CHINA SOUTHERN AIRLINES COMPANY LIMITED 
By If you are in any doubt as to any aspect of this circular, you should consult a stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.
If you have sold or transferred all your shares of China Southern Airlines Company Limited, you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the transferee.
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss however arising from or in reliance upon the whole or any part of the contents of this circular.
(a joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock Code: 1055)
(1) PROPOSED RE-ELECTION AND ELECTION OF DIRECTORS AND SUPERVISORS (2) MAJOR AND CONNECTED TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS FINANCIAL SERVICES FRAMEWORK AGREEMENT (3) PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION AND PROCEDURAL RULES AND (4) NOTICE OF EGMIndependent Financial Adviser to the Independent Board Committee and the Independent Shareholders
Asian Capital
(Corporate Finance) Limited
A notice convening the EGM to be held at 8:30 a.m. on Thursday, 26 December 2013 at No. 1
Conference Room, 4/F, Pearl Hotel CSN, No. 5 Road, Southern Work District, Baiyun International Airport, Guangzhou, Guangdong Province, the PRC, a form of proxy for use at the EGM and a reply slip are despatched by the Company together with this circular and are also published on the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (http://www.csair.com).
If you are not able to attend and/or vote at the general meeting, you are strongly urged to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company's branch share registrar in Hong Kong, Hong Kong Registrars Limited, at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong as soon as possible and in any event not later than 24 hours before the time appointed for the holding of the general meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting at the meeting or any adjourned meeting should you so wish.
11 November 2013
Page
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3. Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . 17 4. Letter from Asian Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5. Appendix I - Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6. Appendix II - General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 7. Appendix III - Profile of Directors Proposed to be Re-elected and Elected . . 42 8. Appendix IV - Profile of Supervisors Proposed to be Re-elected and Elected . 47 9. Appendix V - Proposed Amendment to the Articles of Association and Procedural Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 10. Notice of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
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In this circular, the following expressions have the following meanings, unless the context requires otherwise:
"A Share(s)" A share(s) of RMB1.00 each in the capital of the
Company
"Announcements" the announcements issued by the Company on 12
November 2004, 15 November 2007, 8 November 2010 and 16 March 2012 in relation to, among others, the continuing connected transactions contemplated under the financial services agreement dated 12 November
2004, the financial services agreement dated 15
November 2007, the financial services agreement dated
8 November 2010 and the agreement dated 16 March
2012 supplemental to the financial services agreement dated 8 November 2010 regarding the revision of annual cap, respectively
"Articles of Association" the articles of association of the Company, as amended from time to time
"Board" the board of Directors
"Cap(s)" the maximum daily balance of deposits placed by the Company (including the corresponding interest accrued thereon) on any given day during the life of the Financial Services Framework Agreement
"CBRC" China Banking Regulatory Commission
"Company" China Southern Airlines Company Limited, a joint stock company incorporated in the PRC with limited liability
"CSAHC" China Southern Air Holding Company, a state-owned enterprise established under the laws of the PRC and the controlling shareholder of the Company
"CSAHC Group" CSAHC and its subsidiaries
"Directors" directors of the Company
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"EGM" the second extraordinary general meeting of 2013 of the Company to be convened on Thursday, 26
December 2013 for, among other things, considering, and, if thought fit, approving the proposed re-election and election of Directors and Supervisors, Financial Services Framework Agreement and proposed amendment to the Articles of Association and procedural rules
"Finance Company" Southern Airlines Group Finance Company Limited, a company incorporated in the PRC with limited liability
"Financial Services Framework
Agreement"
the financial services framework agreement dated 8
November 2013 entered into between the Parties
"Group" the Company and its existing subsidiaries
"H Share(s)" H share(s) of RMB1.00 each in the capital of the
Company
"Independent Board Committee" the independent committee of the Board, the members of which consist of the independent non-executive Directors, formed to advise the Independent Shareholders with respect to Financial Services Framework Agreement and the Caps
"Independent Financial Adviser"
or "Asian Capital"
Asian Capital (Corporate Finance) Limited, a corporation licensed to carry out Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO and is the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Provision of Deposit Services and the proposed Cap contemplated under the Financial Services Framework Agreement
"Independent Shareholders" shareholders of the Company other than CSAHC and its associates
"Latest Practicable Date" 8 November 2013, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
"Listing Rules" the Rules Governing the Listing of Securities on the
Stock Exchange
"Parties" the Company and the Finance Company
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"PBOC" the People's Bank of China, the central bank of the
PRC
"PRC" or "China" the People's Republic of China (other than, for the purpose of this circular only, Hong Kong, Macau and Taiwan)
"Provision of Deposit Services" the provision of deposit of money services (including but not limited to time deposit, saving deposit) by the Finance Company to the Company pursuant to the Financial Services Framework Agreement
"Provision of Loan Services" the provision of loan services (including credit line services) by the Finance Company to the Company pursuant to the Financial Services Framework Agreement
"Share(s)" collectively, the H Shares and A Shares
"Shareholder(s)" shareholder(s) of the Company
"SFO" Securities and Futures Ordinance (Chapter 571 of the
Laws of Hong Kong)
"Stock Exchange" The Stock Exchange of Hong Kong Limited
"Supervisor(s)" supervisor(s) of the Company
"Supervisory Committee" the supervisory committee of the Company
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(a joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock Code: 1055)
Directors:Non-Executive Directors:
Si Xian Min (Chairman of the Board)
Wang Quan Hua
Yuan Xin An
Yang Li Hua
Executive Directors
Tan Wan Geng Zhang Zi Fang Xu Jie Bo
Li Shao Bin
Independent Non-Executive Directors:
Gong Hua Zhang
Wei Jin Cai
Ning Xiang Dong
Liu Chang Le
Pan Fu (Chairman of the Supervisory Committee)
Li Jia Shi
Zhang Wei
Yang Yi Hua
Liang Zhong Gao
Registered address:
278 Ji Chang Road
Guangzhou 510405
PRC
11 November 2013
To the Shareholders
Dear Sir or Madam,
(1) PROPOSED RE-ELECTION AND ELECTION OF DIRECTORS AND SUPERVISORS (2) MAJOR AND CONNECTED TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS FINANCIAL SERVICES FRAMEWORK AGREEMENT (3) PROPOSED AMENDMENT TO THE ARTICLES OF ASSOCIATION AND PROCEDURAL RULES AND (4) NOTICE OF EGM- 4 -
1. INTRODUCTION
Reference is made to the announcements of the Company dated 6 November 2013, 7
November 2013 and 8 November 2013. The purpose of this circular is, among other things, to provide you with more information in relation to (i) the proposed re-election and election of Directors and Supervisors; (ii) the Financial Services Framework Agreement; and (iii) the proposed amendment to the Articles of Association and its appendixes (three procedural rules), to enable you to make an informed decision on whether to vote for or against the resolutions at the EGM.
Due to the term of appointment of each Director of the sixth session of the Board shall expire upon the conclusion of the EGM, according to the consideration opinion and recommendations of the nomination committee of the Company, the Board proposed to re-elect each of Mr. Si Xian Min, Mr. Wang Quan Hua, Mr. Yuan Xin An and Ms. Yang Li Hua as non-executive Directors of the seventh session of the Board for a term of three years, to re-elect Mr. Tan Wan Geng, Mr. Zhang Zi Fang, Mr. Xu Jie Bo and Mr. Li Shao Bin as executive Directors of the seventh session of the Board for a term of three years, to re-elect and elect Mr. Wei Jin Cai, Mr. Ning Xiang Dong, Mr. Liu Chang Le and Mr. Tan Jin Song as independent non-executive Directors of the seventh session of the Board for a term of three years. The appointment of Directors for the seventh session of the Board shall become effective upon the approval from the Shareholders at the EGM.
Mr. Gong Hua Zhang, acting as an independent non-executive Director for the consecutive six years, will not stand for re-election as independent non-executive Director of seventh session of the Board according to the relevant laws and regulations. The term of office of Mr. Gong Hua Zhang shall expire upon the conclusion of the EGM and Mr. Gong Hua Zhang will also resign as the chairman of the audit committee, the member of the nomination committee and the member of remuneration and assessment committee of the Company upon the conclusion of the EGM. Mr. Gong Hua Zhang confirms that there is no disagreement between him and the Company and there is no matter in relation to his retirement that need to be brought to the attention of the Shareholders. The Company would like to thank Mr. Gong Hua Zhang for his contribution to the success of the Company.
The details of each of the nominated Directors are set out in the Appendix III on pages 42 to 46 of this circular.
Due to the term of appointment of each Supervisors of the sixth session of the Supervisory Committee shall expire upon the conclusion of the EGM, according to the recommendation of CSAHC, it is approved to nominate Mr. Pan Fu, Mr. Li Jia Shi and
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Ms. Zhang Wei as Supervisors representing the Shareholders of seventh session of the Supervisory Committee for a term of three years. The appointment of Supervisors for the seventh session of the Supervisory Committee shall become effective upon the approval from the Shareholders at the EGM.
The 23rd joint meeting of the third session of employees' representatives meeting of the Company was held on 7 November 2013 and Ms. Yang Yi Hua and Mr. Wu De Ming were elected as Supervisors representing the employees of seventh session of the Supervisory Committee for a term of three years. The appointment of Supervisors representing the employees shall become effective upon the conclusion of the EGM. Due to the results of the joint meeting of the employees' representatives meeting, the term of office of Mr. Liang Zhong Gao shall expire upon the conclusion of the EGM. Mr. Liang Zhong Gao confirms that there is no disagreement between him and the Company and there is no matter in relation to his retirement that need to be brought to the attention of the Shareholders. The Company would like to thank Mr. Liang Zhong Gao for his contribution to the success of the Company.
The details of each of the nominated Supervisors and Supervisors representing the employees are set out in the Appendix IV on pages 47 to 49 of this circular.
8 November 2013 (after trading hours)
Parties
(a) The Company, its principal business activity of the Company is that of civil aviation.
(b) The Finance Company, a non-wholly-owned subsidiary of CSAHC which is owned as to approximately 66.02% by CSAHC and its wholly-owned subsidiary,
33.98% by the Company together with its four subsidiaries. The principal business activity of the Finance Company is that of providing financial services, which it is authorised to carry out under the applicable rules and regulations of the PRC.
Pursuant to the Financial Services Framework Agreement, the Finance Company agreed to provide the following financial services to the Group:
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Provision of Deposit Services
The Finance Company shall accept deposit of money from the Group at interest rates not lower than those set by the PBOC for the same term of deposit. The Finance Company will in turn deposit the whole of such sums of money with certain stated-owned commercial banks and listed commercial banks to control the risk. The Finance Company will ensure the Group is able to use the deposits at any time.
The Company is not subject to any extra charges for depositing money with the Finance Company. The interest rate (such as time deposit rate and saving deposit rate) for the Group's deposits with the Finance Company shall not be lower than the rate payable by normal commercial banks in the PRC for comparable deposits (whichever is higher).
Provision of Loan Services
The Finance Company shall make loans or provide credit line services to the Group and the entering into of separate loan agreements, which will set out the terms and conditions of the loans, upon application by the Company during the term of the Financial Services Framework Agreement. The Company will comply with the Listing Rules when entering into such separate written agreements. The Finance Company shall not charge interest rates higher than those set by the PBOC for similar loans. The total amount of outstanding loans extended by the Finance Company to the CSAHC Group (excluding the Group) must not exceed the sum of the Finance Company's shareholders' equity, capital reserves and money deposit received from other parties (except the Group).
The interest rate for loans provided to the Group by the Finance Company shall not be higher than the basis rate allowed by the PBOC for the same type of loan and, subject to the above, the interest rate charged on the loans to the Group shall be equal to or lower than the rate charged by normal commercial banks in the PRC for comparable loans (whichever is lower).
The Company will make repayment of principal and payment for interest in accordance with the payment terms of the separate loan agreements as might be entered into between the Parties.
Provision of other financial services
Upon request by the Company, the Finance Company shall also provide other financial services to the Group, including financial and financing consultation, credit certification and other relevant advice and agency services, insurance agency services, and other businesses which the Finance Company are approved by CBRC to operate by entering into of separate agreements, which will set out the terms and conditions of such services. If the Company is approved to issue bond, the Finance Company can accept engagement by the Company to provide bond issuance or underwriting services, subject to the entering into of separate agreements. The Company will comply with the reporting, annual review, announcement and independent shareholders' approval
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requirements of the Listing Rules if the transaction amount of other financial services contemplated under the Financial Services Framework Agreement would exceed the relevant threshold when entering into such separate written agreements.
For the other financial services provided by the Finance Company under the Financial Services Framework Agreement, the fees charged by the Finance Company for the provision of other financial services shall be fixed according to the rate of fees chargeable by the PBOC or the CBRC and, subject to the above principle, the fees chargeable shall be equal to or lower than the rate charged by the Finance Company against independent third parties for the same type of financial services.
The Company will make payment for such fees and commissions in accordance with the payment terms of the separate agreements for other financial services as might be entered into between the Parties. In respect of the other financial services to be provided by the Finance Company to the Group, the Company expects that the total fees payable by the Group to the Finance Company will not exceed RMB5 million for each of the three years ending 31 December 2016.
The Financial Services Framework Agreement is for a fixed term of three years, commencing from 1 January 2014 to 31 December 2016, subject to the compliance with the applicable requirements under the Listing Rules and the approval of the Independent Shareholders being obtained.
Proposed annual Cap
Pursuant to the Financial Services Framework Agreement, unless agreed otherwise between the relevant Parties and conditional upon the approval by the Independent Shareholders being obtained, each of the maximum daily balance of deposits (including the corresponding interests accrued thereon) placed by the Company as well as the maximum amount of the outstanding loan provided by the Finance Company to the Company (including the corresponding interests payable accrued thereon) at any time during the term of the Financial Services Framework Agreement shall not exceed the Cap which is set at RMB6 billion on any given day.
The proposed Cap of RMB 6 billion is determined principally by reference to:
(i) the cash flow position of the Group. The amount of cash and cash equivalents held by the Group as at 30 September 2013 were RMB16,031 million (unaudited);
(ii) the revised cap of RMB6 billion for the two years ending 31 December 2013 for the Provision of Deposit Services under the agreement dated 16 March
2012 supplemental to the financial services agreement dated 8 November
2010 (details of which are provided in the Announcements);
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(iii) the maximum historical daily balance of the deposits of the Group with the Finance Company during the two financial years ended 31 December 2012 and the nine months ended 30 September 2013 (as provided below); and
(iv) the expectation that the bank and cash balance of the Group shall not have any substantial changes under a stable operating environment of the Group, so the maximum daily amount of the deposits placed with the Finance Company shall maintain at a cap of RMB6 billion.
The historical figures relating to the Provision of Deposit Services, Provision of Loan Services and provision of other financial services, during the two financial years ended 31 December 2012 and nine months ended 30 September 2013, were as follows:
Balance of the deposits placed with the Finance Company as at
RMB ('000,000)
Balance of the outstanding loans provided by the Finance Company as
at
RMB ('000,000)
Deposit interest income received from the Finance Company for the financial period ended
RMB ('000,000)
Loan interest payable to the Finance Company for the financial period ended
RMB ('000,000)
Other financial services fee payable to the Finance Company
RMB ('000,000)
31 December 2011 | 2,493 | 480 | 32 | 27 | 0 |
31 December 2012 | 2,307 | 426 | 61 | 30 | 0 |
30 September 2013 | 4,374 | 522 | 45 | 20 | 0 |
The historical maximum daily balance of the deposits with the Finance Company placed by the Group and the historical maximum daily balance of outstanding loans owned by the Group to the Finance Company, during the two financial years ended 31
December 2012 and nine months ended 30 September 2013, were as follows:
RMB ('000,000) RMB ('000,000)
Maximum daily amount of deposits placed by the
Group 3,952 5,889 5,808
Maximum daily amount of
outstanding loans owed by
the Group 690 680 526
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