK$1,855,000 | HK$2,703,000 | HK$2,500,000 | HK$1,197,000 |
Caps
The pro-rated estimate for the period commencing on 1 January 2017 and ending 30 September 2017, the CSCEC Services Caps for the period commencing on 1 October 2017 and ending on
31 December 2017, the two years ending 31 December 2018 and 2019 and the period commencing on 1 January 2020 and ending on 30 June 2020 are as follows:
For the period commencing on 1 January 2017 and ending on 30 September 2017 | For the period commencing on 1 October 2017 and ending on 31 December 2017 | For the year ending 31 December 2018 | For the year ending 31 December 2019 | For the period commencing on 1 January 2020 and ending on 30 June 2020 | |
CSCEC Services Caps | HK$2,400,000 | HK$50,100,000 | HK$182,600,000 | HK$312,500,000 | HK$278,800,000 |
Basis of determination of Caps
The CSCEC Services Cap for the period commencing from 1 October 2017 to 31 December
2017 is calculated with reference to (i) the new property management contracts mainly under lump sum basis expected to be entered into between CSCEC Group and the Group towards the end of 2017; (ii) expected increase in demand for property management services with reference to the estimated gross floor area ("GFA") of new properties of CSCEC Group to be completed by the end of 2017; (iii) expected increase in demand for engineering services of the properties of CSCEC Group; and (iv) the estimated 3.1 times increase of GFA under management in the last quarter of 2017. Due to the above expected substantial increase of demand of services, the CSCEC Services Cap for full year 2017 is expected to increase around 15.7 times against last estimate of HK$3.1 million.
The CSCEC Services Cap for the year ending 2018 is projected to increase 247.8% against the projected full year CSCEC Services Cap for 2017 of HK$52.5 million with reference to the estimated GFA of new property projects expected to be developed in 2018 and general inflation. The GFA under management is expected to increase by 4.8 folds in 2018 as compared with 2017.
The CSCEC Services Caps for the year ending 2019 and for the six months ending 30 June 2020 are projected based on increase in demand and general inflation rate with a year on year increase of 71.1% and an annualised year on year increase of 78.4%, respectively. The GFA under management is expected to increase by 189.6% in 2019 as compared with 2018 and increase by 49.3% in first half of 2020 as compared with 2019.
CSC Services TransactionsReference is made to the listing document of the Company dated 14 October 2015 and the announcement of the Company dated 30 June 2016 in relation to (among others) the continuing connected transactions between CSC Group and the Group regarding provision of property management services and security services by the Group to CSC Group under the Previous CSC Services Agreements.
The Directors expect that the Group will participate in competitive tender to provide engineering services and continue to participate in competitive tender to provide property management services to CSC Group's commercial properties, residential communities and other properties in the PRC, Hong Kong, Macau and other locations, and security services to the work sites of CSC Group in the PRC, Hong Kong and Macau.
Occasioned by an expected increase in business transactions between CSC Group and the Group, on 7 August 2017, CSC and the Company entered into the CSC Services Agreement to increase the caps for the property management services and security services transactions under the Previous CSC Services Agreements and renew the transactions thereunder and to add new caps for engineering services under the CSC Services Agreement.
The principal terms of the CSC Services Agreement are summarised as follows:
CSC Services Agreement
Date
7 August 2017
Parties
CSC
the Company
Duration
Subject to the fulfillment of the condition precedent to the CSC Services Agreement, the CSC Services Agreement will commence on 1 October 2017 and end on 30 June 2020.
Terms
Pursuant to the CSC Services Agreement, any member of the Group may provide property management services and engineering services including automation projects, specialised engineering, and repair and maintenance and upgrade projects of equipment and machinery to CSC Group's residential communities, commercial properties and other properties in the PRC, Hong Kong, Macau and other locations, and security services to the work sites of CSC Group in the PRC, Hong Kong and Macau. The Group will go through a tender process before being selected and appointed as service provider of CSC Group.
The price and terms (including the pricing basis) of the Group's tenders submitted to CSC Group are subject to a standard and systematic tender submission procedure maintained by the Group, which applies to tenders submitted to both connected persons and independent third parties, so as to ensure that the prices and terms of the proposed tenders submitted by the Group to CSC Group are no more favourable than those submitted to independent third parties.
Further details of the standard and systematic tender submission procedure of the Group is set out in the paragraph headed "Pricing Basis for Services Transactions" below.
CSC and the Company agreed to terminate the Previous CSC Services Agreements upon the taking effect of the CSC Services Agreement. In the event that the CSC Services Agreement does not become effective, the Previous CSC Services Agreements will remain in full force and binding on CSC and the Company.
Condition Precedent
The transactions contemplated under the CSC Services Agreement (together with the CSC Services Caps) are conditional upon the passing of the resolution by the Independent Shareholders at the EGM approving the CSC Services Agreement and the transactions contemplated thereunder.
Historical Transaction Amount
The historical amount paid/awarded to the Group by CSC Group for the three years ended 31 December 2016 and the half year ended 30 June 2017 were as follows:
For the year ended 31 December 2014 | For the year ended 31 December 2015 | For the year ended 31 December 2016 | For the half year ended 30 June 2017 | |
Historical Transaction Amount | HK$3,325,000 | HK$7,439,000 | HK$11,685,000 | HK$2,046,000 |
Caps
The pro-rated cap under the Previous CSC Services Agreements for the period commencing on 1 January 2017 and ending on 30 September 2017, the CSC Services Caps for the period commencing on 1 October 2017 and ending on 31 December 2017, the two years ending 31
December 2018 and 2019 and the period commencing on 1 January 2020 and ending on 30 June 2020 are as follows:
For the period commencing on 1 January 2017 and ending on 30 September 2017 | For the period commencing on 1 October 2017 and ending on 31 December 2017 | For the year ending 31 December 2018 | For the year ending 31 December 2019 | For the period commencing on 1 January 2020 and ending on 30 June 2020 | |
CSC Services Caps | - | HK$17,400,000 | HK$42,000,000 | HK$42,000,000 | HK$21,000,000 |
Pro-rated cap under the Previous CSC Services Agreements | HK$18,300,000 | - | - | - | - |
Basis of determination of Caps
The CSC Services Cap for the period commencing from 1 October 2017 to 31 December 2017 is calculated with reference to (i) service contracts expected to be awarded to the Group including the expected 44% increase in the security contracts to be awarded for the full year of 2017 as compared with the last estimate; (ii) estimated surplus of pro-rated cap for the period commencing on 1 January 2017 and ending on 30 September 2017 against the pro-rated estimates for the same period; and (iii) increase in demand for engineering services. Due to the above expected increase of demand of services, the CSC Services Cap for full year 2017 is expected to increase 46.9% against last estimate of HK$24.3 million.
The CSC Services Cap for the year ending 31 December 2018 is projected with reference to the expected increase in demand at a rate of 17.6% mainly for contracts expected to be awarded to the Group and general inflation rate against the projected full year CSC Services Cap of 2017.
The CSC Services Caps for the year ending 31 December 2019 and six months ending 30 June
2020 are remained at HK$42.0 million level on an annual basis.
Payment Terms for Services TransactionsThe Group charge property management fees on a monthly basis for property management services and on a per-transaction basis for engineering services and security services and on such payment terms prescribed under the terms of the specific tender or contract.
Pricing Basis for Services TransactionsThe price and terms (including the pricing basis) of the Group's tenders submitted to CSCEC Group and CSC Group are subject to the standard and systematic tender submission procedure maintained by the Group, which applies to tenders submitted to both connected persons and independent third parties.
The procedure involves (i) receiving invitation to tender; (ii) initial assessment of tender documents; (iii) preparation of property management proposal, cost estimation and pricing; (iv) preparation for tender report, internal evaluation and approval of the tender report; and (v) tender submission.
The internal evaluation and approval of tender will be conducted by the head of the relevant business unit or subsidiary of the Group.
The pricing of the Group's property management services, engineering services and security services is based on a number of factors, including (i) estimated expenses, based on factors including the scope and quality of the services required, (ii) the classifications, types and locations of the properties, projects or work sites, (iii) the pricing for comparable properties, projects or work sites, (iv) the local government's guidance price on fees, if any, and (v) the prevailing market rate.
In view of the above pricing basis and policy, the Directors (including the Independent Non- executive Directors) consider that the pricing under the Services Transactions are on normal commercial terms, fair and reasonable and not more favourable than the terms offered by the Group to other independent third parties.
Reasons of and Benefits for the Services TransactionsThe Group is one of the leading property management companies in the PRC with operations also covering Hong Kong and Macau and is principally engaged in property management services and value-added services.
Each of CSCEC Group and CSC Group owned or held residential communities, commercial properties, projects and work sites in the PRC, Hong Kong, Macau and other locations that may require property management services, engineering services and security services provided by the Group from time to time. By entering into each of the Services Agreements, the Group will be able to maintain and expand its revenue generating sources and thereby generate stable income and maximise its profit.
The Directors (other than the Independent Non-executive Directors whose opinion will be provided after reviewing the advice of the Independent Financial Adviser) consider that each of the Services Agreements, their respective terms and the transactions contemplated thereunder
(including each of the Services Caps) are on normal commercial terms, in the ordinary and usual course of business of the Company, fair and reasonable and in the interests of the Company and its Shareholders as a whole.
CONTINUING CONNECTED TRANSACTIONS - LEASING CSC Leasing TransactionsReference is made to the listing document of the Company dated 14 October 2015 and the announcement of the Company dated 30 June 2016 in relation to (among others) the continuing connected transactions between CSC Group and the Group regarding leasing of premises by CSC Group to the Group under the Previous CSC Leasing Agreement.
The Directors expect that the Group will continue to lease premises from CSC Group.
Occasioned by an expected increase in rental transactions between CSC Group and the Group, on 7 August 2017, CSC and the Company entered into the CSC Leasing Agreement to increase the caps for the transactions under the Previous CSC Leasing Agreement and renew the transactions thereunder.
The principal terms of the CSC Leasing Agreement are summarised as follows:
CSC Leasing Agreement
Date
7 August 2017
Parties
CSC
the Company
Duration
The CSC Leasing Agreement will commence on 1 October 2017 and end on 30 June 2020.
Terms
Any members of the Group may lease premises from any members of CSC Group in accordance with the terms of the CSC Leasing Agreement, subject to the tenancy agreement recording other detailed terms and conditions in relation to each particular premises leased and shall be on normal commercial terms and terms no more favourable than those offered to independent third parties.
CSC and the Company agreed to terminate the Previous CSC Leasing Agreement upon the taking effect of the CSC Leasing Agreement.
Historical Transaction Amount
The historical total rent paid by the Group to CSC Group for the three years ended 31 December 2016 and the half year ended 30 June 2017 were as follows:
For the year ended 31 December 2014 | For the year ended 31 December 2015 | For the year ended 31 December 2016 | For the half year ended 30 June 2017 | |
Historical Transaction Amount | HK$47,000 | HK$47,000 | HK$1,853,000 | HK$2,134,000 |
Caps
The pro-rated cap under the Previous CSC Leasing Agreement for the period commencing on 1 January 2017 and ending on 30 September 2017, the CSC Leasing Caps for the period commencing on 1 October 2017 and ending on 31 December 2017, the two years ending 31
December 2018 and 2019 and the period commencing on 1 January 2020 and ending on 30 June 2020 are as follows:
For the period commencing on 1 January 2017 and ending on 30 September 2017 | For the period commencing on 1 October 2017 and ending on 31 December 2017 | For the year ending 31 December 2018 | For the year ending 31 December 2019 | For the period commencing on 1 January 2020 and ending on 30 June 2020 | |
CSC Leasing Caps | - | HK$1,300,000 | HK$5,200,000 | HK$5,200,000 | HK$2,600,000 |
Pro-rated cap under the Previous CSC Leasing Agreement | HK$3,700,000 | - | - | - | - |
Basis of determination of Caps
The CSC Leasing Caps are calculated with reference to the expected renewal of lease agreement between CSC Group and the Group.
Payment Terms for Leasing TransactionsRent for the premises leased by the Group are payable by the Group on a monthly basis and on such payment terms prescribed under the terms of the specific tenancy agreement.
Pricing Basis for CSC Leasing TransactionsThe rent for the premises leased by the Group were determined after arm's length negotiations between the parties, with reference to the prevailing market rentals for comparable properties in the vicinity of similar ages, sizes, uses and attributes.
In view of the above pricing basis, the Directors (including the Independent Non-executive Directors) consider that the pricing under the CSC Leasing Transactions are on normal commercial terms, fair and reasonable and not more favourable than the terms offered to the Group by other independent third parties.
Reasons of and Benefits for the CSC Leasing TransactionsGiven that the relevant premises are owned by CSC Group, the Directors believe that maintaining the CSC Leasing Agreement with CSC Group will ensure the Group's stability in using the relevant premises and to regulate the future leasing agreements with CSC Group under the CSC Leasing Agreement. Also, the Group will be able to avoid any unnecessary disruption to the operations of the Group and minimise any unnecessary relocation costs.
The terms of the CSC Leasing Agreement were determined after arm's length negotiation between the Group and CSC Group with reference to the prevailing market rent of comparable properties in the vicinity of similar ages, sizes, uses and attributes.
The Directors (including the Independent Non-executive Directors) consider that the CSC Leasing Agreement, its terms and the transactions contemplated thereunder (including the CSC Leasing Caps) are on normal commercial terms, in the ordinary and usual course of business of the Company, fair and reasonable and in the interests of the Company and its Shareholders as a whole.
INFORMATION OF THE PARTIESThe Group is one of the leading property management companies in the PRC with operations also covering Hong Kong and Macau and is principally engaged in property management services and value-added services.
CSCEC Group is a conglomerate principally engaged in building construction, international contracting, real estate development and investment, infrastructure construction and investment and design and prospecting.
CSC Group is principally engaged in building construction, civil engineering works, infrastructure investments and project consultancy businesses.
LISTING RULES IMPLICATIONSCSCEC is the ultimate holding company of the Company. COHL, a non-wholly owned subsidiary of CSCEC, is the controlling shareholder of each of CSC and the Company. Therefore, members of each of CSCEC Group and CSC Group are connected persons of the Company, and the Services Transactions and CSC Leasing Transactions constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules.
As the applicable percentage ratios for the CSC Leasing Caps, the COLI Leasing Caps and the COHL Licensing Caps, when aggregated, are 0.1% or more but less than 5% on an annual basis, the transactions contemplated under the CSC Leasing Agreement are subject to reporting, announcement and annual review requirements but will be exempt from Independent Shareholders' approval requirements pursuant to Chapter 14A of the Listing Rules.
As the applicable percentage ratios for the Services Caps, the COLI Services Caps and the COGO Services Caps, when aggregated, are 5% or more on an annual basis, the transactions contemplated under the Services Agreements are subject to reporting, announcement, annual review and Independent Shareholders' approval requirements pursuant to Chapter 14A of the Listing Rules.
As none of the Directors has any material interest in the Services Transactions and CSC Leasing Transactions, none of the them is required to abstain from voting on the resolutions passed by the Board approving the Services Agreements and the CSC Leasing Agreement and the transactions contemplated thereunder.
The Independent Board Committee, comprising Mr. Lim Wan Fung, Bernard Vincent, Mr. Suen Kwok Lam and Mr. Yung Wing Ki, Samuel, all being Independent Non-executive Directors of the Company, has been established to advise the Services Agreements, the Services Transactions and the Services Caps. Investec Capital Asia Limited has been appointed as the Independent Financial Adviser to provide advice and recommendation to the Independent Board Committee and the Independent Shareholders in respect of the Services Agreements, the Services Transactions and the Services Caps.
The EGM will be convened, among others, for the Independent Shareholders to approve the Services Agreements, the Services Transactions and the Services Caps. CSCEC and its associates, together holding 2,011,041,060 Shares of the Company, representing approximately 61.18% interest in the Company will abstain from voting at the EGM on the resolutions in respect of the Services Agreements, the Services Transactions and the Services Caps.
A circular containing, amongst others, further information on the the Services Agreements, the Services Transactions and the Services Caps, the recommendation from the Independent Board Committee, the advice and recommendation from the Independent Financial Adviser, and a notice to convene the EGM will be despatched to the Shareholders on or before 1 September 2017 as the Company expects additional time will be required to prepare and finalise all information in the circular.
DEFINITIONSIn this announcement, the following expressions shall have the meanings set out below unless the context requires otherwise:
"associates", "connected person(s)", "controlling shareholder(s)", "percentage ratio(s)", "subsidiary(ies)" | each has the meaning ascribed to it in the Listing Rules |
"Board" | the board of Directors |
"COGO" | China Overseas Grand Oceans Group Limited, a company incorporated in Hong Kong with limited liability and whose shares are listed on the Main Board of the Stock Exchange (stock code: 81) |
"COGO Group" | COGO and its subsidiaries (excluding subsidiary(ies) listed on any stock exchange) from time to time |
"COGO Services Caps" | the maximum total amount payable for property management services by COGO Group to the Group under the framework agreement entered into between COGO and the Company on 1 June 2015, i.e., for the period between 1 June 2015 and 31 December 2015 of approximately RMB30,000,000, for each of the two years ending 31 December 2016 and 2017 of approximately RMB50,000,000 and RMB60,000,000, respectively, and for the period between 1 January 2018 and 31 May 2018 of approximately RMB35,000,000, details of which are set out in the Company's listing document dated 14 October 2015 |
"COHL" | China Overseas Holdings Limited, a company incorporated in Hong Kong with limited liability, and the controlling shareholder of the Company |
"COHL Group" | COHL and its subsidiaries (excluding subsidiary(ies) listed on any stock exchange) from time to time |
"COHL Licensing Caps" | the maximum total amount payable for the licensing of premises under the license agreement dated 26 June 2017 entered into between COHL as the licensor and the Company as the licensee, i.e., for the period between 1 October 2017 and 31 December 2017 of approximately HK$1,121,000, for each of the two years ending 31 December 2018 and 2019 of approximately HK$3,757,000 and HK$4,075,000, respectively, and for the period between 1 January 2020 and 30 September 2020 of approximately HK$3,065,000, details of which are set out in the Company's announcement dated 26 June 2017 |
"COLI" | China Overseas Land & Investment Limited, a company incorporated in Hong Kong with limited liability and whose shares are listed on the Main Board of the Stock Exchange (stock code: 688) |
"COLI Group" | COLI and its subsidiaries (excluding subsidiary(ies) listed on any stock exchange) from time to time |
"COLI Leasing Caps" | the maximum total rent payable by the Group to COLI Group under the framework agreement entered into between COLI and the Company on 9 October 2015 and the supplemental agreement in relation thereto dated 30 June 2016, i.e., for the |
China Overseas Property Holdings Ltd. published this content on 07 August 2017 and is solely responsible for the information contained herein.
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