SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of November, 2004
China Petroleum & Chemical Corporation
A6, Huixindong Street,
Chaoyang District Beijing, 100029
People's Republic of China
Tel: (8610) 6499-0060
(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F _____
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(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information
to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act
of 1934.)
Yes ____ No X
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(If "Yes" is marked, indicate below the file number assigned to
registrant in connection with Rule 12g3-2(b): 82-__________. )
N/A
This Form 6-K consists of:
Annoucement on Connected Transactions and Continuing Connected Transactions of
China Petroleum & Chemical Corporation (the "registrant") made on November 6,
2004 in English by the registrant.
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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 adviser.
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 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 norepresentation 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.
This circular is solely for the purpose of providing shareholders with certain
information in connection with an extraordinary general meeting of China
Petroleum & Chemical Corporation and is not an offer to sell or a solicitation
of an offer to buy any securities. Any sale of China Petroleum & Chemical
Corporation's securities in the United States will be made only by means of a
prospectus relating to such securities.
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[LOGO GRAPHIC OMMITED]
CHINA PETROLEUM & CHEMICAL CORPORATION
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(STOCK CODE: 386)
CONNECTED TRANSACTIONS
AND
CONTINUING CONNECTED TRANSACTIONS
Financial Adviser to
China Petroleum & Chemical Corporation
[CICC LOGO GRAPHIC OMMITED]
China International Capital
Corporation (Hong Kong) Limited
Independent Financial Adviser to the
Independent Board Committee and Independent Shareholders
[ROTHSCHILD LOGO GRAPHIC OMMITED]
N M Rothschild & Sons (Hong Kong) Limited
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A letter from the Independent Board Committee of China Petroleum & Chemical
Corporation is set out on pages 53 to 54 of this circular. A letter from N M
Rothschild & Sons (Hong Kong) Limited containing its advice to the Independent
Board Committee is set out on pages 55 to 82 of this circular.
A notice convening an extraordinary general meeting of China Petroleum &
Chemical Corporation to be held at Beijing Crowne Plaza Park View Wuzhou
Hotel, No. 8 Beisihuan Zhong Road, Chaoyang District, Beijing, PRC on 21
December 2004 at 9:00 a.m. is set out on pages 162 to 164 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.
6 November 2004
CONTENTS
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Page
Definitions ..................................................................1
Letter from the Chairman
1. Introduction.................................................... 7
2. The Acquisition and the Disposal .............................. 10
3. Reasons and Benefits of the Acquisition and the Disposal ...... 19
4. Non-competition with Sinopec Group Company .................... 21
5. Details of the Target Assets .................................. 22
6. Prospective Continuing Connected Transactions ................. 47
7. Recommendation of the Independent Board Committee ............. 50
8. Valuation ..................................................... 51
9. EGM ........................................................... 52
10. General Information ........................................... 52
11. Miscellaneous ................................................. 52
Letter from the Independent Board Committee ................................ 53
Letter from Rothschild ..................................................... 55
Appendix 1 - Property Valuation Report Prepared by Sallmanns ....... 83
Appendix 2 - Property Valuation Reports Prepared by
Grant Sherman Appraisal Limited ..................... 104
Appendix 3 - Plant and Machinery Valuation Report Prepared by
Grant Sherman Appraisal Limited...................... 132
Appendix 4 - Plant and Machinery Valuation Report Prepared by
Greater China Appraisal Limited ..................... 146
Appendix 5 - General Information .................................. 157
Notice of EGM ............................................................. 162
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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:
"Acquisition" the proposed acquisition by Sinopec Corp. of the relevant Target
Assets (including the Petrochemical Assets, the Catalyst Assets and
the Gas Station Assets) under the Acquisition Agreements
"Acquisition Agreements" collectively: 1. the sale and purchase agreement in respect of the
Petrochemical Assets, which was entered into between
Sinopec Corp. and Sinopec Group Company
2. the sale and purchase agreement in respect of the Catalyst
Assets, which was entered into between Sinopec Corp. and
Sinopec Group Company
3. the sale and purchase agreement in respect of the Gas
Station Assets, which was entered into between Sinopec
Corp. and Sinopec Group Company
"associates" has the meaning ascribed to it in the Listing Rules
"Authorising Entities" the subsidiaries of Sinopec Group Company which authorised
Sinopec Group Company to enter into the Acquisition Agreements on
their behalf, and the subsidiaries of Sinopec Corp. which
authorised Sinopec Corp. to enter into the Disposal Agreement on
their behalf
"Aoda Technology" Beijing Aoda Petrochemical New Technologies Development Centre,
which was established under the laws of the PRC
"Board" the board of directors of Sinopec Corp.
"Changling Plant" the catalyst plant of Changling Refinery
"Changling Refinery" Sinopec Group Changling Refinery and Chemical Co., Ltd., which
was established under the laws of the PRC
"CICC" China International Capital Corporation (Hong Kong) Limited,
which was previously registered with the Securities and Futures
Commission as an investment adviser and is deemed to be currently
licensed to carry out Types 1, 4 and 6 regulated activities under
the SFO, being the financial advisers to Sinopec Corp. in respect
of the Acquisition, the Disposal and the Continuing Connected
Transactions
"Company" Sinopec Corp. and its subsidiaries
"Completion Date" 31 December 2004, or a later date agreed upon by both parties in
writing
"Continuing Connected Transactions" the continuing transactions between the Company and Sinopec Group
arising as a result of the Acquisition and the Disposal
"CSRC" China Securities Regulatory Commission
"Directors" the directors of Sinopec Corp.
"Disposal" the proposed disposal by Sinopec Corp. of the relevant Target
Assets, namely the Downhole Operation Assets, under the Disposal
Agreement
"Disposal Agreement" the sale and purchase agreement in respect of the Downhole
Operation Assets, which was entered into between Sinopec Corp. and
Sinopec Group Company
1
"EGM" the extraordinary general meeting of Sinopec Corp. to be held on
21 December 2004 for Independent Shareholders to consider and to
approve, amongst other things, the Acquisition (including the
Acquisition Agreements), the Disposal (including the Disposal
Agreement)
"Guangzhou Petrochemical" Sinopec Group Guangzhou Petrochemical General Plant, which was
established under the laws of the PRC
"Henan Oilfield Branch Company" China Petroleum & Chemical Corporation Henan Oilfield Branch
Company, which was established under the laws of the PRC
"HK$" Hong Kong Dollar, the lawful currency of Hong Kong
"Hong Kong" The Hong Kong Special Administrative Region of the People's
Republic of China
"Huabei Branch Company" China Petroleum & Chemical Corporation Huabei Branch Company,
which was established under the laws of the PRC
"Huadong Branch Company" China Petroleum & Chemical Corporation Huadong Branch Company,
which was established under the laws of the PRC
"Independent Board Committee" being the committee comprising all the independent non-executive
directors of Sinopec Corp. namely Mr. Chen Qingtai, Mr. Ho Tsu
Kwok Charles, Mr. Shi Wanpeng and Mr. Zhang Yocai, who advise the
Independent Shareholders in connection with the Acquisition
(including the Acquisition Agreements), the Disposal (including
the Disposal Agreement) and the Continuing Connected Transactions
(including the New Continuing Connected Transactions Adjustment
Agreement) and are not interested in the Acquisition and Disposal
"Independent Shareholders" the shareholders of Sinopec Corp. other than Sinopec Group
Company and its associates
"Jianchang Petrochemical Hunan Jianchang Petrochemical Joint-Stock Limited Company, which
was established under the laws of the PRC
"Jianghan Oilfield Branch Company" China Petroleum & Chemical Corporation Jianghan Oilfield Branch
Company, which was established under the laws of the PRC
"Jiangsu Oilfield Branch Company" China Petroleum & Chemical Corporation Jiangsu Oilfield Branch
Company, which was established under the laws of the PRC
"Land Use Rights Lease Agreement" the land use rights lease agreement dated 3 June 2000 (as
amended)
"Latest Practicable Date" 1 November 2004, being the latest practicable date prior to the
publication of this circular for ascertaining certain information
referred to in this circular
"Listing Rules" The Rules Governing the Listing of Securities on The Stock Exchange
of Hong Kong Limited
"Luoyang Petrochemical" Sinopec Group Luoyang Petrochemical General Plant, which was
established under the laws of the PRC
"Maoming Petrochemical" Sinopec Group Maoming Petrochemical Company, which was
established under the laws of the PRC
"MOF" Ministry of Finance of the PRC
2
"Nanjing Nanlian" laws of the PRC
"New Continuing Connected Transactions means the continuing connected transactions adjustment agreement
Adjustment Agreement" dated 31 October 2004 entered into between Sinopec Corp. and
Sinopec Group Company in respect of the Continuing Connected
Transactions
"Ongoing Connected Transaction the agreement dated 11th June 2001 providing for certain
Adjustment Agreement" amendments to the terms of the terms of the ongoing connected
transactions between Sinopec Corp. and Sinopec Group Company
"Payment Date" Within 20 days after the Completion Date
"PRC" the People's Republic of China
"PRC Independent Valuers" independent valuers with PRC securities qualifications appointed by
Sinopec Corp. to value the Target Assets
"Properties Lease Agreement" The Property Lease Agreement, which was dated 3 June 2000 and
entered into between Sinopec Corp. and Sinopec Group Company
"Prospectus" the prospectus of Sinopec Corp. dated 9 October 2000 relating to
the offer and sale of Sinopec Corp.'s H shares in Hong Kong
"PTA" Pure Terephthalic Acid
"Purchaser" in relation to the Acquisition, Sinopec Corp. in relation to the
Disposal, Sinopec Group Company
"PX" Pare-xylene
"Qilu Plant" the catalyst plant of Qilu Petrochemical Company, which was
established under the laws of the PRC
"RMB" renminbi, the lawful currency of the People's Republic of China
"Rothschild" N M Rothschild & Sons (Hong Kong) Limited, an institution
registered with the Securities and Futures Commission to carry
out Types 1, 4, 6 and 9 regulated activities under the SFO, being
the independent financial adviser appointed by Sinopec Corp. to
advise both the Independent Board Committee and Independent
Shareholders as to whether the terms of the Acquisition and the
Disposal are fair and reasonable so far as the Independent
Shareholders are concerned and whether the Acquisition and the
Disposal are in the interest of Sinopec Corp. and the
shareholders as a whole and to advise Sinopec Corp.'s
shareholders on how to vote in respect of the Acquisition and the
Disposal
"SASAC" The State-owned Assets Supervision and Administration Commission
under the State Council of PRC
"Shanghai Research Institute" Sinopec Group Shanghai Petroleum & Chemical Research Institute,
which was established under the laws of the PRC
"Shanghai Lide" Shanghai Lide Catalyst Co., Ltd., which was established under the
laws of the PRC
"Shengli Oilfield Company Limited" China Petroleum & Chemical Corporation Shengli Oilfield Company
Limited, which was established under the laws of the PRC
3
"Sinopec Corp." 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, the controlling shareholder of
Sinopec Corp.
"Stock Exchange" The Stock Exchange of Hong Kong Limited
"Supervisors" The members of the supervisory committee of Sinopec Corp.
"Target Assets" 1. the Tianjin Business, Luoyang Business, Maoming Business,
Guangzhou Assets and the 93.51% equity interest of
Zhongyuan Petrochemical (the "Petrochemical Assets")
2. the 81% equity interest in Jianchang Petrochemical, the 50%
equity interest of Aoda Centre, the 60% equity interest in
Shanghai Lide, Changling Plant, Qilu Plant, Sinopec
Development Centre, Shanghai Research Centre and Nanlian
Plant (the "Catalyst Assets")
3. the 1,023 gas stations and 54 oil depots owned by Sinopec
Group (the "Gas Station Assets") 4. the downhole operation
assets and associated liabilities of Shengli Oilfield
Company, Zhongyuan Oilfield Branch, Henan Oilfield Branch,
Jianghan Oilfield Branch, Jiangsu Oilfield Branch, Huabei
Branch, Huadong Branch and Xinan Branch (the "Downhole
Operation Assets")
"Technologies Development Company" China Petroleum & Chemical Technologies Development Co., Ltd.,
which was established under the laws of the PRC
"Tianjin Petrochemical" Sinopec Group Tianjin Petrochemical Company, which was
established under the laws of the PRC
"Valuation Date" 30 June 2004 for the Petrochemical Assets and Catalyst Assets; 31
May 2004 for the Gas Station Assets; and 31 July 2004 for the
Downhole Operation Assets
"Vendor" in relation to the Acquisition, Sinopec Group Company and the
Authorising Entities, in relation to the Disposal, Sinopec Corp.
and the Authorising Entities
"Xinan Branch Company" China Petroleum & Chemical Corporation Xinan Branch Company,
which was established under the laws of the PRC
"Zhongyuan Oilfield Branch Company" China Petroleum & Chemical Corporation Zhongyuan Oilfield Branch
Company, which was established under the laws of the PRC
"Zhongyuan Petrochemical" Zhongyuan Petrochemical Co., Ltd., which was established under
the laws of the PRC
4
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LETTER FROM THE CHAIRMAN
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[LOGO GRAPHIC OMITTED]
CHINA PETROLEUM & CHEMICAL CORPORATION
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(Stock Code: 386)
Directors: Registered Office:
Chen Tonghai A6, Huixindong Street
Wang Jiming Chaoyang District
Mou Shuling Beijing, 100029
Zhang Jiaren People's Republic of China
Cao Xianghong
Liu Genyuan
Gao Jian
Fan Yifei
Independent Non-Executive Directors:
Chen Qingtai
Ho Tsu Kwok Charles
Shi Wanpeng
Zhang Youcai
Employee Representative Director:
Cao Yaofeng
6 November 2004
To the Shareholders
Dear Sir or Madam,
Connected Transactions
and
Continuing Connected Transactions
1. Introduction
On 1 November 2004, Sinopec Corp. announced that the Board considered and
approved the "Proposal in respect of the acquisition of petrochemical assets
from Sinopec Group Company", "Proposal in respect of the acquisition of
catalyst production assets from Sinopec Group Company, "Proposal in respect of
the acquisition of gas station assets", "Proposal in respect of the disposal
of downhole operation assets to Sinopec Group Company" and "Proposal in
respect of the New Continuing Connected Transactions Adjustment Agreement"
(together the "Resolutions") at the 12th meeting of the second session of the
Board held on 31 October 2004. Pursuant to the Resolutions, Sinopec Corp. will
(i) acquire the assets including petrochemical assets, catalyst production
assets and gas station assets (together the "Acquiring Assets") from Sinopec
Group Company and its subsidiaries, and (ii) dispose the downhole operation
assets (the "Disposal Assets") to Sinopec Group Company.
The Board also approved the entering into of the Acquisition Agreements, the
Disposal Agreement and the New Continuing Connected Transactions Adjustment
Agreement between Sinopec Corp. and Sinopec Group Company.
According to the valuation reports prepared by the PRC Independent Valuers in
respect of the Acquiring Assets, as at the Valuation Date, the aggregate asset
value amounted to RMB17,154 million (which is equivalent to approximately
HK$16,183 million), the liabilities amounted to RMB12,734 million (which is
equivalent to approximately HK$12,013 million) and after the deduction of
minority interests which amounted to RMB205 million (approximately HK$193
million), net asset value amounted to RMB4,215 million (which is equivalent to
approximately HK$3,976 million).
5
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LETTER FROM THE CHAIRMAN
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According to the valuation report prepared by the PRC Independent Valuers in
respect of the Disposal Assets, as at the Valuation Date, the aggregate asset
value amounted to RMB2,147 million (which is equivalent to approximately
HK$2,025 million), the liabilities amounted to RMB399 million (which is
equivalent to approximately HK$376 million) and net asset value amounted to
RMB1,748 million (which is equivalent to approximately HK$1,649 million).
The consideration for the Acquisition is RMB4,578 million (which is equivalent
to approximately HK$4,319 million) while the consideration for the Disposal is
RMB1,748 million (which is equivalent to approximately HK$1,649 million). The
balance of the consideration after offsetting in the sum of RMB2,830 million
(which is equivalent to approximately HK$2,670 million) will be payable in
cash by Sinopec Corp. to Sinopec Group Company.
1.1 Connected Transactions and Continuing Connected Transactions
The Acquiring Assets are owned by Sinopec Group and Sinopec Group Company, on
behalf of itself and other members of the Sinopec Group, entered into the
Acquisition Agreements with Sinopec Corp. The Disposal Assets are owned by the
Company and Sinopec Corp., on behalf and other members of the Company, entered
into the Disposal Agreement with Sinopec Group Company.
Sinopec Group Company owns 47,742,561,000 shares in Sinopec Corp.,
representing 55.06% of its total issued share capital. Recently, Sinopec Group
Company had entered into share transfer agreements with Sinopec Corp.'s
shareholders, the China Development Bank and China Cinda Asset Management
Corporation pursuant to which the China Development Bank agreed to transfer
its 6,143,000,000 state-owned shares (representing 7.085% of the total issued
share capital), and China Cinda Asset Management Corporation agreed to
transfer its 5,000,000,000 state-owned shares (representing 5.767% of the
total issued share capital), to Sinopec Group Company. The SASAC and MOF have
approved the transfers. Sinopec Group Company is still required to apply for a
waiver from making a general offer with CSRC. If the transfer is completed,
Sinopec Group Company will in total hold 58,885,561,000 shares of Sinopec
Corp., representing approximately 67.917% of the issued share capital of
Sinopec Corp. Sinopec Group Company, being a substantial shareholder of
Sinopec Corp., is a connected person under Rule 14A.11(1) of the Listing
Rules. Consequently, the Acquisition and Disposal will constitute connected
transactions under Rule 14A.13 of the Listing Rules and the applicable
provisions of the Shanghai Listing Rules.
A number of continuing connected transactions will be entered into between the
Sinopec Group and the Company as a result of the Acquisition and Disposal.
Further details of such transactions are set out in section 6 below.
1.2 Impacts on Sinopec Corp.
From the strategic perspective, the transactions contemplated under the
Acquisition Agreements and Disposal Agreement effectively broaden Sinopec
Corp.'s core businesses through significant expansion of the scale of its
petrochemical facilities, improvement to the operation and retail network of
oil products, consolidation of the catalyst business and adoption of
international management structure and practice for the upstream business.
Upon completion of the transactions, Sinopec Corp.'s management structure will
further systematise, resulting in more efficient management of operations,
investments and resource allocation.
There will be further reduction in both continuing connected transactions and
industry competition between Sinopec Corp. and Sinopec Group Company upon the
completion of the Acquisition and Disposal.
1.3 Notes to the Investors
(1) Pursuant to the Listing Rules and Shanghai Listing Rules, the
transactions contemplated under the Acquisition Agreements and Disposal
Agreement constitute connected transactions for Sinopec Corp. The
Acquisition and Disposal are subject to the approval of Independent
Shareholders at the EGM. Sinopec Group Company, a connected person of
Sinopec Corp. under the Listing Rules, will abstain from voting in
respect of the Resolutions at the EGM. Any vote of the Independent
Shareholders at the EGM shall be taken by poll.
(2) The financial data were prepared and provided for in accordance with the
PRC Accounting Rules and Regulations. In respect of the Acquiring Assets
and Disposal Assets, there is no material difference between the related
financial data prepared under the PRC Accounting Rules and Regulation
and those prepared in accordance with International Financial Reporting
Standard.
(3) Each of the transactions contemplated under the Acquisition Agreements
and Disposal Agreement is independent from each other. If any of the
said transactions is not completed, the remaining transactions shall not
be affected.
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LETTER FROM THE CHAIRMAN
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(4) The Acquisition and Disposal are subject to the approval of SASAC and
the asset valuation reports are to be filed with SASAC. Furthermore, the
effectiveness of such transactions are also subject to the satisfaction
of all conditions precedent under the Acquisition Agreements and
Disposal Agreement.
1.4 Independent Financial Adviser
Rothschild has been retained as the Independent Financial Adviser to advise
the Independent Board Committee and the Independent Shareholders as to whether
the terms of the Acquisition and the Disposal are fair and reasonable so far
as the Independent Shareholders are concerned and whether the Acquisition and
the Disposal are in the interest of Sinopec Corp. and its shareholders as a
whole and to advise Sinopec Corp.'s shareholders on how to vote in respect of
the Acquisition and the Disposal. The Independent Financial Adviser will also
set out the reasons as to why the duration of the Land Use Rights Lease
Agreement and the Properties Lease Agreement is in excess of three years and
their confirmation that it is normal business practice for contracts of these
types to be of such duration. The advice of the Independent Financial Adviser
to the Independent Board Committee and Independent Shareholders is included in
pages 55 to 82 of this circular.
1.5 EGM
The Acquisition and the Disposal require the approval of the Independent
Shareholders at the EGM at which Sinopec Group Company and its associates will
abstain from voting. Any vote of the Independent Shareholders at the EGM shall
be taken by poll. The notice of the EGM setting out the ordinary resolutions
proposed to be approved thereat is included in pages 162 to 164 of this
circular.
1.6 Financial Adviser
CICC is the financial advisers to Sinopec Corp. in respect of the Acquisition,
the Disposal and the Continuing Connected
Transactions.
The purpose of this circular is to provide you with further information
relating to the Acquisition (including the Acquisition Agreements), the
Disposal (including the Disposal Agreement) and the Continuing Connected
Transactions (including the New Continuing Connected Transaction Adjustment
Agreement).
2. The Acquisition and the Disposal
2.1 The Acquisition
(1) The Petrochemical Assets
Date: 31 October 2004
Parties:
Vendors: Sinopec Group Company (on its own behalf
and on behalf of the Authorising Entities)
Purchaser: Sinopec Corp.
Assets to be purchased: (i) The principal ethylene and
synthetic fiber monomers and
polymers production facilities of
Tianjin Petrochemical and related
liabilities
(ii) The principal synthetic fiber
monomers and polymers products
production facilities of Luoyang
Petrochemical and related liabilities
(iii) 93.51% equity interest in
Zhongyuan Petrochemical held by
Sinopec Group Company
(iv) the 5,000,000 tonnes per year AVD
unit, the 1,400,000 tonne per year
catalytic cracking unit of Maoming
Petrochemical
(v) Certain power generation facilities
of Guangzhou Petrochemical and
related liabilities
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LETTER FROM THE CHAIRMAN
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According to the valuation reports prepared by the PRC Independent Valuers, as
of the Valuation Date, the results of the valuation of the Petrochemical
Assets are as follows: total assets were RMB13,904 million (approximately
HK$13,116 million); the liabilities were RMB11,699 million (approximately
HK$11,037 million); after the deduction of minority interest of RMB42 million
(approximately HK$40 million), net assets were RMB2,163 million (approximately
HK$2,040 million). Consideration is RMB1,977 million (approximately HK$1,865
million).
(2) The Catalyst Assets
Date: 31 October 2004
Parties:
Vendors: Sinopec Group Company
(on its own behalf and on behalf of the
Authorising Entities)
Purchaser: Sinopec Corp.
Assets to be purchased: (i) Primary assets owned by the
Changling Plant
(ii) The 81% equity interest in
Jianchang Petrochemical
(iii) Primary assets of Qilu Catalyst
(iv) Primary assets owned by the
Technology Development Company
(v) The 50% equity interest in Aoda
Technology (vi) The 60% equity
interest in Lide Catalyst
(vii) Primary assets of the Shanghai
Research Institute
(viii) All the assets owned by Nanlian
Catalyst and related liabilities
According to the valuation reports prepared by the PRC Independent Valuers, as
at the Valuation Date, the results of the valuation of the Catalyst Assets are
as follows: total assets were RMB1,885 million (approximately HK$1,778
million); the liabilities were RMB1,024 million (approximately HK$966
million); after the deduction of minority interest of RMB163 million
(approximately HK$154 million), net assets were RMB698 million (approximately
HK$659 million). Consideration is RMB720 million (approximately HK$679
million).
(3) The Gas Station Assets
Date: 31 October 2004
Parties:
Vendors: Sinopec Group Company
(on its own behalf and on behalf of the
Authorising Entities)
Purchaser: Sinopec Corp.
Assets to be purchased: the assets, interests and certain related
liabilities of 1,023 gas stations and 54
oil depots owned by Sinopec Group Company
and the Authorising Entities
According to the valuation reports prepared by the PRC Independent Valuers, as
at the Valuation Date, the results of the valuation of the Gas Station Assets
are as follows: total assets were RMB1,364 million (approximately HK$1,287
million); the liabilities were RMB11 million (approximately HK$10 million);
net assets were RMB1,353 million (approximately HK$1,276 million).
Consideration is RMB1,881 million (approximately HK$1,775 million).
2.2 The Disposal
Date: 31 October 2004
Parties:
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LETTER FROM THE CHAIRMAN
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Vendor: Sinopec Corp.
(on its own behalf and on behalf of the
Authorising Entities)
Purchaser: Sinopec Group Company
Assets to be disposed: Downhole Operation Assets, including
downhole operation assets owned by
Shengli Oilfield Company Limited,
Zhongyuan Oilfield Branch Company, Henan
Oilfield Branch Company, Jianghan
Oilfield Branch Company, Jiangsu Oilfield
Branch Company, Huabei Branch Company,
Huadong Branch Company and Xinan Branch
Company
According to the valuation reports prepared by the PRC Independent Valuers, as
at the Valuation Date, the results of the valuation of the Downhole Operation
Assets are as follows: total assets were RMB2,147 million (approximately
HK$2,025 million); total liabilities were RMB399 million (approximately HK$376
million); net assets were RMB1,748 million (approximately HK$1,649 million).
Consideration is RMB1,748 million (approximately HK$1,649 million).
2.3 Terms of the Acquisition and the Disposal
(1) Pricing Policy and Consideration
(i) The considerations for the Acquisition and the Disposal were determined
with reference to the valued figures prepared by the PRC Independent
Valuers and by taking into account a number of factors which include the
valued figures in other similar transactions of comparable companies,
ability of generating cash flows, quality of assets, business'
development potential and the position in the industry cycle of the
Target Assets. The agreed considerations for the Acquisition and the
Disposal were reached after arms-length negotiations between the
parties.
Pursuant to the Acquisition Agreements and the Disposal Agreement, the
respective considerations were agreed as follows:
Unit: RMB thousand
Total Total Miniority
Assets Liabilities Interests Net Assets Surplus/
valued valued valued valued (Deficit)
Item amount amount amount amount Consideration Price (%)
Acquiring Assets
Petrochemical Assets 13,904,128 11,698,592 42,359 2,163,177 1,977,000 -8.61
Gas Station Assets 1,364,357 10,964 - 1,353,393 1,881,217 39.00
Catalyst Assets 1,885,282 1,024,383 162,751 698,148 720,000 3.13
Total 17,153,767 12,733,939 205,110 4,214,718 4,578,217 8.62
Disposal Assets
Downhole Operation Assets 2,146,863 399,096 - 1,747,767 1,747,767 - (note 1)
Net Effect 15,006,904 12,334,843 205,110 2,466,951 2,830,450 14.73
Note (1): The sale price of the Downhole Operation Assets is equal to the valued amount.
(ii) The parties also agreed that, after the signing of the Acquisition
Agreements and the Disposal Agreement, if the Target Assets' asset value
decreases or liabilities to increase or the Vendor breaches any of its
obligation under the said agreements, including declarations,
representations and warranties, the parties shall agree to adjust the
considerations of the transaction accordingly.
(2) Settlement of consideration
The total consideration in respect of the Acquisition will be set-off against
the consideration for the Disposal by way of an asset swap. The balance shall
be settled in cash within 20 Business Days from completion.
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2.4 Completion and Completion Date
(1) Completion
The Vendor will deliver to the Purchaser relevant documents of title,
government approvals, personnel data and other agreements and related legal
documents that reflect the status of the Target Assets to the Purchaser at the
Completion Date. The Vendor will also comply with the necessary legal
procedures to ensure that the Purchaser will take ownership and control over
the Target Assets. The Purchaser will be responsible for the debts arising
from the Target Assets from the Completion Date.
(2) Completion Date
The Completion Date will be 31 December 2004 or such later date as the parties
may otherwise agree in writing.
(3) Risks before completion
Subject to the terms of the Acquisition Agreements and the Disposal Agreement,
all the risks and benefits arising from the Target Assets between the
respective Valuation Dates and completion shall be borne and in the account of
the Vendor. The consideration will be adjusted accordingly. Please refer to
section 2.3(1)(ii) of this circular.
2.5 Conditions precedent to the Acquisition Agreements and the Disposal
Agreement becoming effective
The effectiveness of each of the Acquisition Agreements and the Disposal
Agreement is conditional upon:
1. the agreements having been signed by the authorized representative of
the parties;
2. the parties having complied with their respective internal approval
procedures and obtained such respective internal approvals.
2.6 Conditions to completion of the Acquisition Agreements and the Disposal
Agreement
Completion of each of the Acquisition Agreements and the Disposal Agreement is
conditional upon the satisfaction or the waiver of:
1. the agreements becoming effective;
2. there has not been any breach, or evidence evidencing any breach, of the
agreements;
3. the obtaining of all necessary governmental approvals for the
Acquisition and the Disposal;
4. there has not been any material adverse change to the assets, financial
condition, business operation and future prospects of the companies
comprised in the Target Assets and Downhole Operation Assets;
5. the land and property comprised in the Target Assets having obtained
legal title documents;
6. the obtaining of all necessary third parties' approvals and consents in
respect of the Acquisition and the Disposal;
7. the independent financial advisers appointed by Sinopec Corp. opining
that the terms of the Acquisition and Disposal are fair.
2.7 Necessary approvals
The Acquisition and Disposal are subject to the approval by the Independent
Shareholders at the EGM. Any vote of the Independent Shareholders at the EGM
shall be taken by poll. Sinopec Group Company will apply with the SASAC for
approval of the sale of the Target Assets and the filing of the valuation
reports on the state-owned assets involved.
2.8 Warranties and undertakings
(1) Sinopec Group Company has agreed that, at any time before completion, it
will, and will procure that the subsidiaries on behalf of which it
represents, operate in accordance with its ordinary course of business
and in a manner consistent with the past.
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(2) In relation to the land building involved in the acquisition, Sinopec
Group Company undertakes that:
(i) in relation to the land use rights included in the Target Assets
and the land which will be leased by Sinopec Corp. after
completion, in relation to those which have been issued with the
relevant title certificates or assigned land, Sinopec Group
Company warrants the completeness and legality of the land use
rights of such land. In relation to the land which has not been
issued with the relevant title certificate, Sinopec Group Company
undertakes to use its best endeavours to obtain the relevant title
certificates and related title documents and warrants the validity
and legality of the leasing by Sinopec Corp. of such land;
(ii) in relation to the buildings included in the Target Assets and the
buildings which will be leased by Sinopec Corp. after completion,
Sinopec Group Company warrants the completeness and legality of
the transfer of such buildings. In relation to the buildings which
has not been issued with the relevant title certificate at the
date of the agreement, Sinopec Group Company undertakes to use its
best endeavours to obtain the relevant title certificates and
related title documents;
(iii) any tax or costs involved in issuing the above-mentioned land and
building title documents and to protect the legality and validity
of the leasing of the land and buildings will be borne by Sinopec
Group Company;
(iv) the parties agree that Sinopec Group Company will indemnify
Sinopec Corp. against all actual and foreseeable losses arising
from the above-mentioned irregularity or incompleteness of land
and building title and tile documents; and
(v) the above warranties and undertakings will survive after
completion and will not be affected by completion.
Sinopec Corp. does not believe there would be any material adverse effect on its
operations arising from the above.
2.9 Personnel Arrangements
As agreed between the parties, the employment relationships, pension insurance
and medical insurance of all registered personnel (including management staff
and common staff) relating to the Acquisition and Disposal shall be retained
by the Purchaser. The employment relationships in respect of the Gas Station
Assets shall remain unchanged after the Acquisition. Sinopec Group Company and
the Authorizing Entities shall maintain such employment relationships and
provide alternative arrangements to those affected personnel. If Sinopec Corp.
decides to keep certain personnel associated with the Gas Station Assets, the
arrangements in respect of employment relationships shall be made in
accordance with the terms of relevant connected transaction agreements between
Sinopec Corp. and Sinopec Group Company. Sinopec Corp. will comply with the
connected transaction requirements under Chapter 14A of the Listing Rules in
relation to these arrangements.
2.10 Information on Sinopec Corp.
The principal operations of Sinopec Corp. and its subsidiaries include:
exploring for and developing, producing and trading crude oil and natural gas;
processing crude oil, producing petroleum products and trading, transporting,
distributing and marketing petroleum products, producing, distributing and
trading petrochemical products.
2.11 Information on the other party
(1) Information on Sinopec Group Company
(i) Basic information
Name of enterprise: China Petrochemical Corporation
Registered address: A6 Huixindong Street,
Chaoyang District, Beijing, PRC
Type of industrial
and commercial registration: State-owned enterprise
Legal representative: Mr. Chen Tonghai
Registered capital: RMB104.912 billion (approximately
HK$98.962 billion)
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(ii) History
Sinopec Group Company is a large-scale petroleum and chemical enterprise
conglomerate established on the basis of the original China Petrochemical
Corporation in July 1998 according to the "Reform Proposal for Organisations
under the State Council" and "Reply to Certain Questions relating to the
Establishment of Sinopec Group Company by the State Council", both approved at
the first meeting of the 9th session of the National People's Congress.
Sinopec Group Company is a state-owned and authorized investment enterprise.
Pursuant to its corporate restructuring in 2000, Sinopec Group Company
injected its petroleum and petrochemical business into Sinopec Corp.
(iii) Principal business of Sinopec Group Company
Sinopec Group Company is principally engaged in the business of industrial
investments and investment management; exploration and development, production
and construction, storage and transportation and sale of petroleum and natural
gas resources; the wholesale of gasoline, kerosene and diesel; production,
storage and transportation and sale of petrochemical and related products; the
design, implementation and construction of petroleum and petrochemical
installations; maintenance and repair of petroleum and petrochemical
installations; the research, development, implementation and related
consulting services of technology, IT and energy substitute products; and the
import and export of self-produced products and third parties' products and
technologies (other than those prohibited by the state).
(iv) Financial information of Sinopec Group Company
Below is a summary of the consolidated assets and liabilities, and the income
statement of Sinopec Group Company. The information is extracted from its
consolidated financial statements prepared in accordance with PRC Accounting
Rules and Regulations provided by Sinopec Group Company.
SUMMARY OF ASSETS AND LIABILITIES
Unit: RMB thousands
30 June 2004 (unaudited) 31 December 2003
Items (audited)
Total assets 587,423,434 559,237,248
Liabilities 311,095,007 291,168,261
Minority interests 110,487,337 103,939,309
Net assets 165,841,090 164,129,678
SUMMARY OF INCOME STATEMENT
Unit: RMB thousands
6-month period ended 30 Year ended 31 December
June 2004 (unaudited) 2003 (audited)
Turnover 290,395,699 466,673,109
Cost of Sales 224,159,551 359,773,798
Profit before taxation 21,426,286 28,968,816
Net profit 5,526,014 8,675,552
2.12 Information on the Authorising Entities
Certain assets comprised in the assets proposed to be acquired by Sinopec Corp.
are owned by certain subsidiaries of Sinopec Group Company. These subsidiaries
have authorised Sinopec Group Company to sell these assets to Sinopec Corp. In
addition, certain assets comprised in the assets proposed to be sold by Sinopec
Corp. are owned by certain subsidiaries of Sinopec Corp. These subsidiaries
have authorised Sinopec Corp. to sell these assets to Sinopec Group Company.
The Authorising Entities include the respective entities authorising the sale
by Sinopec Group Company of the Petrochemical Assets, the Catalyst Assets and
the Gas Station Assets and the entities authorising the sale by Sinopec Corp.
of the Downhole Operation Assets. These include:
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(1) Tianjin Petrochemical, Luoyang Petrochemical, Maoming Petrochemical and
Guangzhou Petrochemical which authorised the sale of the Petrochemical
Assets.
(2) Changling Plant, Sinopec Group Petroleum and Chemical Science Research
Centre, Yueyang Xingchang Petrochemcial Corporation, Luoyang
Petrochemical Plant Jinda Industry Limited, Qilu Plant, Technologies
Development Company, Shanghai Research Institute, Nanjing Nanlian and
Maoming Petrochemical which authorised the sale of the Catalyst Assets.
(3) Sinopec Group Beijing Petroleum Company Limited, Sinopec Group Tianjin
Petroleum Company Limited, Sinopec Group Hebei Petroleum Company
Limited, Sinopec Group Shanxi Petroleum Company Limited, Sinopec Group
Shanghai Petroleum (Group) Company Limited, Sinopec Group Jiangsu
Petroleum Company Limited, Sinopec Group Zhejiang Province Petroleum
Company Limited, Sinopec Group Anhui Petroleum Company Limited, Sinopec
Group Fujian Petroleum Company Limited, Sinopec Group Jiangxi Petroleum
Company Limited, Sinopec Group Shandong Province Petroleum Company
Limited, Sinopec Group Henan Petroleum Company Limited, Sinopec Group
Hubei Petroleum Company Limited, Sinopec Group Hunan Province Petroleum
Company Limited, Sinopec Group Guangdong Province Petroleum Company
Limited, Sinopec Group Guangxi Petroleum Company Limited, Sinopec Group
Hainan Petroleum Company Limited, Sinopec Group Yunnan Petroleum Company
Limited and Sinopec Group Shenzhen Petroleum Company Limited, all of
which were established under the laws of the PRC, authorised the sale of
the Gas Station Assets.
(4) Shengli Oilfield Company Limited which authorised the sale of the
Downhole Operation Assets.
3. Reasons and Benefits of the Acquisition and the Disposal
3.1 Strengthening and Developing Core Businesses
(1) Petrochemical Business
Through acquisitions during the prosperous period of the petrochemical
industry cycle, the Company realises rapid expansion and development of its
petrochemical business.
Upon completion of the Acquisition, the Company is expected to increase its
production capacity of ethylene by 380,000 tonnes, representing an increase of
12% based on the production capacity of the year 2003. The production capacity
of synthetic resin is expected to increase 580,000 tonnes, representing an
increase of 12%. The production capacity of ethylene glycol is expected to
increase 63,000 tonnes, representing an increase of 11%. The production
capacity of PX is expected to increase 414,100 tonnes, representing an
increase of 31%. The production capacity of PTA is expected to increase
625,000 tonnes, representing an increase of 36%. The production capacity of
synthetic fiber monomers and polymers is expected to increase by 448,000
tonnes, representing an increase of 24%. Accordingly, the Company's production
scale in the ethylene and synthetic fiber monomers and polymers industry will
be further enlarged.
(2) Catalyst Business
The acquisition of the catalyst business by Sinopec Corp. will effectively
improve the Company's research and development, and production capacities of
catalyst because there is a close relationship between the catalyst business
and, crude refining and chemical production. Such acquisition also allows the
Company to maintain core technologies and strengthen its research and
development of catalysis technology. The competitiveness of the Company's oil
refining and chemical businesses will be improved accordingly.
Through the Acquisition, the Company will have control over the production of
major refining petrochemical catalysts in the process units of catalytic
cracking, hydroforming, basic organic process and polyolefins. Consequently,
the production capacities of different types of oil refinery and petrochemical
catalysts are expected to increase from 2,800 tonnes to 80,730 tonnes,
representing over 60% of the total production capacity of catalysts in the
PRC.
(3) Oil Products Retail Business
A number of 1,023 gas stations to be acquired by Sinopec Corp. are located in
18 different provinces, cities and municipalities in the eastern, central and
southern parts of the PRC and are logistically supported by 54 respective
depots. Consequent to certain improvements and restructuring made and
undertaken in recent years, the operation ability of the gas stations have
improved.
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Pursuant to the World Trade Organisation Agreement entered into by the PRC,
the doors to the oil products retail industry in the PRC will be officially
opened to foreign investors on 11 December 2004. The Acquisition allows the
Company to further strengthen its retail capability of refined oil products in
economic developed regions, take advantage of its retail network's economies
of scale, improve the business' overall competitiveness and reinforce the
Company's leading status in the retail sector.
(4) Downhole Operation Assets
The Downhole Operation Assets belong to the oilfield services business and are
currently providing services and support to the Company internally. By
disposing the Downhole Operation Assets to Sinopec Group Company, the Company
can focus on the developments of its core upstream operations, aiming at
becoming one of the international oil companies. The Disposal will also allow
the Company's core businesses to stand out and production efficiency to
improve.
3.2 Consolidating Management Structure, Improving Quality of Assets
and Achieving Harmonization Effect
Sinopec Corp. aims to further consolidate the management structure, strengthen
its corporate governance, promote profitability and improve the quality of
assets through the Acquisition. At the same time, through the rationalization
of the investment management structure and the optimisation of the allocation
of resources, the operations and coordination amongst different arms of
business will further harmonise.
3.3 Reducing Continuing Connected Ttransactions and Industry Competition
Upon completion of the Acquisition and the Disposal, the continuing connected
transactions between Sinopec Corp. and Sinopec Group Company will decrease, in
monetary terms, by approximately RMB2,358 million (approximately HK$2,225
million). In order to fulfil its promise given at the time of the listing of
the shares of Sinopec Corp. on the Stock Exchange, the Acquisition which is
conducted by virtue of the exercise of pre-emptive rights granted to Sinopec
Corp. further reduces existing industry competition between Sinopec Corp. and
Sinopec Group Company in respect of the chemical, catalyst and retail
operations.
3.4 Financial Impact on Sinopec Corp.
According to the valuation reports prepared by the PRC Independent Valuers, as
at the Valuation Date, the total assets and the net assets involved in the
Acquisition amounted to RMB17,154 million (approximately HK$16,183 million)
and RMB4,215 million (approximately HK$3,976) respectively, while the total
assets and net assets involved in the Disposal amounted to RMB2,147 million
(approximately HK$2,025 million) and RMB1,748 million (approximately HK$1,648
million) respectively. Based on the performance in the first six-month period
of the year 2004, sales revenue generated by the Acquiring Assets was
RMB10,099 million (approximately HK$9,527 million), with a net profit of
RMB775 million (approximately HK$731 million) while sales revenue generated by
the Disposal Assets was RMB2,830 million (approximately HK$2,670 million),
with a net loss of RMB105 million (approximately HK$99 million).
4. Non-competition with Sinopec Group Company
Prior to the restructuring of Sinopec Corp. for the purpose of its listing of
the Stock Exchange and for the protection of Sinopec Corp.'s interest, Sinopec
Group Company and Sinopec Corp. entered into the Non-competition Agreement,
pursuant to which Sinopec Group Company undertook to Sinopec Corp., unless
Sinopec Corp. agrees in writing or under certain circumstances as permitted
under the Non-Competition Agreement, that it shall:
(1) not be involved in any business which competes or may compete with
Sinopec Corp.'s business;
(2) provide Sinopec Corp. with an option to purchase any business of Sinopec
Group Company which competes or may compete with Sinopec Corp.'s
business and right of first refusal over any business which competes or
may competes with Sinopec Corp.;
(3) adopt Sinopec Corp.'s mode of operation in respect of sales and services
to its own retail business and gas stations; and
(4) appoint Sinopec Corp. to become sales agent for its own products which
compete or may compete with Sinopec Corp.'s products.
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The Directors and Independent Board Committee are of the view that the terms
of the Acquisition and Disposal are fair and reasonable so far as the
shareholders of Sinopec Corp. are concerned and in the interest of them taken
as a whole. The Acquisition Agreements and Disposal Agreement were negotiated
on an arm's length basis and were arrived at on normal commercial terms. The
Directors, Mr. Chen Tonghai (being the Chief Manager of Sinopec Group Company)
and Mr. Liu Genyuan (being the Deputy Manager of Sinopec Group Company)
abstained from voting in such meeting of the Board by reason of conflict of
interests.
5. Details of the Target Assets
5.1 General
Based on the functions in the Sinopec Group and Sinopec Corp. production and
operation systems, and the types of products, the Target Assets proposed to be
acquired/disposed can be categorized into 4 sectors: the Petrochemical Assets,
the Catalyst Assets, the Gas Station Assets and the Downhole Operation Assets.
The Petrochemical Assets proposed to be acquired are mainly relating to the
production of ethylene and its down-stream products, synthetic fiber monomers
and polymers products, and refined oil. Among the Petrochemical Assets, the
assets of Tianjin Petrochemical are mainly relating to the production of
ethylene, synthetic resin, and synthetic fiber monomers and polymers products;
the assets of Luoyang Petrochemical are mainly relating to the production of
synthetic fiber monomers and polymers products; the assets of Maoming
Petrochemical principally comprise 2 oil refinery catalyst installations; the
assets of Guangzhou Petrochemical mainly represent the power assets held by
Guangzhou Petrochemical Power generating department and Zhongyuan
Petrochemical principally engages in the production of ethylene and synthetic
resin products.
The Catalyst Assets proposed to be acquired are from Changling Plant,
Jianchang Petrochemical, Qilu Plant, Technologies Development Company, Aoda
Technology, Shanghai Lide, Shanghai Research Institute and Nanjing Nanlian,
and all these 8 entities take catalyst business as their primary or sole
business, which is closely connected with oil refinery and chemical business.
The Gas Station Assets proposed to be acquired are the 1,023 gas stations and
54 oil depots owned by Sinopec Group Company and Authorising Entities.
The Downhole Operation Assets proposed to be disposed are the oilfield
downhole operation assets, business and associated liabilities of Zhongyuan
Oilfield Branch Company, Henan Oilfield Branch Company, Jianghan Oilfield
Branch Company, Jiangsu Oilfield Branch Company, Huabei Branch Company,
Huadong Branch Company, Xinan Branch Company and Shengli Oilfield Compoany.
Downhole operations involve the testing of oilfield and gas, the maintenance
of oil wells, pressure, acidification and action operations, maintenance
operations and field operations, which are engineering services to explore the
date of oil and gas reserves and promote the productivity of oil wells during
the exploration and production on the oilfields.
Independent valuers which are authorized to engage in the domestic securities
business of PRC were engaged by Sinopec Corp, to carry out valuation of the
above assets and issued valuation reports. Such valuation reports are to be
filed with SASAC. According to the valuation reports prepared by such
independent valuers, as at the Valuation Date, the results of the valuation of
the Petrochemical Assets are as follows: total assets were RMB13,904 million
(approximately HK$13,116 million); total liabilities were RMB11,699 million
(approximately HK$11,037 million); after the deduction of minority interest of
RMB42 million (approximately HK$40 million), net assets is RMB2,163 million
(approximately HK$2,041 million); the results of the valuation of the Catalyst
Assets are as follows: total assets is RMB1,885 million (approximately
HK$1,778 million); total liabilities is RMB1,024 million (approximately HK$966
million); after the deduction of minority interest of RMB163 million
(approximately HK$154 million), net assets is RMB698 million (approximately
HK$659 million); the results of the valuation of the Gas Station Assets are as
follows: total assets is RMB1,364 million (approximately HK$1,287 million);
total liabilities is RMB11 million (approximately HK$10 million); net assets
is RMB1,353 million (approximately HK$1,276 million); the results of the
valuation of the Downhole Operation Assets are as follows: total assets is
RMB2,147 million (approximately HK$2,025 million); total liabilities is RMB399
million (approximately HK$376 million); net assets is RMB1,748 million
(approximately HK$1,649 million).
5.2 Details of the Acquiring Assets
Details of the Petrochemical Assets
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According to the consolidated balance sheets at 30 June 2004 of Tianjin
Petrochemical and Luoyang Petrochemical, the balance sheets at 31 December
2003 and 30 June 2004 and the income statements for 2003 and the six-month
period ended 30 June 2004 of Zhongyuan Petrochemical as audited by KPMG
Huazhen, the balance sheets and income statements for 2003 and the first
six-month period of 2004 of Maoming Petrochemical and Guangzhou Petrochemical
as audited by Huazheng Accounting Firm Co., Ltd, and the unaudited
consolidated balance sheet at 31 December 2003 and the unaudited consolidated
income statements for 2003 and the six-month period ended 30 June 2004 of
Tianjin Petrochemical and Luoyang Petrochemical, and the unaudited balance
sheets and income statements of all the above entities for 2002. The
accumulative summary of balance sheet and income statement of the above assets
are as follows:
SUMMARY OF THE ASSETS AND LIABILITIES OF THE PETROCHEMICAL ASSETS
Unit: RMB thousand
30 June 2004 31 December 2003 31 December 2002
Item (audited) (unaudited) (unaudited)
Cash and bank deposits 157,993 230,303 246,501
Total Assets 13,849,433 14,256,952 15,045,579
Short term Loans 4,775,619 4,899,127 4,312,414
Long term Loans 5,613,403 6,549,100 8,242,810
Total liabilities 11,865,079 12,912,412 14,173,598
Minority interest 78,259 74,827 61,540
Net assets 1,906,095 1,269,713 810,441
SUMMARY OF INCOME STATEMENT OF THE PETROCHEMICAL ASSETS
Unit: RMB thousand
1st half of 2004 2003 2002
Item (unaudited) (unaudited) (unaudited)
Turnover 7,725,107 12,854,530 10,380,935
Depreciation and amortisation 587,169 1,202,258 1,220,401
Net finance costs 232,325 576,293 705,977
Income tax 296,502 127,833 (184,303)
Minority interests 7,796 14,161 8,797
Net profits 584,083 438,599 (398,360)
Net profits after taxation and 584,083 438,599 (398,360)
extraordinary items (note 1)
Note 1: Net profit after tax and extraordinary items is disclosed according to
the requirements of Chapter 14 of the Listing Rules.
Note 2: Prior to the hypothetical reorganization base date of 30 June 2004, the
assets of Tianjin Petrochemical and Luoyang Petrochemical included some
non-operational assets, all financial data is unaudited and does not
include non-operational assets, except for the assets and liabilities
date of 30 June 2004 which has been audited.
According to the Asset Valuation Report In Respect Of Five Entities including
the Ethylene Factory Under Tianjin Petrochemical (Zhongzheng Pin Bao Zi [2004]
No. 056) prepared by Beijing Zhongzheng Appraisal Co., Ltd with PRC securities
qualification and the Asset Valuation Report In Respect Of the To-be Disposed
Assets of Sinopec Group Tianjin Petrochemical Co., Ltd (Zhongfeng Pin Bao Zi
(2004) No. 092) prepared by Zhongfeng Asset Appraisal Co., Ltd with PRC
securities qualification, the Asset Valuation Report In Respect of the To-be
Disposed Luoyang Polyester Assets of Sinopec Group Company (Zhongshen Pin Bao
Zi [2004] No. 4018) prepared by Zhongshen Accounting Firm Co., Ltd with PRC
securities qualification, the Asset Valuation Report Regarding China Petroleum
& Chemical Corporation's Acquisitoin of Zhongyuan Ethylene Project (Tianxin
Pin Bao Zi (2004) No. 87 prepared by Beijing Tianjian Xinye Asset Appraisal
Co., Ltd with PRC securities qualification, the Asset Valuation Report In
Relation To China Petroleum & Chemical Corporation's Proposed Acquisition of
the AVD and catalytic assets (Zhongqihua Pin Bao Zi (2004) No. 200) prepared
by Beijing Zhongqihua Asset Apraisal Co., Ltd with PRC securities
qualification and the Asset Apraisal Report In Relation to the To-be Disposed
Assets of Sinopec Group Guangzhou Petrochemical Main Factory (Zhonglei Pin Bao
Zi (2004) No. 6005) prepared by Zhonglei Accounting Firm Co., Ltd with PRC
securities qualification, based on the replacement cost method, the
accumulative summary of valuation results of the Petrochemical Assets as at
the Valuation Date which is 30 June 2004 are as follows:
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Unit: RMB thousand
Amount
Adjusted increased/ Rate of
Item Book value book value Valuated value decreased increase (%)
Fixed assets 11,796,965 11,863,532 12,140,723 277,191 2.34
Total assets 13,604,845 13,604,848 13,904,128 299,279 2.20
Total liabilities 11,698,750 11,698,697 11,698,592 -105 0.00
Net asset 1,906,095 1,906,151 2,205,536 299,384 15.71
Minority interests 38,000 38,803 42,359 3,554 9.16
Net valuation after the deduction of
minority interest (Note 1) 1,867,295 1,867,348 2,163,177 295,829 15.84
Note 1: Zhongyuan Petrochemical comprises a 6.49% minority interest.
Note 2: The increase rate after the valuation of the Petrochemical Assets
was 2.20%, generally equal to the book value. However, because of the
large figures of the associated liabilities, the net assets figure is
relatively small. Thus, although the increase of the total assets is
not significant, the resulting increase of the net assets figure is
notable.
Note 3: This table is a summary, and the long-term investments of the asset
valuation summary table are indicated according to the equity method,
resulting in a difference between the total assets and total
liabilities figures of this table and the summary of assets and
liabilities.
(1) The ethylene, synthetic fiber monomers and polymers assets of Tianjin
Petrochemical
Overview
Tianjin Petrochemical was established in 1983 as a wholly-owned subsidiary of
Sinopec Group Company with a registered capital of RMB2,941,481,000. Its
domicile is Shanggulin West, Dagang District, Tianjin, and the enterprise
legal person business licence registration number is 1200001000750. It is an
integrated chemical and industrial enterprise with ethylene, synthetic fiber
monomers and polymers production installations and ancillary power generation
facilities.
Assets proposed to be acquired
The assets of Tianjin Petrochemical proposed to be acquired include a 200,000
tonnes per year ethylene unit, a 60,000 tonnes per year glycol unit, a 120,000
tonnes per year polythene unit, a 60,000 tonnes per year polypropylene unit, a
250,000 tonnes per year PX unit, a 300,000 tonnes per year PTA unit, a 210,000
tonnes per year polyester unit and ancillary synthetic fibre units and other
construction facilities, as well as current assets such as accounts
receivable, prepayments and associated liabilities.
According to the valuation report, as of the Valuation Date, the total assets
of such assets amount to approximately RMB7,689 million (approximately
HK$7,254 million), the total liabilities amount to approximately RMB7,126
million (approximately HK$6,723 million) and the net assets amount to
approximately RMB563 million (approximately HK$531 million).
Such assets include buildings with a total area of approximately 488,652 m2 of
which building occupying a total area of 35,238 m2 have obtained relevant
title certificates and approximately 453,414 m2 have not obtained relevant
title certificates in respect of which the application for such certificates
are in process. After the completion of the Acquisition, Sinopec Corp. will
need to lease land from Sinopec Group Company and Tianjin Petrochemical for
the operation of such assets. The leasing arrangement will be covered under
the Land Use Rights Leasing Agreement.
Save as disclosed above, the above assets are free from any guarantees,
litigation or other major disputes that could result in material adverse
effect.
(2) The ethylene, synthetic fiber monomers and polymers assets of Luoyang
Petrochemical
Overview
Luoyang Petrochemical is a wholly-owned subsidiary of Sinopec Group Company
with a registered capital of RMB1,524,898,000. Its domicile is Jili District,
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Luoyang City, Henan Province, and the enterprise legal person business licence
registration number is 4103001001290. It is a petrochemical enterprise engaged
in the production and sales of synthetic fiber monomers and polymers chips and
polypropylene products.
Assets proposed to be acquired
The assets proposed to be acquired comprises synthetic fiber monomers and
polymers related assets, current assets such as accounts receivables and
prepayments, and associated liabilities, also the 55% equity interest of
Luoyang Petrochemical Polypropylene Co., Ltd. Upon completion, Luoyang
Petrochemical Polypropylene Co., Ltd. will become a subsidiary of Sinopec Corp.
The Assets proposed to be acquired include a PX installation unit with an
annual designed capacity of 260,000 tonnes, a PTA installation unit with an
annual designed capacity of 325,000 tonnes, a polyester and synthetic fibre
installation unit with an annual designed capacity of 240,000 tonnes. The
principal business of Luoyang Petrochemical Polypropylene Co., Ltd comprises
the production and sale of polypropylene products.
According to the valuation report as of the Valuation Date, the total assets
of such assets amounted to approximately RMB2,907 million (approximately
HK$2,742 million), the total liabilities amounted to approximately RMB2,799
million (approximately HK$2,641 million) and the net assets amounted to
approximately RMB108 million (approximately HK$101 million).
Such assets include approximately 206,139 m2 of building, of which building
occupying a total area of approximately 195,869 m2 have obtained relevant
title certificates and approximately 10,270 m2 have not obtained relevant
title certificates in respect of which the application for such certificates
are in process. Such assets also include approximately 174,070 m2 of land use
right, of which a total area of approximately 94,636 m2 have obtained relevant
title certificates and approximately 79,434 m2 have not obtained relevant
title certificates in respect of which the application for such certificates
are in process. After the completion of the Acquisition, Sinopec Corp. will
need to lease land from Sinopec Group Company and Luoyang Petrochemical for
the operation of such assets. The lease arrangement will be covered under the
Land Use Rights Leasing Agreement.
Save as disclosed above, the above assets are free from any guarantees,
litigation or other major disputes that could result in material adverse
effect.
(3) The 93.51% equity interest in Zhongyuan Petrochemical
Overview
Zhongyuan Petrochemical, formerly Zhongyuan Petrochemical Joint Company
established by Henan Provincial Government and China Petroleum and Natural Gas
Company, is now a majority-owned subsidiary of Sinopec Group Company. In 1995,
it was reorganized into Zhongyuan Petrochemical under the Company Law of PRC.
In 1998, it was transferred to Sinopec Group Company pursuant to the Reply on
Relevant Issues Regarding the Establishment of China Petrochemical Corporation
[Guo Han (1998) 58]. In 2003, agreed by the shareholders, Henan Economy and
Technology Development Company and Puyang City Economy and Technology
Development Company were added as shareholders. Its domicile is Shenglixi Road
South, Puyang City, Henan Province, and the enterprise legal person business
licence registration number is 4109001000068.
Zhongyuan Petrochemical has a registered capital of RMB2,400 million, of which
Sinopec Group Company holds 93.51% of the equity interest and the remaining
equity interest is held by Henan Province Construction Investment Company
(2.49%), Henan Province Economy and Technology Development Company (2.06%) and
Puyang City Economy and Technology Development Company (1.94%). Upon
completion, Zhongyuan Petrochemical will become a subsidiary of Sinopec Corp.
The present scope of business of Zhongyuan Petrochemical principally includes
the production of polypropylene and polythene products, the exportation of
petroleum resins and high foaming products and the import of raw and ancillary
materials, machinery, apparatus, meters and component parts, etc. needed for
its production and research.
According to the valuation report, as of the Valuation Date, the total assets
of Zhongyuan Petrochemical amounted to approximately RMB2,336 million
(approximately HK$2,204 million), the total liabilities amounted to
approximately RMB1,683 million (approximately HK$1,588 million). After the
deduction of minority interest of approximately RMB42 million (approximately
HK$40 million), the net assets amounted to approximately RMB613 million
(approximately HK$576 million).
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The principal production facilities of Zhongyuan Petrochemical include an
ethylene production unit with an installed capacity of 180,000 tonnes per
year, a polythene production unit with an installed capacity of 200,000 tonnes
per year and a polypropylene production unit with an installed capacity of
60,000 tonnes per year. The assets of Zhongyuan Petrochemical proposed to be
acquired include approximately 142,374 m2 of building, of which building
occupying a total area of approximately 31,326 m2 have obtained relevant title
certificates and approximately 111,047 m2 have not obtained relevant title
certificates in respect of which the application for such certificates are in
process. 58,036 m2 of land use right is also included, of which a total area
of approximately 5,308 m2 have not obtained relevant title certificates in
respect of which the application for such certificates are in process. The
lease arrangement will be covered under the Land Use Rights Leasing Agreement.
Save as disclosed above, the above 93.51% equity interest in Zhongyuan
Petrochemical that Sinopec Corp. proposes to acquire is free from any
guarantees, restrictions on transfers, litigation, arbitration, judicial
enforcements or other major disputes.
Financial Information
According to the financial statements for 2003 and the six-month period ended
30 June 2004 (The Audit Report KPMG-AH [2004] AR NO. 0035) audited by KPMG
Huazhen with PRC securities qualification and the unaudited financial
statements for 2001 and 2002 of Zhongyuan Petrochemical, the main assets and
liabilities, income statement and cash flow statement of Zhongyuan
Petrochemical are as follows:
SUMMARY OF ASSETS AND LIABILITIES
Unit: RMB thousand
30 June
2004 31 December 2003 31 December 2002 31 December 2001
Item (audited) (audited) (unaudited) (unaudited)
Total Assets 2,281,403 2,327,062 2,599,383 3,036,063
Liabilities and shareholders' funds
Total current liabilities 1,097,544 1,202,258 1,419,844 1,407,881
Total non-current liabilities 586,014 697,634 923,412 1,106,927
Total liabilities 1,683,558 1,899,892 2,343,256 2,514,808
Minority interest 597,845 427,170 256,127 521,255
Total liabilities and shareholders' fund 2,281,403 2,327,062 2,599,383 3,036,063
SUMMARY OF INCOME STATEMENT
Unit: RMB thousand
1st half of
2004 2003 2002 2001
Item (audited) (audited) (unaudited) (unaudited)
Turnover of principal business 1,376,518 2,110,683 1,743,401 1,767,267
Profit before tax 253,590 199,921 -258,021 -206,697
Net profit 169,822 181,796 -234,650 -146,214
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SUMMARY OF CASHFLOW
Unit: RMB thousand
1st half of 2004 2003 2002 2001
(audited) (audited) (unaudited) (unaudited)
Net cashflow from operating activities 396,327 503,413 170,255 393,685
Net cashflow from investing activities -159,541 -26,139 -15,198 -73,173
Net cashflow from financing activities -275,109 -519,813 -161,262 -212,561
Effect of foreign exchange rate change -103 77 - -
Net decrease in cash and cash equivalents -38,426 -42,462 -6,205 107,951
Save as disclosed above, the above assets are free from any guarantees,
litigation or other major disputes that could result in material adverse effect.
(4) The AVD and Catalytic Cracking assets of Maoming Petrochemical
Overview
Maoming Petrochemical is a wholly-owned subsidiary of Sinopec Group Company
with a registered capital of RMB2,286,510,000. Its domicile is Maoming City,
Guangdong Province, and the enterprise legal person business licence
registration number is 4409001001128. Its principal business is the leasing of
oil refinery installations and petrochemical installations, and owns railways,
ports and power generation facilities.
Assets proposed to be acquired
The Maoming Business comprises a 5 million tonnes/year AVD Unit and a 1.4
million tonnes/year catalysis installation unit and ancillary assets.
According to the valuation report, as of the Valuation Date, the assessed
value of such assets is approximately RMB385 million (approximately HK$363
million).
The Maoming Business owns approximately 6,063 m2 of building, of which
building occupying a total area of approximately 1,830 m2 have not obtained
relevant title certificates in respect of which the application for such
certificates are in process.
Save as disclosed above, the above assets are free from any guarantees,
litigation or other major disputes that could result in material adverse
effect.
(5) The Co-generation assets of Guangzhou Petrochemical
Overview
Guangzhou Petrochemical was established on 18 June 1973 as a wholly-owned
subsidiary of Sinopec Group Company with a registered capital of
RMB599,890,000. Its domicile is Guangzhou City, Guangdong Province, and the
enterprise legal person business licence registration number is 4401011300183.
Its principal business includes infrastructure projects, storage and
transportation, maintenance projects.
Assets proposed to be acquired
It is proposed to acquire all assets of Guangzhou Petrochemical power
generating department and associated liabilities. The main facilities include
4 sets of power generation units with a total capacity of 99,000KW/h, a water
processing system with an installed capacity of over 3 million tonnes/year
de-salted water, and air separation and air pressure facilities.
According to the valuation report, as of the Valuation Date, the total assets
of such assets amounted to approximately RMB586 million (approximately HK$553
million), the total liabilities amounted to approximately RMB89 million
(approximately HK$84 million) and the net assets amounted to approximately
RMB497 million (approximately HK$469 million).
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The assets to be acquired comprise approximately 105,629 m2 of building, in
respect of which the application for relevant title certificates are in process.
After the completion of the Acquisition, Sinopec Corp. will need to lease the
land needed for the operation of such assets from Sinopec Group Company and
Guangzhou Petrochemical. The lease arrangement will be covered under the Land
Use Rights Leasing Agreement.
Save as disclosed above, the above assets are free from any guarantees,
litigation or other major disputes that could result in material adverse
effect.
Details of the Catalyst Assets
According to the financial statements for 2003 and the six-month period ended
30 June 2004 (Auditor's Reports, Zhongxi Shen zi (2004) No. 02269 and 02270)
audited by Zhongxi Accounting Firm Co., Ltd with PRC securities qualification,
the financial statements for 2003 and the six-month period ended 30 June 2004
(Auditor's Reports, Zhonghe Zhengxin Zhuan Zi (2004) No. 1-051, 1-052 and
1-053) audited by Zhonghe Zhengxin Accounting Firm Co., Ltd with PRC
securities qualification, the financial statements for 2003 and the six-month
period ended 30 June 2004 (Auditor's Reports, Yuezong Shen Zi (2004) No. B287,
No. B288 and No. B289) prepared by Yuehua Accounting Firm Co., Ltd with PRC
securities qualification and the unaudited financial statements for 2002, the
main assets and liabilities and the loss and profit statements of the to-be
acquired Catalyst Assets are as follows:
SUMMARY OF ASSETS AND LIABILITIES OF THE CATALYST ASSETS
Unit: RMB thousand
Item 30 June 31 December 31 December
2004 2003 2002 (unaudited)
(audited) (audited)
Cash and bank deposits 191,923 190,414 185,810
Total Assets 1,925,860 1,744,262 1,717,630
Short term loans 356,588 195,122 1,550,000
Long term loans 2,000 2,000 82,000
Total liabilities 1,087,468 929,958 950,664
Minority interests 18,363 15,383 11,943
Net assets 820,029 798,921 755,023
SUMMARY OF PROFIT AND LOSS OF THE CATALYST ASSETS
Unit: RMB thousand
Item 1st half of 2003 2002
2004 (audited) (unaudited)
(audited)
Turnover 893,142 1,615,093 1,373,494
Depreciation and amortisation 38,508 87,125 71,914
Net financial costs 6,506 17,340 20,248
Taxation 30,585 41,838 27,965
Minority interests 2,980 4,357 3,199
Net profit 73,302 107,904 88,732
Net profits after taxation
extraordinary items 73,302 107,904 88,732
According to the Asset Valuation Report In Relation to the Proposed Transfer
of Assets of China Petroleum and Chemical Scientific Technology Development
Company by Sinopec Group Company (Zhonglian Pin Bao Zi [2004] No. 83), the
Asset Valuation Report In Relation to the Proposed Transfer of Equities of
Beijing Municipal Aoda Petrochemical New Technology Development Centre by
Sinopec Group Company (Zhonglian Pin Bao Zi [2004] No.84), the Asset
Valuation Report In Relation to the Proposed Transfer of Assets of Shanghai
Petroleum and Chemical Research Institute by Sinopec Group Company (Zhonglian
Pin Bao Zi [2004] No.85), the Asset Valuation Report In Relation to the
Proposed Transfer of Equities of Shanghai Lide Catelyst Company Limited by
Sinopec Group Company (Zhonglian Pin Bao Zi [2004] No.86), the Asset
Valuation Report In Relation to the Proposed Transfer of Part of Assets of
Changling Refinery Company by Sinopec Group Company (Zhonglian Pin Bao Zi
[2004] No.87), the Asset Valuation Report In Relation to the Proposed
Transfer of Equities of Hunan Jianzhang Petrochemical Company Limited
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by Sinopec Group Company (Zhonglian Pin Bao Zi [2004] No.88), the Asset
Valuation Report In Relation to the Proposed Transfer of Assets of Qilu
Petroleum and Chemical Company Catalyst Plant by Sinopec Group Company
(Zhonglian Pin Bao Zi [2004] No.89) and the Asset Valuation Report In
Relation to the Proposed Transfer of Equities of Nanjing Nanlian Catalyst
Limited Liability Company by Sinopec Group Company (Zhonglian Pin Bao Zi
[2004] No.90) prepared by Zhonglian Asset Appraisal Co., Ltd with PRC
securities qualification, based on the replacement cost method, as at the
Valuation Date, the accumulative summary of the valuation results of the
Catalyst Assets are as follows:
Unit: RMB thousand
Amount
Adjusted Valuated increased/ Rate of
Item Book value book value value decreased increase (%)
Fixed assets 611,778 611,778 645,250 33,472 5.47
Total assets 1,853,207 1,853,484 1,885,282 31,798 1.72
Total liabilities 1,033,178 1,033,389 1,024,383 -9,006 -0.87
Net assets 820,029 820,095 860,899 40,804 4.89
Minority interest 148,247 148,260 162,751 14,491 9.77
Net valuation after the deduction of 671,782 671,835 698,148 26,313 3.92
minority interest (Note)
Note: the assets of Technologies Development Company proposed to be acquired
include the 50% equity interest in Aoda Technology and the 40% equity
interest in Shanghai Lide. Only 81% of the total equity interest in
Jianchang Petrochemical is included in the Acquisition, and the
minority interests were deducted during calculation.
(1) The principal assets of Changling Plant
Overview
Changling Plant, a branch company of Changling Refinery, was established in
1992. Its place of business is Yunxi District, Yueyang City, and the business
licence number is 4306001501875. Its principal business includes the
production of catalytic cracking catalyst, catalytic hydrogenation catalyst
and catalytic reforming catalyst.
Changling Refinery is a state-owned company wholly-owned by Sinopec Group
Company with a registered capital of RMB1,200 million. Its domicile is
Changling, Yueyang City, and the enterprise legal person business licence
registration number is 4306001500391. Its principal business involves the
production of oil products and catalyst.
Assets proposed to be acquired
The assets proposed to be acquired are all the assets of Changling Plant and
all its liabilities shall be assumed. According to the valuation report
carried out by Zhonglian Assets Appraisal Co., Ltd., as at the Valuation Date,
the total assets of such assets amount to approximately RMB592 million
(approximately HK$558 million), the total liabilities amount to approximately
RMB465 million and the net assets amount to approximately RMB127 million
(approximately HK$120 million). Such assets mainly include catalytic cracking
catalyst facilities with a production capacity of 32,800 tonnes/year,
catalytic hydrogenation catalyst facilities, catalytic reforming catalyst
production facilities, ancillary facilities, intellectual property rights,
relevant inventories and current assets such as accounts receivable and
prepayments.
The above assets include 62,405 m2 of building, in respect of which the
application for relevant title certificates are in process. After the
completion of the Acquisition, Sinopec Corp. will need to lease the land
needed for the operation of such assets from Changling Refinery. The lease
arrangement will be covered under the Land Use Rights Lease Agreement.
Save as disclosed above, the above assets are free from any guarantees,
litigation or other major disputes that could result in material adverse
effect.
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(2) The 81% equity interest in Jianchang Petrochemical
Overview
Jianchang Petrochemical is a joint-stock limited company registered in
November 1992 with a registered capital of RMB30,000,000. Its registered
address is Yunxi District, Yueyang City, Hunan Province and its enterprise
legal person business licence number is 4300001002774. Currently, it has five
shareholders and their shareholdings are Sinopec Group Chongling Oil Refinery
Chemical Limited Liability Company (50%), China Petroleum and Chemical
Scientific Research Institute (20%), Yueyang Xingchang Petrochemical Company
Limited (10%), Luoyang Petrochemical Plant Jinda Industrial Company (1%) and
Yueyang Boyuan Trading Company Limited (19%).
The first four shareholders are subsidiaries of Sinopec Group Company, and
Sinopec Corp. proposes to acquire all of the 81% equity interest held by them.
Upon completion, Jianchang Petrochemical will become a subsidiary of Sinopec
Corp.
Save as disclosed above, the above assets are free from any guarantees,
litigation or other major disputes that could result in material adverse
effect.
Principal business and assets to be acquired
Jianchang Petrochemical mainly produces continuous reforming catalyst.
According to the valuation carried out by Zhonglian Assets Appraisal Co.,
Ltd., as at the Valuation Date, the total assets of such assets amount to
approximately RMB150 million (approximately HK$142 million), the liabilities
amount to approximately RMB98 million (approximately HK$92 million) and the
net assets amount to approximately RMB52 million (approximately HK$49 million)
(the net assets in proportion with the 81% equity interest is approximately
RMB42 million (approximately HK$40 million)).
Such assets mainly include continuous reforming catalyst production facilities
with a production capacity of 985 tonnes/year, catalytic hydrogenation
catalyst facilities, catalytic reforming catalyst production facilities,
ancillary facilities, intellectual property rights, relevant inventories and
current assets such as accounts receivable and prepayments.
Jianchang Petrochemical will need to continue to lease land from Changling
Refinery. The lease arrangement will be covered under the Land Use Rights
Leasing Agreement.
Jianchang Petrochemical's assets also include properties with an aggregate
area of 8,597 m2 of which properties with an aggregate area of 110 m2 have not
received the relevant title certificates. The remaining properties have all
been issued with legal title documentations. Jianchang Petrochemical will need
to continue to lease land from Changling Refinery. The lease arrangement will
be covered under the Land Use Rights Lease Agreement.
Financial Information
According to the financial statements for 2003 and the first six-month period
ended at 30 June 2004 (Auditor's Report, Zhongxi Shen Zi (2004) No. 02270)
prepared by Zhongxi Accounting Firm Co., Ltd with PRC securities qualification
and unaudited financial statements for 2001 and 2002 of Jianchang
Petrochemical, the main assets and liabilities, income statement and cashflow
position of Jianchang Petrochemical are as follows:
SUMMARY OF THE ASSETS AND LIABILITIES
Unit: RMB thousand
30 June 31 December 31 December 31 December
2004 2003 2002 2001
Item (audited) (audited) (unaudited) (unaudited)
Total Assets 171,797 166,749 138,019 111,573
Liabilities and shareholders' funds
Total current liabilities 102,567 101,940 72,149 58,942
Total non-current liabilities - - 4,000 4,000
Total liabilities 102,567 101,940 76,149 62,942
Minority interest 18,363 15,383 11,943 8,745
Equity interest 50,867 49,426 49,927 39,886
Total liabilities and
shareholders' funds 171,797 166,749 138,019 111,573
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SUMMARY OF INCOME STATEMENT
Unit: RMB thousand
1st half of
2004 2003 2002 2001
Item (audited) (audited) (unaudited) (unaudited)
Turnover 38,070 155,912 89,295 134,652
Profit before tax 5,596 17,303 16,890 15,023
Net profit 1,440 9,589 10,042 9,766
SUMMARY OF CASHFLOW
Unit: RMB thousand
1st half of
2004 2003 2002 2001
Item (audited) (audited) (unaudited) (unaudited)
Net cashflow from operating activities -8,902 29,991 2,249 14,038
Net cashflow from investing activities -5,716 -6,050 -12,637 -656
Net cashflow from financing activities -9,514 2,307 11,394 -10,559
Net decrease in cash and equivalents -24,132 26,248 1,006 2,823
(3) Primary assets of the Qilu Plant
Overview
Qilu Plant, being a state-owned enterprise established in October 1990, is a
wholly-owned subsidiary of Qilu Petrochemical Co., Ltd. with a registered
capital of RMB159,300,000. Its domicile is 1 Tiyuchang Road, Zhoucun District,
Zibo City, and the enterprise legal person business licence registration
number is 3703051870225. Its principal business is the production of catalytic
cracking catalyst.
Assets proposed to be acquired
The assets proposed to be acquired are all the assets of Qilu Plant (excluding
land use rights) and all its liabilities shall be assumed. According to the
valuation carried out by Zhonglian Assets Valuation Co., Ltd., as of the
Valuation Date, the total assets of Qilu Plant amounted to approximately
RMB447 million (approximately HK$422 million), the total liabilities amounted
to approximately RMB293 million (approximately HK$276 million) and the net
assets amounted to approximately RMB148 million (approximately HK$140
million). Such assets mainly include catalytic cracking catalyst installation
with a production capacity of 25,000 tonnes/year, molecular sieve
installations with an aggregate production capacity of 18,000 tonnes/year,
ancillary facilities, relevant intellectual property rights and authorizations
and current assets including related inventories, accounts receivable and
prepayments.
The above assets include 63,271 m2 of building, of which building occupying a
total area of 26,724 m2 have not obtained relevant title certificates in
respect of which the application for such certificates are in process. After
the completion of the Acquisition, Sinopec Corp. will need to lease the land
needed for the operation of such assets from Qilu Plant. The lease arrangement
will be covered under the Land Use Rights Leasing Agreement.
Save as disclosed above, the above assets are free from any guarantees,
litigation or other major disputes that could result in material adverse
effect.
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(4) Primary assets owned by the Technologies Development Centre
Overview
Technology Development Centre, being a state-owned enterprise, is a
wholly-owned subsidiary of Sinopec Group Company with a registered capital of
RMB67,000,000. It was established in November 1990. Its registered address is
1203 Jingmin Building, 10 Huayanli, Chaoyang District, Beijing, and the
enterprise legal person business licence registration number is 1000001001082.
Its principal business includes the exportation of technologies developed, and
related products produced, of itself and subsidiaries, the organization for
the industrial implementation of technical innovations, technology transfers,
technical consulting and services.
Assets proposed to be acquired
The assets proposed to be acquired are principal assets of the Technology
Development Company and all its liabilities shall be assumed. According to the
valuation carried out by Zhonglian Assets Valuation Co., Ltd., as of the
Valuation Date, the total assets of the Technology Development Company
amounted to approximately RMB228 million (approximately HK$215 million), the
liabilities amounted to approximately RMB26 million (approximately HK$25
million) and the net assets amounted to approximately RMB202 million
(approximately HK$191 million). Such assets mainly include long-term equity
investments, current assets such as cash, accounts receivable and prepayments,
and related intellectual property rights and authorizations.
The assets of Technology Development Company proposed to be acquired include a
50% equity interest in the Aoda Technology and a 40% equity interest in
Shanghai Lide, both involved in catalyst business.
(i) The 50% equity interest in Aoda Technology
Overview
Aoda Technology was established in 1993 and is a collectively-owned joint
venture with a registered capital of RMB49,600,000. Its domicile is Taihu
Town, Tongzhou District, Beijing and enterprise legal person business licence
number is 1102231662894. The shareholders of Aoda Technology are Sinopec Corp.
Beijing Chemical and Industrial Research Institute and Technology Development
Company, each holding a 50% equity interest.
At present, Sinopec Corp. indirectly owns 50% interests in Aoda Technology
through Beijing Chemical and Industrial Research Institute. As part of the
Acquisition, Sinopec Corp. proposes to indirectly acquire a further 50%
interest in Aoda Technology through the acquisition of all the assets of
Technology Development Centre. After completion of the Acquisition, Sinopec
Corp. will own 100% interests in Aoda Technology and Aoda Technology will
become a subsidiary of Sinopec Corp.
Principal business and assets
The primary businesses of the Aoda Technology are the production of
polypropylene catalyst, benzene anhydride and anhydride catalyst.
According to the valuation carried out by Zhonglian Assets Valuation Co.,
Ltd., as of the Valuation Date, the total assets of the Aoda Technology
amounted to approximately RMB191 million (approximately HK$180 million), the
liabilities amounted to approximately RMB66 million (approximately HK$62
million) and the net assets amounted to approximately RMB125 million
(approximately HK$118 million) (the net assets in proportion with the 50%
equity interest was approximately RMB62 million (approximately HK$58
million)).
Its main production installations include polypropylene catalyst production
installations with a production capacity of 140 tonnes/year, anhydride and
benzene anhydride catalyst production installations with a production capacity
of 120 - 130 tonnes/year, ancillary facilities, related intellectual rights
and authorizations and current assets such as related inventories, accounts
receivable and prepayments.
The above assets include 2,993 m2 of building, in respect of which the
application for relevant title certificates are in process. After the
completion of the Acquisition, Aoda Technology will need to lease the land
needed for the operation of such assets from Sinopec Group Beijing Chemical
and Industrial Research Institute.
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(ii) The 60% equity interest in Shanghai Lide
Overview
Shanghai Lide is a limited liability company established in 2001 with a
registered capital of RMB20,000,000. Its domicile is Qianxu Town, Jinshan
District, Shanghai, and enterprise legal person business licence number is
3102281012263.
The shareholders of Shanghai Lide are Shanghai Chemical and Industrial
Research Institute (40%), Technology Development Company (40%) and Maoming
Petrochemical (20%). Among them, both Technology Development Company and
Maoming Petrochemical are subsidiaries of Sinopec Group Company. In the
Acquisition, Sinopec Corp. will acquire the 40% equity interest in Shanghai
Lide through the acquisition of Technology Development Company. In addition,
Sinopec Corp. will also acquire the 20% equity interest held by Maoming
Petrochemical. After the completion of the Acquisition, Sinopec Corp. will
hold 60% equity interest in Shanghai Lide. Upon completion, Shanghai Lide will
become a subsidiary of Sinopec Corp.
Principal business and assets
Shanghai Lide mainly produces gas phase polyethylene catalyst.
According to the valuation carried out by Zhonglian Assets Valuation Co.,
Ltd., as of the Valuation Date, the total assets of the Shanghai Lide amount
to approximately RMB72 million (approximately HK$68 million), the liabilities
amount to approximately RMB37 million (approximately HK$35 million) and the
net assets amount to approximately RMB35 million (approximately HK$33 million)
(the net assets in proportion with the 60% equity interest is approximately
RMB21 million (approximately HK$20 million)).
Its main production installation is one set of gas phase polyethylene catalyst
production installation with a production capacity of 120 tonnes/year, related
intellectual property rights and authorizations and current assets such as
related inventories, accounts receivables and prepayments.
The above assets include 1,039 m2 of building and 8,789 m2 of land use right,
in respect of which the application for relevant title certificates are in
process.
Save as disclosed above, the above assets of the Technology Development
Company and the equity interests in Aoda Technology and Shanghai Lide are free
from any guarantees, litigation or other major disputes that could result in
material adverse effect.
(5) Primary assets of the Shanghai Research Institute
Overview
Shanghai Research Institute was established in 1961 as a state-owned
enterprise wholly-owned by Sinopec Group Company, with a registered capital of
RMB113,420,000. Its domicile is 1658 Pudongbei Road, Shanghai, and enterprise
legal person business licence number is 3101151016076. Its principal products
are acrylonitrile catalyst, methylbenzene isomerization catalyst and styrene
catalyst.
Assets proposed to be acquired
The assets proposed to be acquired are all the assets owned by Shanghai
Research Institute (excluding the equity interest in Shanghai Shibida
Petrochemical Hi-tech Company and land use rights) and all its liabilities
shall be assumed. According to the valuation carried out by Zhonglian Assets
Valuation Co., Ltd., as of the Valuation Date, the total assets of the
Shanghai Research Centre amounted to approximately RMB180 million
(approximately HK$170 million), the liabilities amounted to approximately
RMB24 million (approximately HK$23 million) and the net assets amounted to
approximately RMB156 million (approximately HK$147 million).
Such assets mainly include the acrylonitrile catalyst, methylbenzene
isomerization catalyst and styrene catalyst production installations with an
aggregate production capacity of 1,750 tonnes/year, the related intellectual
property rights and authorizations and current assets such as related
inventories, accounts receivables and prepayments.
The above assets include 32,011 m2 of building, of which building occupying a
total area of 11,727 m2 have not obtained relevant title certificates in
respect of which the application for such certificates are in process. After
the completion of the Acquisition, Sinopec Corp. will need to lease the land
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needed for the operation of such assets from Shanghai Research Institute. The
leasing arrangement will be covered under the Land Use Rights Lease Agreement.
Save as disclosed above, the above assets are free from any guarantees,
litigation or other major disputes that could result in material adverse
effect.
(6) All assets of Nanjing Nanlian
Overview
Nanjing Nanlian was established in 1995 as a limited liability company, with a
registered capital of RMB5,000,000. Its domicile is Hengyi Road, Economic and
Technology Development Zong, Nanjing, and enterprise legal person business
licence number is 3201921000914. Its principal products is isomerization
catalyst.
Assets proposed to be acquired
The main buildings and equipments used by Nanjing Nanlian Catalyst Limited
Liability Company for production and operation are leased from China Petroleum
and Chemical Corporation Jinling Branch. The assets proposed to be acquired
are all the assets of Nanjing Nanlian Catalyst Limited Liability Company and
all its liabilities shall be assumed.
According to the valuation carried out by Zhonglian Assets Valuation Co.,
Ltd., as of the Valuation Date, the total assets of the Nanjing Nanlian
amounted to approximately RMB29 million (approximately HK$27 million), the
liabilities amounted to approximately RMB14 million (approximately HK$13
million) and the net assets amounted to RMB15 million (approximately HK$14
million). Such assets mainly comprise current assets including related
inventories, accounts receivables, cash, and related intellectual property
rights and authorizations.
Save as disclosed above, the above assets are free from any guarantees,
litigation or other major disputes that could result in material adverse
effect.
Details of Gas Station Assets
According to the balance sheet at 31 May 2004 as audited by Huazheng
Accounting Firm Co., Ltd with PRC securities qualification, and the unaudited
balance sheets at 31 December 2003 and 31 December 2002 (Huazheng Te Shen Zi
[2004] No. 120), the main assets and liabilities information of the Gas
Station Assets are as follows:
SUMMARY OF THE ASSETS AND LIABILITIES
Unit: RMB thousands
31 May 31 December 31 December
2004 (audited) 2003 2002
Item (unaudited) (unaudited)
Cash and bank deposits 1,455 2,711 2,524
Total Assets 1,139,517 1,115,514 1,072,543
Short term loans - - -
Long term loans - - -
Total liability 10,963 6,981 8,383
Minority Interests - - -
Net Assets 1,128,554 1,108,533 1,064,160
Prior to the Acquisition, most of the gas stations which are subject to the
acquisition were operated by Sinopec Corp. through the leasing of their
operating rights. In order to accurately reflect their operating performance,
it has been assumed for the purpose of the below information that they were
independently operated and, based on their gasoline throughput volume for
2002, 2003 and the first five-month period of 2004, prepared the following
unaudited calculation of their operating results:
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SUMMARY OF INCOME STATEMENT
Unit: RMB thousands
For the 5
months ended 31
May 2004 2003 2002
Item (unaudited) (unaudited) (unaudited)
Turnover 1,233,763 2,334,626 1,841,720
Depreciation and amortisation 10,221 23,854 23,843
Finance costs - - -
Income tax 36,810 69,490 45,004
Minority interest - - -
Net profit 120,390 232,541 160,470
Net profit after tax and
extraordinary items 120,390 232,541 160,470
According to the valuation report Zhongzheng PingBao [2004] No. 48 prepared by
Beijing Zhongzheng Appraisal Company Limited, with PRC securities
qualification, based on replacement cost method, the valuation results of the
Gas Station Assets as at 31 May 2004 are:
Unit: RMB thousands
Rate of
Total increase/
Total Net Asset Valuated decrease(%)
Item Book Value Value (overall)
Total 1,128,554 1,353,393 19.92%
SUMMARY OF SINOPEC GROUP COMPANY AND AUTHORISING ENTITIES
Please refer to section 2.11 of this circular.
Overview
The Gas Station Assets comprise the assets, interests and related liabilities
of 1,023 gas stations and 54 oil depots owned by Sinopec Group Company and the
Authorising Entities. These comprise 620 wholly-owned gas stations (including
25 oil transportation vessels and oil trucks), 82 majority-owned gas stations,
269 minority owned gas stations and 52 gas stations leased from third parties.
The gas stations and depots are located in 18 different provinces, cities and
autonomous regions of the PRC, namely, Beijing, Tianjin, Hebei, Shanxi,
Shanghai, Jiangzu, Zhejiang, Anhui, Fujian, Jiangxi, Shandong, Henan, Hubei,
Hunan, Guangdong, Guangxi, Hainan and Yunnan.
Out of the oil depots, 48 are wholly-owned, one is majority-owned and 5 are
minority-owned.
Out of the gas stations and oil depots which are wholly-owned (not including
the 25 oil transportation vessels and oil trucks), Sinopec Corp. will mainly
lease the land use right from the Vendors or third parties. The leasing
arrangement will be covered under the Land Use Rights Lease Agreement. For the
land occupied by majority-owned gas stations and oil depots with an
approximate aggregate area of approximately 122,232 m2 is included in the
Acquisition because of the acquisition by Sinopec Corp. of the equity interest
in such gas stations and oil depots. Out of such land, approximately 49,473 m2
have not received the appropriate land use rights certificates. The balance of
the land will be either leased or jointly operated with the Vendor or the
relevant land owner. The wholly and majority owned gas stations and depots
occupy a total of approximately 339,673 m2 buildings, of which approximately
197,672 m2 are yet to receive appropriate title certificates.
Unless otherwise disclosed above, the above assets are free from any material
guarantee, litigation or other major dispute.
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Price and Details of the Gas Station Assets
After negotiations between Sinopec Corp. and Sinopec Group Company, and taken
into account various factors including the asset valuation results, comparable
historical transactions, cash flow generating ability and growth potential, it
was agreed that the consideration for the net assets should be RMB1,881
million (approximately HK$1,775 million), and Sinopec Corp. should at the same
time bear the associated liabilities of RMB11 million (approximately HK$10
million).
The increase of the price of the Gas Station Assets on the book value is
mainly due to 3 factors:
o the increasing costs of properties and constructions in recent years
have caused the replacement costs of the gas stations and oil depots to
rise.
o years of marketing and cost-reduction have led to significant
improvements in the throughput and performance. For single gas station
throughput, the average figure has risen from 1,362 tonnes in 2001 to
1,825 tonnes in 2003, representing an annual increase of 15.8% and is
expected to continue to show good potentials.
o the establishment of new gas stations requires the approval of certain
governmental departments which may create certain difficulties. This
factor cannot be reflected in the book value of the gas stations to be
acquired.
Before the Acquisition, the gas stations proposed to be acquired were operated
Sinopec Corp. through leasing from Sinopec Group Company of their operating
rights. The fees were negotiated at that time taking into account reasonable
costs and profit level. Since Sinopec Group Company had not obtained all title
certificates of the properties and had not paid relevant fees, and also the
profitability was low due to a low single gas station throughput, the rent
payable had been historically low. Following the increasing of costs of gas
station properties, the rising of single gas station profitability and the
future difficulty of acquiring or establishing gas stations, the future lease
fees are expected to rise significantly to reflect the potential rise of
profit based on the fair market trade principle. For Sinopec Corp., it will
face of the risk of an increase of the costs of rental if it continues to
operate these gas stations by way of lease.
If Sinopec Corp. is able to acquire these gas stations, this will help to
eliminate the risks in their future operation, and to achieve coordinated
effect in various aspects such as investments, allocation of resources and
network through consolidated operation, resulting in a greater income
potentials for Sinopec Corp. from its investments.
Despite the premium in the consideration for the Gas Station Assets against
the book value, such consideration is fair and reasonable when compared with
single gas station acquisition prices of comparable historical transactions
and analysed by P/E ratio level of the acquisition:
(1) comparison with single gas station acquisition prices of comparable
historical transactions
After the deduction of valuation results of oil depots, the purchase price of
the gas stations are lower or similar to the prices of domestic acquisition of
other single gas stations which are of the similar size.
(2) P/E ratio comparing with comparable companies
The unaudited figure of the net profit of the Gas Station Assets in 2003 is
RMB233 million (approximately HK$220 million), based on which the P/E ratio in
2003 corresponding to the net asset acquisition price of RMB1,881
(approximately HK$1,775 million) is approximately 8.1, which is lower than
that of comparable companies.
5.3 Details of the Disposal Assets
Details of the Downhole Operation Assets
According to the financial statements for 2002, 2003 and the first seven
months ended 31 July 2004, Auditor's Reports (Yuezong Shen Zi [2004] No. B293,
No. B296) prepared by Yuehua Accounting Firm Co., Ltd with PRC securities
qualification, the accumulative summary of the financial position of the
Downhole Operation Assets are as follows:
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SUMMARY OF THE ASSETS AND LIABILITIES
Unit: RMB thousand
31 July 31 December 31 December
Item 2004 2003 2002
(audited) (audited) (unaudited)
Cash and bank deposits 32,792 38,376 33,432
Total Assets 2,266,550 2,566,454 2,272,244
Short term loans - - -
Long term loans - - -
Total liabilities 411,597 442,691 261,991
Minority interest - - -
Net assets 1,854,953 2,123,763 2,010,253
SUMMARY OF INCOME STATEMENT
Unit: RMB thousand
For the seven
months ended 31
Item July 2004 2003 2002
(audited) (audited) (unaudited)
Turnover 3,301,939 5,723,870 5,353,048
Depreciation and amortisation 226,833 274,280 259,611
Finance cost (note) 10,497 11,625 10,678
Income tax 8,183 6,664 12,548
Minority interest - - -
Net profit (122,744) 10,640 12,141
Net profit after tax and
extraordinary items (122,744) 10,640 12,141
Note: the net financial cost is hypothetical appropriation cost of the occupied
working capital. The average balance of interest-bearing working capital
for the past 2 years and the period ended 30 July 2004 is RMB156 million
According to the Asset Valuation Report (Zhongzheng Pin Bao Zi [2004] No. 062
and No.063) prepared by Beijing Zhongzheng Valuation Co., Ltd with PRC
securities qualification as at the Valuation Date being 31 July 2004, based on
the replacement costs, the accumulative summary of the asset valuation results
of the Downhole Operation Assets are as follows:
Unit: RMB thousand
Amount
Book Adjusted Valuated increased/ Rate of
Item value book value value decreased increase (%)
Current asset 414,005 417,484 420,851 3,367 0.81
Long-term investment - - - - -
Fixed asset 1,805,629 1,805,629 1,679,708 -125,921 -6.97
Intangible asset - - - - -
Total asset 2,266,550 2,270,028 2,146,863 -123,166 -5.43
Total liabilities 411,597 415,076 399,096 -15,980 -3.85
Net assets 1,854,953 1,854,953 1,747,767 -107.186 -5.78
Net assets acquired 1,854,953 1,854,953 1,747,767 -107.186 -5.78
Note: in this case the downhole operation assets valuation shows a 5.78%
decrease. The main reason is that a notable part of the assets are in bad
shape, which in turn is caused by the corruption of alkalescence materials
and bad working environment.
The assets proposed to be disposed under the Disposal are the oilfield
downhole operation assets, business and associated liabilities of Zhongyuan
Oilfield Branch Company, Henan Oilfield Branch Company, Jianghan Oilfield
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Branch Company, Jiangsu Oilfield Branch Company, Huabei Branch Company,
Huadong Branch Company, Xinan Branch Company and Shengli Oilfield Company
Limited.
(1) Downhole Operation Assets proposed to be sold by Shengli Oilfield Company
Limited
Overview
Shengli Oilfield Company Limited was established on 18 May 2000 with a
registered capital of RMB30,028 million. Its domicile is 258 Jinan Road,
Dongying District, Dongying City, Shandong Province, and the enterprise legal
person business licence registration number is 3705001804320. Its principal
business includes the exploration, extraction, utilization, processing and
sale of, and the downhole operations in relation to, ocean/land petroleum,
natural gas and other natural resources, petroleum refining and chemical
industry.
Assets proposed to be disposed
It is proposed to sell the assets of 4 downhole operation companies under
Shengli Oilfield, including the "Operation Branch", "Preparation Branch",
"Engineering Vehicles Branch" and pipelines, oil pumping rods and oil pumping
equipment repair and other ancillary assets related to the oilfield downhole
operation. The above assets include 4,225 vehicles and machines.
Such assets include buildings and structures with a total area of 449,063 m2,
of which the relevant title certificates for an aggregate area of 81,481 m2
are being applied for.
(2) Downhole Operation Assets of Zhongyuan Oilfield Branch Company proposed
to be sold
It is proposed to sell the downhole operation, special vehicles, preparation,
oil pipeline plant, oil rod plant, "rods, pipelines, pumps" and downhole tools
repair and maintenance and special vehicles maintenance of the Special
Operation Office, Oil Extraction Plant One, Plant Two, Plant Three, Plant
Five, Plant Six and Trial Extraction Second Office under Zhongyuan Oilfield
Branch Company, and the electric pump unit, electric cables manufacturing,
repair and technical services of the Oil Extraction Technology Research
Institute and other related ancillary assets. The above assets include 3,065
vehicles and machines.
Such assets include buildings and structures with a total area of 158,790 m2,
of which the relevant title certificates for an aggregate area of 46,737 m2
are being applied for.
(3) Downhole Operation Assets of Jiangsu Oilfield Branch Company proposed to
be sold
It is proposed to sell the related ancillary assets of 3 oil extraction plants
under Jiangsu Oilfield Branch Company, including the internal downhole
operation, testing (including measuring), special vehicles, oil pipeline works
and rods, pipelines and pumps repair of the 3 oil production fields. The above
assets include 422 vehicles and machines.
Such assets include buildings and structures with a total area of 25,081 m2,
of which the relevant title certificates for an aggregate area of 6,167 m2 are
being applied for.
(4) Downhole Operation Assets of Henan Oilfield Branch Company proposed to be
sold
It is proposed to sell the assets related to 7 mine brigade units under Henan
Oilfield Branch Company (2 special operation works departments, 2 downhole
operation works department, 2 production preparation brigades, one testing
project management department) and related supporting facilities. The above
assets include 824 vehicles and machines.
Such assets include buildings and structures with a total area of 33,329 m2,
of which the relevant title certificates for an aggregate area of 13,630 m2
are being applied for.
(5) Downhole Operation Assets of Jianghan Oilfield Branch Company proposed to
be sold
It is proposed to dispose the following assets and associated liabilities of
Jianghan Oilfield Branch Company: 8 operation brigades and the processing
works, tools works and derrick teams of the preparation branches of Jianghan
Oil Extraction Plant; 8 operation branches, 2 testing brigades, one overhaul
brigade and special vehicles branches. The above assets include 965 vehicles
and machines, and structures with a total area of approximately 72,045 m2, of
which the relevant title certificates for an aggregate area of approximately
3,225 m2 are being applied for.
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(6) Downhole Operation Assets of Huadong Branch Company proposed to be sold
It is proposed to dispose the assets of the oil production division under
Huadong Branch Company including the testing branch, operation branch,
measuring branch, water transport branch, vehicle transportation branch,
equipment maintenance branch, oil construction and associated liabilities lude
all vehicles and machines, and 2 buildings/structures with a total area of
approximately 894 m2.
(7) Downhole Operation Assets of Huabei Branch Company proposed to be sold
It is proposed to sell the assets related to 5 testing branch and one
measuring branch of the downhole n department of bei Branch Company, including
all machines and vehicles.
(8) Downhole Operation Assets of Xinan Branch Company proposed to be sold
It is proposed to sell the downhole operation department and the assets
related to well repair, gas testing and midway measuring brigades and
associated liabilities of Xinan Branch Company including all transportation
facilities and machinery.
The Downhole Operation Assets include properties with an area of 300 m2, the
relevant title certificate of which is being applied for. The land relating to
the Downhole Operation Assets are leased from Sinopec Group Company.
Save as disclosed above, the above assets are free from any guarantees,
litigation or other major disputes that could result in material adverse
effect.
6. Prospective Continuing Connected Transactions
In preparation for its listing on the Stock Exchange, Sinopec Corp. and
Sinopec Group Company entered into a number of agreements in the year 2000
governing the continuing connected transactions between them. These continuing
connected transactions include the transactions comtemplated under the Land
Use Rights Lease Agreement and the Property Leasing Agreement. On 11 June
2001, the Ongoing Connected Transaction Adjustment Agreement was entered into
between Sinopec Corp. and Sinopec Group Company whereby, amongst other
connected transaction agreements, various terms of the above agreements were
amended.
Details of the Land Use Rights Lease Agreement and the Property Leasing
Agreement are summarised below:
(1) Land Use Rights Lease Agreement
According to the Land Use Rights Lease Agreement as amended by the Ongoing
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 m2 at an annual rent of approximately RMB1,977
million (approximately HK$1,865 million), 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.
In respect of the authorised lands for operation owned by members of the
Sinopec Group, lands for industrial use were leased to the Company for a term
of 50 years while lands for commercial use were leased to the Company for a
term of 40 years. Lands over which members of the Sinopec Group have been
granted land use rights with consideration, were 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 request for
renewal of the term of the lease by giving notice to relevant member(s) of the
Sinopec Group twelve months before the expiry of the lease.
(2) Properties Lease Agreement
Sinopec Group Company and Sinopec Corp. entered into the Properties Leasing
Agreement dated 3 June 2000, which took effect from 1 January 2000, and as
amended by the Ongoing Connected Transaction Adjustment Agreement, members of
the Sinopec Group agreed to lease to the Company certain properties with a
gross floor area of approximately 2,593,490 m2 at an annual rent of RMB567
million (approximately HK$535 million), which is lower than the prevailing
market rent. The rent may be reviewed annually and any such revised rent shall
not be higher than the prevailing market rent. Property taxes and land use
fees in relation to such properties shall be borne by Sinopec Group.
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The properties were leased by Sinopec Group to the Company for a term of 20
years commencing from 1 January 2000.
If Sinopec Group Company negotiates to sell a leased property to a third
party, Sinopec Corp. shall have a pre-emptive right to purchase such property
under the same terms.
At the extraordinary general meeting of Sinopec Corp. held on 18 December
2003, the Independent Shareholders approved the following caps in respect of
the Land Use Rights Lease Agreement and the Properties Lease Agreement. The
caps shall be valid until 31 December 2006:
TRANSACTIONS CAPS
Land Use Rights Lease Agreement RMB2,150 million (approximately
annual rents payable by the Company HK$2,028 million)
Properties Lease Agreement annual RMB730 million (approximately
rents payable by the Company HK$689 million)
Following the completion of the Acquisition, the Acquiring Assets (either by
itself or through Sinopec Corp.) will lease various parcels of land and
certain properties from members of the Sinopec Group. Such transactions will
constitute continuing connected transactions for Sinopec Corp. under the
Listing Rules. Accordingly, on 31 October 2004, Sinopec Corp. and Sinopec
Group Company entered into the New Continuing Connected Transaction Adjustment
Agreement which supplements the Land Use Rights Lease Agreement and Property
Leasing Agreement and provides, inter alia, that the terms of these 2
agreements will apply to the additional leasing of land and properties between
the Company and the Sinopec Group arising from the Acquisition.
1. Land Use Rights Lease Agreement (as supplemented)
Following the completion of the Acquisition, the Acquiring Assets (either by
itself or through the Company) will lease from Sinopec Group land with a total
area of approximately 8,888,498 m2. for an annual rental of approximately
RMB110 million (approximately HK$104 million). Accordingly, the Land Use
Rights Lease Agreement will be supplemented under which land with an aggregate
area of 370,962,760 m2 will be leased by the Company from Sinopec Group. As a
result, the annual rentals payable by the Company under the Land Use Rights
Lease Agreement will exceed the annual limit of RMB2,150 million
(approximately HK$2,028 million) as approved by the shareholders of Sinopec
Corp. on 18 December 2003.
Taking into account the amount of the historical rent paid under the Land Use
Rights Agreement for the 2 years ended 31 December 2003 and the expected
amount for the year ending 31 December 2004, being approximately RMB2,018
million (approximately HK$1,903 million), RMB2,060 million (approximately
HK$1,943 million) and RMB2,147 million (approximately HK$2,025 million),
respectively, the provisions under that the Land Use Rights Lease Agreement
which provide that Sinopec Group Company may review the rent payable every 3
years and that rent and land value generally in the PRC are rising and the
additional amount of rent of approximately RMB110 million, it is proposed that
the new cap for each financial year for the 3-year period ending 31 December
2007 will be RMB2,450 million (approximately HK$2,311 million).
The rent payable for the additional land leased is determined based on (i) the
level of rent payable at present under the Land Use Rights Lease Agreement,
(ii) the market rent for such land taking into account their location and size
and (iii) the actual area of land subject to the lease. The duration of the
lease will be the same as that provided for in the Land Use Rights Lease
Agreement.
Under the Land Use Rights Lease Agreement as supplemented, in respect of the
authorised lands for operation owned by members of the Sinopec Group, lands
for industrial use were leased to the Company for a term of 50 years while
lands for commercial use were leased to the Company for a term of 40 years.
Lands over which members of the Sinopec Group have been granted land use
rights with consideration, were leased for a term up to the date of expiry of
the respective land use rights certificates. The term of the lease in respect
of the newly leased land will commence from the Completion Date. The Company
may request for renewal of the term of the lease by giving notice to relevant
member(s) of the Sinopec Group twelve months before the expiry of the lease.
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2. Properties Lease Agreement
Following the completion of the Acquisition, the Acquiring Assets (either
itself or through the Company) will lease from Sinopec Group more buildings
with an aggregate area of 15,114 m2. The amount of the annual rental for the
newly leased properties will be approximately RMB1 million (approximately
HK$0.94 million). Accordingly, the Properties Lease Agreement will be
supplemented under which properties with an aggregate area of 2,608,604 m2
will be leased by the Company from Sinopec Group.
Taking into account the amount of the historical rent paid under the
Properties Lease Agreement for the 2 years ended 31 December 2003, being in
the sum of approximately RMB619 million (approximately HK$584 million) and
RMB700 million (approximately HK$660 million), the Directors (including the
Independent Board Committee) expect that the increase of leasing of the
properties arising from the Acquisition together with properties which are
already subject of the lease will not exceed the annual limits approved by the
shareholders of Sinopec Corp. on 18 December 2003, being RMB730 million
(approximately HK$687 million) per year. Accordingly, the cap previously
approved by the Independent Shareholders and granted by the Stock Exchange in
its waiver in respect of the Properties Lease Agreement will continue to apply
for each financial year for the 3-year period ending 31 December 2007.
The rent payable for the additional building leased is determined based on (i)
the level of rent payable at present under the Properties Lease Agreement,
(ii) the market rent for such building taking into account the location and
size and (iii) the actual area of building subject to the lease. The duration
of the lease will be the same as that provided for in the Properties Lease
Agreement, being 20 years. The commencement date for the newly leased
properties will be the Completion Date.
The Listing Rules
As the duration of the Land Use Rights Lease Agreement and the Properties
Lease Agreement is in excess of three years, the Independent Financial
Advisers will set out the special reasons as to why their duration is required
and their confirmation that it is normal business practice for contracts of
these types to be of such duration in the Letter to the Independent Board
Committee and Independent Shareholders from Rothschild.
As the annual amount of the transactions under the Land Use Rights Lease
Agreement and the Properties Lease Agreement are, in aggregate, less than 2.5%
of the relevant percentage ratio (as defined in the Listing Rules), these
transactions are exempted from the independent shareholders approval
requirement and are only subject to reporting and announcement requirements
under rule 14A.34 of the Listing Rules.
Sinopec Corp. will comply with the relevant provisions of Chapter 14A of the
Listing Rules in relation to the reporting requirements in respect of the
Continuing Connected Transactions.
7. Recommendation of the Independent Board Committee
The Acquisition (including the Acquisition Agreements) and the Disposal
(including the Disposal Agreement) constitute connected transactions, and the
Continuing Connected Transactions (including the New Continuing Connected
Transaction Agreement) constitute continuing connected transactions of,
Sinopec Corp. under the Listing Rules.
Rothschild has been appointed as an independent financial adviser to advise
the Independent Board Committee and the Independent Shareholders in respect of
the Acquisition (including the Acquisition Agreements) and the Disposal
(including the Disposal Agreement).
The Independent Board Committee, having taken into account the advice of
Rothschild, issued independent views regarding the Acquisition and the
Disposal respectively. Members of the Independent Board Committee unanimously
agree that each of the Acquisition and Disposal complies with the provisions
of the relevant PRC laws and regulations and the articles of associations of
Sinopec Corp. The Directors, Mr. Chen Tonghai (being the Chief Manager of
Sinopec Group Company) and Mr. Liu Genyuan (being the Deputy Manager of
Sinopec Group Company) abstained from voting for relevant matters in the
meeting of the Board by reason of conflict of interests, and the voting
procedures comply with the provisions of the relevant domestic and overseas
laws and regulations and the articles of associations of Sinopec Corp; the
considerations for the Acquisition and Disposal are fair and reasonable so
far as the Independent Shareholders are concerned; the terms of the
Acquisition and Disposal are reached on normal business terms, and the
provisions of the relevant agreements are fair and reasonable to Sinopec
Corp. and all its shareholders without prejudice to the interests of Sinopec
Corp. and the Independent Shareholders; the competition and the overall
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continuing connected transactions between Sinopec Corp. and Sinopec Group
Company will be reduced upon the completion of the transaction, therefore the
competitiveness of Sinopec Corp. will be enhanced, which will contribute to
the consistent, stable and healthy development of Sinopec Corp. and the
interests of all the shareholders; approving Sinopec Corp. to sign the
relevant agreements 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 Independent Board Committee is set out on pages 53
to 54 of this circular and the text of the letter from Rothschild containing
its advice is set out on pages 55 to 82 of this circular.
8. Valuation
Sallmanns (Far East) Limited and Grant Sherman Appraisal Limited, independent
valuers with Hong Kong Chartered Surveyor qualifications, valued the relevant
real properties separately comprised in the Acquiring Assets at approximately
RMB2,527,000,000 (the reference value) and RMB91,410,486.70 respectively as of
30 September 2004. Grant Sherman Appraisal Limited valued the relevant
properties comprised in the Disposal Assets at approximately
RMB312,499,962.10. The text of the letters and the valuation certificates
issued by Sallmanns (Far East) Limited and Grant Sherman Appraisal Limited in
connection with their valuation are set out in Appendices 1 and 2 "Property
Valuation Report Prepared by Sallmanns" and "Property Valuation Report
Prepared by Grant Sherman Appraisal Limited" respectively. Since the parcels
of lands and the number of buildings are too numerous, a waiver has been
granted by the Stock Exchange from strict compliance with Rule 5.06 of the
Listing Rules regarding the form of presentation in this circular of the
valuation report on conditions that (1) the full valuation reports (which will
be prepared in Chinese language only) will be complying with all the
requirements of Chapter 5 and Practice Note 12 of the Listing Rules will be
available for public inspection; and (2) summary valuation reports prepared on
the basis of the full valuation reports which (i) set out separately the
interests in land and buildings comprised in each of the Petrochemical Assets,
Catalyst Assets, Gas Station Assets and Downhole Operation Assets and (ii) for
each of the above categories (except for the Gas Station Assets), set out
separately interests in land and buildings in each province and municipality
in the PRC are included in Appendix 1 and 2 to this circular.
9. EGM
You will find on pages 162 to 164 of this circular a notice of the EGM to be
held at Beijing Crowne Plaza Park View Wuzhou Hotel, No.8 Beisihuan Zhong
Road, Chaoyang District, Beijing, PRC on 21 December 2004 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.
10. General Information
Your attention is drawn to the texts of the letter from the Independent Board
Committee and from Rothschild containing their recommendations regarding the
Acquisition (including the Acquisition Agreements) and the Disposal (including
the Disposal Agreement), and to the appendices which contain certain
additional information relating to the Acquisition and Disposal.
35
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LETTER FROM THE CHAIRMAN
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11. Miscellaneous
The Board also seeks approval of the shareholders of Sinopec Corp. in respect
of the proposal regarding the adjustment to the capital expenditure plan for
the year 2004. The planned capital expenditure of Sinopec Corp. for the year
2004 is RMB56.32 billion (which equivalent to approximately HK$53.13 billion).
By taking into consideration of the actual implementation of the plan and
market conditions, the Board considered and approved the increase of the
capital expenditure plan by RMB8 billion (which equivalent to approximately
HK$7.55 billion) to RMB64.32 billion (which equivalent to approximately
HK$60.68 billion). Out of the increased amount, RMB6.35 billion (which
equivalent to approximately HK$5.99 billion) will be allocated to investment
in the retail sector and RMB1.65 billion (which equivalent to approximately
HK$1.56 billion) will be used in investment in the refining and chemical
sector mainly for the renovation of refining and chemical units.
By order of the Board
CHINA PETROLEUM & CHEMICAL CORPORATION
Chen Tonghai
Chairman
36
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LETTER FROM THE INDEPENDENT BOARD COMMITTEE
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[LOGO GRAPHIC OMITTED]
CHINA PETROLEUM & CHEMICAL CORPORATION
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
Independent Non-Executive Directors
Chen Qingtai
Ho Tsu Kwok Charles
Shi Wanpeng
Zhong Youcai
6 November 2004
To the Independent Shareholders
Dear Sir or Madam,
Connected Transactions
INTRODUCTION
We refer to the circular (the "Circular") dated 6 November, 2004 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 whether or not the
Acquisition (including the Acquisition Agreements) and the Disposal (including
the Disposal Agreement) are fair and reasonable so far as the Independent
Shareholders are concerned. The terms and the reasons for the Acquisition and
Disposal are summarised in the letter from the Chairman set out on pages 7 to
52 of the Circular. In considering the fairness and reasonableness, the
Independent Board Committee have been advised by Rothschild. You are urged to
read Rothschild's letter to the Independent Board Committee which is set out
on pages 55 to 82 of this Circular.
RECOMMENDATION
We have discussed with the management of Sinopec Corp. the reasons for the
Acquisition and the Disposal, the mechanism for the determination of the
purchase price, the terms of the Acquisition and the Disposal, and the basis
upon which their terms have been determined. We have also considered the key
factors taken into account by the Board in arriving at its opinion regarding
the terms of the Acquisition (including the Acquisition Agreements) and the
Disposal (including the Disposal Agreement) as set out in the letter from the
Chairman on pages 7 to 52 of the Circular, which we urge you to read
carefully.
THE INDEPENDENT BOARD COMMITTEE CONCUR WITH THE VIEWS OF ROTHSCHILD AND
CONSIDER THAT THE TERMS OF THE ACQUISITION (INCLUDING THE ACQUISITION
AGREEMENTS) AND THE DISPOSAL (INCLUDING THE DISPOSAL AGREEMENT) TO BE IN THE
BEST INTEREST OF SINOPEC CORP. AND ITS SHAREHOLDERS AS A WHOLE AND ARE FAIR
AND REASONABLE SO FAR AS THE INDEPENDENT SHAREHOLDERS ARE CONCERNED.
ACCORDINGLY, MEMBERS OF THE INDEPENDENT BOARD COMMITTEE UNANIMOUSLY RECOMMEND
THE INDEPENDENT SHAREHOLDERS VOTE IN FAVOUR OF THE ORDINARY RESOLUTIONS SET
OUT IN THE NOTICE OF THE EGM AT THE END OF THE CIRCULAR.
Yours faithfully
CHEN QINGTAI HO TSU KWOK CHARLES SHI WANPENG ZHONG YOUCAI
Independent Non-Executive Directors
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LETTER FROM ROTHSCHILD
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[ROTHSCHILD LOGO GRAPHIC OMITTED]
6 November 2004
To the Independent Board Committee and
Independent Shareholders
Dear Sir or Madam,
CONNECTED TRANSACTIONS
We refer to our engagement to advise the Independent Board Committee and
Independent Shareholders with respect to the Acquisition and the Disposal,
details of which are contained in the circular of the Company dated 6 November
2004 to its shareholders (the "Circular") of which this letter forms a part.
Rothschild has been appointed the independent financial adviser to advise the
Independent Board Committee and the Independent Shareholders as to: (a) whether
or not the Acquisition Agreements and the Disposal Agreement are on normal
commercial terms (as defined under the Hong Kong Listing Rules) and the terms
of the Acquisition Agreements and the Disposal Agreement are fair and
reasonable so far as the Independent Shareholders are concerned; (b) whether or
not entering into the Acquisition Agreements and the Disposal Agreement is in
the interest of the Company and its shareholders as a whole; (c) how the
Independent Shareholders should vote at the EGM in respect of the Acquisition
and the Disposal; and (d) whether or not it is the normal business practice for
the Land Use Rights Lease Agreement and the Properties Lease Agreement to be of
such duration as set out in the section headed "6. Prospective Continuing
Connected Transactions" in the "Letter from the Chairman" of the Circular.
The terms used in this letter shall have the same meanings as defined elsewhere
in the Circular unless the context otherwise requires.
As at the Latest Practicable Date, Sinopec Group Company owned approximately
55.06% of the issued share capital of the Company. As set out in the section
headed "1. Introduction" in the "Letter from the Chairman" of the Circular,
Sinopec Group Company will own approximately 67.92% of the issued share capital
of the Company when the recent transfer of the Company's shares to Sinopec
Group Company from some of the Company's shareholders is completed. Pursuant to
the Hong Kong Listing Rules, the Acquisition Agreements and the Disposal
Agreement constitute connected transactions for the Company, which will be
subject to, inter alia, the Independent Shareholders' approval at the EGM.
In formulating our recommendation, we have relied on the information and facts
supplied to us by the Company and/or its advisers and have assumed that any
representations made to us are true, accurate and complete in all material
respects as at the date hereof and that they may be relied upon. We have also
assumed that all information, representations and opinions contained or
referred to in the Circular are fair and reasonable and have relied on them.
NM Rothschild & Sons (Hong Kong) Limited Telephone: (852)2525-5333
16th Floor, ALexandra House Fax: (852)2868-1728
16-20 Chater Road, Central (852)2810-6997
Hong Kong SAR
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LETTER FROM ROTHSCHILD
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We have been advised by the Directors that no material facts have been omitted
and we are not aware of any facts or circumstances which would render the
information provided and the representations made to us untrue, inaccurate or
misleading. We have no reason to doubt the truth, accuracy and completeness of
the information and representations provided to us by the Company and/or its
advisers. The Directors have collectively and individually accepted full
responsibility for the accuracy of the information contained in the Circular
and have confirmed, having made all reasonable enquiries, that to the best of
their knowledge and belief, there are no other facts the omission of which
would make any statement in the Circular misleading. We consider that we have
reviewed sufficient information to reach an informed view in order to provide
a reasonable basis for our advice. We have not, however, conducted any
independent in-depth investigation into the business and affairs of the
Company, the Acquiring Assets, the Disposal Assets or any of their respective
subsidiaries and associated companies.
PRINCIPAL FACTORS AND REASONS
In arriving at our opinion, we have taken into consideration the following
principal factors and reasons:
Background and rationale
Sinopec Corp. is an integrated energy and chemical company with upstream,
midstream and downstream operations. The Acquisition is expected to further
strengthen and develop the Company's core businesses by significantly
expanding the scale of its petrochemical production facilities, improving its
operation and retail network of refined oil products and consolidating its
catalyst business. Regarding the Disposal, the Directors consider that it is
in line with international precedent and management practice for the upstream
business which emphasises increased focus on core businesses. In addition, the
Acquisition and Disposal will allow the Company to further consolidate its
management structure, thereby achieving a more efficient management of
operations, investments and resources allocation.
As noted in the section headed "3. Reasons and benefits of the Acquisition and
the Disposal" in the "Letter from the Chairman" of the Circular, there are
further specific rationales for the Acquisition and the Disposal which are
summarised below.
(a) Strengthening and development of core businesses
(i) Petrochemical Assets
For the Petrochemical Assets, the Directors consider that the acquisition of
the Petrochemical Assets will allow the Company to rapidly expand and develop
its petrochemical business during the prosperous period of the petrochemical
industry cycle. Upon completion of the Acquisition, the Company's production
scale in the ethylene and synthetic fiber monomers and polymers sectors will
be further strengthened. The Company is expected to increase its production
capacity for ethylene, synthetic resin, ethylene glycol, PX, PTA and synthetic
fiber monomers/polymers by approximately 12%, 12%, 11%, 31%, 36% and 24%
respectively.
(ii) Catalyst Assets
The acquisition of the Catalyst Assets will further improve the
competitiveness of the Company's oil refining and chemical businesses, given
the close relationship between the catalyst business and crude refining and
chemical production. The Acquisition will allow the Company to strengthen its
research and development and production capacity for catalysts. Upon
completion of the Acquisition, the Company's production capacity for different
types of oil refinery and petrochemical catalysts is expected to increase by
approximately 28 times and will represent over 60% of the total catalyst
production capacity in the PRC.
(iii) Gas Station Assets
With respect to the Gas Station Assets, the Acquisition will strengthen the
Company's distribution network and market share for retail sales of oil
products in the economically prosperous eastern, central and southern regions
of the PRC. The Directors consider that the Company's leading status in the
retail sector will be reinforced by the Acquisition, which allows the Company
to further strengthen its retail capability for refined oil products in
economically developed regions and to enjoy benefits arising from economies of
scale in its retail network. The Acquisition will also improve the Company's
competitiveness in the oil products retail business and better position it to
respond to competition arising from foreign investors when the sector is
further opened to competition on 11 December 2004 based on the World Trade
Organisation Agreement.
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LETTER FROM ROTHSCHILD
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(iv) Downhole Operation Assets
The Disposal of the Downhole Operation Assets will reduce the Company's
oilfield services operations which currently provide services and support to
the Company's upstream operations, allowing greater focus on the Company's
core upstream operations with the aim to become one of the international oil
companies, and potentially achieving greater production efficiency.
(b) Improving management structure
The Acquisition and the Disposal are expected to allow the Company to further
consolidate its management structure, improve the quality of assets and
achieve harmonisation of operations and coordination amongst the different
business units.
(c) Reduction of continuing connected transactions
The Acquisition will in general significantly reduce the number of continuing
connected transactions between Sinopec Corp. and Sinopec Group Company. In
monetary terms, the continuing connected transactions would be decreased by
approximately RMB2,358 million (approximately HK$2,225 million).
(d) Reduction of competition
The Acquisition and the Disposal will further minimise the amount of industry
competition between the Company and Sinopec Group Company in petrochemical,
catalyst and retail operations.
The acquisition of the Petrochemical Assets (the "Petrochemical Assets
Acquisition")
(a) Assets to be acquired
On 31 October 2004, the Company entered into the sale and purchase agreement
in respect of the Petrochemical Assets (the "Petrochemical Assets Acquisition
Agreement"), pursuant to which the Company has conditionally agreed to acquire
from Sinopec Group Company (on its own behalf and on behalf of the Authorising
Entities), the principal ethylene and synthetic fiber monomers and polymers
production facilities of Tianjin Petrochemical and related liabilities, the
principal synthetic fiber monomers and polymers products production facilities
of Luoyang Petrochemical and related liabilities, a 93.51% equity interest in
Zhongyuan Petrochemical held by Sinopec Group Company, the AVD unit and
catalytic cracking unit of Maoming Petrochemical and certain power generation
facilities of Guangzhou Petrochemical and related liabilities (the "Guangzhou
Petrochemical Power Assets") for a total consideration of RMB1,977 million
(equivalent to approximately HK$1,865 million) (the "Petrochemical Assets
Consideration"). Further details of the terms of the Petrochemical Assets
Acquisition Agreement are set out in the section headed "2. The Acquisition
and the Disposal" in the "Letter from the Chairman" of the Circular.
Set out below is a summary of certain financial information relating to the
Petrochemical Assets. The financial information is extracted from the section
headed "5. Details of the Target Assets" in the "Letter from the Chairman" of
the Circular.
RMB million
For the financial year ended 31 December 2003
Sales 12,855
EBITDA(1) 2,359
Net profits 439
Net assets (as at 31 December 2003) 1,270
Net debt/(cash)(2) (as at 30 June 2004) 10,231
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LETTER FROM ROTHSCHILD
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Notes:
(1) EBITDA refers to the sum of net profits, minority interests, taxation,
net finance costs and depreciation and amortisation expenses of the
Petrochemical Assets.
(2) Net debt refers to the sum of the short-term loan and the long-term loan
less cash of the Petrochemical Assets.
(3) The financial data of the Petrochemical Assets disclosed in the Circular
was prepared in accordance with the PRC GAAP. As noted in the section
headed "1. Introduction" in the "Letter from the Chairman" of the
Circular, there is no material difference between the related financial
data prepared in accordance with the PRC GAAP and those prepared in
accordance with the International Financial Reporting Standard.
Further details of the Petrochemical Assets are set out in the section headed
"5. Details of the Target Assets" in the "Letter from the Chairman" of the
Circular.
(b) Basis of the Petrochemical Assets Consideration
The Petrochemical Assets Acquisition Agreement was entered into after arm's
length negotiation between the Company and Sinopec Group Company, taking into
account various factors including valuations implied by other similar
transactions involving comparable companies, quality of assets, business
development potential and the position in the petrochemical industry cycle.
The Petrochemical Assets Consideration, which will be satisfied by cash, was
determined with reference to the valuations of the Petrochemical Assets
prepared by the independent valuers, namely Beijing Zhongzheng Appraisal Co.,
Ltd, Zhongfeng Asset Appraisal Co., Ltd, Zhongshen Accounting Firm Co., Ltd,
Beijing Tianjian Xinye Asset Appraisal Co., Ltd, Beijing Zhongqihua Asset
Appraisal Co., Ltd and Zhonglei Accounting Firm Co., Ltd. However, given the
above-mentioned independent valuers have PRC securities qualifications only
but not the qualifications to carry out asset appraisal business in Hong Kong,
we have not relied on their valuations in arriving at our opinion.
As set out in the section headed "2. The Acquisition and the Disposal" in the
"Letter from the Chairman" of the Circular, all the risks and benefits arising
from the Petrochemical Assets before completion of the transaction shall be
borne and in the account of Sinopec Group Company. The Petrochemical Assets
Consideration will be adjusted if the Petrochemical Assets' asset values
decrease or liabilities increase.
(c) Valuation of the Petrochemical Assets
Based on the Petrochemical Assets Consideration of RMB1,977 million
(equivalent to approximately HK$1,865 million), together with the aggregate
net debt of the Petrochemical Assets attributable to Sinopec Group as at 30
June 2004, the enterprise value (the "EV") of the Petrochemical Assets
attributable to Sinopec Group would be approximately RMB12,132 million
(equivalent to approximately HK$11,445 million). The source of financial
information applied in conducting the ratio analysis is based on the data
contained in the section headed "5. Details of the Target Assets" in the
"Letter from the Chairman" of the Circular.
We list below the multiples for the Petrochemical Assets Acquisition based on
the Petrochemical Assets Consideration under the Petrochemical Assets
Acquisition Agreement:
o an EV/earnings before interest, tax, depreciation and amortisation
("EV/EBITDAi") multiple of approximately 5.21 times, based on the EBITDA
of the Petrochemical Assets attributable to Sinopec Group for the
financial year ended 31 December 2003 of approximately RMB2,329 million
(equivalent to approximately HK$2,198 million);
o an EV/sales multiple of approximately 0.95 times, based on the sales of
the Petrochemical Assets attributable to Sinopec Group for the financial
year ended 31 December 2003 of approximately RMB12,718 million (equivalent
to approximately HK$11,998 million);
o a price to earnings multiple of approximately 4.63 times, based on the net
profit of the Petrochemical Assets attributable to Sinopec Group for the
financial year ended 31 December 2003 of approximately RMB427 million
(equivalent to approximately HK$403 million); and
o price to net asset value ratio of approximately 1.59 times, based on the
aggregate net asset value ("NAVi") of the Petrochemical Assets
attributable to Sinopec Group as at 31 December 2003 of approximately
RMB1,242 million (equivalent to approximately HK$1,172 million).
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We have analysed the Petrochemical Assets Consideration by reviewing: (a) the
trading multiples of listed companies comparable to the Petrochemical Assets;
and (b) the transaction multiples of recent acquisitions of petrochemical
companies and assets in the PRC.
In assessing the fairness of the Petrochemical Assets Consideration, we are of
the view that the analysis of the EV/EBITDA multiple versus those of
comparable listed companies and comparable transactions is the most important
and appropriate valuation benchmark. In addition, we have reviewed the
EV/sales multiple, price/earnings ratio and the price/NAV ratio of the
Petrochemical Assets Acquisition versus those of comparable listed companies
and comparable transactions, for supplemental crosschecking purposes.
(i) Comparable company analysis
Since the revenue of the Petrochemical Assets is derived from their production
and sale of various petrochemical products in the PRC, the comparable
companies we have chosen are listed petrochemical companies which are
primarily focused on petrochemical business in the PRC. The companies which we
have identified under the above selection criteria are PRC petrochemical
companies primarily listed on the Stock Exchange. We have not considered, with
respect to the Guangzhou Petrochemical Power Assets (which consist of certain
power generation facilities of the Guangzhou Petrochemical), listed power
companies as the comparable companies for two reasons: 1) the Guangzhou
Petrochemical Power Assets are ancillary assets to the Guangzhou Petrochemical
and have been supplying power to the Guangzhou Petrochemical only, and are
therefore considered not comparable to the listed power companies which
provide electricity to the market; and 2) the PRC petrochemical companies
identified as the comparable companies for the Petrochemical Assets are
considered to capture, to a certain extent, this power generation element
given that they also generally have their own power generation assets.
Based on the above selection criteria, we set out in the following table the
relevant ratios of the selected comparable listed companies based on their
respective share prices as at the Latest Practicable Date and their latest
published audited full year financial statements and unaudited interim
financial statements (where available).
EV(1)/ EV(1)/ Price(4)/ Price(4)/
Company name EBITDA(2) sales(3) earnings(5) NAV(6)
(Times)
(Times) (Times) (Times)
Jilin Chemical Industrial Company Limited 6.74 0.63 17.95 3.06
Sinopec Beijing Yanhua Petrochemical Company Limited 5.99 1.01 15.82 1.79
Sinopec Shanghai Petrochemical Company Limited 6.79 0.91 15.00 1.40
Sinopec Yizheng Chemical Fibre Company Limited 5.82 0.67 26.68 0.77
Sinopec Zhenhai Refining & Chemical Company Limited 7.98 0.72 18.55 2.18
Average 6.67 0.79 18.80 1.84
Petrochemical Assets Acquisition 5.21 0.95 4.63 1.59
Sources: Bloomberg and latest published audited full year financial statements
and unaudited interim financial statements of the relevant companies
available on the Latest Practicable Date
Notes:
(1) EV of a company refers to the sum of its market capitalisation as at the
Latest Practicable Date and its net indebtedness as per its latest
published unaudited interim financial statements available on the Latest
Practicable Date or, if the interim financial statements are not
available, its audited full year financial statements available on the
Latest Practicable Date.
(2) EBITDA refers to the earnings before interest, tax, amortisation and
depreciation expenses as per the latest published audited full year
financial statements of the relevant company available on the Latest
Practicable Date.
(3) Sales refers to the total sales, revenues or turnover as per the latest
published audited full year financial statements of the relevant company
available on the Latest Practicable Date.
(4) Price refers to the market capitalisation based on the closing price of
a comparable company as quoted on the Stock Exchange on the Latest
Practicable Date and the total number of shares in issue according to
the comparable company's latest annual report, interim report or
announcement. For companies which also have an A-share listing in the
PRC, their A-share stock prices were not used in the above calculation
of market capitalisations.
(5) Earnings refer to net profit excluding extraordinary items as per the
latest published audited full year financial statements of the relevant
company available on the Latest Practicable Date.
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LETTER FROM ROTHSCHILD
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(6) NAV refers to net asset value as per the latest published audited full
year financial statements of the relevant company available on the
Latest Practicable Date.
As illustrated above, the EV/EBITDA multiple of approximately 5.21 times for
the Petrochemical Assets Acquisition is lower than the range and average of
the trading multiples of the comparable companies. The EV/sales multiple for
the Petrochemical Assets Acquisition is within the range of the trading
multiples of the comparable companies but above the average of the comparable
companies. The price/earnings multiple for the Petrochemical Assets
Acquisition is substantially lower than the range and average of the
comparable companies while the price/NAV multiple for the Petrochemical Assets
Acquisition is within the range and below the average of the comparable
companies.
(ii) Comparable transaction analysis
Our analysis also includes research into recent acquisition transactions in
the Chinese petrochemical sector. In selecting the comparable transactions, we
have focused on material transactions and have taken into account the
availability of reliable transaction information and comparability of the
petrochemical companies or assets acquired with the Petrochemical Assets. The
following table sets out our findings:
EV(1)/ EV(1)/ PRICE(3)/ PRICE(3)/
DATE OF ANNOUNCEMENT SELLER BUYER TARGET EBITDA(2) SALES(2) EARNINGS(2) NAV(2)
(Times) (Times) (Times) (Times)
28 July 2004(4) Xinmin City Minglun Shenyang 24.01 0.35 NA 1.78
Petrochemical Group (Hong Xinmin
Company Kong) Ltd Chemical
Factory
30 December 2003 China China Sinopec 6.38 0.67 6.08 1.19
Petrochemical Petroleum & National Star
Group Chemical Xibei Oil
Company Corp Office Tahe
(Sinopec (Sinopec Oilfield
Group Corp) Petrochemical
Company) Factory
30 December 2003 China China Xian 5.53 0.31 10.29 1.68
Petrochemical Petroleum & Petrochemical
Group Chemical Main Factory
Company Corp
(Sinopec (Sinopec
Group Corp)
Company)
28 October 2003 China China Sinopec Group 4.00 0.79 17.27 0.97
Petrochemical Petroleum & Company
Group Chemical ethylene
Company Corp facility with
(Sinopec (Sinopec a rated
Group Corp) capacity of
Company) 380,000
tonnes and
its related
downstream
facilities
23 May 2003 Employee Tianjin Maoming 4.38 0.37 13.84 1.57
Union of Yufeng Weiye Petrochemical
Maoming Enterprise Shihua Co.,
Petrochemical Co., Ltd Ltd
Shihua Co.,
Ltd
27 November 2002 Employee Beijing Maoming 7.58 0.61 15.58 1.81
union of Topeak Real Petrochemical
Maoming Estate Shihua Co.,
Petrochemical Development Ltd
Shihua Co., Co., Ltd
Ltd
13 March 2002 Yueyang Yueyang Yueyang 5.95 0.58 11.75 1.29
Xingchang Fuxing Group Xingchang
Enterprise Co., Ltd Petrochemical
Group Co., Co., Ltd
Ltd
AVERAGE (EXCLUDING THE ACQUISITION OF SHENYANG XINMIN CHEMICAL FACTORY)(4) 5.64 0.56 12.47 1.42
PETROCHEMICAL ASSETS ACQUISITION 5.21 0.95 4.63 1.59
NA: Not applicable
Sources: Companies' public filings available on the Latest Practicable Date
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Notes:
(1) EV refers to the sum of the equity purchase consideration paid in an
acquisition and the proportional net indebtedness of the targets as at the
time of acquisition or, if not available, the proportional net
indebtedness as per the latest audited financial year end date prior to
the acquisition.
(2) EBITDA, sales, earnings and NAV based on the latest full year audited
financials of the targets before the acquisition took place.
(3) Price refers to the equity purchase consideration paid in an acquisition.
(4) The relatively high EV/EBITDA multiple for the Shenyang Xinmin Chemical
Factory transaction is due to the relatively low EBITDA of the company for
the year prior to the acquisition. As noted in the circular for the
transaction, the management of the buyer stated that the negative earnings
of the company were due to inefficient operations and product mix, which
was expected to be improved after they took control of the company. For
this reason we have excluded this transaction from the average
calculation.
Our review of the acquisition multiples of the above precedent transactions
indicates that the EV/EBITDA multiple for the Petrochemical Assets Acquisition
is within the range of the precedent transactions (excluding the Shenyang
Xinmin Chemical Factory transaction) and is below the average of the precedent
transactions (excluding the Shenyang Xinmin Chemical Factory transaction). The
EV/sales multiple for the Petrochemical Assets Acquisition is higher than the
range and average of the precedent transactions (excluding the Shenyang Xinmin
Chemical Factory transaction). The price/earnings ratio is substantially below
the range and average of the precedent transactions (excluding the Shenyang
Xinmin Chemical Factory transaction). The price/NAV multiple is within the
range of the precedent transactions but slightly above the average of the
precedent transactions (excluding the Shenyang Xinmin Chemical Factory
transaction).
On the above basis, we consider the Petrochemical Assets Consideration under
the Petrochemical Assets Acquisition Agreement is fair and reasonable so far
as the Independent Shareholders are concerned.
(d) Conditions of the Petrochemical Assets Acquisition
Completion of the Petrochemical Assets Acquisition Agreement is conditional
upon fulfilment of various conditions including the approval of the
Petrochemical Assets Acquisition by the Independent Shareholders at the EGM.
Further details of the other conditions precedent to the completion of the
Petrochemical Assets Acquisition are set out in the section headed "The
Acquisition and the Disposal" in the "Letter from the Chairman" of the
Circular.
THE ACQUISITION OF THE CATALYST ASSETS (THE "CATALYST ASSETS ACQUISITION")
(a) Assets to be acquired
On 31 October 2004, the Company entered into the sale and purchase agreement
in respect of the Catalyst Assets (the "Catalyst Assets Acquisition
Agreement"), pursuant to which the Company has conditionally agreed to acquire
from Sinopec Group Company (on its own behalf and on behalf of the Authorising
Entities), the primary assets owned by the Changling Plant, a 81% equity
interest in Jianchang Petrochemical, the primary assets of Qilu Catalyst, the
primary assets owned by the Technology Development Company, a 50% equity
interest in Aoda Technology, a 60% equity interest in Lide Catalyst, the
primary assets of the Shanghai Research Institute and all the assets owned by
Nanlian Catalyst and related liabilities for a total consideration of RMB720
million (equivalent to approximately HK$679 million) (the "Catalyst Assets
Consideration"). Further details of the terms of the Catalyst Assets
Acquisition Agreement are set out in the section headed "2. The Acquisition
and the Disposal" in the "Letter from the Chairman" of the Circular.
Set out below is a summary of certain financial information relating to the
Catalyst Assets. The financial information is extracted from the section
headed "5. Details of the Target Assets" in the "Letter from the Chairman" of
the Circular.
RMB million
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2003
Sales 1,615
EBITDA(1) 259
Net profits 108
Net assets (as at 31 December 2003) 799
Net debt/(cash)(2) (as at 30 June 2004) 167
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Notes:
(1) EBITDA refers to the sum of net profits, minority interests, taxation, net
finance costs and depreciation and amortisation expenses of the Catalyst
Assets.
(2) Net debt refers to the sum of the short-term loan and the long-term loan
less cash of the Catalyst Assets.
(3) The financial data of the Catalyst Assets disclosed in the Circular was
prepared in accordance with the PRC GAAP. As noted in the section headed
"1. Introduction" in the "Letter from the Chairman" of the Circular, there
is no material difference between the related financial data prepared in
accordance with the PRC GAAP and those prepared in accordance with the
International Financial Reporting Standard.
Further details of the Catalyst Assets are set out in the section headed "5.
Details of the Target Assets" in the "Letter from the Chairman" of the
Circular.
(b) Basis of the Catalyst Assets Consideration
The Catalyst Assets Acquisition Agreement was entered into after arm's length
negotiation between the Company and Sinopec Group Company, taking into account
various factors, including valuations implied by other similar transactions
involving comparable companies, quality of assets, business development
potential and the position in the industry cycle of the Catalyst Assets. The
Catalyst Assets Consideration, which will be satisfied by cash, was determined
with reference to the valuations of the Catalyst Assets prepared by the
independent valuer, Zhonglian Asset Appraisal Co., Ltd. However, given the
above-mentioned independent valuer has PRC securities qualification only but
not the qualification to carry out asset appraisal business in Hong Kong, we
have not relied on its valuations in arriving at our opinion.
As set out in the section headed "2. The Acquisition and the Disposal" in the
"Letter from the Chairman" of the Circular, all the risks and benefits arising
from the Catalyst Assets before completion of the transaction shall be borne
and in the account of Sinopec Group Company. The Catalyst Assets Consideration
will be adjusted if the Catalyst Assets' asset values decrease or liabilities
increase.
(c) Valuation of the Catalyst Assets
Based on the Catalyst Assets Consideration of RMB720 million (equivalent to
approximately HK$679 million), together with the aggregate net debt of the
Catalyst Assets attributable to Sinopec Group as at 30 June 2004, the EV of
the Catalyst Assets attributable to Sinopec Group would be approximately
RMB914 million (equivalent to approximately HK$862 million). The source of
financial information applied in conducting the ratio analysis is based on the
data contained in the section headed "5. Details of the Target Assets" in the
"Letter from the Chairman" of the Circular.
We list below the multiples for the Catalyst Assets based on the Catalyst
Assets Consideration under the Catalyst Assets Acquisition Agreement:
o an EV/EBITDA multiple of approximately 4.07 times, based on the EBITDA of
the Catalyst Assets attributable to Sinopec Group for the financial year
ended 31 December 2003 of approximately RMB225 million (equivalent to
approximately HK$212 million);
o an EV/sales multiple of approximately 0.60 times, based on the sales of
the Catalyst Assets attributable to Sinopec Group for the financial year
ended 31 December 2003 of approximately RMB1,518 million (equivalent to
approximately HK$1,432 million);
o a price to earnings multiple of approximately 7.74 times, based on the net
profit of the Catalyst Assets attributable to Sinopec Group for the
financial year ended 31 December 2003 of approximately RMB93 million
(equivalent to approximately HK$88 million); and
o a price to net asset value ratio of approximately 1.08 times, based on the
aggregate NAV of Catalyst Assets attributable to Sinopec Group as at 31
December 2003 of approximately RMB667 million (equivalent to approximately
HK$629 million).
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We have analysed the Catalyst Assets Consideration by reviewing: (a) the
trading multiples of listed companies comparable to the Catalyst Assets; and
(b) the transaction multiples of recent acquisitions of companies and assets
comparable to the Catalyst Assets in the PRC.
In assessing the fairness of the Catalyst Assets Consideration, we are of the
view that the analysis of the EV/EBITDA multiple versus those of comparable
listed companies and comparable transactions is the most important and
appropriate valuation benchmark. In addition, we have reviewed the EV/sales
multiple, price/earnings ratio and the price/NAV ratio of the Catalyst Assets
Acquisition versus those of comparable listed companies and comparable
transactions, for supplemental crosschecking purposes.
(i) Comparable company analysis
Since the revenue of the Catalyst Assets is derived from their development,
production and sale of petrochemical catalysts in the PRC, directly comparable
companies would be listed chemical companies which are primarily focused on
catalyst production in the PRC. However, based on the above selection
criteria, we have not identified any such directly comparable companies other
than certain PRC chemical companies listed on the Shanghai Stock Exchange and
the Shenzhen Stock Exchange, which are primarily focused on catalyst
production in the PRC. However, it should be noted that the shares of these
companies are traded on the PRC A-share market, which can only be invested in
by domestic investors and qualified foreign institutional investors (with
certain trading and ownership restrictions). Given that trading in the PRC
A-share markets is highly restricted, we consider that the trading multiples
of companies traded solely on an A-share market in the PRC are not an
appropriate benchmark for the Catalyst Assets Acquisition.
We have therefore, for our valuation purpose, reviewed the trading multiples
of the petrochemical companies listed on the Stock Exchange, which are
considered to be the closest comparables to the Catalyst Assets. With their
major products being primarily sold to the petrochemical companies as raw
materials, the Catalyst Assets are closely linked to the petrochemical sector.
Based on the above selection criteria, we set out in the following table the
relevant ratios of the selected comparable listed companies based on their
respective share prices as at the Latest Practicable Date and their latest
published audited full year financial statements and unaudited interim
financial statements (where available).
EV(1)/ EV(1)/ PRICE(4)/ PRICE(4)/
COMPANY NAME EBITDA(2) SALES(3) EARNINGS(5) NAV(6)
(TIMES) (TIMES) (TIMES) (TIMES)
Jilin Chemical Industrial Company Limited 6.74 0.63 17.95 3.06
Sinopec Beijing Yanhua Petrochemical Company Limited 5.99 1.01 15.82 1.79
Sinopec Shanghai Petrochemical Company Limited 6.79 0.91 15.00 1.40
Sinopec Yizheng Chemical Fibre Company Limited 5.82 0.67 26.68 0.77
Sinopec Zhenhai Refining & Chemical Company Limited 7.98 0.72 18.55 2.18
Average 6.67 0.79 18.80 1.84
Catalyst Assets Acquisition 4.07 0.60 7.74 1.08
Sources: Bloomberg and latest published audited full year financial statements
and unaudited interim financial statements of the relevant companies
available on the Latest Practicable Date
Notes:
(1) EV of a company refers to the sum of its market capitalisation as at the
Latest Practicable Date and its net indebtedness as per its latest
published unaudited interim financial statements available on the Latest
Practicable Date or, if the interim financial statements are not
available, its audited full year financial statements available on the
Latest Practicable Date.
(2) EBITDA refers to the earnings before interest, tax, amortisation and
depreciation expenses as per the latest published audited full year
financial statements of the relevant company available on the Latest
Practicable Date.
(3) Sales refers to the total sales, revenues or turnover as per the latest
published audited full year financial statements of the relevant company
available on the Latest Practicable Date.
(4) Price refers to the market capitalisation based on the closing price of
a comparable company as quoted on the Stock Exchange on the Latest
Practicable Date and the total number of shares in issue according to
the latest annual report, interim report or announcement of the
comparable company. For companies which also have an A-share listing in
the PRC, their A-share stock prices were not used in the above
calculation of market capitalisations.
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(5) Earnings refer to net profit excluding extraordinary items as per the
latest published audited full year financial statements of the relevant
company available on the Latest Practicable Date.
(6) NAV refers to net asset value as per the latest published audited full
year financial statements of the relevant company available on the
Latest Practicable Date.
As illustrated above, the EV/EBITDA multiple of approximately 4.07 times for
the Catalyst Assets Acquisition is substantially lower than the range and
average of the trading multiples of the comparable companies. In terms of
EV/sales and price/earnings, the multiples for the Catalyst Assets Acquisition
are lower than the respective ranges and the averages of the trading multiples
of the comparable companies. In terms of price/NAV, the multiple for the
Catalyst Assets Acquisition is within the range of the trading multiples of
the comparable companies and is lower than the average of the comparable
companies.
(ii) Comparable transaction analysis
We have not identified any recent and significant acquisitions of catalyst
production companies or assets in the PRC. We have therefore reviewed the
transaction multiples of the petrochemical companies and assets, which are
considered the closest available comparables to the Catalyst Assets. In
selecting the comparable transactions, we have focused on material
transactions and have taken into account the availability of reliable
transaction information and comparability of the assets acquired with the
Catalyst Assets. The following table sets out our findings:
EV(1)/ EV(1)/ PRICE(3)/ PRICE(3)/
DATE OF ANNOUNCEMENT SELLER BUYER TARGET EBITDA(2) SALES(2) EARNINGS(2) NAV(2)
(Times) (Times) (Times) (Times)
28 July 2004(4) Xinmin City Minglun Shenyang 24.01 0.35 NA 1.78
Petrochemical Group (Hong Xinmin
Company Kong) Ltd Chemical
Factory
30 December 2003 China China Sinopec 6.38 0.67 6.08 1.19
Petrochemical Petroleum & National Star
Group Company Chemical Xibei Oil
(Sinopec Corp Office Tahe
Group Company) (Sinopec Oilfield
Corp) Petrochemical
Factory
30 December 2003 China China Xian 5.53 0.31 10.29 1.68
Petrochemical Petroleum & Petrochemical
Group Company Chemical Main Factory
(Sinopec Corp
Group Company) (Sinopec
Corp)
28 October 2003 China China Sinopec Group 4.00 0.79 17.27 0.97
Petrochemical Petroleum & Company
Group Company Chemical ethylene
(Sinopec Corp facility with
Group Company) (Sinopec a rated
Corp) capacity of 380,000
tonnes and its
related downstream
facilities
23 May 2003 Employee Tianjin Maoming 4.38 0.37 13.84 1.57
Union of Yufeng Weiye Petrochemical
Maoming Enterprise Shihua Co.,
Petrochemical Co., Ltd Ltd
Shihua Co.,
Ltd
27 November 2002 Employee Beijing Maoming 7.58 0.61 15.58 1.81
union of Topeak Real Petrochemical
Maoming Estate Shihua Co.,
Petrochemical Development Ltd
Shihua Co., Co., Ltd
Ltd
13 March 2002 Yueyang Yueyang Yueyang 5.95 0.58 11.75 1.29
Xingchang Fuxing Group Xingchang
Enterprise Co.,Ltd Petrochemical
Group Co.,Ltd Co., Ltd
AVERAGE (EXCLUDING SHENYANG XINMIN CHEMICAL FACTORY)(4) 5.64 0.56 12.47 1.42
CATALYST ASSETS ACQUISITION 4.07 0.60 7.74 1.08
NA: Not applicable
Sources: Companies' public filings available on the Latest Practicable Date
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Notes:
(1) EV refers to the sum of the equity purchase consideration paid in an
acquisition and the proportional net indebtedness of the targets as at
the time of acquisition or, if not available, the proportional net
indebtedness as per the latest audited financial year end date prior to
the acquisition.
(2) EBITDA, sales, earnings and NAV based on the latest full year audited
financials of the targets before the acquisition took place.
(3) Price refers to the equity purchase consideration paid in an
acquisition.
(4) The relatively high EV/EBITDA multiple for the Shenyang Xinmin Chemical
Factory transaction is due to the relatively low EBITDA of the company
for the year prior to the acquisition. As disclosed in the circular for
the transaction, the management of the buyer stated that the negative
earnings of the company were due to inefficient operations and product
mix, which was expected to be improved after they took control of the
company. For this reason we have excluded this transaction from the
average calculation.
Our review of the acquisition multiples of the above precedent transactions
indicates that the EV/EBITDA multiple for the Catalyst Assets Acquisition is
within the range and lower than the average of the precedent transactions
(excluding the Shenyang Xinmin Chemical Factory transaction). In terms of
EV/sales, the multiple for the Catalyst Assets Acquisition is within the range
of the precedent transactions (excluding the Shenyang Xinmin Chemical Factory
transaction) and is slightly above the average of the precedent transactions
(excluding the Shenyang Xinmin Chemical Factory transaction). In terms of
price/earnings and price/NAV, the multiples for the Catalyst Assets
Acquisition are within the respective ranges of the precedent transactions
(excluding the Shenyang Xinmin Chemical Factory transaction) and below the
respective averages of the precedent transactions (excluding the Shenyang
Xinmin Chemical Factory transaction).
On the above basis, we consider the Catalyst Assets Consideration under the
Catalyst Assets Acquisition Agreement is fair and reasonable so far as the
Independent Shareholders are concerned.
(d) Conditions of the Catalyst Assets Acquisition
Completion of the Catalyst Assets Acquisition Agreement is conditional upon
fulfilment of various conditions including the approval of the Catalyst Assets
Acquisition by the Independent Shareholders at the EGM. Further details of the
other conditions precedent to the completion of the Catalyst Assets
Acquisition are set out in the section headed "2. The Acquisition and the
Disposal" in the "Letter from the Chairman" of the Circular.
THE ACQUISITION OF THE GAS STATION ASSETS (THE "GAS STATION ASSETS ACQUISITION")
(a) Assets to be acquired
On 31 October 2004, the Company entered into the sale and purchase agreement
in respect of the Gas Station Assets (the "Gas Station Assets Acquisition
Agreement"), pursuant to which the Company has conditionally agreed to acquire
from Sinopec Group Company (on its own behalf and on behalf of the Authorising
Entities), the assets, interests and certain related liabilities of 1,023 gas
stations and 54 oil depots for a total consideration of RMB1,881 million
(equivalent to approximately HK$1,775 million) (the "Gas Station Assets
Consideration"). Further details of the terms of the Gas Station Assets
Acquisition Agreement are set out in the section headed "2. The Acquisition
and the Disposal" in the "Letter from the Chairman" of the Circular.
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Set out below is a summary of certain financial information relating to the
Gas Station Assets. The financial information is extracted from the section
headed "5. Details of the Target Assets" in the "Letter from the Chairman" of
the Circular.
RMB million
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2003
Sales 2,335
EBITDA(1) 326
Net profits 233
Net assets (as at 31 December 2003) 1,109
Net debt/(cash)(2) (as at 31 May 2004) (1)
Notes:
(1) EBITDA refers to the sum of net profits, minority interests, taxation,
net finance costs and depreciation and amortisation expenses of the Gas
Station Assets.
(2) Net debt refers to the sum of the short-term loan and the long-term loan
less cash of the Gas Station Assets.
(3) The financial data of the Gas Station Assets disclosed in the Circular
was prepared in accordance with the PRC GAAP. As noted in the section
headed "1. Introduction" in the "Letter from the Chairmani<168> of the
Circular, there is no material difference between the related financial
data prepared in accordance with the PRC GAAP and those prepared in
accordance with the International Financial Reporting Standard.
Further details of the Gas Station Assets are set out in the section headed
"5. Details of the Target Assets" in the "Letter from the Chairman" of the
Circular.
(b) Basis of the Gas Station Assets Consideration
The Gas Station Assets Acquisition Agreement was entered into after arm's
length negotiation between the Company and Sinopec Group Company, taking into
account various factors, including the valuations of the Gas Station Assets
prepared by the independent valuer, valuations implied by other similar
transactions of comparable companies and cash flow generating ability and
growth potential of the Gas Station Assets. The Gas Station Assets
Consideration will be satisfied by cash.
As set out in the section headed "2. The Acquisition and the Disposal" in the
"Letter from the Chairman" of the Circular, all the risks and benefits arising
from the Gas Station Assets before completion of the transaction shall be
borne and in the account of Sinopec Group Company. The Gas Station Assets
Consideration will be adjusted if the Gas Station Assets' asset values
decrease or liabilities increase.
(c) Valuation of the Gas Station Assets
Based on the Gas Station Assets Consideration of RMB1,881 million (equivalent
to approximately HK$1,775 million), together with the aggregate net debt of
the Gas Station Assets attributable to Sinopec Group as at 31 May 2004, the EV
of the Gas Station Assets attributable to Sinopec Group would be approximately
RMB1,880 million (equivalent to approximately HK$1,773 million). The source of
financial information applied in conducting the ratio analysis is based on the
data contained in the section headed "5. Details of the Target Assets" in the
"Letter from the Chairman" of the Circular.
We list below the multiples for the Gas Station Assets based on the Gas
Station Assets Consideration under the Gas Station Assets Acquisition
Agreement:
o an EV/EBITDA multiple of approximately 5.77 times, based on the EBITDA of
the Gas Station Assets attributable to Sinopec Group for the financial
year ended 31 December 2003 of approximately RMB326 million (equivalent to
approximately HK$307 million);
o an EV/sales multiple of approximately 0.81 times, based on the sales of
the Gas Station Assets attributable to Sinopec Group for the financial
year ended 31 December 2003 of approximately RMB2,335 million (equivalent
to approximately HK$2,202 million);
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o a price to earnings multiple of approximately 8.09 times, based on the net
profit of the Gas Station Assets attributable to Sinopec Group for the
financial year ended 31 December 2003 of approximately RMB233 million
(equivalent to approximately HK$219 million);
o a price to net asset value ratio of approximately 1.70 times, based on the
aggregate NAV of the Gas Station Assets attributable to Sinopec Group as
at 31 December 2003 of approximately RMB1,109 million (equivalent to
approximately HK$1,046 million); and
o an EV per gas station of approximately RMB1.84 million (equivalent to
approximately HK$1.73 million), based on the total number of gas stations
acquired of 1,023.
We have analysed the Gas Station Assets Consideration by reviewing: (a) the
trading multiples of listed companies comparable to the Gas Station Assets;
and (b) the transaction multiples of recent acquisitions of gas stations and
associated assets in the PRC.
In assessing the fairness of the Gas Station Assets Consideration, we are of
the view that the analysis of the EV/EBITDA multiple versus those of
comparable listed companies is the most important and appropriate valuation
benchmark. In addition, we have reviewed the EV/sales, price/earnings and
price/NAV multiples for the Gas Station Assets Acquisition versus those of the
comparable listed companies and price/NAV versus those of comparable
transactions, for supplemental crosschecking purposes. Due to its common use
as valuation benchmark in acquisitions of gas stations, we have also compared
the EV per gas station multiple of the Gas Station Assets Acquisition with
those of the comparable transactions, as a crosscheck.
(i) Comparable company analysis
Since the revenue of the Gas Station Assets is derived from the operation of
the gas stations and oil depots in the PRC, the directly comparable companies
would be listed companies which primarily focus on operating gas stations in
the PRC. However, based on the above selection criteria, we have not
identified any such directly comparable companies. We have therefore, for our
valuation purpose, reviewed the trading multiples of the PRC integrated oil &
gas companies listed on the Stock Exchange, which are considered to be the
closest comparables to the Gas Station Assets since they include, as part of
their overall operations, the operation of gas stations in the PRC.
Based on the above selection criteria, we set out in the following table the
relevant ratios of the selected comparable listed companies based on their
respective share prices as at the Latest Practicable Date and their latest
published audited full year financial statements and unaudited interim
financial statements (where available).
EV(1)/ EV(1)/ PRICE(4)/ PRICE(4)/
COMPANY NAME EBITDA(2) SALES(3) EARNINGS(5) NAV(6)
(Times) (Times) (Times) (Times)
PetroChina Company Limited 5.83 2.68 10.90 2.15
China Petroleum & Chemical
Corporation (Sinopec Corp.) 6.15 0.89 12.55 1.62
Average 5.99 1.79 11.73 1.89
Gas Station Assets Acquisition 5.77 0.81 8.09 1.70
Sources: Bloomberg and latest published audited full year financial statements
and unaudited interim financial statements of the relevant companies
available on the Latest Practicable Date
Notes:
(1) EV of a company refers to the sum of its market capitalisation as at the
Latest Practicable Date and its net indebtedness as per its latest
published unaudited interim financial statements available on the Latest
Practicable Date or, if the interim financial statements are not
available, its audited full year financial statements available on the
Latest Practicable Date.
(2) EBITDA refers to the earnings before interest, tax, amortisation and
depreciation expenses as per the latest published audited full year
financial statements of the relevant company available on the Latest
Practicable Date.
(3) Sales refers to the total sales, revenues or turnover as per the latest
published audited full year financial statements of the relevant company
available on the Latest Practicable Date.
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(4) Price refers to the market capitalisation based on the closing price of
a comparable company as quoted on the Stock Exchange on the Latest
Practicable Date and the total number of shares in issue according to
the latest annual report, interim report or announcement. For companies
which also have an A-share listing in the PRC, their A-share stock
prices were not used in the above calculation of market capitalisations.
(5) Earnings refer to net profit excluding extraordinary items as per the
latest published audited full year financial statements of the relevant
company available on the Latest Practicable Date.
(6) NAV refers to net asset value as per the latest published audited full
year financial statements of the relevant company available on the
Latest Practicable Date.
As illustrated above, the EV/EBITDA multiple of approximately 5.77 times for
the Gas Station Assets Acquisition is slightly lower than the range and the
average of the trading multiples of the comparable companies. In terms of
EV/sales and price/earnings, the multiples for the Gas Station Assets
Acquisition are lower than the respective ranges and averages of the trading
multiples of the comparable companies. In terms of price/NAV, the multiple for
the Gas Station Assets Acquisition is within the range of the trading
multiples of the comparable companies and is below the average of the
comparable companies.
(ii) Comparable transaction analysis
Our analysis also includes research into recent and significant acquisition
transactions involving gas station assets in the PRC. In selecting the
comparable transactions, we have focused on material transactions and have
taken into account the availability of reliable transaction information and
comparability of the assets acquired with the Gas Station Assets. The
following table sets out our findings:
EV(1)/ PRICE(2)/
DATE OF ANNOUNCEMENT SELLER BUYER TARGET GAS STATION NAV(3)
RMB M (TIMES)
19 December 2002 China China Petroleum 663 petrol 1.69 2.21
Petrochemical & Chemical Corp stations and oil
Group Company (Sinopec Corp) depot assets
(Sinopec Group
Company)
26 September 2002 China National PetroChina 2994 gas 3.03 NA
Petroleum Company Limited stations, 478
Corporation oil depots, 5337
pieces of land
and some office
buildings
AVERAGE 2.36 2.21
GAS STATION ASSETS ACQUISITION 1.84 1.70
NA: Not available
Sources: Companies' public filings available on the Latest Practicable Date
Notes:
(1) EV refers to the sum of the equity purchase consideration paid in an
acquisition and the total liabilities of the targets as at the time of
acquisition.
(2) Price refers to the equity purchase consideration paid in an acquisition.
(3) NAV refers to the net asset value of the target as at the time of
acquisition.
Our review of the acquisition multiples of the above precedent transactions
indicates that the EV per gas station for the Gas Station Assets Acquisition
is within the range of the precedent transactions and lower than the average.
In terms of price/NAV, the multiple for the Gas Station Assets Acquisition is
lower than that of the comparable transaction.
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On the above basis, we consider the Gas Station Assets Consideration under
the Gas Station Assets Acquisition Agreement is fair and reasonable so far
as the Independent Shareholders are concerned.
(d) Conditions of the Gas Station Assets Acquisition
Completion of the Gas Station Assets Acquisition Agreement is conditional upon
fulfilment of various conditions including the approval of the Gas Station
Assets Acquisition by the Independent Shareholders at the EGM. Further details
of the other conditions precedent to the completion of the Gas Station Assets
Acquisition are set out in the section headed "2. The Acquisition and the
Disposal" in the "Letter from the Chairman" of the Circular.
THE DISPOSAL OF THE DOWNHOLE OPERATION ASSETS (THE "DISPOSAL")
(a) Assets to be disposed
On 31 October 2004, the Company entered into the sale and purchase agreement
in respect of the Downhole Operation Assets (the "Downhole Operation Assets
Disposal Agreement"), pursuant to which the Company (on its own behalf and on
behalf of the Authorising Entities) has conditionally agreed to dispose to
Sinopec Group Company the downhole operation assets owned by Shengli Oilfield
Company Limited, Zhongyuan Oilfield Branch Company, Henan Oilfield Branch
Company, Jianghan Oilfield Branch Company, Jiangsu Oilfield Branch Company,
Huabei Branch Company, Huadong Branch Company and Xinan Branch Company (the
"Downhole Operation Assets") for a total consideration of RMB1,748 million
(equivalent to approximately HK$1,649 million) (the "Downhole Operation Assets
Consideration"). Further details of the terms of the Downhole Operation Assets
Disposal Agreement are set out in the section headed "2. The Acquisition and
the Disposal" in the "Letter from the Chairman" of the Circular.
Set out below is a summary of certain financial information relating to the
Downhole Operation Assets. The financial information is extracted from the
section headed "5. Details of the Target Assets" in the "Letter from the
Chairman" of the Circular.
RMB million
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2003
Sales 5,724
EBITDA(1) 303
Net profits 11
Net assets (as at 31 December 2003) 2,124
Net debt/(cash) (2) (as at 31 July 2004) (33)
Notes:
(1) EBITDA refers to the sum of net profits, minority interests, taxation, net
finance costs and depreciation and amortisation expenses of the Downhole
Operation Assets.
(2) Net debt refers to the sum of the short-term loan and the long-term loan
less cash of the Downhole Operation Assets.
(3) The financial data of the Downhole Operation Assets disclosed in the
Circular was prepared in accordance with the PRC GAAP. As noted in the
section headed "1. Introduction" in the "Letter from the Chairman" of the
Circular, there is no material difference between the related financial
data prepared in accordance with the PRC GAAP and those prepared in
accordance with the International Financial Reporting Standard.
Further details of the Downhole Operation Assets are set out in the section
headed "5. Details of the Target Assets" in the "Letter from the Chairman" of
the Circular.
(b) Basis of the Downhole Operation Assets Consideration
The Downhole Operation Assets Disposal Agreement was entered into after
arm's length negotiation between the Company and Sinopec Group Company,
taking into account various factors, including valuations implied by other
similar transactions of comparable companies, quality of assets, business
development potential and the position in the industry cycle of the Downhole
Operation Assets. The Downhole Operation Assets Consideration, which will be
used by the Company to satisfy part of the consideration for the
Acquisition, was determined with reference to the valuations
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of the Downhole Operation Assets prepared by the independent valuer, Beijing
Zhongzheng Valuation Co., Ltd. However, given the above-mentioned
independent valuer has PRC securities qualification only but not the
qualification to carry out asset appraisal business in Hong Kong, we have
not relied on its valuations in arriving at our opinion.
As set out in the section headed "2. The Acquisition and the Disposal" in the
"Letter from the Chairman" of the Circular, all the risks and benefits arising
from the Downhole Operation Assets before completion of the transaction shall
be borne and in the account of the Company. The Downhole Operation Assets
Consideration will be adjusted if the Downhole Operation Assets' asset values
decrease or liabilities increase.
(c) Valuation of the Downhole Operation Assets
Based on the Downhole Operation Assets Consideration of RMB1,748 million
(equivalent to approximately HK$1,649 million), together with the aggregate
net debt of the Downhole Operation Assets attributable to Sinopec Corp. as at
31 July 2004, the EV of the Downhole Operation Assets attributable to Sinopec
Corp. would be approximately RMB1,715 million (equivalent to approximately
HK$1,618 million). The source of financial information applied in conducting
the ratio analysis is based on the data contained in the section headed "5.
Details of the Target Assets" in the "Letter from the Chairman" of the
Circular.
We list below the multiples for the Downhole Operation Assets based on the
Downhole Operation Assets Consideration under the Downhole Operation Assets
Disposal Agreement:
o an EV/EBITDA multiple of approximately 5.66 times, based on the EBITDA
of the Downhole Operation Assets attributable to Sinopec Corp. for the
financial year ended 31 December 2003 of approximately RMB303 million
(equivalent to approximately HK$286 million);
o an EV/sales multiple of approximately 0.30 times, based on the sales of
the Downhole Operation Assets attributable to Sinopec Corp. for the
financial year ended 31 December 2003 of approximately RMB5,724 million
(equivalent to approximately HK$5,400 million);
o a price to earnings multiple of approximately 164.26 times, based on
the net profit of the Downhole Operation Assets attributable to Sinopec
Corp. for the financial year ended 31 December 2003 of approximately
RMB11 million (equivalent to approximately HK$10 million); and o a
price to net asset value ratio of approximately 0.82 times, based on
the aggregate NAV of the Downhole Operation Assets attributable to
Sinopec Corp. as at 31 December 2003 of approximately RMB2,124 million
(equivalent to approximately HK$2,004 million).
We have analysed the Downhole Operation Assets Consideration by reviewing the
trading multiples of listed companies comparable to the Downhole Operation
Assets. We have not identified any recent and significant acquisitions of
downhole operation assets in the PRC.
Since the revenue of the Downhole Operation Assets is derived from the
provision of oil-field downhole operations related services in the PRC, the
comparable companies we have chosen are listed oil-field services companies
which are primarily focused on providing oil-field services to oil and gas
companies in the PRC. The company which we have identified under the above
selection criteria is a PRC oil-field services company listed on the Stock
Exchange.
In assessing the fairness of the Downhole Operation Assets Consideration, we
are of the view that the analysis of the EV/EBITDA multiple versus those of
the comparable listed company is the most important and appropriate valuation
benchmark. In addition, we have reviewed the EV/sales, price/earnings ratio
and the price/NAV ratio of the Downhole Operation Assets Acquisition versus
those of the comparable listed company, for supplemental crosschecking
purposes.
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LETTER FROM ROTHSCHILD
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Based on the above selection criteria, we set out in the following table the
relevant ratios of the selected comparable listed company based on its share
price as at the Latest Practicable Date and its latest published audited full
year financial statements.
EV(1)/ EV(1)/ PRICE(4)/ PRICE(4)/
COMPANY NAME EBITDA(2) SALES(3) EARNINGS(5) NAV(6)
(Times) (Times) (Times) (Times)
China Oilfield Services Limited 6.03 2.25 19.84 1.41
Downhole Operation Assets Disposal 5.66 0.30 164.26 0.82
Sources: Bloomberg and latest published audited full year financial statements
of the relevant companies available on the Latest Practicable Date
Notes:
(1) EV of a company refers to the sum of its market capitalisation as at the
Latest Practicable Date and its net indebtedness as per its latest
published audited full year financial statements available on the Latest
Practicable Date.
(2) EBITDA refers to the earnings before interest, tax, amortisation and
depreciation expenses as per the latest published audited full year
financial statements of the relevant company available on the Latest
Practicable Date.
(3) Sales refers to the total sales, revenues or turnover as per the latest
published audited full year financial statements of the relevant company
available on the Latest Practicable Date.
(4) Price refers to the market capitalisation based on the closing price of
a comparable company as quoted on the Stock Exchange on the Latest
Practicable Date and the total number of shares in issue according to
the latest annual report, interim report or announcement.
(5) Earnings refer to net profit excluding extraordinary items as per the
latest published audited full year financial statements of the relevant
company available on the Latest Practicable Date.
(6) NAV refers to net asset value as per the latest published audited full
year financial statements of the relevant company available on the
Latest Practicable Date.
As illustrated above, the EV/EBITDA multiple for the Downhole Operation Assets
of approximately 5.66 times is slightly lower than the multiple of the
comparable company. The price/earnings multiple for the Downhole Operation
Assets is significantly higher than that of the comparable company. EV/sales
and price/NAV multiples for the Downhole Operation Assets Disposal are lower
than the trading multiples of the comparable company. Based on the views
obtained from the Directors, reasons for certain of the multiples being lower
for the Downhole Operation Assets include: (a) the Downhole Operation Assets
provide internal services to the Company only with no external customers,
implying a relatively lower growth potential; and b) the Downhole Operation
Assets are relatively inefficient with a relatively poor asset quality and
large cost base.
Given the limited growth and the relatively inefficient operation of the
Downhole Operation Assets, we consider the Downhole Operation Assets
Consideration under the Downhole Operation Assets Disposal Agreement is fair
and reasonable so far as the Independent Shareholders are concerned.
(d) Conditions of the Downhole Operation Assets Disposal
Completion of the Downhole Operation Assets Disposal Agreement is conditional
upon fulfilment of various conditions including the approval of the Downhole
Operation Assets Disposal by the Independent Shareholders at the EGM. Further
details of the other conditions precedent to the completion of the Downhole
Operation Assets Disposal are set out in the section headed "2. The
Acquisition and the Disposal" in the "Letter from the Chairman" of the
Circular.
FINANCIAL EFFECTS ON THE COMPANY AND ITS SUBSIDIARIES (THE "GROUP")
We have conducted various analyses on the potential financial effects of the
Acquisition and the Disposal on the Group, which were prepared based on the
audited financials of the Group for the financial year ended 31 December 2003
and audited financials of the Group for the six months ended 30 June 2004
prepared based on the International Financial Reporting Standard, and the
financials of the Acquiring Assets and the Disposal Assets for the financial
year ended 31 December 2003 and the financials of the Petrochemical Assets
and Catalyst Assets for the six months ended 30 June 2004, the financials of
the Gas Station Assets for the five months ended 31 May 2004 and the
financials of the Disposal Assets for the seven months ended 31 July 2004
prepared based on the PRC GAAP, further details of which are
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LETTER FROM ROTHSCHILD
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summarised in the section headed "1. Introduction" in the "Letter from the
Chairman" of the Circular. As noted in the section headed "1. Introduction" in
the "Letter from the Chairman" of the Circular, there is no material difference
between the related financial data of the Acquiring Assets and the Disposal
Assets prepared in accordance with the PRC GAAP and those prepared in
accordance with the International Financial Reporting Standard.
Upon completion of the Acquisition, the Acquiring Assets will become
subsidiaries of the Group, and accordingly their financials will be
consolidated into the financial statements of the Group. Given the Disposal
Assets will cease to be subsidiaries of the Group after completion of the
Disposal, the financials of the Disposal Assets will no longer be consolidated
into the financial statements of the Group after completion. It should be
noted that each of the transactions contemplated under the Acquisition
Agreements and the Disposal Agreement is independent from each other, and if
any of them is not completed, the remaining transactions will not be affected.
We have conducted our analysis in this section on the assumption that all
transactions contemplated under the Acquisition Agreements and the Disposal
Agreement will be completed, and accordingly, all the figures and financial
effects shown in this section are for illustrative purposes only.
(a) Net income
Based on the net profits of the Acquiring Assets and the Disposal Assets for
the financial year ended 31 December 2003, the Group is acquiring and
disposing interests in the Acquiring Assets and the Disposal Assets for which
the aggregate attributable net profit of such interests for the financial year
ended 31 December 2003 was approximately RMB742 million (equivalent to
approximately HK$700 million) (before taking into consideration any
adjustments relating to the Acquisition and the Disposal).
(b) Net assets
Based on our discussion with the management of the Group, we understand that
there will be no material change to the net asset value of the Group as a
result of the Acquisition and the Disposal.
(c) Net gearing
The net cash consideration for the Acquisitions and the Disposal of
approximately RMB2,830 million (equivalent to approximately HK$2,670 million)
would add to the Group's net debt position of approximately RMB105,850 million
(equivalent to approximately HK$99,858 million) as at 30 June 2004. In
addition, the net debt of the Acquiring Assets, with an aggregate amount of
approximately RMB10,396 million (equivalent to approximately HK$9,808 million)
as at 30 June 2004 for the Petrochemical Assets and the Catalyst Assets and as
at 31 May 2004 for the Gas Station Assets, would be consolidated into the
Group's financial statements whereas the net cash of the Disposal Asset, with
an amount of approximately RMB33 million (equivalent to approximately HK$31
million) as at 31 July 2004, would be de-consolidated from the Group's
financial statements upon completion of the Acquisition and the Disposal.
UNDERTAKINGS BY SINOPEC GROUP COMPANY
Independent Shareholders should note that certain land and buildings included
in the Acquiring Assets and certain land and buildings which will be leased by
Sinopec Corp. after completion of the Acquisition have not been issued with
the relevant title certificates. In relation to these land and buildings,
Sinopec Group Company undertakes, regarding those land and buildings which
have not been issued with the relevant title certificates, that it will use
its best endeavors to obtain the relevant title certificates and related title
documents. In addition, Sinopec Group Company will indemnify the Company
against all actual and foreseeable losses arising from the above-mentioned
irregularity or incompleteness of land and buildings title and title
documents. Further details of the undertakings by Sinopec Group Company are
set out in the section headed "2. The Acquisition and the Disposal" in the
"Letter from the Chairman" of the Circular.
DURATION OF THE LAND USE RIGHTS LEASE AGREEMENT AND THE PROPERTIES
LEASE AGREEMENT
Following completion of the Acquisition, the Acquiring Assets (either by
itself or through Sinopec Corp.) will lease various parcels of land and
certain properties from members of the Sinopec Group, which will constitute
continuing connected transactions for the Company under the Listing Rules. On
31 October 2004, Sinopec Corp. and Sinopec Group Company entered into the New
Continuing Connected Transaction Adjustment Agreement which supplements the
Land Use Rights Lease Agreement and Property Lease Agreement and provides,
inter alia, that the terms of these two agreements will apply to the
additional leasing of land and properties arising from the Acquisition.
55
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LETTER FROM ROTHSCHILD
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The transactions under the Land Use Rights Lease Agreement and the Properties
Lease Agreement are exempted from the independent shareholders approval
requirement as the annual amount of the transactions are less than 2.5% of the
relevant percentage ratio (as defined in the Listing Rules).
We confirm that it is normal business practice for the Land Use Rights Lease
Agreement and the Properties Lease Agreement to be of such duration as set out
in the section headed "6. Prospective Continuing Connected Transactions" in
the "Letter from the Chairman" of the Circular for the following reasons:
o the nature of commercial land and property leases are generally of a
long duration in order for the lessee (in this case Sinopec Corp.) to
secure long-term usage of such land and building without undue
inconvenience;
o certain of the Acquiring Assets are located on the land which is subject
to the lease and the continued operation of such Acquiring Assets would
depend on Sinopec Corp.'s ability to occupy the relevant land; and
o the properties which are subject to the lease are required by certain of
the Acquiring Assets to continue their normal operation.
SUMMARY
Having considered the above principal factors and reasons, we draw your
attention to the following in arriving at our conclusion:
(i) the Acquisition would further strengthen and develop the Company's core
operations in the petrochemical, catalyst and oil products retail
businesses;
(ii) the Disposal would allow the Company to focus on the development of its
core upstream operations;
(iii) the multiples for the Acquisition and the Disposal are reasonable
considering the trading multiples of companies comparable to the
Acquiring Assets and the Disposal Assets, taking into account specific
features of the relevant assets including operational efficiency;
(iv) the multiples for the Acquisition and the Disposal are within a
reasonable range of relevant and comparable precedent transactions,
having considered the prevailing economic environment and conditions for
each transaction, as well as asset specific operational factors;
(v) the Company is acquiring and disposing interests in the Acquiring Assets
and the Disposal Assets with an aggregate attributable net profit of
approximately RMB742 million (equivalent to approximately HK$700
million) for the financial year ended 31 December 2003 and an aggregate
net debt of approximately RMB10,429 million (equivalent to approximately
HK$9,839 million) as at the respective dates of the latest available
financials of the Acquiring Assets and the Disposal Assets;
(vi) the Company's interests in relation to the use of the land and buildings
for which no relevant titles have been issued would be protected by the
undertakings provided by Sinopec Group Company; and
(vii) it is the normal business practice for the Land Use Rights Lease
Agreement and the Properties Lease Agreement to be of such duration as
set out in the section headed "6. Prospective Continuing Connected
Transactions" in the "Letter from the Chairman" of the Circular.
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LETTER FROM ROTHSCHILD
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RECOMMENDATIONS
Having considered all the above principal factors and reasons, we consider
that (a) the Acquisition Agreements and the Disposal Agreement are on normal
commercial terms (as defined under the Hong Kong Listing Rules) and the terms
of the Acquisition Agreements and the Disposal Agreement are fair and
reasonable so far as the Independent Shareholders are concerned; (b) entering
into the Acquisition Agreements and the Disposal Agreement is in the interest
of the Company and its shareholders as a whole; and (c) it is the normal
business practice for the Land Use Rights Lease Agreement and the Properties
Lease Agreement to be of such duration as set out in the section headed
"Prospective Continuing Connected Transactions" in the "Letter from the
Chairman" of the Circular. Accordingly, we advise the Independent Directors to
recommend the Independent Shareholders to vote in favour of the ordinary
resolutions to approve the Acquisition and the Disposal as detailed in the
notice of the EGM which is set out on pages 162 to 164 of the Circular.
Yours very truly,
For and on behalf of
N M ROTHSCHILD & Sons (Hong Kong) LIMITED
Chris Ewbank
Managing Director
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APPENDIX 1 PROPERTY VALUATION REPORT PREPARED BY SALLMANNS
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The following is the text of a letter, summary of values and valuation
certificate, prepared for the purpose of incorporation in this Circular
received from Sallmanns (Far East) Limited, an independent valuer, in
connection with its valuations as at 30 September 2004 of the property
interests contracted to be acquired by Sinopec Corp.
[LOGO GRAPHIC OMITTED]
Sallmanns
--------------------------------------------------------------------------------
Corporate valuation and consultancy 22nd Floor, Siu On Centre
188 Lockhart Road
www.sallmans.com Wanchai, Hong Kong
Tel: (852) 2169 6000
Fax: (852) 2528 5079
6 November 2004
The Board of Directors
China Petroleum & Chemical Corporation
A6, Huixindong Road
Chaoyang District
Beijing 100029
The People's Republic of China
Dear Sirs,
In accordance with your instructions to value the property interests which
China Petroleum & Chemical Corporation ("Sinopec Corp.") intends to acquire
from China Petrochemical Corporation ("Sinopec Group Company") in the People's
Republic of China (the "PRC"), we confirm that we have carried out
inspections, made relevant enquiries and searches and obtained such further
information as we consider necessary for the purpose of providing you with our
opinion of the capital values of the property interests as at 30 September
2004 (the "date of valuation").
For the purpose of valuation, we have categorized the properties into the
following: Group I Property interests in respect of Petrochemical Assets to be
acquired by Sinopec Corp. from Sinopec Group Company; Group II Property
interests in respect of Gas Station Assets (excluding oil depots) to be
acquired by Sinopec Corp. from Sinopec Group Company and Group III Property
interests in respect of the oil depots comprised in the Gas Station Assets to
be acquired by Sinopec Corp. from Sinopec Group Company.
Our valuations of the property interests represent the market value which we
would define as intended to mean "the estimated amount for which a property
should exchange on the date of valuation between a willing buyer and a willing
seller in an arm's-length transaction after proper marketing wherein the
parties had each acted knowledgeably, prudently, and without compulsion".
Where, due to the nature of the buildings and structures of the properties in
the PRC, there are no market sales comparables readily available, the property
interests have been valued on the basis of their depreciated replacement cost.
Depreciated replacement cost is defined as "an estimate of the Market Value
for the existing uses of the land, plus the current gross replacement (or
reproduction) costs of the improvements, less allowances for physical
deterioration and all relevant forms of obsolescence and optimization." This
method has been used due to the lack of an established market upon which to
base comparable transactions and is a method of using current replacement
costs to arrive at the value to the business in occupation of the property as
existing at the valuation date.
For property no. 3, we have valued the property interest by the direct
comparison approach assuming sale of the property interest in its existing
state with the benefit of immediate vacant possession and by making reference
to comparable sale transactions as available in the relevant market.
Our valuations have been made on the assumption that the seller sells the
property interests in the market without the benefit of a deferred term
contract, leaseback, joint venture, management agreement or any similar
arrangement, which could serve to affect the values of the property interests.
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In valuing the properties which are currently under construction, we have
assumed that they will be developed and completed in accordance with the
Sinopec Group Company's latest development proposal provided to us. In
arriving at our opinion of value, we have taken into account the construction
costs and professional fees relevant to the stage of construction as at the
valuation date and the remainder of the costs and fees to be expended to
complete the development.
No allowance has been made in our report for any charges, mortgages or amounts
owing on any of the property interests valued nor for any expenses or taxation
which may be incurred in effecting a sale. Unless otherwise stated, it is
assumed that the properties are free from encumbrances, restrictions and
outgoings of an onerous nature, which could affect their values.
In valuing the property interests, we have complied with all the requirements
contained in Chapter 5 and Practice Note 12 of the Rules Governing the Listing
of Securities on The Stock Exchange of Hong Kong Limited except for those in
respect of which waiver has been granted in respect of Rule 5.06 of the Rules
Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
due to the large number of land and buildings involved in the Acquisition; the
RICS Appraisal and Valuation Standards (5th Edition) published by the Royal
Institution of Chartered Surveyors and effective from May 2003; and the Hong
Kong Guidance Notes on the Valuation of Property Assets (2nd Edition)
published by the Hong Kong Institute of Surveyors in March 2000.
We have relied to a very considerable extent on the information given by
Sinopec Group Company and have accepted advice given to us on such matters as
tenure, planning approvals, statutory notices, easements, particulars of
occupancy, lettings, and all other relevant matters.
We have been shown copies of various documents including State-owned Land Use
Rights Certificates, Building Ownership Certificates and official plans
relating to the property interests and have made relevant enquiries. Where
possible, we have examined the original documents to verify the existing
titles to the property interests in the PRC and any material encumbrances that
might be attached to the property interests or any lease amendments.
We have not carried out detailed site measurements to verify the correctness
of the site areas in respect of the properties but have assumed that the site
areas shown on the documents and official site plans handed to us are correct.
All documents and contracts have been used as reference only and all
dimensions, measurements and areas are approximations. No on-site measurement
has been taken.
We have inspected the exterior and, where possible, the interior of the
properties. However, no structural survey has been made, but in the course of
our inspection, we did not note any serious defects. We are not, however, able
to report whether the properties are free of rot, infestation or any other
structural defects. No tests were carried out on any of the services.
We have had no reason to doubt the truth and accuracy of the information
provided to us by Sinopec Group Company. We have also sought confirmation from
Sinopec Group Company that no material factors have been omitted from the
information supplied. We consider that we have been provided with sufficient
information to reach an informed view, and we have no reason to suspect that
any material information has been withheld.
Unless otherwise stated, all monetary figures stated in this report are in
Renminbi (RMB).
Our valuations are summarised below and the valuation certificates are attached.
Yours faithfully,
for and on behalf of
SALLMANNS (FAR EAST) LIMITED
Paul L. Brown
BSc FRICS FHKIS
Director
Note: Paul L. Brown is a Chartered Surveyor who has 21 years of experience in
the valuation of properties in the PRC and 24 years of property
valuation experience in Hong Kong, the United Kingdom and the
Asia-Pacific region.
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SUMMARY OF VALUES
Group I - Property interests in respect of Petrochemical Assets to be acquired
by Sinopec Corp. from Sinopec Group Company
CAPITAL VALUE
IN EXISTING STATE AS AT
NO. PROPERTY 30 SEPTEMBER 2004
RMB
1 Various buildings and structures No commercial value
located at
Sinopec Group Luoyang Petrochemical General Plant
Mengjin County
Jili District
Luoyang City
Henan Province
The PRC
2 Land, various buildings and structures No commercial value
located at
Luoyang Petrochemical Polypropylene Co., Ltd. Mengjin
County
Jili District
Luoyang City
Henan Province
The PRC
3 An office building No commercial value
located at
Anhuaxili
Chaoyang District
Beijing
The PRC
4 Land, various buildings and structures No commercial value
located at
Zhongyuan Petrochemical Co., Ltd.
Shenglixi Road
Puyang City
Henan Province
The PRC
5 Various buildings and structures No commercial value
located at
Sinopec Group Tianjin Petrochemical Company
Xihuan Road
Dagang District
Tianjin
The PRC
6 Various buildings and structures located at No commercial value
Sinopec Group Guangzhou Petrochemical General Plant
Guangzhou City
Guangdong Province
The PRC
7 Sinopec Group Maoming Petrochemical Company No commercial value
Maoming City
Guangdong Province
The PRC
----------------------
Sub-total: Nil
----------------------
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APPENDIX 1 PROPERTY VALUATION REPORT PREPARED BY SALLMANNS
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Group II - Property interests in respect of Gas Station Assets (excluding oil
depots) to be acquired by Sinopec Corp. from Sinopec Group Company
CAPITAL VALUE
IN EXISTING STATE AS AT
NO. PROPERTY 30 SEPTEMBER 2004
RMB
8 Land, various buildings and structures pertaining to No commercial value
677 gas stations
located in
18 provinces/autonomous region/municipalities
The PRC
----------------------
Sub-total: Nil
----------------------
Group III - Property interests in respect of the oil depots comprised in the
Gas Station Assets to be acquired by Sinopec Corp.
from Sinopec Group Company
CAPITAL VALUE
IN EXISTING STATE AS AT
NO. PROPERTY 30 SEPTEMBER 2004
RMB
9 Land, various buildings and structures No commercial value
pertaining to 49 oil depots
located in
12 provinces/autonomous region/municipality
The PRC
----------------------
Sub-total: Nil
----------------------
Grand total: Nil
======================
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APPENDIX 1 PROPERTY VALUATION REPORT PREPARED BY SALLMANNS
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VALUATION CERTIFICATE
Group I - Property interests in respect of Petrochemical Assets to be acquired
by Sinopec Corp. from Sinopec Group Company
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER 2004
RMB
1. Various buildings The property comprises 50 buildings The property is currently No commercial value
and structures and 196 ancillary structures which occupied and operated by
located at were completed in various stages Sinopec Group Luoyang
Sinopec Group between 1984 and 2004. Petrochemical General
Luoyang Plant, a wholly-owned
Petrochemical The total gross floor area of the subsidiary of Sinopec
General Plant buildings is approximately Group Company, for
Mengjin County 169,228.57 sq.m.. refining and its auxiliary
Jili District chemical operation
Luoyang City The major buildings and structures purposes.
Henan Province include warehouses, transformer
The PRC substations, office buildings,
workshops, air compressing rooms, a
hotel, walls, pipelines, railways,
etc.
The property is constructed on 13
parcels of land with a total site
area of approximately 1,466,986.08
sq.m. which are rented from
Sinopec Group Company for various
terms at an aggregate rental of
RMB12,976,198.89 per annum. (Refer
to notes 3 and 4.)
Notes:
1. Pursuant to a sale and purchase agreement entered into between Sinopec
Corp. and Sinopec Group Company dated 31 October 2004, Sinopec Corp. has
agreed to purchase from Sinopec Group Company the petrochemical assets
in respect of 5 subsidiaries of Sinopec Group Company at a total
consideration of RMB1,977,000,000 (subject to adjustment). Sinopec Group
Company has undertaken to endeavor to apply for the required title
certificates of the land and buildings without proper title certificates
under the Acquisition Agreement, assure the legality and validity of all
the acquisition, to be responsible for any taxes, costs, expenses
incurred and indemnify Sinopec Corp. against all actual and foreseeable
losses related to the foregoing.
2. In view of the lack of all required title certificates and confirmation
of title legality, we have attributed no commercial value to the
property. For reference purposes, we are of the opinion that the capital
value of the property interest to be acquired by Sinopec Corp. would be
RMB300,812,000 assuming all relevant title certificates had been
obtained.
3. Pursuant to a Land Use Rights Lease Agreement and a New Continuing
Connected Transactions Adjustment Agreement ("Adjustment
Agreementi") both entered into between Sinopec Corp. and Sinopec
Group Company dated 3 June 2000 and 31 October 2004 respectively,
Sinopec Corp. has agreed to lease from Sinopec Group Company a total of
approximately 8,888,498.51 sq.m. of land (inclusive of the 13 parcels of
land where the property is located) at an annual rental of
RMB110,356,761.1 for various terms from the effective date of the
Adjustment Agreement.
4. The property is constructed on 13 parcels of land with a total site area
of approximately 1,466,986.08 sq.m. which are leased from Sinopec Group
Company under the Adjustment Agreement for various terms at an aggregate
rental of RMB12,976,198.89 per annum.
5. Pursuant to various Building Ownership Certificates, 42 buildings of the
property with a total gross floor area of approximately 166,086.8 sq.m.
are owned by Sinopec Group Luoyang Petrochemical Main Factory. For the
remaining buildings with a total gross floor area of approximately
3,141.77 sq.m., we have not been provided with any title document.
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VALUATION CERTIFICATE
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER 2004
RMB
2. Land, various The property comprises 2 parcels The property is currently No commercial value
buildings and of land, 26 buildings and 22 occupied and operated by (55% interest attributable
structures located ancillary structures which were Luoyang Petrochemical to Sinopec Group
at completed between 1992 and 1993. Polypropylene Co., Ltd., a Company)
Luoyang 55% owned subsidiary of No commercial value
Petrochemical The total site area of the land Sinopec Group Luoyang
Polypropylene Co., is approximately 174,069.57 Petrochemical Main
Ltd. sq.m.. Factory, for refining and
Mengjin County The total gross floor area of its auxiliary chemical
Jili District the buildings is approximately operation purposes.
Luoyang City 33,954.23 sq.m..
Henan Province
The PRC The major buildings and
structures include office
buildings, workshops,
pump rooms, walls, pipelines, etc.
The property also comprises 3
buildings and some auxiliary
structures which were still under
construction as at the date of
inspection. The estimated capital
value in existing state as at the
date of valuation was RMB28,600,000.
As advised by Sinopec Group Company,
the gross floor area of the buildings
will be approximately 12,016.8 sq.m.
upon completion. They are scheduled
to be completed by the end of 2004.
The total investment of the buildings
and auxiliary structures is estimated
to be approximately RMB49,150,000, of
which the construction cost paid at
the relevant date is estimated to be
approximately RMB28,580,000. Notes:
1. Pursuant to a sale and purchase agreement entered into between Sinopec
Corp. and Sinopec Group Company dated 31 October 2004, Sinopec Corp. has
agreed to purchase from Sinopec Group Company the petrochemical assets
in respect of 5 subsidiaries of Sinopec Group Company at a total
consideration of RMB1,977,000,000 (subject to adjustment). Sinopec Group
Company has undertaken to endeavor to apply for the required title
certificates of the land and buildings without proper title certificates
under the above sale and purchase agreement, assure the legality and
validity of all the acquisition, to be responsible for any taxes, costs,
expenses incurred and indemnify Sinopec Corp. against all actual and
foreseeable losses related to the foregoing.
2. In view of the lack of all required title certificates and confirmation
of title legality, we have attributed no commercial value to the
property. For reference purposes, we are of the opinion that the capital
value of the property interest to be acquired by Sinopec Corp. would be
RMB36,895,000 assuming all relevant title certificates had been
obtained.
3. The property is constructed on 2 parcels of allocated land with a total
site area of approximately 174,069.57 sq.m., of which, a total of
94,635.58 sq.m. of land has been granted with allocated Land Use Rights
Certificate.
4. Pursuant to various Building Ownership Certificates, 22 buildings of the
property with a total gross floor area of approximately 26,826.34 sq.m.
are owned by Luoyang Petrochemical Polypropylene Co., Ltd. For the
remaining buildings with a total gross floor area of approximately
7,127.89 sq.m., we have not been provided with any title document.
5. We have not been provided with relevant document in relation to the
approval of the buildings/structures under construction.
63
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VALUATION CERTIFICATE
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER 2004
RMB
3. An office building The property is a 6-story office The property is currently No commercial value
located at building with a total gross floor occupied and operated by
Anhuaxili area of approximately 2,955.90 Sinopec Group Luoyang
Chaoyang District sq.m. completed in 1997. Petrochemical General
Beijing Plant for office and staff
The PRC quarter purposes.
Notes:
1. Pursuant to a sale and purchase agreement entered into between Sinopec
Corp. and Sinopec Group Company dated 31 October 2004, Sinopec Corp. has
agreed to purchase from Sinopec Group Company the petrochemical assets
in respect of 5 subsidiaries of Sinopec Group Company at a total
consideration of RMB1,977,000,000 (subject to adjustment). Sinopec Group
Company has undertaken to endeavor to apply for the required title
certificates of the land and buildings without proper title certificates
under the above sale and purchase agreement, assure the legality and
validity of all the acquisition, to be responsible for any taxes, costs,
expenses incurred and indemnify Sinopec Corp. against all actual and
foreseeable losses related to the foregoing.
2. In view of the lack of all required title certificates and confirmation
of title legality, we have attributed no commercial value to the
property. For reference purposes, we are of the opinion that the capital
value of the property interest to be acquired by Sinopec Corp. would be
RMB25,125,000 assuming all relevant title certificates had been
obtained.
3. Pursuant to a Building Ownership Certificate, the property with a gross
floor area of approximately 2,955.9 sq.m. is owned by Luoyang
Petrochemical Main Factory.
4. We have not been provided with any title documents in relation to the
land use rights of the property.
64
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APPENDIX 1 PROPERTY VALUATION REPORT PREPARED BY SALLMANNS
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VALUATION CERTIFICATE
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER 2004
RMB
4. Land, various The property comprises 14 parcels of The property is No commercial value
buildings and land, 133 buildings and 115 ancillary currently occupied and (93.51% interest
structures located structures which operated by Zhongyuan attributable to
at Zhongyuan were completed in various stages Petrochemical Co., Ltd., Sinopec Group Company)
Petrochemical Co., between 1989 and 2001. a 93.51% owned No commercial value
Ltd. Shenglixi subsidiary of Sinopec
Road The total site area of the land is Group Company, for
Puyang City approximately 58,036 sq.m.. refining and its
Henan Province auxiliary chemical
The PRC The total gross floor area of the operation purposes.
buildings is approximately
142,373.93 sq.m..
The major buildings and structures
include warehouses, office buildings,
workshops, transformer substations,
pump rooms, walls, water wells,
pipelines, etc.
The property also comprises various
auxiliary structures which were still
under construction as at the date of
inspection. The estimated capital
value in existing state as at the date
of valuation was RMB 6,600,000. As
advised by Sinopec Group Company, the
structures are scheduled to be
completed by the end of 2004. The
total investment of the structures is
estimated to be approximately
RMB30,920,000, of which the
construction cost paid at the relevant
date is estimated to be approximately
RMB6,572,786.
The property is constructed on the
above 14 parcels of land and 6 parcels
of land which are leased from Sinopec
Group Company for various terms at an
aggregate rental of RMB18,033,447.49
per annum. (Refer to notes 3 and 4.)
Notes:
1. Pursuant to a sale and purchase agreement entered into between Sinopec
Corp. and Sinopec Group Company dated 31 October 2004, Sinopec Corp. has
agreed to purchase from Sinopec Group Company the petrochemical assets
in respect of 5 subsidiaries of Sinopec Group Company at a total
consideration of RMB1,977,000,000 (subject to adjustment). Sinopec Group
Company has undertaken to endeavor to apply for the required title
certificates of the land and buildings without proper title certificates
under the above sale and purchase agreement, assure the legality and
validity of all the acquisition, to be responsible for any taxes, costs,
expenses incurred and indemnify Sinopec Corp. against all actual and
foreseeable losses related to the foregoing.
2. In view of the lack of all required title certificates and confirmation
of title legality, we have attributed no commercial value to the
property. For reference purposes, we are of the opinion that the capital
value of the property interest to be acquired by Sinopec Corp. would be
RMB368,211,000 assuming all relevant title certificates had been
obtained.
3. Pursuant to a Land Use Rights Lease Agreement and a New Continuing
Connected Transactions Adjustment Agreement ("Adjustment Agreement")
both entered into between Sinopec Corp. and Sinopec Group Company dated
3 June 2000 and 31 October 2004 respectively, Sinopec Corp. has agreed
to lease from Sinopec Group Company a total of approximately
8,888,498.51 sq.m. of land (inclusive of the 6 parcels of land where the
property is located) at an annual rental of RMB110,356,761.1 for various
terms from the effective date of the Adjustment Agreement.
4. The property is constructed on 20 parcels of land with a total site area
of approximately 1,252,936.81 sq.m., of which, 14 parcels of land with a
total site area of approximately 58,036 sq.m. are to be acquired under
the Acquisition Agreement, 6 parcels of land with a total site area of
approximately 1,194,900.81 sq.m. are leased from Sinopec Group Company
under the Adjustment Agreement for various terms at an aggregate rental
of RMB 18,033,447.49 per annum.
Of the 14 parcels of land to be acquired under the above sale and
purchase agreement, 3 parcels of land with a total site area of
approximately 15,733.71 sq.m. are granted land evidenced by 3 Land Use
Rights Certificates, 11 parcels of land with a total site area of
approximately 42,302.29 sq.m. are allocated land (of which, 10 parcels
of land with a total site area of 36,994.48 sq.m. have obtained Land Use
Rights Certificates).
5. Pursuant to various Building Ownership Certificates, 20 buildings of the
property with a total gross floor area of approximately 31,326.39 sq.m.
are owned by Zhongyuan Petrochemical Co., Ltd. For the remaining
buildings with a total gross floor area of approximately 111,047.54
sq.m., we have not been provided with any title document.
6. We have not been provided with relevant document in relation to the
approval of the structures under construction.
65
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APPENDIX 1 PROPERTY VALUATION REPORT PREPARED BY SALLMANNS
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VALUATION CERTIFICATE
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER 2004
RMB
5. Various buildings The property comprises 497 The property is currently No commercial value
and structures buildings and 839 ancillary occupied and operated by
located at structures which were completed Sinopec Group Tianjin
Sinopec Group in various stages between 1978 Petrochemical Company, a
Tianjin and 2002. wholly-owned subsidiary of
Petrochemical Sinopec Group Company, for
Company The total gross floor area of the refining and its auxiliary
Xihuan Road buildings is approximately chemical operation
Dagang District 488,651.77 sq.m.. purposes.
Tianjin
The PRC The major buildings and
structures include office
buildings, workshops, transformer
substations, walls, roads,
pipelines, etc.
The property also comprises a
experimentation workshop which was
still under construction as at the
date of inspection. The estimated
capital value in existing state as at
the date of valuation was
RMB2,100,000. As advised by Sinopec
Group Company, the gross floor area of
the buildings will be approximately
1,800 sq.m. upon completion. It is
scheduled to be completed by the end
of 2004. The total investment of the
building is estimated to be
approximately RMB2,140,000, of which
the construction cost paid at the
relevant date is estimated to be
approximately RMB2,065,000.
The property is constructed on 45
parcels of land with a total site area
of approximately 3,847,893.55 sq.m.,
of which, 40 parcels of land are
rented from Sinopec Group Company for
various terms at an aggregate rental
of RMB41,663,803.7 per annum. (Refer
to notes 3 and 4.)
Notes:
1. Pursuant to a sale and purchase agreement entered into between Sinopec
Corp. and Sinopec Group Company dated 31 October 2004, Sinopec Corp. has
agreed to purchase from Sinopec Group Company the petrochemical assets
in respect of 5 subsidiaries of Sinopec Group Company at a total
consideration of RMB1,977,000,000 (subject to adjustment). Sinopec Group
Company has undertaken to endeavor to apply for the required title
certificates of the land and buildings without proper title certificates
under the above sale and purchase agreement, assure the legality and
validity of all the acquisition, to be responsible for any taxes, costs,
expenses incurred and indemnify Sinopec Corp. against all actual and
foreseeable losses related to the foregoing.
2. In view of the lack of all required title certificates and confirmation
of title legality, we have attributed no commercial value to the
property. For reference purposes, we are of the opinion that the capital
value of the property interest to be acquired by Sinopec Corp. would be
RMB1,135,795,000 assuming all relevant title certificates had been
obtained.
3. Pursuant to a Land Use Rights Lease Agreement and a New Continuing
Connected Transactions Adjustment Agreement ("Adjustment Agreement")
both entered into between Sinopec Corp. and Sinopec Group Company dated
3 June 2000 and 31 October 2004 respectively, Sinopec Corp. has agreed
to lease from Sinopec Group Company a total of approximately
8,888,498.51 sq.m. of land (inclusive of the 40 parcels of land where
the property is located) at an annual rental of RMB110,356,761.1 for
various terms from the effective date of the Adjustment Agreement.
4. The property is constructed on 45 parcels of land with a total site area
of approximately 3,847,893.55 sq.m., of which, 40 parcels of land with a
total site area of approximately 3,837,513.56 sq.m. are leased from
Sinopec Group Company under the Adjustment Agreement for various terms
at an aggregate rental of RMB41,663,803.7 per annum, 5 parcels of land
with a total site area of approximately 10,379.99 sq.m. have not
obtained any title document.
5. Pursuant to various Building Ownership Certificates, 36 buildings of the
property with a total gross floor area of approximately 35,238 sq.m. are
owned by Zhongyuan Petrochemical Co., Ltd. For the remaining buildings
with a total gross floor area of approximately 453,413.77 sq.m., we have
not been provided with any title document.
6. We have not been provided with relevant document in relation to the
approval of the building under construction.
66
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APPENDIX 1 PROPERTY VALUATION REPORT PREPARED BY SALLMANNS
--------------------------------------------------------------------------------
VALUATION CERTIFICATE
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER 2004
RMB
6. Various buildings The property comprises 124 The property is currently No commercial value
and structures buildings and 97 ancillary occupied and operated by
located at structures which were completed in Sinopec Group Guangzhou
Sinopec Group various stages between 1975 and Petrochemical General
Guangzhou 2003. Plant, a wholly-owned
Petrochemical subsidiary of Sinopec
General Plant The total gross floor area of the Group Company, for
Guangzhou City buildings is approximately refining and its auxiliary
Guangdong Province 105,628.66 sq.m.. chemical operation
The PRC purposes.
The major buildings and structures
include office buildings, workshops,
cooling towers, pump rooms, walls,
pools, roads, etc.
The property is constructed on 10
parcels of land with a total site area
of approximately 621,075 sq.m., of
which, 8 parcels of land are rented from
Sinopec Group Company for various terms
at an aggregate rental of
RMB10,818,259.79 per annum. (Refer to
notes 3 and 4.)
Notes:
1. Pursuant to a sale and purchase agreement entered into between Sinopec
Corp. and Sinopec Group Company dated 31 October 2004, Sinopec Corp. has
agreed to purchase from Sinopec Group Company the petrochemical assets
in respect of 5 subsidiaries of Sinopec Group Company at a total
consideration of RMB1,977,000,000 (subject to adjustment). Sinopec Group
Company has undertaken to endeavor to apply for the required title
certificates of the land and buildings without proper title certificates
under the above sale and purchase agreement, assure the legality and
validity of all the acquisition, to be responsible for any taxes, costs,
expenses incurred and indemnify Sinopec Corp. against all actual and
foreseeable losses related to the foregoing.
2. In view of the lack of all required title certificates and confirmation
of title legality, we have attributed no commercial value to the
property. For reference purposes, we are of the opinion that the capital
value of the property interest to be acquired by Sinopec Corp. would be
RMB178,560,000 assuming all relevant title certificates had been
obtained.
3. Pursuant to a Land Use Rights Lease Agreement and a New Continuing
Connected Transactions Adjustment Agreement ("Adjustment Agreement")
both entered into between Sinopec Corp. and Sinopec Group Company dated
3 June 2000 and 31 October 2004 respectively, Sinopec Corp. has agreed
to lease from Sinopec Group Company a total of approximately
8,888,498.51 sq.m. of land (inclusive of the 8 parcels of land where the
property is located) at an annual rental of RMB110,356,761.1 for various
terms from the effective date of the Adjustment Agreement.
4. The property is constructed on 10 parcels of land with a total site area
of approximately 621,075 sq.m., of which, 8 parcels of land with a total
site area of approximately 596,455 sq.m. are leased from Sinopec Group
Company under the Adjustment Agreement for various terms at an aggregate
rental of RMB10,818,259.79 per annum, 2 parcels of land with a total
site area of approximately 24,620 sq.m. have not obtained any title
document.
5. We have not been provided with any title document to the buildings of
the property.
67
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APPENDIX 1 PROPERTY VALUATION REPORT PREPARED BY SALLMANNS
--------------------------------------------------------------------------------
VALUATION CERTIFICATE
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER 2004
RMB
7. Various The property comprises 12 buildings The property is currently No commercial value
buildings and and 23 ancillary structures which occupied and operated by
structures were completed in various stages Sinopec Group Maoming
located at between 1996 and 1998. Petrochemical Company, a
Sinopec Group wholly-owned subsidiary of
Maoming The total gross floor area of the Sinopec Group Company, for
Petrochemical buildings is approximately 6,063.03 refining and its auxiliary
Company Maoming sq.m.. chemical operation
City Guangdong purposes.
Province The major buildings and structures
The PRC include warehouses, office buildings,
workshops, water wells, pump rooms,
pools, pipelines, etc.
The property is constructed on 2 parcels
of land with a total site area of
approximately 46,990 sq.m.. (Refer to
note 3.)
Notes:
1. Pursuant to a sale and purchase agreement entered into between Sinopec
Corp. and Sinopec Group Company dated 31 October 2004, Sinopec Corp. has
agreed to purchase from Sinopec Group Company the petrochemical assets
in respect of 5 subsidiaries of Sinopec Group Company at a total
consideration of RMB1,977,000,000 (subject to adjustment). Sinopec Group
Company has undertaken to endeavor to apply for the required title
certificates of the land and buildings without proper title certificates
under the above sale and purchase agreement, assure the legality and
validity of all the acquisition, to be responsible for any taxes, costs,
expenses incurred and indemnify Sinopec Corp. against all actual and
foreseeable losses related to the foregoing.
2. In view of the lack of all required title certificates and confirmation
of title legality, we have attributed no commercial value to the
property. For reference purposes, we are of the opinion that the capital
value of the property interest to be acquired by Sinopec Corp. would be
RMB23,155,000 assuming all relevant title certificates had been
obtained.
3. The property is constructed on 2 parcels of land with a total site area
of approximately 46,990 sq.m. which are leased from Sinopec Group
Company under previous lease agreements entered into between Sinopec
Corp. and Sinopec Group Company.
4. Pursuant to various Building Ownership Certificates, 6 buildings of the
property with a total gross floor area of approximately 4,232.83 sq.m.
are owned by Sinopec Group Maoming Petrochemical Co., Ltd.. For the
remaining buildings with a total gross floor area of approximately
1,830.2 sq.m., we have not been provided with any title document.
68
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APPENDIX 1 PROPERTY VALUATION REPORT PREPARED BY SALLMANNS
--------------------------------------------------------------------------------
VALUATION CERTIFICATE
Group II -- Property interests in respect of Gas Station Assets (excluding oil
depots) to be acquired by Sinopec Corp. from Sinopec Group Company
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER 2004
RMB
8. Land, various The properties comprise land, 1,036 The properties are No commercial value
buildings and buildings and 1,073 auxiliary currently occupied and
structures structures pertaining to 677 gas operated by Sinopec Group
pertaining to stations which were completed in Company and its
677 gas stations various stages between 1972 and 2004. subsidiaries for gas
located in 18 retail operation purposes.
provinces/ The gas stations are located in
autonomous Beijing, Tianjin, Hebei Province,
region/ Shanxi Province, Shanghai, Jiangsu
municipalities Province, Zhejiang Province, Anhui
in the PRC Province, Fujian Province, Jiangxi
Province, Shandong Province, Henan
Province, Hubei Province, Hunan
Province, Guangdong Province, Guangxi
Zhuang Autonomous Region, Hainan
Province and Yunnan Province.
The total gross floor area of the
buildings is approximately
231,490.19 sq.m..
The properties are constructed on 677
parcels of land with a total site area
of approximately 3,259,576.94 sq.m..
(Refer to notes 3 and 5.)
Notes:
1. Pursuant to a sale and purchase agreement entered into between Sinopec
Corp. and Sinopec Group Company dated 31 October 2004, Sinopec Corp. has
agreed to purchase assets, interests and related liabilities from
Sinopec Group Company with respect to 1,023 gas stations and 54 oil
depots (inclusive of the 677 gas stations of the properties) at a total
consideration of RMB1,880,419,000 (subject to adjustment). Sinopec Group
Company has undertaken to endeavor to apply for the required title
certificates of the land and buildings without proper title certificates
under the above sale and purchase agreement, assure the legality and
validity of all the acquisition, to be responsible for any taxes, costs,
expenses incurred and indemnify Sinopec Corp. against all actual and
foreseeable losses related to the foregoing.
The 1,023 gas stations under the above sale and purchase agreement also
comprise 52 gas stations which are currently leased by Sinopec Group
Company from third parties, 25 oil transaction vessels and oil trucks
and 269 gas stations where Sinopec Group Company does not hold
controlling shares. For the purpose of valuation, we have excluded these
gas stations (totally 346) from our valuation report.
2. In view of the lack of all required title certificates and confirmation
of title legality, we have attributed no commercial value to the
properties. For reference purposes, we are of the opinion that the
capital value of the property interests to be acquired by Sinopec Corp.
would be RMB366,241,000 assuming all relevant title certificates had
been obtained.
3. Pursuant to a Land Use Rights Lease Agreement and a New Continuing
Connected Transactions Adjustment Agreement ("Adjustment Agreement")
both entered into between Sinopec Corp. and Sinopec Group Company dated
3 June 2000 and 31 October 2004 respectively, Sinopec Corp. has agreed
to lease from Sinopec Group Company a total of approximately
8,888,498.51 sq.m. of land (inclusive of the land where 264 gas stations
wholly-owned by Sinopec Group Company are located) at an annual rental
of RMB110,356,761.1 for various terms from the effective date of the
Adjustment Agreement.
4. The gas stations are either wholly-owned branches/subsidiaries, or owned
by controlled equity/cooperative joint ventures, in which:
a. 595 gas stations are wholly-owned by Sinopec Group Company;
b. 59 gas stations are owned by Sinopec Group Company controlled equity
joint ventures; and
c. 23 gas stations are owned by Sinopec Group Company controlled
cooperative joint ventures;
69
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APPENDIX 1 PROPERTY VALUATION REPORT PREPARED BY SALLMANNS
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5. The land tenures of properties are occupied by the gas stations under
three categories, namely Held Land, Leased Land and Land Occupied by
Cooperative Joint Venture.
a. Held Land. 120 gas stations hold and occupy a total of 631,453.63
sq.m. of land, of which, 48,355.8 sq.m. of land pertaining to 18
gas stations has obtained granted land use rights certificates,
24,402.73 sq.m. of land pertaining to 8 gas stations has obtained
allocated land use rights certificates, the remaining 558,695.10
sq.m. of land pertaining to 94 gas stations has not obtained any
title certificates.
b. Leased Land. 548 gas stations lease and occupy a total of
2,609,813.55 sq.m. of land, of which, 754,991.12 sq.m. of land
pertaining to 264 gas stations are leased from Sinopec Group
Company under the Adjustment Agreement, 864,513.01 sq.m. of land
pertaining to 120 gas stations are leased from Sinopec Group
Company under previous lease agreements entered into between
Sinopec Corp. and Sinopec Group Company, 990,309.42 sq.m. of land
pertaining to 164 gas stations are leased from third parties.
c. Land Occupied by Cooperative Joint Venture. 9 gas stations occupy
a total of 18,309.76 sq.m. of land under various cooperative joint
venture agreements.
6. Pursuant to various Building Ownership Certificates, 351 buildings with
a total gross floor area of approximately 102,802.18 sq.m. pertaining to
254 gas stations have obtained building ownership certificates. We have
not been provided with any title document with respect to the remaining
685 buildings with a gross floor area of approximately 128,688.01 sq.m.
pertaining to 423 gas stations.
70
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APPENDIX 1 PROPERTY VALUATION REPORT PREPARED BY SALLMANNS
--------------------------------------------------------------------------------
VALUATION CERTIFICATE
Group III -- Property interests in respect of the oil depots comprised in the
Gas Station Assets to be acquired by Sinopec Corp.
from Sinopec Group Company
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER 2004
RMB
9. Land, various The properties are pertaining to 49 The properties are No commercial value
buildings and oil depots which were completed in currently occupied and
structures various stages between 1964 and operated by Sinopec Group
pertaining to 49 2001. Company and its subsidiary
oil depots for oil depots purposes.
located in The oil depots are located in Anhui
12 provinces/ Province, Fujian Province, Tianjin,
autonomous region/ Hebei Province, Jiangsu Province,
municipality in Henan Province, Hubei Province,
the PRC Hunan Province, Guangdong Province,
Guangxi Zhuang Autonomous Region,
Hainan Province and Yunnan
Province.
The properties comprise 423 buildings
and 225 ancillary structures. The
total gross floor area of the
buildings is approximately 108,183.79
sq.m..
The major buildings and structures
include warehouses, office buildings,
pump rooms, walls, pipelines,
railways, etc.
The properties are constructed on 68
parcels of land with a total site
area of approximately 3,749,914.96
sq.m.. (Refer to notes 3 and 5.)
Notes:
1. Pursuant to a sale and purchase agreement entered into between Sinopec
Corp. and Sinopec Group Company dated 31 October 2004, Sinopec Corp. has
agreed to purchase assets, interests and related liabilities from
Sinopec Group Company with respect to 1,023 gas stations and 54 oil
depots (inclusive of the 49 oil depots of the properties) of at a total
consideration of RMB1,880,419,000 (subject to adjustment). Sinopec Group
Company has undertaken to endeavor to apply for the required title
certificates of the land and buildings without proper title certificates
under the above sale and purchase agreement, assure the legality and
validity of all the acquisition, to be responsible for taxes, any costs,
expenses incurred and indemnify Sinopec Corp. against all actual and
foreseeable losses related to the foregoing.
The 54 oil depots under the above sale and purchase agreement also
comprise 5 oil depots where Sinopec Group Company does not hold
controlling shares. For the purpose of valuation, we have excluded the 5
oil depots from our valuation report.
2. In view of the lack of all required title certificates and confirmation
of title legality, we have attributed no commercial value to the
properties. For reference purposes, we are of the opinion that the
capital value of the property interests to be acquired by Sinopec Corp.
would be RMB92,696,000 assuming all relevant title certificates had been
obtained.
3. Pursuant to a Land Use Rights Lease Agreement and a New Continuing
Connected Transactions Adjustment Agreement ("Adjustment Agreement")
both entered into between Sinopec Corp. and Sinopec Group Company dated
3 June 2000 and 31 October 2004 respectively, Sinopec Corp. has agreed
to lease from Sinopec Group Company a total of approximately
8,888,498.51 sq.m. of land (inclusive of 31 parcels of land where the
oil depots are located) at an annual rental of RMB110,356,761.1 for
various terms from the effective date of the Adjustment Agreement.
4. The oil depots are either wholly-owned branches/subsidiaries or owned by
controlled equity joint venture, in which:
a. 48 oil depots are wholly-owned by Sinopec Group Company;
b. an oil depot is owned by Sinopec Group Company controlled equity
joint venture.
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APPENDIX 1 PROPERTY VALUATION REPORT PREPARED BY SALLMANNS
--------------------------------------------------------------------------------
5. The land tenures of properties are occupied by the oil depots under two
categories, namely Held Land and Leased Land.
a. Held Land. 4 oil depots hold and occupy a total of 156,367.63
sq.m. of land, of which, 102,175 sq.m. of land pertaining to an
oil depot has obtained an allocated land use rights certificate,
the remaining 54,192.63 sq.m. of land pertaining to 3 oil depots
has not obtained any title certificates.
b. Leased Land. 45 oil depots lease and occupy a total of
3,593,547.33 sq.m. of land, of which, 658,850.39 sq.m. of land
pertaining to 15 oil depots are leased from Sinopec Group Company
under the Adjustment Agreement (refer to note 2), 2,795,361.85
sq.m. of land pertaining to 28 oil depots are leased from Sinopec
Group Company under previous lease agreements entered into between
Sinopec Corp. and Sinopec Group Company, 139,335.09 sq.m. of land
pertaining to 2 oil depots are leased from third parties.
6. Pursuant to various Building Ownership Certificates, 116 buildings with a
total gross floor area of approximately 39,199.02 sq.m. have obtained
building ownership certificates. We have not been provided with any title
document with respect to the remaining 307 buildings with a gross floor
area of approximately 68,984.77 sq.m..
72
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APPENDIX 2 PROPERTY VALUATION REPORTS PREPARED BY GRANT
SHERMAN APPRAISAL LIMITED
--------------------------------------------------------------------------------
The following is the text of a letter, summary of values and valuation
certificate, prepared for the purpose of incorporation in this Circular
received from Grant Sherman Appraisal Limited, an independent valuer, in
connection with its valuations as at 30 September 2004 of the property
interests contracted to be acquired by Sinopec Corp.
[LOGO GRAPHIC OMITTED] GRANT SHERMAN APPRAISAL LIMITED
6 November, 2004
The Directors
China Petroleum and Chemical Corporation
A6, Huixindong Street
Chaoyang District
Beijing
PRC
Dear Sirs/Madams,
In accordance with the instructions from China Petroleum and Chemical
Corporation ("the Company"), we have valued the catalyst property interests of
1) Beijing Aoda Petrochemical New Technologies Development Centre ("Aoda
Technology"); 2) China Petroleum & Chemical Techonlogies Development Co.,
Ltd.("Technologies Development Company"); 3) Nanjing Nanlian Catalyst Co.,
Ltd. ("Nanjing Nanlian"); 4) Sinopec Group Shanghai Petroleum & Chemical
Research Institue ("Shanghai Research Institute"); 5)Shanghai Lide Catalyst
Co., Ltd.("Shanghai Lide"); 6) The catalyst plant of Qilu Petrochemical
Company ("Qilu Plant"); 7) Sinopec Group Changling Refinery and Chemical Co.,
Ltd. ("Changling Refinery") and 8) Hunan Jianchang Petrochemical Joint-stock
Limited Company ("Jianchang Petrochemical") (together referred as "Catalyst
Assets") for acquisition purpose. We confirm that we have made relevant
enquiries and obtained such further information as we consider necessary for
the purpose of providing you with our opinion of the value of the relevant
properties as at 30 September 2004.
As of the date of valuation, Catalyst Assets held properties spread over
Shandong Province, Hunan Province, Beijing, Shanghai and Nanjing in the
PRC,occupied 26 parcels of lands with a total area of 550,493 sq.m., which was
leased from China Petrochemical Corporation ("Sinopec Group Company").
Catalyst Assets held numerous buildings and structures with a total gross
floor area of approximately 193,414.79 sq.m., of which the relevant title
certificates for an aggregate area of approximately 104,999.79 sq.m. are being
applied for.
Where possible, our valuation of the property interests are our opinion of the
open market value which we would define as intended to mean "the best price at
which an interest in a property might reasonably be expected to have been
completed unconditionally for cash consideration on the date of the valuation
assuming:
(i) a willing seller;
(ii) that, prior to the date of valuation, there had been a reasonable period
(having regard to the nature of the property and the state of the
market) for the proper marketing of the interest, for the agreement of
price and terms and for the completion of the sale;
(iii) that the state of the market, level of values and other circumstances
were, on any earlier assumed date of exchange of contracts, the same as
on the date of valuation;
(iv) that no account is taken of any additional bid by a prospective
purchaser with a special interest; and
(v) that both parties to the transaction had acted knowledgeably, prudently
and without compulsion."
In cases where open market value basis is adopted, our valuations have been
made on the assumption that the owner sells the properties on the open market
in their existing state without the benefit of a deferred terms contract,
leaseback, joint venture, management agreement or any similar arrangement
which would serve to increase the value of the properties.
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Where, due to the nature of buildings and structures of the properties, there
are no market sales comparables, these properties have been valued on the
basis of their depreciated replacement cost. Depreciated replacement cost is
defined as "the aggregate amount of the value of the land for the existing use
or a notional replacement site in the same locality, and the gross replacement
cost of the buildings and other site works, from which appropriate deductions
may then be made to allow for the age, condition, economic or functional
obsolescence and environmental factors. All of these might result in the
existing properties being worth less to the undertaking in occupation than
would a new replacement." This opinion of value does not necessarily represent
the amount that might be realised from the disposition of the subject assets
in the open market but this basis has been used due to the lack of an
established market upon which to base comparable transactions. However, this
approach generally furnishes the most reliable indication of value for assets
without a known used market.
We have assumed that all consents, approvals and licences from the relevant
Government authorities for their development have been granted without any
onerous conditions or undue delay, which might affect their values.
In valuing the properties, we have assume that (except as otherwise stated)
transferable land use rights in respect of the property interests for their
respective terms at nominal annual land use fees have been granted and that,
unless otherwise stated, any premium payable has already been fully paid.
In valuing the property interests in the PRC, we have complied with all the
requirements contained and Chapter 5 and Practice Note 12 of the Rules
Governing the Listing of Securities of The Stock Exchange of Hong Kong Limited
("Listing Rules"), except to those in respect of which waiver has been granted
in respect of Rule 5.06 of the Listing Rules due to the large number of land
and buildings involved in the Acquisition and Disposal.
We have not carried out detailed site measurements to verify the correctness
of the site areas in respect of the relevant properties but have assumed that
the site areas shown on the documents and official site plans handed to us are
correct. Based on our experience of valuation of similar properties in the
PRC, we consider the assumptions so made to be reasonable. All documents and
contracts have been used as reference only and all dimensions, measurements
and areas are approximations. No on-site measurements have been taken.
We have relied to a considerable extent on the information provided by the
Company and Catalyst Assets and have accepted advice given to us on such
matters as planning approvals or statutory notices, identification of the
property interests, easement, tenure, occupation, lettings, rentals, site and
floor areas and all other relevant matters.
We have been shown copies of various title documents and official site plans
relating to the properties that are owned by the Company and Catalyst Assets
in the PRC. However, we have not searched the original documents to verify
ownership or to verify any lease amendments which may not appear on the copies
handed to us. Due to the nature of the land registration system in the PRC, we
are unable to search the original documents to verify the existing title of
the properties or any material encumbrances that might be attached to the
properties. In the preparation of our valuation report regarding the
properties in the PRC, we have relied to a considerable extent on the legal
opinion provided by the Company's legal adviser, Jia Yuan Law Firm, on the PRC
laws regarding the titles of the properties in the PRC.
We have inspected the exterior and, where possible, the interior of the
properties included in the attached valuation certificate, in respect of which
we have been provided with such information, as we have required for the
purpose of our valuation. However, no structural survey has been made, but in
the course of our inspection we did not note any serious defects. We are not,
however, able to report that the properties are free from rot, infestation or
any other structural defects. No tests were carried out to any of the
services.
No allowance has been made in our report for any charges, mortgages or amounts
owing on the properties nor for any expenses or taxation which may be incurred
in effecting a sale. Unless otherwise stated, it is assumed that the
properties are free from encumbrances, restrictions and outgoings of an
onerous nature which could affect their value.
We have had no reason to doubt the truth and accuracy of the information
provided to us by the Company and Catalyst Assets. We have also sought and
received confirmation from the Company and Catalyst Assets that no material
factors have been omitted from the information supplied. We consider that we
have been provided with sufficient information to reach an informed view and
have no reason to suspect that any material information has been withheld.
Unless otherwise stated, the properties owned by Catalyst Assets have been
valued in Renminbi.
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We enclose herewith the summary of valuations and valuation certificates.
Respectfully submitted,
For and on behalf of
GRANT SHERMAN APPRAISAL LIMITED
Peggy Y. Y. Lai
MRICS MHKIS RPS
Associate Director
Real Estate Group
Note: Ms. Peggy Lai is a member of Royal Institution of Chartered Surveyors,
a member of Hong Kong Institute of Surveyors and Registered
Professional Surveyors in the General Practice Section, who have over 5
years property valuation experience in the PRC and Hong Kong.
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SUMMARY OF VALUATIONS
CAPITAL VALUE IN
EXISTING STATE AS AT
PROPERTY 30 SEPTEMBER, 2004
RMB
GROUP I -- PROPERTY INTERESTS BEING ACQUIRED AND HELD BY CATALYST ASSETS
1. Various properties located in Beijing of the People's 10,037,044.56
Republic of China ("the PRC")
2. Various properties located in Shanghai of the People's 34,348,881
Republic of China ("the PRC")
3. Various properties located in Shandong Province of the 25,592,201
People's Republic of China ("the PRC")
4. Various properties located in Hunan Province of the 21,432,360.14
People's Republic of China ("the PRC")
5. Various properties located in Nanjing of the No commercial value
People's Republic of China ("the PRC")
--------------------
Grand-total: 91,410,486.7
====================
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VALUATION CERTIFICATE
Group I -- Property interests being acquired and held by Catalyst Assets
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER, 2004
RMB
1. Various The properties comprise 5 parcels of The property is currently 10,037,044.56
properties land with a total area of occupied by Catalyst
located in approximately 230,311.92 sq.m. Companies for production,
Beijing of the marketing and sale of
People's The properties also comprise catalyst.
Republic of production and ancillary buildings
China ("the PRC") and structures with a total gross
floor area of 17,171.16 sq.m., mainly
built in various stages from 1995 to
2001, situated in Beijing of the PRC.
Buildings and structures with an area
of approximately 2,993.19 sq.m. are
in the process of applying building
ownership certificates.
The properties comprise a gross floor
area of 936.65 sq.m. were leased from
Sinopec Group Company for an unspecified
term.
The land use rights of the properties
were leased from Sinopec Group Company
for an unspecified term.
Notes:
1. According to the PRC legal opinion, the buildings with a total gross
floor area of 2,993.19 sq.m. are in the process of applying building
ownership certificates. We attribute "no commercial value" for these
buildings due to the reason that the Company cannot transfer these
properties.
2. For reference purpose, the value of the buildings with an area of
2,993.19 sq.m. (excluding the buildings area of 4,358.22 sq.m., which is
leased by Nanjing Nanlian) is RMB5,080,596 under the assumption that the
building ownership certificates has been granted.
3. Certain facilities are in the process of construction as at the
valuation date, the construction costs incurred were RMB3,738,639.56.
4. According to the legal opinion, Sinopec Group Company undertakes that:
(i) in relation to the land use rights and the land which will be
leased by Sinopec Corp., in relation to those which have been
issued with the relevant title certificates or assigned land,
Sinopec Group Company warrant the completeness and legality of the
land use rights of such land. In relation to the land which has
not been issued with the relevant title certificate, Sinopec Group
Company undertakes to use its best endeavours to obtain the
relevant title certificates and related title documents and
warrants the validity and legality of the leasing by Sinopec Corp.
of such land;
(ii) in relation to the buildings and the buildings which will be
leased by Sinopec Corp., Sinopec Group Company warrant the
completeness and legality of the transfer of such buildings. In
relation to the buildings which has not been issued with the
relevant title certificate at the date of the sale and purchase
agreement, Sinopec Group Company undertakes to use its best
endeavours to obtain the relevant title certificates and related
title documents;
(iii) any tax or costs involved in issuing the above-mentioned land and
building title documents and to protect the legality and validity
of the leasing of the land and buildings will be borne by Sinopec
Group Company;
(iv) the parties agree that Sinopec Group Company will indemnify
Sinopec Corp. against all actual and foreseeable losses arising
from the above-mentioned irregularity or incompleteness of land
and building title and tile documents; and
(v) the above warranties and undertakings will survive after
completion of the sale and purchase and will not be affected by
completion.
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VALUATION CERTIFICATE
Group I -- Property interests being acquired and held by Catalyst Assets
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER, 2004
RMB
2. Various The properties comprise 3 parcels of The property is currently 34,348,881
properties land with a total area of occupied by Catalyst
located in approximately 56,887 sq.m. Companies for production,
Shanghai of the marketing and sale of
People's The properties also comprise catalyst.
Republic of production and ancillary buildings
China ("the PRC") and structures with a total gross
floor area of 33,050.74 sq.m., mainly
built in various stages from 1989 to
2003, situated in Shanghai of the
PRC.
Buildings and structures with an area
of approximately 12,766.86 sq.m. are
in the process of applying building
ownership certificates.
The land use rights of the properties
were leased from Sinopec Group Company
for an unspecified term.
Notes:
1. According to the PRC legal opinion, 8,789 sq.m. of land use right of
Shanghai Lide are in the process of applying relevant title
certificates. We attribute "no commercial value" to reflect its
non-transferable land use right.
2. According to the PRC legal opinion, building ownership certificates were
granted to the buildings with a total gross floor area of 20,283.88
sq.m.
3. According to the PRC legal opinion, the buildings with a total gross
floor area of 12,766.86 sq.m.are in the process of applying building
ownership certificates. We attribute "no commercial value" for these
buildings due to the reason that the Company cannot transfer these
properties.
4. For reference purpose, the value of the buildings with an area of
12,766.86 sq.m. is RMB15,506,351 under the assumption that the building
ownership certificates has been granted.
5. According to the legal opinion, Sinopec Group Company undertakes that:
(i) in relation to the land use rights and the land which will be
leased by Sinopec Corp., in relation to those which have been
issued with the relevant title certificates or assigned land,
Sinopec Group Company warrant the completeness and legality of the
land use rights of such land. In relation to the land which has
not been issued with the relevant title certificate, Sinopec Group
Company undertakes to use its best endeavours to obtain the
relevant title certificates and related title documents and
warrants the validity and legality of the leasing by Sinopec Corp.
of such land;
(ii) in relation to the buildings and the buildings which will be
leased by Sinopec Corp., Sinopec Group Company warrant the
completeness and legality of the transfer of such buildings. In
relation to the buildings which has not been issued with the
relevant title certificate at the date of the sale and purchase
agreement, Sinopec Group Company undertakes to use its best
endeavours to obtain the relevant title certificates and related
title documents;
(iii) any tax or costs involved in issuing the above-mentioned land and
building title documents and to protect the legality and validity
of the leasing of the land and buildings will be borne by Sinopec
Group Company;
(iv) the parties agree that Sinopec Group Company will indemnify
Sinopec Corp. against all actual and foreseeable losses arising
from the above-mentioned irregularity or incompleteness of land
and building title and tile documents; and
(v) the above warranties and undertakings will survive after
completion of the sale and purchase and will not be affected by
completion.
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VALUATION CERTIFICATE
Group I -- Property interests being acquired and held by Catalyst Assets
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER, 2004
RMB
3. Various The properties comprise 10 parcels of The property is currently 25,592,201
properties land with a total area of occupied by Catalyst
located in approximately 238,020.48 sq.m. Companies for production,
Shandong marketing and sale of
Province of the The properties also comprise catalyst.
People's production and ancillary buildings
Republic of and structures with a total gross
China ("the PRC") floor area of 63,271.44 sq.m., mainly
built in various stages from 1970 to
2001, situated in Shandong Province of
the PRC.
Buildings and structures with an area of
approximately 26,724.05 sq.m. are in the
process of applying building ownership
certificates.
The land use rights of the properties
were leased from Sinopec Group Company
for an unspecified term.
Notes:
1. According to the PRC legal opinion, building ownership certificates were
granted to the buildings with a total gross floor area of 36,547.39
sq.m.
2. According to the PRC legal opinion, the buildings with a total gross
floor area of 26,724.05 sq.m. are in the process of applying building
ownership certificates. We attribute "no commercial value" for these
buildings due to the reason that the Company cannot transfer these
properties.
3. For reference purpose, the value of the buildings with an area of
26,724.05 sq.m. is RMB13,115,345 under the assumption that the building
ownership certificates has been granted.
4. According to the legal opinion, Sinopec Group Company undertakes that:
(i) in relation to the land use rights and the land which will be
leased by Sinopec Corp., in relation to those which have been
issued with the relevant title certificates or assigned land,
Sinopec Group Company warrant the completeness and legality of the
land use rights of such land. In relation to the land which has
not been issued with the relevant title certificate, Sinopec Group
Company undertakes to use its best endeavours to obtain the
relevant title certificates and related title documents and
warrants the validity and legality of the leasing by Sinopec Corp.
of such land;
(ii) in relation to the buildings and the buildings which will be
leased by Sinopec Corp., Sinopec Group Company warrant the
completeness and legality of the transfer of such buildings. In
relation to the buildings which has not been issued with the
relevant title certificate at the date of the sale and purchase
agreement, Sinopec Group Company undertakes to use its best
endeavours to obtain the relevant title certificates and related
title documents;
(iii) any tax or costs involved in issuing the above-mentioned land and
building title documents and to protect the legality and validity
of the leasing of the land and buildings will be borne by Sinopec
Group Company;
(iv) the parties agree that Sinopec Group Company will indemnify
Sinopec Corp. against all actual and foreseeable losses arising
from the above-mentioned irregularity or incompleteness of land
and building title and tile documents; and
(v) the above warranties and undertakings will survive after
completion of the sale and purchase and will not be affected by
completion.
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VALUATION CERTIFICATE
Group I --Property interests being acquired and held by Catalyst Assets
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER, 2004
RMB
4. Various The properties comprise 7 parcels of The property is currently 21,432,360.14
properties land with a total area of occupied by Catalyst
located in approximately 232,585.55 sq.m. Companies for production,
Hunan Province marketing and sale of
of The properties also comprise catalyst.
the People's production and ancillary buildings
Republic of and structures with a total gross
China ("the PRC") floor area of 71,003.04 sq.m., mainly
built in various stages from 1969 to
2002, situated in Hunan Province of the
PRC.
Buildings and structures with an area
of approximately 62,515.69 sq.m. are
in the process of applying building
ownership certificates.
The land use rights of the properties
were leased from Sinopec Group Company
for an unspecified term.
Notes:
1. According to the PRC legal opinion, building ownership certificates were
granted to the buildings with a total gross floor area of 265,948 sq.m.
2. According to the PRC legal opinion, the buildings with a total gross
floor area of 62,515.69 sq.m. are in the process of applying building
ownership certificates. We attribute "no commercial value" for these
buildings due to the reason that the Company cannot transfer these
properties.
3. For reference purpose, the value of the buildings with an area of
62,515.69 sq.m. is RMB32,459,944 under the assumption that the building
ownership certificates has been granted.
4. Certain facilities are in the process of construction as at the
valuation date, the construction costs incurred were RMB10,728,336.84.
5. According to the legal opinion, Sinopec Group Company undertakes that:
(i) in relation to the land use rights and the land which will be
leased by Sinopec Corp., in relation to those which have been
issued with the relevant title certificates or assigned land,
Sinopec Group Company warrant the completeness and legality of the
land use rights of such land. In relation to the land which has
not been issued with the relevant title certificate, Sinopec Group
Company undertakes to use its best endeavours to obtain the
relevant title certificates and related title documents and
warrants the validity and legality of the leasing by Sinopec Corp.
of such land;
(ii) in relation to the buildings and the buildings which will be
leased by Sinopec Corp., Sinopec Group Company warrant the
completeness and legality of the transfer of such buildings. In
relation to the buildings which has not been issued with the
relevant title certificate at the date of the sale and purchase
agreement, Sinopec Group Company undertakes to use its best
endeavours to obtain the relevant title certificates and related
title documents;
(iii) any tax or costs involved in issuing the above-mentioned land and
building title documents and to protect the legality and validity
of the leasing of the land and buildings will be borne by Sinopec
Group Company;
(iv) the parties agree that Sinopec Group Company will indemnify
Sinopec Corp. against all actual and foreseeable losses arising
from the above-mentioned irregularity or incompleteness of land
and building title and tile documents; and
(v) the above warranties and undertakings will survive after
completion of the sale and purchase and will not be affected by
completion.
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VALUATION CERTIFICATE
Group I -- Property interests being acquired and held by Catalyst Assets
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER, 2004
RMB
5. Various The properties comprise a parcels of The property is currently No commercial value
properties land with a total area of occupied by Catalyst
located in approximately 23,000 sq.m. Companies for marketing
Nanjing and sale of catalyst.
of the People's The properties comprise an gross
Republic of floor area of 7,981.76 sq.m. which
China were leased from Sinopec Group
("the PRC") Company for an unspecified term.
The land use rights of the properties
were leased from Sinopec Group Company
for an unspecified term.
Notes:
1. We attribute "no commercial value" for the properties due to the reason
that the Company cannot transfer the properties.
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The following is the text of a letter, summary of values and valuation
certificate, prepared for the purpose of incorporation in this Circular
received from Grant Sherman Appraisal Limited, an independent valuer, in
connection with its valuations as at 30 September 2004 of the property
interests contracted to be acquired by Sinopec Corp.
[LOGO GRAPHIC OMITTED] GRANT SHERMAN APPRAISAL LIMITED
6 November, 2004
The Directors
China Petroleum and Chemical Corporation
A6, Huixindong Street
Chaoyang Dirstrict
Beijing
The People's Republic of China
Dear Sirs/Madams,
In accordance with the instructions from China Petroleum and Chemical
Corporation ("the Company"), we have valued the downhole operation property
interests of 1) China Petroleum & Chemical Corporation Zhongyuan Oilfield
Branch Company ("Zhongyuan Oilfield Branch Company"); 2) China Petroleum &
Chemical Corporation Jianghan Oilfield Branch Company ("Jianghan Oilfield
Branch Company"); 3) China Petroleum & Chemical Corporation Jiangsu Oilfield
Branch Company ("Jiangsu Oilfield Branch Company"); 4) China Petroleum &
Chemical Corporation Henan Oilfield Branch Company ("Henan Oilfield Branch
Company"); 5) China Petroleum & Chemical Corporation Huadong Branch Company
("Huadong Branch Company"); 6) China Petroleum & Chemical Corporation Huabei
Branch Company ("Huabei Branch Company"); 7) China Petroleum & Chemical
Corporation Xinan Branch Company ("Xinan Branch Company") (together referred
as "Downhole Operation Assets" (excluding Shengli Oilfield Company Limited))
and 8) China Petroleum & Chemical Corporation Shengli Oil Field Company
Limited ("Shengli Oilfield Company Limited") for disposal purpose. We confirm
that we have made relevant enquiries and obtained such further information as
we consider necessary for the purpose of providing you with our opinion of the
value of the relevant properties as at 30 September, 2004.
As of the date of valuation, Downhole Operation Assets held properties spread
over Puyang and Nanyang in Henan Province, Heze and Shouguang in Shandong
Province, Qianjiang in Hubei Province, Taizhou in Jiangsu Province, and Deyang
in Sichuan Province in the PRC, occupied 106 parcels of lands with a total
area of 2,006,497.55 sq.m.. Shengli Oilfield Company Limited held properties
spread over 8 cities of Shandong Province in the PRC, occupied 88 parcels of
lands with a total area of 4,155,318 sq.m., which was leased from China
Petrochemical Corporation ("Sinopec Group Company").
Downhole Operation Assets held 487 buildings and structures with a total gross
floor area of approximately 290,439.19 sq.m., of which the relevant title
certificates for an aggregate area of approximately 70,059.20 sq.m.are being
applied for. Downhole Operation Assets leased 41 buildings and structures with
a total gross floor area of 36,975 sq.m. Shengli Oilfield Company Limited held
1177 buildings and structures with a total gross floor area of approximately
449,063.02 sq.m., of which the relevant title certificates for an aggregate
area of approximately 81,480.68 sq.m.are being applied for.
Where possible, our valuation of the property interests are our opinion of the
open market value which we would define as intended to mean "the best price at
which an interest in a property might reasonably be expected to have been
completed unconditionally for cash consideration on the date of the valuation
assuming:
(i) a willing seller;
(ii) that, prior to the date of valuation, there had been a reasonable period
(having regard to the nature of the property and the state of the
market) for the proper marketing of the interest, for the agreement of
price and terms and for the completion of the sale;
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(iii) that the state of the market, level of values and other circumstances
were, on any earlier assumed date of exchange of contracts, the same as
on the date of valuation;
(iv) that no account is taken of any additional bid by a prospective
purchaser with a special interest; and
(v) that both parties to the transaction had acted knowledgeably, prudently
and without compulsion."
In cases where open market value basis is adopted, our valuations have been
made on the assumption that the owner sells the properties on the open market
in their existing state without the benefit of a deferred terms contract,
leaseback, joint venture, management agreement or any similar arrangement
which would serve to increase the value of the properties.
Where, due to the nature of buildings and structures of the properties, there
are no market sales comparables, these properties have been valued on the
basis of their depreciated replacement cost. Depreciated replacement cost is
defined as "the aggregate amount of the value of the land for the existing use
or a notional replacement site in the same locality, and the gross replacement
cost of the buildings and other site works, from which appropriate deductions
may then be made to allow for the age, condition, economic or functional
obsolescence and environmental factors. All of these might result in the
existing properties being worth less to the undertaking in occupation than
would a new replacement." This opinion of value does not necessarily represent
the amount that might be realised from the disposition of the subject assets
in the open market but this basis has been used due to the lack of an
established market upon which to base comparable transactions. However, this
approach generally furnishes the most reliable indication of value for assets
without a known used market.
We have assumed that all consents, approvals and licences from the relevant
Government authorities for their development have been granted without any
onerous conditions or undue delay, which might affect their values.
In valuing the properties, we have assume that (except as otherwise stated)
transferable land use rights in respect of the property interests for their
respective terms at nominal annual land use fees have been granted and that,
unless otherwise stated, any premium payable has already been fully paid.
In valuing the property interests in the PRC, we have complied with all the
requirements contained under Chapter 5 and Practice Note 12 of the Rules
Governing the Listing of Securities of The Stock Exchange of Hong Kong Limited
("Listing Rules"), except for those in respect of which waiver has been
granted in respect of Rule 5.06 of the Listing Rules due to the large number
of land and buildings involved in the Acquisition and Disposal.
We have not carried out detailed site measurements to verify the correctness
of the site areas in respect of the relevant properties but have assumed that
the site areas shown on the documents and official site plans handed to us are
correct. Based on our experience of valuation of similar properties in the
PRC, we consider the assumptions so made to be reasonable. All documents and
contracts have been used as reference only and all dimensions, measurements
and areas are approximations. No on-site measurements have been taken.
We have relied to a considerable extent on the information provided by the
Company and have accepted advice given to us on such matters as planning
approvals or statutory notices, identification of the property interests,
easement, tenure, occupation, lettings, rentals, site and floor areas and all
other relevant matters.
We have been shown copies of various title documents and official site plans
relating to the properties that are owned by the Company in the PRC. However,
we have not searched the original documents to verify ownership or to verify
any lease amendments which may not appear on the copies handed to us. Due to
the nature of the land registration system in the PRC, we are unable to search
the original documents to verify the existing title of the properties or any
material encumbrances that might be attached to the properties. In the
preparation of our valuation report regarding the properties in the PRC, we
have relied to a considerable extent on the legal opinion provided by the
Company's legal adviser, King & Lawmen, on the PRC laws regarding the titles
of the properties in the PRC.
We have inspected the exterior and, where possible, the interior of the
properties included in the attached valuation certificate, in respect of which
we have been provided with such information, as we have required for the
purpose of our valuation. However, no structural survey has been made, but in
the course of our inspection we did not note any serious defects. We are not,
however, able to report that the properties are free from rot, infestation or
any other structural defects. No tests were carried out to any of the services.
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No allowance has been made in our report for any charges, mortgages or amounts
owing on the properties nor for any expenses or taxation which may be incurred
in effecting a sale. Unless otherwise stated, it is assumed that the
properties are free from encumbrances, restrictions and outgoings of an
onerous nature which could affect their value.
We have had no reason to doubt the truth and accuracy of the information
provided to us by the Company. We have also sought and received confirmation
from the Company that no material factors have been omitted from the
information supplied. We consider that we have been provided with sufficient
information to reach an informed view and have no reason to suspect that any
material information has been withheld. Unless otherwise stated, the
properties owned by the Company have been valued in Renminbi.
We enclose herewith the summary of valuations and valuation certificates.
Respectfully submitted,
For and on behalf of
GRANT SHERMAN APPRAISAL LIMITED
Peggy Y. Y. Lai
MRICS MHKIS RPS
Associate Director
Real Estate Group
Note: Ms. Peggy Lai is a member of Royal Institution of Surveyors, a member
of Hong Kong Institute of Surveyors and Register Professional Surveyors
in the General Practice Section, who have over 5 years property
valuation experience in the PRC and Hong Kong.
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SUMMARY OF VALUATIONS
CAPITAL VALUE IN
EXISTING STATE AS AT
PROPERTY 30 SEPTEMBER, 2004
RMB
GROUP I -- PROPERTY INTERESTS BEING DISPOSED AND HELD BY DOWNHOLE OPERATION ASSETS
1. Various properties located at Henan Province of the 59,525,853.42
People's Republic of China ("the PRC")
2. Various properties located at Hubei Province of the 34,224,476.53
People's Republic of China ("the PRC")
3. Various properties located at Jiangsu Province of the 14,795,261.34
People's Republic of China ("the PRC")
4. Various properties located at Sichuan Province of No commercial value
the People's Republic of China ("the PRC")
--------------------
Sub-total: 108,545,591.29
GROUP II -- PROPERTY INTERESTS BEING DISPOSED AND HELD BY SHENGLI OILFIELD COMPANY LIMITED
5. Various properties situated in Shandong Province of 203,954,370.81 the
People's Republic of China ("the PRC")
--------------------
Sub-total: 203,954,370.81
--------------------
Grand-total: 312,499,962.10
====================
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VALUATION CERTIFICATE
Group I -- Property interests being disposed and held by Downhole Operation Assets
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER, 2004
RMB
1. Various properties The properties comprise 63 parcels The property is currently 59,525,853.42
located at of land with a total area of occupied by Downhole
Henan Province of approximately 1,502,121.12 sq.m. Operation Companies for
the People's downhole operation.
Republic of China The properties also comprise 295
("the PRC") items of production and ancillary
buildings and structures with a total
gross floor area of 192,118.87 sq.m.,
mainly built in various stages from
1980 to 2003, situated in Henan
Province of the PRC.
41 items of Buildings and
structures with an area of 36,975
sq.m. were leased by Downhole
Operation Companies.
The land use rights of the properties
were leased from Sinopec Group Company
for an unspecified term.
Notes:
1. According to the PRC legal opinion, building ownership certificates were
granted to the buildings with a total gross floor area of 131,751.43
sq.m.
2. According to the PRC legal opinion, the buildings with a total gross
floor area of 60,367.44 sq.m. are in the process of applying building
ownership certificates. We attribute "no commercial value" for these
buildings due to the reason that the Company cannot transfer these
properties.
3. For reference purpose, the value of the buildings with an area of
60,367.44 sq.m. is RMB24,781,926.53 under the assumption that the
building ownership certificates has been granted.
4. According to the legal opinion, Sinopec Group Company undertakes that:
(i) in relation to the land use rights and the land which will be
leased by Sinopec Corp., in relation to those which have been
issued with the relevant title certificates or assigned land,
Sinopec Group Company warrant the completeness and legality of the
land use rights of such land. In relation to the land which has
not been issued with the relevant title certificate, Sinopec Group
Company undertakes to use its best endeavours to obtain the
relevant title certificates and related title documents and
warrants the validity and legality of the leasing by Sinopec Corp.
of such land;
(ii) in relation to the buildings and the buildings which will be
leased by Sinopec Corp., Sinopec Group Company warrant the
completeness and legality of the transfer of such buildings. In
relation to the buildings which has not been issued with the
relevant title certificate at the date of the sale and purchase
agreement, Sinopec Group Company undertakes to use its best
endeavours to obtain the relevant title certificates and related
title documents;
(iii) any tax or costs involved in issuing the above-mentioned land and
building title documents and to protect the legality and validity
of the leasing of the land and buildings will be borne by Sinopec
Group Company;
(iv) the parties agree that Sinopec Group Company will indemnify
Sinopec Corp. against all actual and foreseeable losses arising
from the above-mentioned irregularity or incompleteness of land
and building title and tile documents; and
(v) the above warranties and undertakings will survive after
completion of the sale and purchase and will not be affected by
completion.
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VALUATION CERTIFICATE
Group I -- Property interests being disposed and held by Downhole Operation Assets
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER, 2004
RMB
2. Various The properties comprise 27 parcels of The property is currently 34,224,476.53
properties land with a total area of occupied by Downhole
located at approximately 424,272.94 sq.m. Operation Companies for
Hubei Province downhole operation.
of the People's The properties also comprise 142
Republic items of production and ancillary
of China buildings and structures with a total
("the PRC") gross floor area of 72,044.55 sq.m.,
mainly built in various stages from
1965 to 2001, situated in Hubei
Province of the PRC.
The land use rights of the properties
were leased from Sinopec Group Company
for an unspecified term.
Notes:
1. According to the PRC legal opinion, building ownership certificates were
granted to the buildings with a total gross floor area of 68,819.79
sq.m.
2. According to the PRC legal opinion, the buildings with a total gross
floor area of 3,224.76 sq.m. are in the process of applying building
ownership certificates. We attribute "no commercial value" for these
buildings due to the reason that the Company cannot transfer these
properties.
3. For reference purpose, the value of the buildings with an area of
3,224.76 sq.m. is RMB2,092,104.46 under the assumption that the building
ownership certificates has been granted.
4. According to the legal opinion, Sinopec Group Company undertakes that:
(i) in relation to the land use rights and the land which will be
leased by Sinopec Corp., in relation to those which have been
issued with the relevant title certificates or assigned land,
Sinopec Group Company warrant the completeness and legality of the
land use rights of such land. In relation to the land which has
not been issued with the relevant title certificate, Sinopec Group
Company undertakes to use its best endeavours to obtain the
relevant title certificates and related title documents and
warrants the validity and legality of the leasing by Sinopec Corp.
of such land;
(ii) in relation to the buildings and the buildings which will be
leased by Sinopec Corp., Sinopec Group Company warrant the
completeness and legality of the transfer of such buildings. In
relation to the buildings which has not been issued with the
relevant title certificate at the date of the sale and purchase
agreement, Sinopec Group Company undertakes to use its best
endeavours to obtain the relevant title certificates and related
title documents;
(iii) any tax or costs involved in issuing the above-mentioned land and
building title documents and to protect the legality and validity
of the leasing of the land and buildings will be borne by Sinopec
Group Company;
(iv) the parties agree that Sinopec Group Company will indemnify
Sinopec Corp. against all actual and foreseeable losses arising
from the above-mentioned irregularity or incompleteness of land
and building title and tile documents; and
(v) the above warranties and undertakings will survive after
completion of the sale and purchase and will not be affected by
completion.
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VALUATION CERTIFICATE
Group I -- Property interests being disposed and held by Downhole Operation Assets
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER, 2004
RMB
3. Various The properties comprise 15 parcels of The property is currently 14,795,261.34
properties land with a total area of occupied by Downhole
located at approximately 78,135.82 sq.m. Operation Companies for
Jiangsu Province downhole operation.
of the People's The properties also comprise 49 items
Republic of of production and ancillary buildings
China ("the PRC") and structures with a total gross
floor area of 25,975.77 sq.m., mainly
built in various stages from 1967 to
2002, situated in Jiangsu Province of
the PRC.
The land use rights of the properties
were leased from Sinopec Group Company
for an unspecified term.
Notes:
1. According to the PRC legal opinion, building ownership certificates were
granted to the buildings with a total gross floor area of 19,808.77
sq.m.
2. According to the PRC legal opinion, the buildings with a total gross
floor area of 6,167 sq.m. are in the process of applying building
ownership certificates. We attribute "no commercial value" for these
buildings due to the reason that the Company cannot transfer these
properties.
3. For reference purpose, the value of the buildings with an area of 6,167
sq.m. is RMB6,244,991.99 under the assumption that the building
ownership certificates has been granted.
4. According to the legal opinion, Sinopec Group Company undertakes that:
(i) in relation to the land use rights and the land which will be
leased by Sinopec Corp., in relation to those which have been
issued with the relevant title certificates or assigned land,
Sinopec Group Company warrant the completeness and legality of the
land use rights of such land. In relation to the land which has
not been issued with the relevant title certificate, Sinopec Group
Company undertakes to use its best endeavours to obtain the
relevant title certificates and related title documents and
warrants the validity and legality of the leasing by Sinopec Corp.
of such land;
(ii) in relation to the buildings and the buildings which will be
leased by Sinopec Corp., Sinopec Group Company warrant the
completeness and legality of the transfer of such buildings. In
relation to the buildings which has not been issued with the
relevant title certificate at the date of the sale and purchase
agreement, Sinopec Group Company undertakes to use its best
endeavours to obtain the relevant title certificates and related
title documents;
(iii) any tax or costs involved in issuing the above-mentioned land and
building title documents and to protect the legality and validity
of the leasing of the land and buildings will be borne by Sinopec
Group Company;
(iv) the parties agree that Sinopec Group Company will indemnify
Sinopec Corp. against all actual and foreseeable losses arising
from the above-mentioned irregularity or incompleteness of land
and building title and tile documents; and
(v) the above warranties and undertakings will survive after
completion of the sale and purchase and will not be affected by
completion.
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VALUATION CERTIFICATE
Group I -- Property interests being disposed and held by Downhole Operation Assets
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER, 2004
RMB
4. Various The properties comprise a parcel of The property is currently No commercial value
properties land with an area of approximately occupied by Downhole
located at 1,967.67 sq.m. Operation Companies as
Sichuan Province office.
of the People's The properties with a total gross
Republic of floor area of 300 sq.m., built in
China ("the PRC") 1999, situated in Sichuan Province
in the PRC.
The land use rights of the properties
were leased from Sinopec Group Company
for an unspecified term.
Notes:
1. According to the PRC legal opinion, the buildings with a total gross
floor area of 300 sq.m. are in the process of applying building
ownership certificates. We attribute "no commercial value" for these
buildings due to the reason that the Company cannot transfer these
properties.
2. For reference purpose, the value of the buildings with an area of 300
sq.m. is RMB84,000 under the assumption that the building ownership
certificates has been granted.
3. According to the legal opinion, Sinopec Group Company undertakes that:
(i) in relation to the land use rights and the land which will be
leased by Sinopec Corp., in relation to those which have been
issued with the relevant title certificates or assigned land,
Sinopec Group Company warrant the completeness and legality of the
land use rights of such land. In relation to the land which has
not been issued with the relevant title certificate, Sinopec Group
Company undertakes to use its best endeavours to obtain the
relevant title certificates and related title documents and
warrants the validity and legality of the leasing by Sinopec Corp.
of such land;
(ii) in relation to the buildings and the buildings which will be
leased by Sinopec Corp., Sinopec Group Company warrant the
completeness and legality of the transfer of such buildings. In
relation to the buildings which has not been issued with the
relevant title certificate at the date of the sale and purchase
agreement, Sinopec Group Company undertakes to use its best
endeavours to obtain the relevant title certificates and related
title documents;
(iii) any tax or costs involved in issuing the above-mentioned land and
building title documents and to protect the legality and validity
of the leasing of the land and buildings will be borne by Sinopec
Group Company;
(iv) the parties agree that Sinopec Group Company will indemnify
Sinopec Corp. against all actual and foreseeable losses arising
from the above-mentioned irregularity or incompleteness of land
and building title and tile documents; and
(v) the above warranties and undertakings will survive after
completion of the sale and purchase and will not be affected by
completion.
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VALUATION CERTIFICATE
Group II -- Property interests being disposed and held by Shengli Oilfield
Company Limited
CAPITAL VALUE
IN EXISTING STATE AS AT
PROPERTY DESCRIPTION AND TENURE PARTICULARS OF OCCUPANCY 30 SEPTEMBER, 2004
RMB
5. Various The properties comprise 88 parcels of The property is currently 203,954,370.81
properties land with a total area of occupied by Shengli
situated in approximately 4,155,318 sq.m. Oilfield Company Limited
Shandong for downhole operation.
Province of The properties also comprise 1,177
the People's items of production and ancillary
Republic of buildings and structures with a
China total gross floor area of 449,063.02
("the PRC") sq.m.,mainly built in various stages
from 1983 to 2003,situated in Dongying,
Weifang, Binzhou, Jinan, Zibo, Dezhou,
Yantai and Liaocheng of Shangdong
Province in the PRC.
The land use rights of the properties
were leased from Sinopec Group Company
for an unspecified term.
Notes:
1. According to the PRC legal opinion, building ownership certificates were
granted to the buildings with a total gross floor area of 367,582.34
sq.m.
2. According to the PRC legal opinion, the buildings with a total gross
floor area of 81,480.68 sq.m. are in the process of applying building
ownership certificates. We attribute "no commercial value" for these
buildings due to the reason that the Company cannot transfer these
properties.
3. For reference purpose, the value of the buildings with an area of
81,480.68 sq.m. is RMB49,666,859.76 under the assumption that the
building ownership certificates has been granted.
4. Certain facilities are in the process of construction as at the
valuation date, the construction costs incurred were RMB 3,738,639.56.
5. According to the legal opinion, Sinopec Group Company undertakes that:
(i) in relation to the land use rights and the land which will be
leased by Sinopec Corp., in relation to those which have been
issued with the relevant title certificates or assigned land,
Sinopec Group Company warrant the completeness and legality of the
land use rights of such land. In relation to the land which has
not been issued with the relevant title certificate, Sinopec Group
Company undertakes to use its best endeavours to obtain the
relevant title certificates and related title documents and
warrants the validity and legality of the leasing by Sinopec Corp.
of such land;
(ii) in relation to the buildings and the buildings which will be
leased by Sinopec Corp., Sinopec Group Company warrant the
completeness and legality of the transfer of such buildings. In
relation to the buildings which has not been issued with the
relevant title certificate at the date of the sale and purchase
agreement, Sinopec Group Company undertakes to use its best
endeavours to obtain the relevant title certificates and related
title documents;
(iii) any tax or costs involved in issuing the above-mentioned land and
building title documents and to protect the legality and validity
of the leasing of the land and buildings will be borne by Sinopec
Group Company;
(iv) the parties agree that Sinopec Group Company will indemnify
Sinopec Corp. against all actual and foreseeable losses arising
from the above-mentioned irregularity or incompleteness of land
and building title and tile documents; and
(v) the above warranties and undertakings will survive after
completion of the sale and purchase and will not be affected by
completion.
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The following is the text of a letter, summary of values and valuation
certificate, prepared for the purpose of incorporation in this Circular
received from Grant Sherman Appraisal Limited, an independent valuer, in
connection with its valuations as at 30 September 2004 of the plants and
machineries contracted to be acquired by Sinopec Corp.
[LOGO GRAPHIC OMITTED] GRANT SHERMAN APPRAISAL LIMITED
6 November, 2004
The Directors
China Petroleum and Chemical Corporation
A6 Huixindong Street
Chaoyang District
Beijing City
The People's Republic of China
Dear Sirs or Madams,
In accordance with your instructions, we have made an appraisal of the
machinery and equipment ("the Equipment") exhibited to us as that of (A) the
Catalyst Assets of China Petrochemical Corporation ("Sinopec Group Company");
(B) the Gas Station Assets; and (C) the Downhole Operation Assets of the eight
branch companies (the "Branch Companies") of China Petroleum and Chemical
Corporation ("Sinopec Corp."). It is our understanding that Sinopec Corp. will
acquire the Catalyst Assets and Gas Station Assets from and dispose the
Downhole Operation Assets to Sinopec Group Company.
This letter, which forms part of our appraisal report, identifies the
Equipment, the scope and character of our investigation, the premise of the
value adopted, the valuation approaches adopted, and our conclusion of value.
We confirm that we have carried out an inspection, made relevant inquiries and
obtained such further information as we consider necessary for the purpose of
providing you with our opinion of the fair market value on the premise of
continued use of the Equipment as of 30 September, 2004.
Our appraisal report comprises:
- this letter, identifying the Equipment, describing the nature and extent
of the investigation, and presenting the conclusion of value;
- a summary, arrange by account, showing the fair market value under the
premise of continued use of the Equipment;
- assumptions and limiting conditions; and
- a statement of general service conditions.
Excluded from this investigation were land improvements, improvements of
leased property, real estate property and buildings, fixture and fittings,
stocks, supplies, inventories, materials on hand, tangible assets of current
nature and intangible assets that might exist.
(A) THE CATALYST ASSETS TO BE ACQUIRED
The Catalyst Assets are principally engaged in the production of major
petrochemical catalysts such as catalysis cracking, hydroforming, basic
bio-genetic raw material, polyolefins and C5/C6 isomerization.
The Catalyst Assets include:
1. Beijing Aoda Petrochemical New Technologies Development Centre ("Aoda
Technology")
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2. Sinopec China Petroleum or Chemical Technologies Development Co., Ltd.
("Technologies Development Company")
3. Nanjing Nanlian Catalyst Co. Ltd. ("Nanjing Nanlian")
4. Sinopec Group Shanghai Petroleum and Chemical Research Institute ("Shanghai
Research Institute")
5. Shanghai Lide Catalyst Co. Ltd. ("Shanghai Lide")
6. The Catalyst Plant of Qilu Petrochemcial Co., Ltd. ("Qilu Plant")
7. The Catalyst Plant of Changling Refinery Co., Ltd. ("Changling Plant")
8. Hunan Jianchang Petrochemcial Joint Stock Limited Company ("Jianchang
Petrochemical")
The Equipment is located at the following addresses:
LOCATION
Aoda Technology Beijingshi Tongzhouqu Ciqu Gongyequ
Technologies Development Company No.58, Beijingshi Dongchengqu Anwai Dajie
Nanjing Nanlian Jiangsusheng Nanjingshi Xixiaqu
Shanghai Research Institute No.1658, Shanghaishi Pudongxinqu Pudong Beilu
Shaghai Lide No.88, Shanghaishi Jinshanqu Qianyu Zhongqian Dajie
Qilu Plant Shangdongsheng Ziboshi Zhoucun
Changling Plant Hunansheng Yueyangshi Yuxiqu
Jianchang Petrochemical Hunansheng Yueyangshi Yuxiqu
Following is a brief description of the Catalyst Assets and the Equipment:
1. Aoda Technology
Aoda Technology was established in 1993 and is a collectively-owned joint
venture. The primary businesses of the Aoda Technology are the production of
polypropylene catalyst, benzene anhydride and anhydride catalyst. Its main
production installations include polypropylene catalyst production
installations with a production capacity of 140 tonnes/year, anhydride and
benzene anhydride catalyst production installations with a production capacity
of 120 - 130 tonnes/year.
2. Technologies Development Company
Technology Development Company, being a state-owned enterprise, is a
wholly-owned subsidiary of Sinopec Group Company. Its principal business
includes the exportation of technologies developed, and related products
produced, of itself and subsidiaries, the organization for the industrial
implementation of technical innovations, technology transfers, technical
consulting and services. Due to its operating scope, its assets mainly include
long-term equity investments, current assets such as cash, accounts receivable
and prepayments, and related intellectual property rights and authorizations.
3. Nanjing Nanlian
Nanjing Nanlian was established in 1995 as a limited liability company, and
its principal products is isomerization catalyst. As the main buildings and
equipments used by Nanjing Nanlian for production and operation are leased
from China Petroleum and Chemical Corporation Jinling Branch, it has only a
small amount of equipment.
4. Shanghai Research Institute
Shanghai Research Institute was established in 1961 as a state-owned
enterprise wholly-owned by Sinopec Group Company. Its principal products are
acrylonitrile catalyst, methylbenzene isomerization catalyst and styrene
catalyst. Its production assets mainly include the acrylonitrile catalyst,
methylbenzene isomerization catalyst and styrene catalyst production
installations with an aggregate production capacity of 1,750 tonnes/year.
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5. Shanghai Lide
Shanghai Lide is a limited liability company established in 2001 who primarily
engages in the production of gas phase polyethylene catalyst. Its main
production installation is one set of gas phase polyethylene catalyst
production installation with a production capacity of 120 tonnes/year.
6. Qilu Plant
Qilu Plant, being a state-owned enterprise, is a wholly-owned subsidiary of
Qilu Petrochemical Co., Ltd. Its principal business is the production of
catalytic cracking catalyst and its production equipment mainly include
catalytic cracking catalyst installation with a production capacity of 25,000
tonnes/year, molecular sieve installations with an aggregate production
capacity of 18,000 tonnes/year.
7. Changling Plant
Changling Plant, under Changling Refinery, was established in 1992. Changling
Refinery is a state-owned company wholly-owned by Sinopec Group Company. Its
principal business includes the production of catalytic cracking catalyst,
catalytic hydrogenation catalyst and catalytic reforming catalyst. Its
production equipment mainly include catalytic cracking catalyst facilities
with a production capacity of 32,800 tonnes/year, catalytic hydrogenation
catalyst facilities, catalytic reforming catalyst production facilities and
ancillary facilities.
8. Jianchang Petrochemical
Jianchang Petrochemical is a joint-stock limited company registered in
November 1992. Its principal business is production of continuous reforming
catalyst. Its production facilities mainly include continuous reforming
catalyst production facilities with a production capacity of 985 tonnes/year,
catalytic hydrogenation catalyst facilities and catalytic reforming catalyst
production facilities.
(B) GAS STATION ASSETS TO BE ACQUIRED
The Gas Station Assets comprise the assets, interests and related liabilities
of 1,023 gas stations and 54 oil depots owned by Sinopec Group Company and its
19 subsidiaries. These comprise 620 wholly-owned gas stations (including 25
oil transportation vessels and oil trucks), 82 majority-owned gas stations,
269 minority owned gas stations and 52 gas stations leased from third parties.
Out of the oil depots, 48 are wholly-owned, one is majority-owned and 5 are
minority-owned. In this appraisal, only the Equipment that is wholly owned or
majority-owned by Sinopec Group Company was included.
(C) DOWNHOLE OPERATION ASSETS TO BE DISPOSED
The Branch Companies are principally engaged in the exploration, extraction,
utilization, processing and sale of, and the downhole operations in relation
to, ocean/land petroleum, natural gas and other natural resources, petroleum
refinery and chemical industry in northern Shangdong province, Henan province,
Hebei province, Hubei province, Jiangsu province and Sizhuan province, the
People's Republic of China.
Following is a brief description of the Downhole Operation and the Equipment:
1. China Petroleum and Chemical Corporation Shengli Oilfield Company Limited
2. China Petroleum and Chemical Corporation Zhongyuan Oilfield Branch Company
3. China Petroleum and Chemical Corporation Jiangsu Oilfield Branch Company
4. China Petroleum and Chemical Corporation Henan Oilfield Branch Company
5. China Petroleum and Chemical Corporation Jianghan Oilfield Branch Company
6. China Petroleum and Chemical Corporation Huadong Branch Company
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7. China Petroleum and Chemical Corporation Huabei Branch Company
8. China Petroleum and Chemical Corporation Xinan Branch Company
1. Shengli Oilfield Company Limited
The Shengli Oilfield Company Limited is the second largest producing oil field
in China which consists of more than sixty oil producing zones of various
sizes extending over an area of 61,000 square kilometers. The Equipment
appraised are assets of 4 underground operation companies under Shengli
Oilfield, including the "Operation Brigade", "Preparation Brigade", "Special
Vehicles Brigade" and pipelines, oil pumping rods and oil pumping equipment
repair and other ancillary assets related to the oilfield underground
operation.
2. Zhongyuan Oilfield Branch Company
It is a branch company of China Petroleum and Chemical Corporation established
on 31 March 2000. The equipment appraised are assets used in its underground
operation, special vehicles, preparation, oil pipeline plant, oil rod plant,
"rods, pipelines, pumps" and underground tools repair and maintenance and
special vehicles maintenance of the Special Operation Office, Oil Extraction
Plant One, Plant Two, Plant Three, Plant Five, Plant Six and Trial Extraction
Second Office under Zhongyuan Oilfield Branch Company, and the electric pump
unit, electric cables manufacturing, repair and technical services of the Oil
Extraction Technology Research Institute. The total quantity of equipment and
vehicles amounted to 3,065.
3. Jiangsu Oilfield Branch Company
It is a branch company of China Petroleum and Chemical Corporation established
on 8 May 2000. The equipment appraised are assets used in its 3 oil extraction
plants, including the internal underground operation, testing (including
measuring), special vehicles, oil pipeline plant and rods, pipelines and pumps
repair of the 3 oil extraction plants. The above assets include 422 vehicles
and machines.
4. Henan Oilfield Branch Company
It is a branch company of China Petroleum and Chemical Corporation established
on 11 April 2000. The equipment appraised are assets related to 7 mine brigade
units including 2 special operation works departments, 2 underground operation
works department, 2 production preparation brigades and one testing project
management department and related supporting facilities. The above assets
include 824 vehicles and machines.
5. Jianghan Oilfield Branch Company
It is a branch company of China Petroleum and Chemical Corporation established
on 18 May 2000. The equipment appraised are assets related to 8 operation
brigades and the processing plants, tools plants and derrick teams of the
preparation brigades of Jianghan Oil Extraction Plant; 8 operation brigades, 2
testing brigades, one overhaul brigade and special vehicles brigades. The
above assets include 965 vehicles and machines.
6. Huadong Branch Company
It is a branch company of China Petroleum and Chemical Corporation established
in 2001. The equipment appraised are assets of the oil extraction plant
including the testing brigade, operation brigade, measuring brigade, water
transport brigade, vehicle transportation brigade, equipment maintenance
brigade, oil construction including all vehicles and machines.
7. Huabei Branch Company
It is a branch company of China Petroleum and Chemical Corporation established
on 18 February 2003. The equipment appraised are assets related to 5 testing
brigades and one measuring brigade of the downhole department, including all
machines and vehicles.
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8. Xinan Branch Company
It is a branch company of China Petroleum and Chemical Corporation established
on 18 September 2002. The equipment appraised are assets related to well
repair, gas testing and midway measuring brigades including all transportation
facilities and machinery.
PREMISE OF VALUE
The premise of value will be fair market value in continued use which is
defined as the following:
Fair market value is defined as the estimated amount at which a property might
be expected to exchange between a willing buyer and a willing seller, neither
being under compulsion, each having reasonable knowledge of all relevant
facts.
Fair market value in continued use is defined as the fair market value of a
property based on continuation of its existing use, assuming the asset could
be sold in the open market for its existing use, and otherwise in keeping with
the market value definition regardless of whether or not the existing use
represents the highest and best use of the property.
Fair market value under the premise of continued use does not represent the
amount that might be realized in the event of piecemeal disposition of the
property in the open market or from any alternative use to which it may be
put.
VALUATION METHODOLOGY
For this appraisal, we have adopted two approaches of appraisal, namely the
cost approach and the market approach.
The cost approach
The cost approach establishes value based on the cost of reproducing or
replacing the Equipment, less depreciation from physical deterioration, and
functional and economic/external obsolescence.
Cost of Reproduction New is defined as the estimated amount required to
reproduce the Equipment at one time in like kind and materials in accordance
with current market prices for materials, labor, and manufactured equipment,
contractors' overhead and profit, and fees, but without provision for
overtime, bonuses for labor, or premiums for materials or equipment.
Cost of Replacement New is defined as the estimated amount required to replace
the entire property at one time with a modern new unit using the most current
technology and construction materials that will duplicate the production
capacity and utility of an existing unit at current market prices for
materials, labor, and manufactured equipment, contractors' overhead and
profit, and fees, but without provision for overtime, bonuses for labor, or
premiums for materials or equipment.
Physical Deterioration is the loss in value resulting from wear and tear in
operation and exposure to the elements.
Functional Obsolescence is the loss in value caused by conditions within the
Equipment such as changes in design, materials, or process that result in
inadequacy, overcapacity, lack of utility, or excess operating costs.
Economic/External Obsolescence is an incurable loss in value caused by
unfavorable conditions external to the Equipment such as the local economy,
economics of the industry, availability of financing, encroachment of
objectionable enterprises, loss of material and labor sources, lack of
efficient transportation, shifting of business centers, passage of new
legislation, and changes in ordinances.
The cost approach generally provides a meaningful indication of the value of
land improvements, special buildings, special structures, and special
machinery and equipment associated with a viable business or justified by
economic demand.
When market transactions of comparable Equipment are not available, when data
cannot be extrapolated from larger transactions, or when transactions are
non-existent, under premise of continued use, assuming adequate earnings the
cost approach is the preferred valuation procedure.
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The market approach
In the market approach, the value of the appraised Equipment is estimated
through analysis of recent sales of comparable items of the Equipment. It is
employed in the valuation of the Equipment for which there is a known used
market. Under the premise of continued use assuming adequate earnings,
consideration is given to the cost to acquire similar items in the
used-equipment market; an allowance then is made to reflect the costs for
freight and installation.
A variant of the direct market approach is the use of market relationship.
Recent market prices for Equipment in an asset classification are determined
with respect to age and are compared with a benchmark price, such as the cost
of reproduction new. The ratio is applied to similar Equipment in the
classification when the secondary market for the subject equipment is too
sparse to exhibit appropriate comparables.
INVESTIGATION AND ASSUMPTIONS
We conducted inspections of the Equipment from 13 to 20 September 2004. During
our inspections, we visualized that the Equipment was in good working
condition and capable of performing efficiently the purpose for which it was
designed and built. In the course of our investigation, we accepted property
records furnished by the Catalyst Assets and the Branch Companies as properly
describing the Equipment. We visited the locations to verify the existence of
the Equipment and to gather information relating to its condition and utility.
The balance of the information provided by the Catalyst Assets and the Branch
Companies, after adjustments based on our observation, although not subject to
a detailed verification, was accepted as reasonably representing the facts.
When developing the cost of replacement new, we have considered the extent,
character and utility of the Equipment. We have also studied the market
conditional and obtain current market price from relevant machinery dealers
when applicable. We have also make allowance for freight and installation. To
arrive at the fair market value, we have made deduction for depreciation and
the functional/external obsolescence they may present, if any.
Construction in progress are assets not fully constructed or installed. They
have been valued at their recorded cost basis as of the appraisal date.
Any deferred maintenance, physical wear and tear, operating malfunctions, lack
of utility, or other observable conditions distinguishing the Equipment from
equipment of like kind in new condition were noted and made part of our
judgment in arriving at the value.
We did not investigate any financial data pertaining to the present or
prospective earning capacity of the operation in which the assets are used. It
was assumed that prospective earnings would provide a reasonable return on the
appraised value of the assets, plus the value of any assets not included in
the valuation, and adequate net working capital.
We have not carried out a mechanical survey, nor have we inspected covered or
inaccessible areas of the equipment. Also, no investigation was conducted as
to whether the operation of specific pieces of Equipment complied with the
relevant environmental standards and ordinances; we have assumed that the
equipment are and will continue to comply with the current environmental
standards and ordinances. We have made no allowance in our valuation for
costs, if any, associated with the disposal or handling of materials required
to comply with current or pending environmental legislation.
CONCLUSION OF VALUE
Based on the investigation described, it is our opinion that as of 30
September 2004, the fair market value in the premise of continued use of the
Equipment of (A) the Catalyst Assets is reasonably represented by the amount
of RENMINBI FIVE HUNDRED AND THIRTY THREE MILLION EIGHT HUNDRED AND THIRTY SIX
THOUSAND (RMB533,836,000); (B) the Gas Station Assets is reasonably
represented by the amount of RENMINBI ONE HUNDRED AND FIFTY EIGHT MILLION SIX
HUNDRED AND TWO THOUSAND (RMB 158,602,000); and (C) the Downhole Operation
Assets is reasonably represented by the amount of RENMINBI ONE THOUSAND TWO
HUNDRED EIGHTY FOUR MILLION ONE HUNDRED AND FORTY THREE THOUSAND
(RMB1,284,143,000), the breakdown of these are shown in the attached summary
of appraisal.
For the purpose of this appraisal, we have reviewed the acquisition records
and asset listings as well as other related technical specifications and
documents supplied to us by the Company. We have relied to a considerable
extend on such records, listings, specifications and documents in arriving at
our opinion of value.
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We have not investigated the title to or any liabilities against the
Equipment.
We hereby certify that we have neither present nor a prospective interest in
the Equipment or the value reported.
Respectfully submitted,
For and on behalf of
GRANT SHERMAN APPRAISAL LIMITED
Keith C.C. Yan, ASA
Managing Director
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(A) SUMMARY OF APPRAISAL OF CATALYST ASSETS
SUBSIDIARY FAIR MARKET VALUE CONTINUED USE AS AT 30
SEPTEMBER 2004, (RMB)
Aoda Technology 43,212,368
Machinery and Equipment 31,663,622
Vehicles 3,373,740
Construction in Progress 8,175,006
Technologies Development Company 2,257,318
Machinery and Equipment 2,257,318
Nanjing Nanlian 3,528,701
Machinery and Equipment 3,528,701
Shanghai Research Institute 32,559,282
Machinery and Equipment 31,272,962
Vehicles 1,286,320
Construction in Progress
Shaghai Lide 7,147,109
Machinery and Equipment 1,968,493
Vehicles 156,227
Construction in Progress 5,022,389
Qilu Plant 158,662,296
Machinery and Equipment 112,736,410
Vehicles 455,745
Construction in Progress 45,470,141
Changling Plant 269,042,957
Machinery and Equipment 230,675,895
Vehicles 1,241,549
Construction in Progress 37,125,513
Jianchang Petrochemical 17,425,735
Machinery and Equipment 13,463,698
Vehicles 1,117,927
Construction in Progress 2,844,110
-----------------
Grand Total: 533,835,766
Say 533,836,000
=================
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(B) SUMMARY OF APPRAISAL OF GAS STATION ASSETS
FAIR MARKET VALUE CONTINUED USE AS AT 30
SEPTEMBER 2004, (RMB)
Gas Stations Machinery and Equipment 118,382,597
Wholly-owned 60,939,214
Majority-owned 57,443,383
Oil Depots Machinery and Equipment 38,676,673
Wholly-owned 36,621,772
Majority-owned 2,054,901
Construction in Progress 1,542,482
--------------
Grand Total: 158,601,752
Say 158,602,000
==============
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(C) SUMMARY OF APPRAISAL OF DOWNHOLE OPERATION ASSETS
COMPANY NAME FAIR MARKET VALUE CONTINUED USE AS AT 30
SEPTEMBER 2004, (RMB)
Shengli Oilfield Company Limited 494,800,000
Machinery and Equipment 329,591,000
Vehicles 164,905,000
Construction in Progress 304,000
Zhongyuan Oilfield Branch Company 394,152,593
Machinery and Equipment 328,272,979
Vehicles 54,940,372
Construction in Progress 10,939,242
Jiangsu Oilfield Branch Company 130,213,344
Machinery and Equipment 122,168,614
Vehicles 6,542,376
Construction in Progress 1,502,354
Henan Oilfield Branch Company 122,684,793
Machinery and Equipment 73,417,258
Vehicles 45,156,937
Construction in Progress 4,110,598
Jianghan Oilfield Branch Company 94,963,245
Machinery and Equipment 90,789,009
Vehicles 4,174,236
Huadong Branch Company 14,416,441
Machinery and Equipment 2,814,543
Vehicles 11,528,998
Construction in Progress 72,900
Huabei Branch Company 14,660,896
Machinery and Equipment 13,226,434
Vehicles 1,434,462
Xinan Branch Company 18,251,450
Machinery and Equipment 16,796,895
Vehicles 1,454,555
---------------
Grand Total: 1,284,142,762
Say 1,284,143,000
==============
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CERTIFICATION
I certify that, to the best of my knowledge and belief:
- The statements of fact contained in this report are true and correct.
- The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limited conditions and are my personal,
impartial, and unbiased professional analyses, opinions, and conclusions.
- I have no present or prospective interest in the property that is the
subject of this report, and I have no personal interest with respect to
the parties involved.
- I have no bias with respect to the property that is the subject of this
report or to the parties involved with this assignment.
- My engagement in this assignment was not contingent upon developing or
reporting predetermined results.
- My compensation for completing this assignment is not contingent upon
the development or reporting of a predetermined value or direction in
value that favors the cause of the client, the amount of the value
opinion, the attainment of a stipulated result, or the occurrence of a
subsequent event directly related to the intended use of this appraisal.
- My analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice.
- Anyone provided significant assistance to the person signing this
certification is identified in the report.
keith c.c. yan, asa
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The following is the text of a letter and the summary of valuation, prepared
for the purpose of incorporation in this Circular received from Greater China
Appraisal Limited, an independent valuer, in connection with its valuations as
at 30 September 2004 of the plants and machineries contracted to be acquired by
Sinopec Corp.
GREATER CHINA APPRAISAL LIMITED
[LOGO GRAPHIC OMITTED]
_______________________________________________
Room 2407
Shui On Centre
6-8 Harbour Road
Wanchai
Hong Kong
6 November 2004
The Directors
China Petroleum & Chemical Corporation
No. A6 Huixindong Street
Chaoyang District
Beijing
The PRC
Dear Sirs,
In accordance with the instructions from China Petroleum & Chemical
Corporation (referred to as the "Company"), we have completed the appraisal of
certain machinery and equipment (the "Equipment") exhibited to us in the
People's Republic of China (the "PRC") and submit our findings in this report.
We confirm that we have carried out inspections, made relevant enquiries and
obtained such further information as we considered necessary for the purpose
of providing you with our opinion of the fair market value of the Equipment as
of 30 September 2004. It is understood that this appraisal is being used for
an acquisition.
INTRODUCTION
The Company is principally engaged in the exploration, development and sales
of crude oil and natural gas; oil refining, production and sales of
petrochemicals, chemical fibers, chemical fertilizers and other chemicals;
storage and pipeline transportation of crude oil and natural gas. Currently,
the Company is the largest producer and marketer of oil products (both
wholesale and retail of gasoline, diesel, jet fuel) and major petrochemical
products (intermediates, synthetic resin, synthetic fiber, synthetic rubber,
fertilizer).
This valuation is being used for the Company's proposed acquisition of assets
or shares from the China Petrochemcial Corporation (referred to as "Sinopec
Group Company").
o Sinopec Group Guangzhou Petrochemical General Plant (wholly-owned
subsidiary of Sinopec Group Company);
o Sinopec Group Luoyang Petrochemical General Plant (wholly-owned subsidiary
of Sinopec Group Company);
o Sinopec Group Maoming Petrochemical Company (wholly-owned subsidiary of
Sinopec Group Company);
o Sinopec Group Tianjin Petrochemical Company (wholly-owned subsidiary of
Sinopec Group Company); and
o Zhongyuan Petrochemical Co., Ltd. (93.51%-owned subsidiary of Sinopec
Group Company).
DESCRIPTION OF THE EQUIPMENT
Sinopec Group Guangzhou Petrochemical General Plant ("Guangzhou Petrochemical")
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The appraised assets include machinery and equipment of the power department
of Guangzhou Petrochemical. Currently, the power department provides Guangzhou
Petrochemical and the Company's Guangzhou branch company with water,
electricity, steam, compressed air, and etc. It has a thermal power plant with
power capacity of 99,000 KW and steam capacity 880 Ton/hr. In addition, it
supplies water in a maximum capacity of 6,000 cu.m. per hour and compressed
air of 785 cu.m. per minute. Other appraised machinery and equipment include
boiler, electrical equipment, water supply equipment, equipment in
administration department, electronic equipment, vehicles, pipelines and
construction-in-progress.
Sinopec Group Luoyang Petrochemical General Plant ("Luoyang Petrochemical")
The appraised assets include a 180,000 tonne per year ("tonne") aromatics
complex (reformer and P-xylene ("PX") plant), a 325,000 tonne paraphthalic
acid ("PTA") plant, a 220,000 tonne polyester ("PET") plant, a 90,000 tonnes
PET filament fiber plant, a 100,000 tonne PET staple fiber plant and a 7,500
tonne PET hollow fiber plant both completed in 2000, and other supporting
equipment such as electronic equipment and vehicles.
Moreover, the appraised assets also include the machinery and equipment of
Luoyang Petrochemical Polypropylene Co., Ltd. ("Luoyang PP") of which Luoyang
Petrochemical holds 55% interest as a long term investment. The appraised
assets include a 60,000 tonne polypropene ("PP") plant completed in 1993 and
ancillary equipment.
Sinopec Group Maoming Petrochemical Company ("Maoming Petrochemical")
The appraised assets include a 1,200,000 tonne catalytic cracking plant
completed in 1996, a 5,000,000 tonne distillation plant completed in 1998 and
supporting equipment such as pipelines and electrical equipment.
Sinopec Group Tianjin Petrochemical Company ("Tianjin Petrochemical")
The appraised assets include petrochemical plants, chemical fiber plants,
electronic equipment, office equipment and transportation equipment in Tianjin
Petrochemical's ethylene section, petrochemical section, chemical fiber
section, air-separation section, water plant and thermal power plant.
Major machinery and equipment of ethylene section includes a 200,000 tonne
ethylene ("ET") plant, a 120,000 tonne linear low density polyethylene
("LLDPE") and 6,000 tonne butene-1 polyethylene ("PE") plant, a 60,000 PP
plant and 70,000 ethylene oxide ("EO")/ethylene glycol ("EG") plant.
Major machinery and equipment of petrochemical plant includes a 250,000 tonne
PX plant, a 300,000 tonne PTA plant and a solvent plant.
Major machinery and equipment of chemical fiber section includes a 100,000
tonne PET chip plant, a 90,000 tonne PET filament fiber plant and a 100,000
tonne PET staple fiber plant both completed in 2000.
Zhongyuan Petrochemical Co., Ltd. ("Zhongyuan Petrochemical")
The appraised assets of Zhongyuan Petrochemical include a 180,000 tonne ET
cracking plant, a 200,000 tonne PE plant and a 60,000 tonne PP plant both
completed in 1996; and a 100,000 tonne benzene extraction plant, a 50,000
tonne mixed carbon separation plant and a 4,670 Nm3/Hr hydrogen production
plant which are under construction.
Excluded from this investigation are land improvements, improvements to leased
property, real estate property, buildings, spare parts, supplies and all other
tangible assets of current nature and intangible assets that might exist.
BASIS OF VALUATION
The valuation is our opinion of the Fair Market Value (FMV) which we would
define as intended to mean "the estimated amount expressed in terms of money
that may be reasonably expected for assets in exchange between a willing buyer
and a willing seller with equity to both, neither being under any compulsion
to sell or buy, both fully aware of all relevant facts, as of an appraisal
date, and assuming that the earnings support the value reported."
When fair market value is established on the premise of continued use
(FMV-CU), it is assumed that the buyer and the seller would be contemplating
retention of the assets at their present locations as part of the current
operations. An estimate of fair market value arrived at on the premise of
continued use does not represent the amount that might be realized from
piecemeal disposition of the assets in the marketplace or from an alternative
use of the assets.
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VALUATION METHODOLOGY
Before arriving at our opinion of value, we personally inspected the Equipment
and studied market conditions. To develop our opinion of value, we considered
the three generally accepted approaches to value: the depreciated replacement
cost, market comparable and income capitalization. The theory of these
approaches is outlined as follows:
The depreciated replacement cost approach
The depreciated replacement cost approach establishes value based on the cost
of reproducing or replacing the assets, less depreciation from physical
deterioration, and functional and economic/external obsolescence.
Reproduction Cost, New is defined as the estimated current cost of reproducing
a new replica of an asset with the same or closely similar materials.
Replacement Cost, New is defined as the estimated current cost of the new
asset having the nearest equivalent utility as the asset being appraised.
Physical Deterioration is the loss in value of an asset from wear and tear of
asset in operation and exposure to various elements.
Functional Obsolescence is the loss in value is due to factors inherent in the
asset itself and changes in design, materials, or process that result in
inadequacy, over capacity, excess construction, lack of functional utility or
excess operating costs, etc.
Economic Obsolescence is an incurable loss in value caused by unfavorable
external conditions.
When market transactions of comparable assets are not available, when data
cannot be extrapolated from larger transactions, or when transactions are
non-existent, under premise of continued use, assuming adequate earnings the
depreciated replacement cost approach is the preferred valuation procedure.
The market comparable approach
The market comparable approach involves the collection of market data
pertaining to the subject assets being appraised. The primary intent of the
market comparable approach is to determine the desirability of the assets
through recent sales or offerings of similar assets currently on the market in
order to arrive at an indication of the most probable selling price for the
assets being appraised.
If the comparable sales are not exactly similar to the asset being appraised,
adjustments must be made to bring them as closely in line as possible with the
subject asset.
Under the premise of continued use assuming adequate earnings, consideration
is given to the cost to acquire similar equipment in the used-equipment
market; an allowance then is made to reflect the costs for freight and
installation.
The income capitalization approach
In the income capitalization approach considers value in relation to the
present worth of future benefits derived from ownership and is usually
measured through the capitalization of a specific level of income. This
approach is most applicable to investment and general-use properties where
there is an established and identifiable rental market.
In any appraisal study, all three approaches to value must be considered, as
one or more may be applicable to the subject Equipment. In some situations,
elements of two or three approaches may be combined to reach an opinion of
value.
In valuing the Equipment, since there is no identified active used-equipment
market in China that provides information on recent transactions of comparable
items, the market comparable approach was not applied. On the other hand,
since no identifiable income stream can be attributed to a specific piece of
equipment or a group of equipment, the income capitalization approach to value
was not applied. Therefore, we conclude that the depreciated replacement cost
approach is deemed to be the most appropriate method of valuing the Equipment
under premise of continued use.
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In the course of our valuation, we used current manufacturers' price lists,
price quotations and price catalogs to determine the cost of replacement new;
current market price for labor, current market price for materials,
manufactured components, design fees, engineering fees and contractors'
overhead, profit and fee to determine the cost of replacement new. Allowances
for freight and installation were sometimes required.
The deductions for physical deterioration, functional obsolescence, and
economic / external obsolescence reflected observed condition; past
maintenance and rebuilding history, if any; current use; and planned future
utilization.
INVESTIGATION AND ANALYSIS
Luoyang Petrochemical
The reformer of the aromatics complex adopts patented Sulfolane techniques of
UOP of USA. The designed capacity is 260,000 tonne. The PX plant of the
aromatics complex, using patented technique of UOP, is composed of 4 units.
They are alkylic migration unit, xylol fraction distillation unit, adsorption
separation unit and isomerization unit. Modification was made in May 2002
which increased its PX production capacity from 160,000 tonne to 180,000
tonne.
The PTA plant adopts patented techniques of Amoco of USA. High-grade PTA is
produced by oxidation and refinery processes. Modification was made in June
2002 which increased its PTA production capacity from 225,000 tonne to 325,000
tonne.
The PET plant adopts patented techniques of Dupont of USA. PET is made from
esterified PTA and EG with trioxide antimony (di-stibium trioxide) as catalyst
and titanium dioxide as additive. PET can be used as raw material for
production of PET fiber. The plant's production capacity was improved from
200,000 tonne to 220,000 tonne after modification.
The PET staple fiber plant adopts patented techniques of Dupont of USA. Its
designed production capacity is 100,000 tonne.
The PET filament fiber plant combined techniques and equipment of Toray of
Japan and Dupont of USA. Its total production capacity of FDY and POY is about
90,000 tonne.
Maoming Petrochemical
The catalytic cracking plant was designed and built by local petrochemical
engineering and construction companies. It was completed and commenced
production in October 1996.
Construction of the distillation plant was started in 1996 and was completed
in July 1998. It was designed by local petrochemical company with capacity of
5,000,000 tonne.
Tianjin Petrochemical
ET Plant
The ET plant was completed in November 1995. It was modified in 2001 which
increased it production capacity from 140,000 tonne to 200,000 tonne. The
original plant was all imported with the adoptions of patented technique of
Lummus of USA and the technical design from TEC of Japan and TR of Spain.
The PE plant includes LLDPE plant and butene-1 plant. The LLDPE plant adopts
patented technique and equipment of Unipol of UCC&P of USA. It was completed
in 1995 and modified in 2001. The production capacity was increased from
60,000 tonne to 120,000 tonne. The butene-1 plant has a production capacity of
6,000 tonne. It started production in 1995 with the adoption of patented
Alphabutol techniques of IFP of France. Major components of the LLDPE plant
and butane-1 plant were imported, while common parts were from local suppliers
The PP plant adopts Spheripol technique of Himont of Italy. It was completed
in 1995 with designed capacity of 40,000 tonne. After the modification made in
1999, it is capable of producing 60,000 tonne PP products.
The EO/EG plant was completed in 1995 with designed capacity of 70,000 tonne.
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Petrochemical Plant
The PX plant adopts patented techniques of UOP of USA. 99.9% high-grade PX
products can be made. Its PX production capacity is 250,000 tonne.
The PTA plant adopts patented techniques of Mitsui of Japan. PX is produced
from PTA. After modification, its PTA production capacity was increased to
300,000 tonne. Besides, it is capable of producing PET resins, fibers and
films
Solvent plant includes C5 separation system, solvent system and C10 separation
system. It produces various types of solvents by refining by-product of the
PTA plant.
Chemical Fiber Plant
The PET chip plant adopts techniques and equipment of Zimmer of Germany. The
PET filament fiber plant adopts techniques of Neumag of Germany. The PET
staple fiber plant adopts techniques of Zimmer of Germany. Major components
were imported from Germany while common parts were supplied by local
suppliers.
Zhongyuan Petrochemical
The ET cracking plant adopts techniques of Lummus of USA. Its capacity was
increased from 140,000 tonne to 180,000 tonne after modification made in 2000.
The plant can function as gasoline cracking plant with capacity originally at
45,000 tonne increased to 100,000 tonne after the modification in 2000.
The PE plant adopts Unipol technique of UCC of USA. Using butene-1 or hexene-1
as raw materials, the plant is capable to produce 200,000 tonne low density PE
and high density PE products.
The PP plant adopts Spheripol techniques of Himont of Italy. Modification in
2000 improved it capacity from 40,000 tonne to 60,000 tonne.
Benzene extraction plant adopts the extraction and distillation techniques of
the local petrochemical research institute. The plant was completed in July
2004 and is under trial run. The designed capacity is 100,000 tonne.
The mixed carbon separation plant has a designed capacity of 50,000 tonne.
Products from the ET cracking plant are raw materials for the mixed carbon
separation plant.
The hydrogen production plant with the adoption of PSA technique of Xinan
Petrochemical Institute is under trial run. The designed production capacity
is 4,670 Nm3/Hr. Major products are high-grade hydrogen gas and methane gas.
The former is for gasoline cracking plant and the mixed carbon separation
plant while the latter is for ET cracking plant.
VALUATION COMMENTS
We have inspected the Equipment in August 2004. At the time of our inspection,
the appraised Equipment was found to be in good condition. We have assumed
that the Equipment can perform efficiently according to the purposes for which
they were designed and built.
In the course of our investigation, we have not investigated the title or any
liabilities against the Equipment.
We did not investigate any financial data pertaining to the present or
prospective earning capacity of the operation in which the appraised assets
are used. It was assumed that prospective earnings would provide a reasonable
return on the market value of the appraised assets, plus the value of any
assets not included in the appraisal, and adequate net working capital.
We accepted Equipment records furnished by the Company as properly describing
the assets to be appraised, their original costs and their acquisition dates.
We have relied to a very considerable extent on such records, listings,
specifications and documents in arriving at our opinion of value. We visited
the locations to verify the existence of the assets and to gather information
relating to the condition and utility of these assets.
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Any deferred maintenance, physical wear and tear, operating malfunctions, lack
of utility, or other observable conditions distinguishing the appraised
equipment from equipment of like kind in new condition were noted and made
part of our judgment in arriving at the value.
We do not investigate any industrial safety environmental and health related
regulations in association with this particular manufacturing process. It is
assumed that all-necessary license, procedures, and measures were implemented
in accordance with the Government legislation and guidance.
It is assumed that there are no hidden or unapparent conditions of the
equipment which would render it more or less valuable.
OPINION OF VALUE
After a thorough analysis of the Equipment and review of the information made
available to us, it is our opinion that, as at 30 September 2004, the Fair
Market Value in Continued Use of the Equipment is reasonably represented by
the amount of RENMINBI YUANS TEN BILLION THREE HUNDRED SEVENTY NINE MILLION
SIX HUNDRED NINETEEN THOUSAND AND THREE HUNDRED ONLY (RMB10,379,619,300) and
the acquisition interest is around RENMINBI YUANS TEN BILLION ONE HUNDRED
SIXTY FOUR MILLION FIVE HUNDRED THIRTY SEVEN THOUSAND AND TWENTY EIGHT ONLY
(RMB10,164,537,028).
We enclosed herewith the summary of valuation and the list of machinery and
equipment.
We hereby certify that we have neither present nor prospective interest in the
appraised assets or the value reported.
The valuation report is issued subject to our General Service Conditions.
Yours faithfully,
For and on behalf of
GREATER CHINA APPRAISAL LIMITED
K. K. IP C. S. LEE
BLE LLD B.E. (Mech), MAE (Ord.)
Chartered Valuation Surveyor ASME (USA), CSME
Registered Professional Surveyor EIC (Canada)
Managing Director Consultant
Investigation and report by
Andy H.F. Chu
BEng
Senior Manager
107
--------------------------------------------------------------------------------
APPENDIX 4 PLANT AND MACHINERY VALUATION REPORT PREPARED BY
GREATER CHINA APPRAISAL LIMITED
--------------------------------------------------------------------------------
SUMMARY OF VALUATION
FMV-CU
INTEREST OF THE
FMV-CU AS AT 30 OF THE ACQUISITION
SEPTEMBER 2004 ACQUISITION INTEREST
(RMB) (%) (RMB)
Guangzhou Petrochemical
Machinery and Equipment 377,988,900
Boiler Workshop 93,939,700
Electrical Workshop 13,504,500
Thermal Power Workshop 230,014,200
Water Supply Workshop 39,986,600
Others 543,900
Construction-in-progress 22,450,800
---------------- ---------- ---------------
Sub-total 400,439,700 100 400,439,700
Luoyang Petrochemical
Machinery and Equipment 2,384,196,000
Aromatics Complex (Reformer and PX 562,236,500
Plant)
PTA Plant 955,044,000
PET Plant 210,451,600
PET Filament Fiber Plant 297,219,800
PET Staple Fiber Plant 219,104,900
PET Hollow Fiber Plant 9,127,500
Others 131,011,700
Construction-in-progress 5,528,800
---------------- ---------- ---------------
Sub-total 2,389,724,800 100 2,389,724,800
Luoyang PP
Machinery and Equipment 134,206,700
PP Plant 129,858,300
Others 4,348,400
Construction-in-progress 146,557,000
---------------- ---------- ---------------
Sub-total 280,763,700 55 154,420,035
Maoming Petrochemical
Machinery and Equipment 361,168,800
Catalytic Cracking Plant 153,026,500
Distillation Plant 144,726,800
Others 63,415,500
---------------- ---------- ---------------
Sub-total 361,168,800 100 361,168,800
108
--------------------------------------------------------------------------------
APPENDIX 4 PLANT AND MACHINERY VALUATION REPORT PREPARED BY
GREATER CHINA APPRAISAL LIMITED
--------------------------------------------------------------------------------
FMV-CU
INTEREST OF THE
FMV-CU AS AT 30 OF THE ACQUISITION
SEPTEMBER 2004 ACQUISITION INTEREST
(RMB) (%) (RMB)
Tianjin Petrochemical
Machinery and Equipment 5,353,656,500
Ethylene Section
ET Plant 793,787,300
PE Plant 275,296,000
PP Plant 152,635,500
EO/EG Plant 292,118,400
Plants ancillary 233,451,100
Petrochemical Section
PX Plant 892,080,000
PTA Plant 913,710,100
Chemical Fiber Section
PET Filament Fiber Plant 313,071,500
PET Staple Fiber Plant 230,790,600
PET Plant 221,827,300
Others 1,034,888,700
Construction-in-progress 226,552,900
---------------- ----------- -----------------
Sub-total 5,580,209,400 100 5,580,209,400
Zhongyuan Petrochemical
Machinery and Equipment 1,308,262,200
ET Cracking Plant 585,554,000
PE Plant 323,259,200
PP Plant 146,400,100
Benzene Extraction Plant 23,631,400
Hydrogen Plant 9,284,900
Others 220,132,600
Construction-in-progress 59,050,700
---------------- ----------- -----------------
Sub-total 1,367,312,900 93.51 1,278,574,293
Grand total 10,379,619,300 10,164,537,028
================ =========== =================
109
-------------------------------------------------------------------------------
APPENDIX 5 GENERAL INFORMATION
-------------------------------------------------------------------------------
1. RESPONSIBILITY STATEMENT
This circular includes particulars given in compliance with the Listing Rules
for the purpose of giving information with regard to Sinopec Corp. The
Directors collectively and individually accept full responsibility for the
accuracy of the information contained in this circular 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
As at the Latest Practicable Date:
(i) none of the directors, supervisors or senior management of Sinopec Corp.
had any interest in any shares of Sinopec Corp.;
(ii) none of the directors, supervisors and senior management of Sinopec
Corp. had any interests or short positions in the shares, underlying
shares of Sinopec Corp. or any associated corporations (as defined in
Part XV of the SFO) which was recorded in the register required to be
kept under section 352 of the SFO or otherwise notified to Sinopec Corp.
and the Stock Exchange pursuant to the Model Code for Securities
Transactions by Directors of Listed Companies;
(iii) Sinopec Corp. has not granted its Directors, chief executives or their
respective spouses or children below 18 any rights to subscribe for its
equity securities or debt securities;
(iv) none of the Directors was materially interested in any contract or
arrangement entered into by any member of the Company and which was
significant in relation to the business of the Company taken as a whole;
(v) none of the Directors or any professional advisers named in paragraph 9
of this Appendix had any direct or indirect interest in any assets which
have been acquired or disposed of by or leased to any member of the
Company, or are proposed to be acquired or disposed of by or leased to
any member of the Company.
3. SUBSTANTIAL SHAREHOLDERS
As at 30 September 2004, the top ten shareholders of Sinopec Corp., the
interests or short positions of substantial shareholders who are entitled to
exercise or control the exercise of 10% or more of the voting power at any of
Sinopec Corp.'s general meetings and other persons who are required to
disclose their interests pursuant to Part XV of the SFO (including those who
are entitled to exercise or control the exercise of 5% or more of the voting
power at any of Sinopec Corp.'s general meetings, but excluding the Directors
and Supervisors) in the shares and underlying shares of equity derivatives of
Sinopec Corp. as recorded in the register required to be kept under Section
336 of the SFO are as follows:
(1) Top ten shareholders
PERCENTAGE AT THE END OF THE
REPORTING PERIOD
AMONG AMONG THE
NUMBER OF TOTAL TYPE OF
SHARES HELD SHAREHOLDINGS SHARES HELD NATURE OF TYPE OF
NAME OF SHAREHOLDERS (1,000 SHARES) (%) (%) SHAREHOLDERS SHARES HELD
China Petrochemical 47,742,561 55.06 71.13 State-owned shares Non tradable
Corporation ("Sinopec
Group Company")
HKSCC (Nominees) 16,676,156 19.23 99.38 H shares Tradable
Limited
China Development Bank 8,775,570 10.12 13.07 State-owned shares Non tradable
China Cinda Asset 8,720,650 10.06 12.99 State-owned shares Non tradable
Management Corp.
China Orient Asset 1,296,410 1.50 1.93 State-owned shares Non tradable
110
-------------------------------------------------------------------------------
APPENDIX 5 GENERAL INFORMATION
-------------------------------------------------------------------------------
PERCENTAGE AT THE END OF THE
REPORTING PERIOD
AMONG AMONG THE
NUMBER OF TOTAL TYPE OF
SHARES HELD SHAREHOLDINGS SHARES HELD NATURE OF TYPE OF
NAME OF SHAREHOLDERS (1,000 SHARES) (%) (%) SHAREHOLDERS SHARES HELD
Management Corp.
Guo Tai Jun An Corp. 586,760 0.68 0.87 State-owned legal Non tradable
person shares
Xinghe Securities 64,387 0.07 2.30 A Shares Tradable
Investment Fund
Qingdao Port Authority 60,000 0.07 2.14 A Shares Tradable
EFUND 50 Securities 55,906 0.06 2.00 A Shares Tradable
Investment Fund
Xinghua Securities 50,610 0.06 1.81 A Shares Tradable
Investment Fund
(2) Information disclosed by the shareholders of H share according to the
Securities and Futures Ordinance
NAME OF SUBSTANTIAL SHAREHOLDER NUMBER OF % OF ISSUED
SHARES INTERESTED SHARE CAPITAL
(See *Notes below) (see *Notes below)
Exxon Mobil Corporation 3,168,529,000(L) 18.88(L)
J.P. Morgan Chase & Co. 1,191,174,546(L) 7.10(L)
648,601,391(P) 3.87(P)
J.P. Morgan Chase & Co. 1,028,345,471(L) 6.13(L)
347,184,277(P) 2.07(P)
Morgan Stanley 932,527,786(L) 5.56(L)
478,305,000(S) 2.85(S)
0(P) 0.00(P)
Wellington Management Company, LLP 845,269,200(L) 5.04(L)
Note: (L): Long position, (S): Short position (P): Lending pool
4. LITIGATION
As at the Latest Practicable Date, no member of the Company and the Vendors of
the Target Business is engaged in any litigation or arbitration of material
importance and there is no litigation or claim of material importance known to
the Directors to be pending or threatened by or against any member of and the
vendors of the Target Business.
5. SERVICE CONTRACTS
None of the Directors had entered into any service contract with Sinopec Corp.
or any member of the Company (excluding contracts expiring or determinable by
the employer within one year without payment of compensation (other than
statutory compensation)).
6. PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS
Pursuant to the articles of association of Sinopec Corp., a general voting
shall be made at the shareholders meeting by a show of hands. However, (i)
chairman of the meeting, (ii) at least two shareholders or proxies of such
shareholders with voting rights, and (iii) one or more shareholders including
proxy or proxies of such shareholders accounting individually or jointly 10%
or more of Sinopec Corp. shares with voting right(s), shall have the right to
request for a voting by poll before or after a voting by show of hands.
Issues concerning election of the chairman or suspension of a meeting shall be
voted by poll. Other issues shall be voted by poll at the time to be decided
by the chairman, and the meeting can go on with discussion of other matters.
The result of such voting shall also be regarded as the resolution adopted at
the meeting.
111
7. MATERIAL ADVERSE CHANGE
The Directors are not aware of any material adverse change in the financial or
trading position of the Company since 30 June 2004, being the date of the
latest published audited financial statements of Sinopec Corp.
8. CONSENTS
CICC, Rothschild, Sallmanns, Greater China Appraisal Limited and Grant Sherman
Appraisal Limited have given and have not withdrawn their respective written
consents to the issue of this circular with the inclusion of their reports and
letters (if any), as the case may be, and references to their names in the
form and context in which they respectively appear.
As at the Latest Practicable Date, none of CICC, Rothschild, Sallmanns,
Greater China Appraisal Limited and Grant Sherman Appraisal Limited had any
shareholding in any member of the Company and none of them has any right,
whether legally enforceable or not, to subscribe for or nominate persons to
subscribe for securities of any member of the Company.
9. QUALIFICATIONS OF EXPERTS
The following are the qualifications of the professional advisers who have
given opinions or advice contained in this circular:
NAMES QUALIFICATIONS
CICC licensed by the Securities and Futures Commission for Types 1, 4
and 6 regulated activities under the Securities and Futures
Ordinance
Rothschild an institution registered with the Securities and Futures
(independent financial adviser) Commission to carry out Types 1, 4, 6 and 9
regulated activities under the Securities and Futures Ordinance
Sallmanns Chartered surveyor
Greater China Appraisal Limited Chartered surveyor
Grant Sherman Appraisal Limited Chartered surveyor
10. MISCELLANEOUS
(a) The Company Secretary is Mr. Chen Ge.
(b) The registered office and head office of Sinopec Corp. is A6, Huixindong
Street, Chaoyang District, Beijing 100029, PRC.
11. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the
registered office of Sinopec Corp. at A6 Huixindong Street, Chaoyang District,
Beijing 100029, PRC and the offices of Herbert Smith, 23rd Floor, Gloucester
Tower, 11 Pedder Street, Central, Hong Kong during normal business hours on
any business day from the date of this circular until 22 November 2004:
1. Resolutions of the 12th meeting of the second session of the Board
(including opinions of Independent Non-Executive Directors);
2. Acquisition Agreements and Disposal Agreement;
3. New Continuing Connected Transactions Adjustment Agreement;
4. PRC independent financial adviser's report;
5. Rothschild's letter;
6. Financial reports of Target Assets;
7. Full valuation reports of Target Assets (in Chinese) prepared by the PRC
Independent Valuers; and
8. Full valuation reports of Target Assets (in Chinese) prepared by
Sallmanns, Grant Sherman and Greater China.
112
--------------------------------------------------------------------------------
NOTICE OF EGM
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(Stock Code: 386)
NOTICE OF EXTRAORDINARY GENERAL MEETING FOR 2004
NOTICE IS HEREBY GIVEN that the Extraordinary General Meeting (the "EGM") of
China Petroleum & Chemical Corporation ("Sinopec Corp.") for 2004 will be held
at Beijing Crowne Plaza Park View Wuzhou Hotel, 8 Beisihuanzhong Road,
Chaoyang District, Beijing, the People's Republic of China ("PRC") on Tuesday,
21 December 2004 at 9:00 a.m. for the following purposes:
To consider and approve the following matters by way of Ordinary Resolutions:
1. the Proposal regarding the Acquisition of Certain Petrochemical Assets
from China Petrochemical Corporation
2. the Proposal regarding the Acquisition of Certain Catalyst Assets from
China Petrochemical Corporation
3. the Proposal regarding the Acquisition of Certain Gas Station Assets
from China Petrochemical Corporation
4. the Proposal regarding the Disposal of Certain Downhole Operation Assets
to China Petrochemical Corporation
5. the Proposal for the General Meeting of Sinopec Corp. to authorize the
Board to perform all relevant matters in relation to the Acquisition and
the Disposition.
6. the Proposal regarding the Adjustment to the Capital Expenditure Plan
for the Year 2004
The proposals 1 - 5 above involve connected transactions between Sinopec Corp.
and China Petrochemical Corporation ("Sinopec Group Company"), and Sinopec
Group Company will abstain from voting in respect of the resolutions at the
EGM.
Please refer to the announcements published on 2 November 2004 in the China
Securities, Shanghai Securities and Securities Times in the PRC and South
China Morning Post and Hong Kong Economics Times in Hong Kong for details of
above acquisitions and disposal and the adjustment to the Capital Expenditure
Plan.
By Order of the Board
CHEN GE
Secretary to the Board of Directors
Beijing, PRC, 6 November 2004
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 Securities Registration and Clearing Company Limited
Shanghai Branch Company at the close of business on Monday, 22 November 2004
are eligible to attend the EGM. Those who wish to attend the EGM and vote must
submit all H share transfer documents together with the relevant share
certificates to the Hong Kong H share transfer registrar of Sinopec Corp.
before 4 p.m., Friday, 19 November 2004. The address is 46th Floor, Hopewell
Centre, 183 Queen's Road East, Hong Kong.
113
--------------------------------------------------------------------------------
NOTICE OF EGM
--------------------------------------------------------------------------------
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 Wednesday, 1
December 2004.
(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 Monday, 22
November 2004 to Tuesday, 21 December 2004 (both days inclusive).
5. METHOD OF VOTING
Pursuant to Rule 13.39(4) of The Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited, voting on resolutions 1 to 5 will be
taken by way of poll. According to article 76 of the articles of association
of Sinopec Corp., the voting of the remaining resolution at the EGM shall be
carried out by way of show of hands, unless any of the following persons
request, either before or after the show of hands, that a voting be carried
out by way of poll:
(a) Chairman of the meeting;
(b) At least two shareholders who have voting rights or their attorneys;
(c) One shareholder who hold, or several shareholders who hold in
aggregation, more than 10% (including 10%) of the shares that carry
voting rights (including their attoneys).
Unless the request to vote by poll is brought, the chairman of the meeting may
announce the result of the voting on a proposal based on the result of the
show of hands, and record this in the minutes of the meeting for final
evidence, with no responsibility to prove the number of votes or any
proportion thereof for or against the resolution passed at the meeting. The
request for voting by poll may be withdrawn by whom who made the request.
114
6. OTHER BUSINESS
(a) The EGM will not last for more than one day. Shareholders who attend
shall bear their own traveling and accommodation expenses.
(b) The address of the share registrar for H shares of Sinopec Corp., Hong
Kong Registrars Limited, is at:
46th Floor
Hopewell Centre
183 Queen's Road East
Hong Kong
(c) The registered address of Sinopec Corp. is at:
A6 Huixindong Street
Chaoyang District
Beijing 100029
The People's Republic of China
Telephone No.: (+86) 10 6499 0060
Facsimile No.: (+86) 10 6499 0022
115
[GRAPHIC OMITTED]
(a joint stock limited company incorporated in the People's Republic
of China with limited liability)
(Stock Code: 386)
Proxy Form for the Extraordinary General Meeting for the Year 2004
-----------------------------
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 RMB1 each of China Petroleum & Chemical
_______________________________________________________________________________
Corporation ("Sinopec Corp.") 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 extraordinary general meeting of Sinopec Corp. for
2004 ("EGM") to be held at 9:00 a.m. on Tuesday, 21 December 2004 at Beijing
Crowne Plaza Park View Wuzhou Hotel, No.8 Beisihuan Zhong Road, Chaoyang
District, Beijing, PRC for the purpose of considering and, if thought fit,
passing those 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. the Proposal regarding the Acquisition of Certain Petrochemical Assets | | |
from China Petrochemical Corporation | | |
-------------------------------------------------------------------------------|------------------|---------------------|
2. the Proposal regarding the Acquisition of Certain Catalyst Assets from | | |
China Petrochemical Corporation | | |
-------------------------------------------------------------------------------|------------------|---------------------|
3. the Proposal regarding the Acquisition of Certain Gas Station Assets | | |
from China Petrochemical Corporation | | |
-------------------------------------------------------------------------------|------------------|---------------------|
4. the Proposal regarding the Disposal of Certain Downhole Operation Assets | | |
to China Petrochemical Corporation | | |
-------------------------------------------------------------------------------|------------------|---------------------|
5. the Proposal for the General Meeting of Sinopec Corp. to authorize the | | |
Board to perform all relevant matters in relation to the Acquisition and | | |
the Disposition | | |
-------------------------------------------------------------------------------|------------------|---------------------|
6. the Proposal regarding the Adjustment to the Capital Expenditure Plan | | |
for the Year 2004 | | |
-------------------------------------------------------------------------------|------------------|---------------------|
Date: _____________________________________2004 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 "6" in the appropriate space under "For". If you wish to vote AGAINST
any resolution, please indicate with a "X" 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 People's
Republic of China or, in the case of holders of H Shares, to Hong Kong
Registrars Limited at 46/F., Hopewell Centre, 183 Queen's Road East,
Hong Kong at least 24 hours before the time designated for the holding
of the EGM.
[GRAPHIC OMITTED]
(a joint stock limited company incorporated in the People's Republic
of China with limited liability)
(Stock Code: 386)
Reply Slip for the Extraordinary General Meeting for the Year 2004
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 proxy
wish to attend the extraordinary general meeting of Sinopec Corp. for 2004
(the "EGM") to be held at Beijing Crowne Plaza Park View Wuzhou Hotel, No.8
Beisihuan Zhong Road, Chaoyang District, Beijing China at 9:00 a.m. on
Tuesday, 21 December 2004.
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 to Sinopec Corp.
by hand, by post or by fax at A6 Huixindong Street, Chaoyang District,
Beijing 100029, (Fax no.: (+86)10 6499 0022) such that the same shall be
received by Sinopec Corp. on or before 1 December 2004. Failure to sign
and return this reply slip, however, will not preclude an eligible
shareholder from attending the EGM.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
China Petroleum & Chemical Corporation
By: /s/ Chen Ge
Name: Chen Ge
Title: Secretary to the Board of Directors
Date: November 6, 2004