| The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. |
CHINA TRAVEL INTERNATIONAL INVESTMENT HONG KONG LIMITED
(Incorporated in Hong Kong under the Companies Ordinance)
| SUMMARY
On 21st March, 2001, the Company entered into the Conditional Agreement with CTS Holdings. Pursuant to the Conditional Agreement, the Company will in effect acquire the underlying businesses and assets constituting the Tourism Group and Hotel Grandeur Macau to expand its core tourism businesses; and divest its 40% interest in CTRB to redeploy resources to the core tourism businesses. Upon Completion, the Company will have a solid platform to capture the huge market potential of the PRC tourism market through CTS HK's internationally recognized brandname, strong presence in the tourism market for both inbound and outbound tours, global network and on-line tourism-related businesses capability. The Consideration of HK$1,910,749,000 will be satisfied as to (i) HK$1,180,749,000 in cash; (ii) HK$600,000,000 by way of issue of the Convertible Bond; and (iii) HK$130,000,000 by way of the Company's 40% interest in and the Company's shareholder's loan to CTRB upon Completion. Pursuant to the Listing Rules, the Proposed Transactions constitute a discloseable transaction for the Company. As CTS Holdings is the controlling shareholder of the Company, the Proposed Transactions also constitute a connected transaction for the Company. The Proposed Transactions and the Ongoing Connected Transactions are subject to, among other things, the approval of the Independent Shareholders. In view of the interest of CTS Holdings in the Proposed Transactions and the Ongoing Connected Transactions, CTS Holdings and its associates will abstain from voting at the EGM in these regards. A circular containing, among other things, information relating to the Proposed Transactions, the Ongoing Connected Transactions, the letter from the independent financial adviser containing its advice to the Independent Board Committee in relation to the Proposed Transactions and the Ongoing Connected Transactions, the recommendation of the Independent Board Committee in these regards and a notice convening the EGM referred to above will be despatched to the Shareholders as soon as practicable. As the Proposed Transactions may or may not proceed (depending on the fulfillment of the conditions of the Conditional Agreement), Shareholders and investors are reminded to exercise caution when dealing in the shares of the Company. |
1. CONDITIONAL AGREEMENT DATED 21st March, 2001
Parties:
| Purchaser: | the Company |
| Vendor: | CTS Holdings |
Shares to be acquired:
Pursuant to the Conditional Agreement, the Company will acquire the entire issued share capital of ASL. Immediately prior to Completion, ASL will be the ultimate holding company of the Traditional Tourism Group; the On-line Tourism Group and Fu Wa. CTS Holdings as the vendor shall be entitled to all dividends declared (or to be declared) in respect of the period ended 31st December, 2000 and all distributable profits arising from the Reorganisation, whether such dividends are declared or paid before or after Completion provided that the aggregate amount of dividends paid or payable will not exceed the amount to be agreed and reflected in the Completion Accounts.
Consideration:
The Consideration of HK$1,910,749,000 will be satisfied by the Company on Completion as to:
- HK$1,180,749,000 in cash;
- HK$600,000,000 by way of issue of the Convertible Bond; and
- HK$130,000,000 by way of the Company's 40% interest in and the Company's shareholder's loan to CTRB of HK$76,955,000, whose principal assets are investments in certain toll road and toll bridge projects in the PRC.
The Consideration was determined after arm's length negotiations between the Company and CTS Holdings. The Consideration represents the aggregate of the consideration attributable to the following assets and its related business:
Acquisition subjects Pricing basis Consideration
HK$'000
Tourism Group a price-earnings multiple of 9.69 1,671,234
times of the Warranted 2000
Tourism Profit amounting to
HK$172,470,000
Fu Wa A 47.1% discount to the unaudited 239,515
pro forma net asset value of Fu Wa of
HK$453,041,000 as at 31st December, 2000
adjusted for a shareholder's loan of
HK$402,327,000 and by an independent
property valuation of Fu Wa of
HK$479,030,000 as at 28th February, 2001
----------
Total 1,910,749
==========
The cash consideration will be financed by the Group's internal resource and bank borrowings.
The Conversion Price of HK$1.1308 per CB Share was determined on an arm's length basis and represents a premium of 10% above the average closing price of HK$1.028 per Share for the five trading days prior to 21st March, 2001, being the date of the Conditional Agreement. The Conversion Price represents a 5.7% premium to the closing price of the Shares at HK$1.07 on 21st March, 2001. The CB Shares represent about 16.3% of the existing issued share capital of the Company and about 14.0% of the issued share capital of the Company as enlarged by the allotment and issue of the CB Shares. The CB Shares will rank pari passu in all respects upon issue with the then existing issued Shares.
The consideration of HK$130,000,000 for the disposal of the Company's 40% interest in CTRB was determined on an arm's length basis and represents a premium of 163% above the Company's aggregate carrying value (including the shareholder's loan owed by CTRB to the Group) amounting to HK$49,465,000 as at 31st December, 2000.
Terms of the Convertible Bond:
The principal terms of the Convertible Bond were determined after arm's length negotiations between the parties and are summarised below:
Principal amount
HK$600,000,000
Interest
The holder of the Convertible Bond shall be entitled to receive interest at the rate of 2% per annum payable semi-annually in arrears.
Maturity
18 months from the date of the issue of the Convertible Bond.
Conversion
During the period beginning on the date of issue of the Convertible Bond and ending on the Maturity Date (both days inclusive), the holder of the Convertible Bond has the right to convert all or any of its holding in a minimum principal amount of HK$100,000,000 plus accrued interest thereon into CB Shares. The number of CB Shares to be allotted and issued to the holder of the Convertible Bond on the exercise of the conversion rights attached will be calculated in accordance with the following formula and the CB Shares will rank pari passu in all respects with all the other Shares then in issue:
The Conversion Price is subject to adjustments as confirmed by the Company's auditors in the event of, among others, consolidation, subdivision or reclassification, capitalisation of profits or reserves, capital distribution, rights issue and other dilutive events.
Redemption and repayment
Prior to the Maturity Date, the Company has the right to redeem and the bondholder has the right to demand payment of the Convertible Bond in any multiple of HK$100,000,000 upon the giving of at least 30 days' written notice of demand.
Unless previously redeemed or converted, the Convertible Bond will be redeemed by the Company at its principal amount together with accrued interest thereon on the Maturity Date.
Voting
The Convertible Bond does not entitle the holder to attend and vote at, any meetings of the Company.
Transferability
The Convertible Bond is assignable or transferable only to wholly owned subsidiaries of CTS Holdings.
Profit Guarantee:
Pursuant to the Conditional Agreement, CTS Holdings will provide a profit guarantee in connection with the Tourism Group as follows:
For the year ended 31st December, 2000
In the event that the Audited 2000 Tourism Profit is less than the Warranted 2000 Tourism Profit, CTS Holdings will pay (within seven days after the Audited 2000 Tourism Profit becomes available) to the Company an amount that is equal to:
The Company is not required to pay any additional consideration to CTS Holdings if the Audited 2000 Tourism Profit is more than the Warranted 2000 Tourism Profit.
For each of the two years ending 31st December, 2002
After arm's length negotiation between the Company and CTS Holdings, in the event that the Audited 2001 Tourism Profit or the Audited 2002 Tourism Profit is less than HK$187,000,000, CTS Holdings will pay (within seven days after the Audited 2001 Tourism Profit or the Audited 2002 Tourism Profit (as the case may be applicable) becomes available) to the Company each shortfall on a dollar for dollar basis.
The Company is not required to pay any additional consideration to CTS Holdings if either or each of the Audited 2001 Tourism Profit and the Audited 2002 Tourism Profit is more than HK$187,000,000.
The independent Directors will confirm whether the profit requirements for each of the year ended 31st December, 2000 and the two years ending 31st December, 2002 have been achieved and, if any of the profit requirements is not met, opine on whether CTS Holdings has fulfilled its obligations under the guarantees and such opinion will be disclosed in the annual reports of the Company. If there is a shortfall to the guaranteed profit arrangements as mentioned above, an announcement will be made by the Company to disclose the details as soon as practicable.
Completion NAV guarantee:
Pursuant to the Conditional Agreement, CTS Holdings will guarantee the Completion NAV as follows:
In the event that the Completion NAV is less than HK$816,849,000 (the unaudited pro forma net tangible assets value of ASL Group as at 31st December, 2000), CTS Holdings will pay (within seven days after the audited Completion NAV becomes available) to the Company an amount that is equal to:
The independent Directors will confirm whether the above-mentioned net asset value requirement as at the completion date of the Conditional Agreement has been achieved and, if such requirement is not met, opine on whether CTS Holdings has fulfilled its obligations under the guarantee and such opinion will be disclosed in the annual report of the Company. If there is a shortfall to the guaranteed Completion NAV arrangement as mentioned above, an announcement will be made by the Company to disclose the details as soon as practicable.
Conditions:
The Conditional Agreement is conditional upon the following conditions being fulfilled:
(a) the passing of an ordinary resolution by the Independent Shareholders at the EGM approving:
(i) the Proposed Transactions and the Ongoing Connected Transactions;
(ii) the authorised share capital of the Company being increased from HK$490,000,000 to HK$700,000,000 by the creation of 2,100,000,000 new Shares; and
(iii) the issue of the Convertible Bond and any necessary or suitable action as may be required to effect the issue of the same, including but not limited to the allotment and issue of the CB Shares;
(b) all necessary consents or approvals as may be required for the transactions contemplated under the Reorganisation and the Conditional Agreement being obtained from third parties, including but not limited to the lending banks of CTS Holdings;
(c) the completion of the Reorganisation;
(d) all the guarantees given by any members of the Tourism Group and Fu Wa to third parties or loans given from third parties to the Tourism Group and Fu Wa for the benefit of CTS Holdings or its subsidiaries being released or cancelled;
(e) completion of the due diligence exercise on the assets and liabilities of members of the Tourism Group and Fu Wa to the satisfaction of the Company;
(f) the approval by the Listing Committee for the listing of and dealing in the CB Shares being obtained; and
(g) bank consent being obtained for the release and cancellation of all the guarantees and security given by the Company (or any of its subsidiaries) in favour of CTRB and its subsidiaries.
In the event that any of the above conditions has not been fulfilled or in the case of (b), (c), (d), (e) and (g), being waived by the Company on or before 30th September, 2001 (or such later date as may be agreed between the parties), the Conditional Agreement and all rights and obligations thereunder will cease and terminate and no party shall have any liability under it.
Application will be made to the Listing Committee for the listing of and permission to deal in the CB Shares.
2. INFORMATION ON THE TOURISM GROUP
Corporate structure
The following chart sets out the simplified corporate structure of the Tourism Group after the Reorganisation but immediately prior to Completion:
Particulars of the principal subsidiaries of CTS HK after the Reorganisation are listed as follows:
Percentage of
equity attributable Principal
Name to CTS HK activities
Overseas branches and offices Travel and air
ticketing agents
China Travel Service (Australia) Pty Ltd. 100%
China Travel Service (Canada) Inc. 100%
China Travel Service (France) SARL 100%
China Travel Service (Japan) Co., Ltd. 100%
China Travel Service (Korea), Ltd. 100%
China Travel Service (U.K.) Ltd. 100%
China Travel and Trading (Deutschland) GmbH 100%
Singa China Travel Service Pte. Limited 71.46%
U.S. China Travel Service Inc. 100%
Others
GTT 100% Travel and air
ticketing agent
Fu Wa 100% Ownership and
operation of Hotel
Grandeur Macau and
60 car parking lots
in Macau and 19
residential units
with aggregate
gross floor area of
25,695 sq.ft. in
Macau
Descriptions of Traditional Tourism Group
CTS HK
CTS HK is the principal trading arm of Traditional Tourism Group. CTS HK was founded in 1928 as China Travel Service Limited which was renamed to its present name in 1954. As one of the leading travel agents specializing in the PRC tourism business, CTS HK has been providing travel related services for residents of Hong Kong, Macau and Taiwan, overseas Chinese, and foreigners who wish to visit the PRC. CTS HK is a member of various international tourism organisations including American Society of Travel Agents (ASTA), International Air Transport Association (IATA), International Society of Meeting Planners (ISMP), Hong Kong Association of Travel Agents Ltd. (HATA), Hong Kong Tourist Association (HKTA), The Pacific Asia Travel Association (PATA), Society of Incentive & Travel Executives (SITE) and United States Tour Operators Association (USTOA). After the Reorganisation, CTS HK will have 35 branches and offices in Hong Kong and 12 overseas branches in nine countries worldwide. In 2000, CTS HK has served about 4 million visitors.
CTS HK's core business activities are carried out by its offices and branches in Hong Kong, It provides four main streams of travel related services, namely packaged tours, hotel reservations, ticketing and travel permit administration (as described below), while its overseas branches across Europe, North America and Asia Pacific serve as a global travel service network.
Packaged tours
CTS HK's tourism business comprises organising both inbound and outbound tours, special interest tours, conference, trade fairs and commercial exhibitions on behalf of both individual travellers and corporate clients. Tour packages mainly include the provision of transportation, hotel accommodation, meals, sightseeing and entertainment.
Hotel reservation
CTS HK has built up business relationship with more than 800 hotels in the PRC cities, Hong Kong and other Asian countries as reliable suppliers. CTS HK is able to obtain contract rates from all these hotels which normally represent considerable discount to the rack rate.
Ticketing
CTS HK's ticketing business comprises the booking services for air tickets of both domestic and international airlines; ferry tickets, shuttle bus tickets and train tickets to and from Hong Kong and the PRC; and admission tickets to various theme parks in Hong Kong and the PRC. CTS HK is a passenger ticketing agency for the Kowloon-Canton Railway, Beijing-Kowloon Railway, Shanghai-Kowloon Railway; return passenger ferry services from Hong Kong to each of Macau, Shenzhen Airport (Fuyong Ferry Terminal) and Guangzhou and other means of transportation ticketing services.
The overseas branch network and offices enable CTS HK to have an international presence and to pursue new expansion opportunities so as to enhance its continuing business growth.
The following table sets out the number of visitors served by CTS HK relating to tours, hotel reservation and ticketing businesses for each of the three years ended 31st December, 2000:
1998 1999 2000
Visitors served (headcount)
Tours 608,000 643,000 701,000
Ticketing 2,429,000 2,595,000 3,208,000
---------- ---------- ----------
Total 3,037,000 3,238,000 3,909,000
========== ========== ==========
Hotel reservation (rooms) 400,000 450,000 560,000
========== ========== ==========
Travel Permit Administration
CTS Holdings has been appointed by the PRC Government to provide general administration services in Hong Kong for application of tourist visas and travel permits into the PRC. CTS Holdings has appointed CTS HK as its exclusive agent up to 30th June, 2047 to carry out the Travel Permit Administration in return for sharing 45% of the application fees and bearing the related general and administrative expenses.
CT Air Service
CT Air Service is an IATA member and is granted the rights to issue air tickets to customers. It is engaged in the ticketing services for air tickets of both domestic and international airlines and the chartering of planes for tourist groups organised by CTS HK.
CT Advertising
CT Advertising mainly provides advertising services to CTS Holdings and its subsidiaries including graphic design and image planning services for advertisements, conference, travel exhibitions and office window decorations; and printing and design works for brochures, calendars, name cards and other printed matter.
Properties
After the Reorganisation, ASL, through its subsidiaries, will hold various property assets (comprising various branches of the travel agencies in Hong Kong and abroad, various staff quarters in Hong Kong and the Hip Kee Third Godown. Hip Kee Third Godown has been sold to Hing Kong by CTS HK in 1999, on terms and conditions that in the event a modification of the terms on which the property is held from the HKSAR Government is not achieved by 31st January, 2002. As the disposal has not been completed as at the date of the Conditional Agreement, Hing Kong may terminate the agreement and CTS HK will return the deposit of HK$62,000,000 to Hing Kong without interest or other compensation, but if the modification of the government grant is achieved by such date, Hing Kong will pay an additional HK$30,000,000 to CTS HK to complete the transaction.
Descriptions of On-line Tourism Group
The Directors believe that the increasing popularity of the Internet and the variety of information that the Internet can offer will eventually attract traditional travel business to go on-line. On-line Tourism Group is principally engaged in on-line travel services, ASP services, software and projects development and travel-related application software system. At present, the Company has an 18% interest in the share capital of CT Net, the principal holding company of On-line Tourism Group. The Company will increase its interest in CT Net to 80% immediately after Completion.
On-line travel services
With the commencement of the operation of CT Net's "China Travel Service" brand featured portal under the domain name of "www.chinatravelOne.com" in June 2000, CT Net has provided real time travel and ticketing information and quick, easily accessible and personalised travel services to travel agents, corporate clients and individual travellers, including booking services through the Internet of air and ferry tickets and tour packages.
CTS HK's accumulated database on travel products, customers, its software development ability and management experience from its ASP business has enabled CT Net to leap over the infancy stage of the technology set-up of the e-business and provide solid fundamentals for its on-line business development.
CT Net aims to become a leading provider of on-line travel services to foreigners travelling to the PRC and for PRC residents travelling to countries aboard.
On-line Tourism Group currently offers a number of services on its portal to all users upon registration free of charge, including the provision of general on-line travel information. Services currently available on the portal include:
i. ICP
CT Net's website www.chinatravelOne.com offers a search engine, e-commerce capabilities and a directory of over 5,000 web pages in Chinese and English providing a broad range of travel information and diversified product information.
ii. E-commerce
The e-commerce business of CT Net is divided into the B2C and B2B areas.
The B2C business allows registered users, usually individual travellers, to browse information regarding tour packages, travel promotions, preview travel itineraries, deposit comments on travel products and spontaneously purchase travel tickets and international air tickets, reserve hotel rooms and packages on-line. The B2C business is targeted at the Hong Kong market with an aim to develop the international market when the English version of CT Net's website becomes mature.
The B2B business aims to serve travel agencies and corporate clients by providing them well-developed software applications for using on-line services such as reservation of travel products through Internet and provision of instant tourist information and product news.
On-line Tourism Group plans to provide tailor-made trip planning services and record of previous purchases through the Internet for its corporate users. Also, On-line Tourism Group's customer service department is ready to act as an on-line sales agent for corporate clients to realise on-line sales of travel products. E-commerce is still under its business development stage in Hong Kong and On-line Tourism Group will soon launch a more aggressive promotion campaign to advertise the services.
ASP services
The ASP services provided by On-line Tourism Group include:
i. the leasing of ASP systems including a tour management system, a ticketing information management system, a hotel information management system, a financial information management system, a human resources management system and travel and permit processing system to travel agencies and other related businesses within the tourism industry; and
ii. provision of software development relevant to travel related ASP services.
Shenzhen Starsoft is beneficially owned by CTHT. It is engaged in research and development for coding of computer system. It was based in Shenzhen to take advantage of lower operating cost.
Pro Forma Financial Information of the Tourism Group
The table below sets out a summary of the pro forma unaudited results of the Tourism Group for the two years ended 31st December, 2000, prepared on the assumptions as stipulated in the Conditional Agreement:
Year ended 31st December,
1999 2000
HK$'000 HK$'000
Turnover 1,251,614 1,355,731
========== ==========
Profit before tax 192,797 229,488
========== ==========
Profit after tax and before minority interests 159,361 186,998
========== ==========
Profit after tax and after minority interests 140,573 172,470
========== ==========
The pro forma unaudited net asset value of the Tourism Group as at 31st December, 2000 was about HK$766,135,000 prepared on the assumptions as stipulated in the Conditional Agreement including the assumption that all dividends to be declared in respect of the year ended 31st December, 2000 and all distributable profits arising from the Reorganisation by members of the Tourism Group have been declared and accrued as payable to CTS Holdings as the vendor.
3. INFORMATION ON FU WA
Fu Wa, a wholly-owned subsidiary of CTS HK, owns the entire interests in Hotel Grandeur Macau and 60 car parking lots and 19 residential units with about 2,300 sq.m. (equivalent to about 25,700 sq.ft.) situated in Macau.
Commercial operation of Hotel Grandeur Macau commenced in September 1993. Hotel Grandeur Macau is a four-star hotel situated about 2 k.m. and 10 k.m. from Macau Ferry Terminal and Macau International Airport respectively. It has a gross floor area of about 25,000 sq.m. (equivalent to about 267,000 sq.ft.) on 26 floors and two basement levels. It has 354 guest rooms and suites and a health club, steam bath, swimming pool, business centre, Chinese and Western restaurants and a lounge.
The table below sets out the occupancy rates for Hotel Grandeur Macau and the percentage of the origin of its guests for each of the three years ended 31st December, 2000:
1998 1999 2000
Occupancy rate (%) 68.8 73.8 74.2
========== ========== ==========
Guests served
Domestic (%) (Note) 71.0 65.1 88.2
Foreigner (%) 29.0 34.9 11.8
---------- ---------- ----------
Total 100.0 100.0 100.0
========== ========== ==========
Note: For statistics purpose only, domestic guests include tourists from the PRC and Hong Kong.
Pro Forma Financial Information of Fu Wa
The table below sets out a summary of the unaudited pro forma results of Fu Wa in accordance with the HK GAAP and the Company's accounting policies for the two years ended 31st December, 2000:
Year ended 31st December,
1999 2000
HK$'000 HK$'000
Turnover 46,610 50,334
========== ==========
Profit/(Loss) before tax (421) 3,258
========== ==========
Profit/(Loss) after tax (421) 3,258
========== ==========
The unaudited net asset value of Fu Wa as at 31st December, 2000, adjusted for the shareholder's loan of HK$402,327,000 and an independent property valuation of Fu Wa, was approximately HK$453,041,000.
The residential units of Fu Wa are currently used as staff quarters.
4. INFORMATION ON CTRB
Corporate structure
The following chart sets out the simplified corporate structure of CTRB prior to Completion:
Information of CTRB
The principal assets of CTRB are its investment in certain toll road and toll bridges projects in the PRC.
Financial Information of CTRB
The table below sets out a summary of the unaudited consolidated results of CTRB for the two years ended 31st December, 2000 prepared in accordance with the HK GAAP:
Year ended 31st December,
1999 2000
HK$'000 HK$'000
Turnover 150,863 170,205
========== ==========
Loss before tax (15,084) (25,851)
========== ==========
Loss after tax and before minority interests (15,084) (28,792)
========== ==========
Loss after tax and after minority interests (7,997) (14,630)
========== ==========
The unaudited net liabilities of CTRB as at 31st December, 2000 was about HK$53,726,000.
5. REASONS FOR THE PROPOSED TRANSACTIONS
The principal businesses of the Group are in the areas of tour operations, travel and leisure operations, hotel operations, transportation and infrastructure investments.
The Directors have reiterated in the Company's announcement dated 5th February, 2001 that the Group's strategy is to concentrate on its core business of travel related services.
The Directors believe that the Proposed Transactions represent an excellent opportunity for the Group to refocus on its core businesses, strengthen the earning base of the Group and provide a solid platform for the Group to capture the market potential of the tourism business in Hong Kong and the PRC taking into account the following factors:
i. the Directors believe that there will be growth potential in the tour operation, travel and leisure business in the PRC, Hong Kong and Macau, in anticipation of various upcoming events, including the construction of a theme park on the Lantau Island by Walt Disney Company and the PRC's entry to the WTO. In addition, the implementation of the three long statutory holidays in the PRC (up to 7 days), has also created extra demand for tour, travel and leisure activities by PRC residents in the PRC, Hong Kong and Macau;
ii. in addition to the business and tangible assets, the Group will have the opportunity to utilise CTS HK's internationally recognised brandname, its strong presence in the tourism market for PRC inbound tours and global coverage by its branch network worldwide;
iii. the Group is at present one of the largest operators in the provision of travel services to visitors from the PRC to Hong Kong and Macau. The acquisition of CTS HK can strengthen and consolidate the Group's tour operations through the provision of travel related services for tourists who want to visit the PRC, with a view to build a foundation for its penetration into the domestic tourist industry in the PRC in future;
iv. the Group follows its long term strategy of focusing on its core tourism businesses and will also be seeking opportunities in PRC travel business, passenger and freight transportation expansion;
v. the way that consumers and business conduct transactions has changed fundamentally as a result of the rapid development of Internet and information technology such that there are increasing number of consumers and businesses engaging in the on-line evaluation, selection and purchase of travel products and services. The consolidation of the Group's interest in On-line Tourism Group after Completion will ensure the Group to release the potential of on-line tourism-related business potential. Upon Completion, the Group intends to use CT Net's on-line platform to collaborate with certain travel agents in the PRC.
vi. it is the Group's strategy to expand its portfolio of high-quality hotels and the Group intends to build a network of owned or managed hotels carrying its own brand in Hong Kong, Macau and the PRC to supplement its tourist operations; and
vii. the disposal of the 40% interest in CTRB provides an opportunity for the Group to redeploy its resources and to focus on its core tourist related business. Taking into account of the aggregate carrying value (including shareholder's loan owed by CTRB to the Group as at 31st December, 2000, an estimated gain of about HK$80,535,000 will be recorded in the accounts of the Group upon Completion.
The Group will continue its long-term strategy focusing on its core business, to adjust its asset mix accordingly and will explore actively attractive opportunities to expand its tourism operation (including outbound operation and passenger and freight transportation) through consolidation of its investments and acquisitions in the PRC.
6. PARTICULARS OF THE ONGOING CONNECTED TRANSACTIONS
Set out below are the Ongoing Connected Transactions, which will after Completion constitute connected transactions of the Company for the purpose of the Listing Rules:
A. Provision of insurance brokerage services by connected person
Transaction nature
It is envisaged that CT Insurance, a wholly-owned subsidiary of the Company's controlling shareholder, will continue to provide insurance brokerage services to CTS HK and CT Advertising in relation to the selection of appropriate insurance policies and negotiation with insurance underwriters.
Pricing basis
The prices of these services shall not exceed the prevailing market price at which these services are available to the Group from independent third parties.
B. Provision of decoration and maintenance services by connected person
Transaction nature
It is envisaged that CT Building, a wholly-owned subsidiary of the Company's controlling shareholder, will continue to provide office decoration and maintenance services to CTS HK.
Pricing basis
The decoration and maintenance services to be provided by CT Building will be charged on normal commercial terms which will be determined after arm's length negotiation. The prices of these services shall not exceed the prevailing market price at which these services are available to the Group from independent third parties.
C. Provision of sightseeing cruiser services by connected person
Transaction nature
It is envisaged that HYR Splendid, an associate of the Company's controlling shareholder, will continue to provide sightseeing cruiser services to CTS HK.
Pricing basis
The prices at which the sightseeing cruiser services to be provided to CTS HK shall not exceed the prevailing market price at which similar services are available to the Group from independent third parties.
D. Sale of tourism products to connected persons
Transaction nature
It is envisaged that CTS HK will continue to provide/sell its tourism services/products to the following connected persons, which are subsidiaries of the Company's controlling shareholder:
i. China Travel Service, Inc. (whose 91.8% interest will be held by CTS Holdings as a result of the Reorganisation);
ii. China Travel Service (Thailand) Co. Ltd. (whose 60% interest will be held by CTS Holdings as a result of the Reorganisation); and
iii. China Travel System (M) Sdn. Bhd., (which will as a result of the Reorganisation become a wholly-owned subsidiary of CTS Holdings).
Pricing basis
The prices at which the services/products of CTS HK are provided/sold to the connected persons mentioned in (i) to (iii) above shall not be lower than the price at which these tourism products are provided/sold by CTS HK to independent third parties.
E. Provision of Travel Permit Administration on behalf of connected person
Transaction nature
It is envisaged that CTS HK will provide Travel Permit Administration to travel permit applicants on behalf of CTS Holdings.
Pricing basis
In accordance with the terms of the agency agreement between the parties, CTS Holdings pays CTS HK 45% of the gross fee revenue from permit application for the services provided by CTS HK in relation to Travel Permit Administration.
F. Provision of stevedoring services by connected person
Transaction nature
It is envisaged that Tai Sun, a subsidiary of the Company's controlling shareholder, will continue to provide stevedoring services to CTS HK.
Pricing basis
The fee charged for the stevedoring services to be provided to CTS HK by Tai Sun shall not be higher than the fees charged by Tai Sun to independent third parties.
G. Lease arrangement (connected persons as the lessors)
CTS Holdings
Transaction nature
It is envisaged that CTS HK, CT Advertising and CT Net will continue to lease office premises with a lettable area of about 42,000 sq.ft. in aggregate located at CTS House, 78-83 Connaught Road Central, Hong Kong with CTS Holdings.
Rent and other charges
| Rental | Approximately HK$812,000 per month |
| Management fee | Approximately HK$230,000 per month (inclusive of government rates, water and electricity expenses) |
Pricing basis
The rental and other charges charged by CTS Holdings to CTS HK, CT Advertising and CT Net shall not exceed the prevailing market rate.
H. Lease arrangement (connected person as the lessee)
Transaction nature
It is envisaged that CTHMS, a wholly-owned subsidiary of the Company's controlling shareholder, will continue to lease office premises with an aggregate lettable area of about 140 sq.ft. located at Unit 101, 1/F, Block W5, Guihua Yuan, Huaqiao Cheng, Shenzhen, the PRC from CT Air Service.
Rent and other charges
| Rental | HK$3,550 per month (exclusive of government rates, water and electricity expenses which shall be borne by the tenant) |
Pricing basis
The rental and other charges charged by CT Air Service to CTHMS shall not be lower than the prevailing market rate.
The following is a summary of the amount of connected transactions on a pro forma basis under the above-mentioned categories of each of the two years ended 31st December, 2000:
Year ended 31st December,
(HK$'000) 1999 2000
Provision of insurance brokerage services by
connected person 1,780 1,500
Provision of decoration and maintenance services
by connected person 1,190 1,560
Provision of sightseeing cruiser services by
connected person 1,420 1,500
Sale of tourism products to connected persons 3,840 3,730
Provision of Travel Permit Administration on
behalf of connected person 228,025 265,394
Provision of stevedoring services by connected
person 1,380 1,390
Lease arrangement
Connected persons as the lessors - 30
Connected person as the lessee 9,742 9,742
7. BENEFITS OF THE ONGOING CONNECTED TRANSACTIONS
The Ongoing Connected Transactions are/will be conducted in the ordinary and usual course of business of the Group and its counter-parties. The Ongoing Connected Transactions will be conducted on normal commercial terms and terms determined on an arm's length basis. The Directors consider it to be in the interests of the Company to engage in the Ongoing Connected Transactions as these transactions will facilitate the smooth operations of the Group's business after Completion.
8. DISCLOSURE REQUIREMENT AND WAIVER SOUGHT
Under Chapter 14 of the Listing Rules, the Ongoing Connected Transactions will constitute connected transactions of the Company which would normally require disclosure by way of press announcement and/or prior approval of the Independent Shareholders in a special general meeting each time as such transaction occurs.
The Directors expect that the transaction amount of the transaction in connection with the Travel Permit Administration for each year may exceed the higher of HK$10,000,000 or 3% of the net tangible asset value of the Group. The Directors also expect that each of the other Ongoing Connected Transactions may exceed the higher of HK$1,000,000 or 0.03% of the net tangible asset value of the Group but below the higher of HK$10,000,000 or 3% of the net tangible asset value of the Group. The Directors believe that strict compliance with the disclosure/shareholders' approval requirement in respect of the Ongoing Connected Transactions would be impractical and unduly onerous on the part of the Group as they are of a regular and continuing nature. Accordingly, the Company will make an application to the Stock Exchange for a waiver from the announcement/shareholders' approval requirement as required under the Listing Rules. A separate announcement in respect of the proposed terms of the waiver will be made by the Company as soon as practicable.
9. APPROVAL BY THE INDEPENDENT SHAREHOLDERS
The Proposed Transactions will constitute a discloseable transaction for the Company for the purpose of the Listing Rules. As CTS Holdings is the controlling shareholder of the Company, the transactions contemplated under the Proposed Transactions also constitute connected transactions for the purpose of the Listing Rules. The Proposed Transactions and the Ongoing Connected Transactions are subject to, among other things, the approval of the Independent Shareholders.
In view of the interests of CTS Holdings and its associates in the Proposed Transactions and the Ongoing Connected Transactions, CTS Holdings and its associates (as defined in the Listing Rules) will abstain from voting at the EGM in these regards. An Independent Board Committee will be appointed to advise the Independent Shareholders on whether or not the Proposed Transactions and the Ongoing Connected Transactions are in the interests of the Company and are fair and reasonable so far as the Independent Shareholders are concerned. An independent financial adviser will be appointed to advise the Independent Board Committee in respect of the terms of the Proposed Transactions and the Ongoing Connected Transactions as mentioned above.
10. CHANGE IN THE COMPANY'S SHAREHOLDING STRUCTURE
The following table sets out the change in shareholding structure of the Company as a result of the allotment and issue of the CB Shares:
Immediately after Completion
Existing shareholding and allotment and issue
structure of the CB Shares
Shares % Shares %
CTS Holdings 1,956,561,741 60.18 2,487,159,548 65.77
Directors 2,002,000 0.06 2,002,000 0.05
Public
shareholders 1,292,551,286 39.76 1,292,551,286 34.18
------------- -------- ------------- --------
3,251,115,027 100.00 3,781,712,834 100.00
============= ======== ============= ========
The following chart set out the simplified corporate structure of the Company immediately after Completion:
Notes:
1. CTS HK is interested in 100% equity interest in Fu Wa.
2. Excluding the Company's 40% interest in CTRB, which will be sold to CTS Holdings.
11. EXTRAORDINARY GENERAL MEETING
The EGM will be convened as soon as practicable at which resolutions will be proposed to approve, among other things, the Proposed Transactions and the Ongoing Connected Transactions. CTS Holdings and its associates will abstain from voting at the EGM in respect of those resolutions pertaining to the Proposed Transactions and the terms of the Ongoing Connected Transactions.
12. GENERAL
A circular containing, among other things, information on the Proposed Transactions, the Ongoing Connected Transactions, the letter from the independent financial adviser containing its advice to the Independent Board Committee in relation to the Proposed Transactions and the Ongoing Connected Transactions, the recommendation of the Independent Board Committee in relation to the Proposed Transactions and the Ongoing Connected Transactions and a notice convening the EGM referred to the above will be despatched to the Shareholders as soon as practicable.
13. DEFINITIONS
| "ASL" | Alton Services Limited, a company incorporated on 4th July, 1997 in the BVI with limited liability and a wholly-owned subsidiary of CTS Holdings prior to Completion. |
| "ASL Group" | ASL and its subsidiaries upon Completion |
| "ASP" | Application Services Provider is an entity that provides individuals or enterprises with access over the Internet to application programs and related services on system subscription basis that would otherwise be sourced from their own personal or enterprise computers |
| "Audited Tourism Profit" | the profit after taxation and minority interests but before extraordinary items to be shown in an auditor's certificate based on the audited pro forma accounts of the Tourism Group without considering profit and loss attributable to property revaluation for the year required to be prepared on the assumptions stipulated in the Conditional Agreement |
| "Audited 2000 Tourism Profit" | Audited Tourism Profit for the year ended 31st December, 2000 |
| "Audited 2001 Tourism Profit" | Audited Tourism Profit for the year ending 31st December, 2001 |
| "Audited 2002 Tourism Profit" | Audited Tourism Profit for the year ending 31st December, 2002 |
| "BVI" | the British Virgin Islands |
| "CB Share(s)" | the 530,597,807 Shares assumed to be issued on the Maturity Date pursuant to the conversion of the Convertible Bond in full based on the Conversion Price, which is subject to usual adjustments, and assuming that none of the interest payable in respect of the Convertible Bond is converted |
| "Company" | China Travel International Investment Hong Kong Limited  ) |
| "Completion" | completion of the Proposed Transactions is subject to the conditions as set out under the paragraph headed "Conditions" above being fulfilled and waived (if applicable) by the Company |
| "Completion Accounts" | the completion accounts of the ASL Group for the period ending on the date of Completion to be prepared on the assumptions stipulated in the Conditional Agreement, including the assumptions that (i) all agreed dividends to be declared in respect of the period ended on 31st December, 2000 and all distributable profits arising from the Reorganisation by members of the Tourism Group have been declared and accrued as payable to CTS Holdings as the vendor prior to Completion; and (ii) an agreed value is attributed to all properties. |
| "Completion NAV" | the consolidated net asset value of ASL and its subsidiaries to be shown in the Completion Accounts |
| "Conditional Agreement" | the conditional agreement dated 21st March, 2001, entered into between the Company and CTS Holdings regarding the Proposed Transactions |
| "connected person(s)" | has the same meaning ascribed in the Listing Rules |
| "Consideration" | the total consideration payable by the Company to CTS Holdings for the Proposed Transactions pursuant to the Conditional Agreement |
| "Conversion Price" | HK$1.1308, being the conversion price (subject to adjustment) at which the CB Shares will be issued upon conversion of the Convertible Bond, pursuant to the Conditional Agreement |
| "Convertible Bond" | convertible bond with the principal amount of HK$600,000,000 to be issued by the Company to CTS Holdings to satisfy part of the Consideration |
| "CT Advertising" | China Travel Advertising Hong Kong Limited ( ), a company incorporated on 7th January, 1986 in Hong Kong with limited liability and a wholly-owned subsidiary of CTS Holdings |
| "CT Air Service" | China Travel Air Service Hong Kong Limited ( ), a company incorporated on 20th August, 1985 in Hong Kong with limited liability and a wholly-owned subsidiary of CTS Holdings |
| "CT Building" | China Travel Building Contractors Hong Kong Limited ( ), a company incorporated on 26th March, 1986 in Hong Kong with limited liability and a wholly-owned subsidiary of CTS Holdings |
| "CT Computer Service" | China Travel Computer Services (HK) Limited ( ), a company incorporated on 26th May, 1989 in Hong Kong with limited liability and a wholly-owned subsidiary of CTS Holdings |
| "CT e-Business" | China Travel e-Business Limited ( ), a company incorporated on 9th March, 2000 in Bermuda with limited liability |
| "CT Insurance" | China Travel Insurance Advisers Hong Kong Limited ( ), a company incorporated on 28th September, 1988 in Hong Kong with limited liability and a wholly-owned subsidiary of CTS Holdings |
| "CT Net" | China Travel Net Limited ( ), a company incorporated in the British Virgin Islands on 17th January, 2000 with limited liability |
| "CT Net HK" | China Travel Net Hong Kong Limited ( ), a company incorporated on 3rd March, 2000 in Hong Kong with limited liability and an indirect wholly-owned subsidiary of CT Net |
| "CTHMS" | China Travel Hotel Management Services (Hong Kong) Limited (formerly known as Kong Toon Company Limited) ( ), a company incorporated on 7th January, 1983 in Hong Kong with limited liability and a wholly-owned subsidiary of CTS HK |
| "CTHT" | China Travel Hi-Tech Computer Hong Kong Limited ( ), a company incorporated in Hong Kong on 11th December, 1996 with limited liability and a wholly-owned subsidiary of CT Net |
| "CTRB" | China Travel Roads & Bridges JV Investment Limited, a company incorporated on 26th November, 1996 in the BVI, is indirectly held by CTS Holdings and the Company as to 60% and 40% respectively |
| "CTS HK" | China Travel Service (Hong Kong) Limited ( ), a company incorporated on 10th June, 1954 in Hong Kong and a wholly-owned subsidiary of CTS Holdings |
| "CTS Holdings" | China Travel Service (Holdings) Hong Kong Limited ( ), a company incorporated on 29th October, 1985 in Hong Kong with limited liability and is interested in 60.18% of the issued share capital of the Company |
| "Directors" | the directors of the Company |
| "e-Ventures" | CWHKT e-Ventures Limited, a company incorporated in Hong Kong with limited liability and is a wholly-owned subsidiary of Pacific Century Cyberworks Limited, a company incorporated in Hong Kong with limited liability, the securities of which are listed on the Stock Exchange |
| "Extraordinary General Meeting" or "EGM" | the extraordinary general meeting of the Company to be convened as soon as practicable to consider and approve, if thought fit, the Proposed Transactions and the Ongoing Connected Transactions including any adjourned meeting thereof |
| "Fu Wa" | Sociedade De Fomento Predial Fu Wa (Macau), Limited ( ), a company incorporated on 19th September, 1988 in Macau with limited liability and a wholly-owned subsidiary of CTS HK |
| "Group" | the Company together with its subsidiaries and where the context shall require, shall include those companies which will become subsidiaries of the Company upon Completion |
| "GTT" | Agencia De Viagens E Turismo Grand, Limitada Grand Tour & Travel Limited ( ), a company incorporated on 14th August, 1994 in Macau with limited liability and a wholly-owned subsidiary of CTS HK |
| "Hing Kong" | Hing Kong Properties (Hong Kong) Limited, a party independent of the connected persons of the Company and their respective associates |
| "Hip Kee" | China Travel Hip Kee Godown Hong Kong Limited (formerly known as Hip Kee Godown Co. (Hong Kong) Limited, a company incorporated on 10th July, 1962 in Hong Kong with limited liability |
| "Hip Kee Third Godown" | the property situated at Kowloon Inland Lot No. 10663 |
| "HK GAAP" | Hong Kong Generally Accepted Accounting principles |
| "Hong Kong" or "HK SAR" | The Hong Kong Special Administrative Region of the People's Republic of China |
| "HYR Splendid" | Hubei Yangtze River Splendid China Cruise Co. Ltd. ( ), a sino-foreign joint venture established on 30th December, 1992 in the PRC with limited liability and an associate of CTS Holdings upon Completion |
| "Independent Board Committee" | An independent committee of the board of Directors to be appointed by the board of Directors to advise the Independent Shareholders in respect of the Proposed Transactions and the Ongoing Connected Transactions |
| "Independent Shareholder(s)" | the shareholder(s) of the Company other than CTS Holdings and its associates |
| "Listing Committee" | Listing Committee of the Stock Exchange |
| "Listing Rules" | the Rules Governing the Listing of Securities on the Stock Exchange |
| "Macau" | The Macau Special Administration Region of the PRC |
| "Maturity Date" | the maturity date of the Convertible Bond |
| "Ongoing Connected Transactions" | the connected transactions to be entered into/or to be continued between the Group and its connected persons on an ongoing basis after Completion and as described in paragraph headed "Particulars of the Ongoing Connected Transactions and Potential Connected Transaction" above |
| "On-line Tourism Group" | CT e-Business, CT Net and its subsidiaries |
| "PRC" | The People's Republic of China, for the purpose of this announcement, excluding Hong Kong, Macau and Taiwan |
| "Proposed Transactions" | the transactions contemplated under the Conditional Agreement |
| "Reorganisation" | the reorganisation of CTS Holdings as a result of which the Group structure depicted in the section headed "Information on the Tourism Group" will be present as at Completion (but which, for the calculation of the Audited 2001 Tourism Profit, will be deemed to have taken effect from 1st January, 2001) |
| "Share(s)" | Share(s) of HK$ 0.10 each in the share capital of the Company |
| "Shareholder(s)" | shareholder(s) of the Company |
| "Shenzhen Starsoft" | Starsoft Computer Services (Shenzhen) Co. Ltd. ( ), an enterprise established under the laws of PRC on 30th January, 1991 and an indirect wholly-owned subsidiary of CT Net |
| "Softbank Strategic" | Softbank Investment International (Strategic) Limited (formerly known as Cheung Wah Development Company Limited), a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Stock Exchange |
| "Stock Exchange" | The Stock Exchange of Hong Kong Limited |
| "Tai Sun" | Tai Sun Services Company Limited ( ), a company incorporated on 17th October, 1975 in Hong Kong with limited liability and a subsidiary of CTS Holdings |
| "Tourism Group" | Traditional Tourism Group and On-line Tourism Group |
| "Traditional Tourism Group" | CTS HK and its subsidiaries, CT Air Service and CT Advertising excluding Fu Wa |
| "Travel Permit Administration" | general administration services provided in Hong Kong for the application of tourist visas and travel permits for entry into the PRC |
| "Warranted 2000 Tourism Profit" | HK$172,470,000, being the amount of the pro forma consolidated profit of the Tourism Group for the year ended 31st December, 2000 as warranted by CTS Holdings in the Conditional Agreement |
| "WTO" | World Trade Organisation |
| "HK$" | Hong Kong dollars, the lawful currency of Hong Kong |
| "k.m." | kilometre(s) |
| "sq.ft." | square feet(s) |
| "sq.m." | square metre(s) |
By order of the board of
China Travel International Investment Hong Kong Limited
Shen Zhuying
Managing Director
Hong Kong, 21st March, 2001
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