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CHINA TRAVEL INTERNATIONAL INVESTMENT HONG KONG LIMITED
(Incorporated in Hong Kong under the Companies Ordinance)
|
SUMMARY
With reference to the Company's announcement in connection with the Proposed Transactions and the Ongoing Connected Transactions dated 21st March, 2001, the Directors wish to announce further details on the Ongoing Connected Transactions. From time to time after Completion, the Group will receive services pursuant to the Ongoing Connected Transactions from CTS Holdings Group and vice versa. The Ongoing Connected Transactions will be conducted in the ordinary and usual course of businesses of the Group and its counter-parties; and on normal commercial 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. CTS Holdings is interested in about 60.18% of the existing issued share capital of the Company. Pursuant to the Listing Rules, the Ongoing Connected Transactions will constitute connected transactions of the Company. 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 is applying to the Stock Exchange for a waiver from the announcement/shareholders' approval requirement as required under the Listing Rules. The Ongoing Connected Transactions are subject to, among other things, the approval of the Independent Shareholders in the EGM. An Independent Board Committee has been 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 has been appointed to advise the Independent Board Committee in respect of the terms of the Proposed Transactions and the Ongoing Connected Transactions. |
I. BACKGROUND INFORMATION
As disclosed in the Company's announcement dated 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.
From time to time after Completion, the Group will receive services pursuant to the Ongoing Connected Transactions from CTS Holdings Group and vice versa. The Ongoing Connected Transactions will be conducted in the ordinary and usual course of businesses of the Group and its counter-parties; and on normal commercial terms determined on an arm's length basis.
The Directors consider it to be in the interest 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.
As CTS Holdings is interested in about 60.18% of the existing issued share capital of the Company, the Ongoing Connected Transactions after Completion will constitute connected transactions of the Company under the Listing Rules.
II. PARTICULARS OF THE ONGOING CONNECTED TRANSACTIONS
Set out below are the particulars of Ongoing Connected Transactions:
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, CT Advertising and CTHT 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, a subsidiary 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 CTS HK from independent third parties.
D. Sale of tourism services/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 services/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 determined on an arm's length basis 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 arrangements
i. Connected person as lessor
Transaction nature
It is envisaged that CTS HK, CT Advertising and CT Net will enter into rental agreements with CTS Holdings expiring on 31st December, 2003, pursuant to which, CTS HK, CT Advertising and CT Net will rent 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 from CTS Holdings.
Rental and other charges payable to connected person
| Rental | About HK$812,000 per month |
| Management fee | About 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.
ii. Connected person as lessee
Transaction nature
It is envisaged that CTHMS, a wholly-owned subsidiary of the Company's controlling shareholder, will enter into a new rental agreement with CT Air Service expiring on 31st December, 2003, pursuant to which, CTHMS will rent the office premises with an aggregate lettable area of about 1,500 sq.ft. located at Unit 101, 1/F, Block W5 at District W, Guihua Yuan, Huaqiao Cheng, Nanshan District, Shenzhen, the PRC from CT Air Service (The existing agreement will be terminated upon entering into the new rental agreement between the parties).
Rental receivable from connected person
| Rental | HK$3,550 per month (exclusive of government rates, water and electricity expenses which shall be borne by the tenant) |
Pricing basis
The rental charged by CT Air Service to CTHMS shall not be lower than the prevailing market rate.
H. Provision of ASP services to connected person
Transaction nature
It is envisaged that CT Net will continue to provide ASP services to CT Computer Service, a wholly-owned subsidiary of the Company's controlling shareholder.
Pricing basis
The ASP services to be provided by CT Net to CT Computer Service will be charged by reference to fees charged by CT Net to other independent third parties or the costs for the provision of such services plus a margin of not less than 10%, whichever is higher.
The following is a summary of the amount of connected transactions on a pro forma basis pursuant to the above-mentioned categories for each of the two years ended 31st December, 2000:
Year ended 31st December,
1999 2000
HK$'000 HK$'000
A. Provision of insurance brokerage
services by connected person 1,785 1,515
B. Provision of decoration and maintenance
services by connected person 1,190 1,560
C. Provision of sightseeing cruiser services
by connected person 1,420 1,500
D. Sale of tourism services/products to
connected persons 3,840 3,730
E. Provision of Travel Permit Administration
on behalf of connected person 228,025 265,394
F. Provision of stevedoring services by
connected person 1,380 1,390
G. Lease arrangements
i. Connected person as lessor 12,498 12,498
ii. Connected person as lessee - 43
H. Provision of ASP services to connected
person 10,367 13,767
III. BENEFITS OF THE ONGOING CONNECTED TRANSACTIONS
The Ongoing Connected Transactions 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 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. RHL Appraisal Limited, a firm of independent property valuers, has confirmed that the rental payable under the lease arrangements as set out above is at market level and the terms are normal commercial terms.
IV. 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 an extraordinary 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 assets 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 assets value of the Group but below the higher of HK$10,000,000 or 3% of the net tangible assets 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. As such, the Company has made an application to the Stock Exchange for a waiver from the announcement/shareholders' approval requirement in connection with the Ongoing Connected Transactions as required under the Listing Rules on conditions that:
(a) the Independent Shareholders approve the Ongoing Connected Transactions at the EGM;
(b) the Ongoing Connected Transactions for each financial year up to 31st December, 2003 will not exceed the relevant annual caps set forth below:
| Types of transactions | Annual cap |
| Based on the Group's net tangible assets value | |
| A. Provision of insurance brokerage services by connected person | 3% |
| B. Provision of decoration and maintenance services by connected person | 3% |
| C. Provision of sightseeing cruiser services by connected person | 3% |
| D. Sale of tourism services/products to connected persons | 3% |
| F. Provision of stevedoring services by connected person | 3% |
| G. Lease arrangements i. Connected person as lessor ii. Connected person as lessee | 3% |
| H. Provision of ASP services to connected person | 3% Based on the Group's turnover |
| E. Provision of Travel Permit Administration on behalf of connected person | 20% |
(c) details of the Ongoing Connected Transactions will be disclosed in the Company's annual report as described in Rule 14.25(1)(A) to (D) of the Listing Rules;
(d) the independent non-executive Directors shall review the Ongoing Connected Transactions annually and confirm in the Company's next annual report and accounts that the relevant Ongoing Connected Transactions have been entered into:
(i) in the ordinary and usual course of business of the Group;
(ii) on normal commercial terms or, if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Group than terms available to or from (as appropriate) independent third parties;
(iii) in accordance with the relevant agreement governing them; and
(iv) on terms that are fair and reasonable and in the interests of the Shareholders as a whole; and
(e) each year the auditors of the Company shall provide a letter (the "Letter") to the Board confirming that each of the Ongoing Connected Transactions:
(i) has received the approval of the Board;
(ii) has been entered into in accordance with the terms of the relevant agreement governing such transaction; and
(iii) has not exceeded the relevant cap amount set out in paragraph (b) above.
Where, for whatever reason, the auditors of the Company decline to accept the engagement or are unable to provide the Letter, the Directors shall contact the Stock Exchange as soon as practicable.
In the event of any future amendments to the Listing Rules imposing more stringent requirements than as at the date of the proposed waiver application on transactions of the kind to which the Ongoing Connected Transactions belong including, but not limited to, a requirement that such transactions be made conditional on approval by the Independent Shareholders, the Company will take immediate steps to ensure compliance with such requirements within a reasonable period.
V. INFORMATION FOR THE SHAREHOLDERS
An EGM will be convened to approve the Proposed Transactions and the Ongoing Connected Transactions (including the relevant annual caps as mentioned above).
In view of the interest 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 has been 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 has been appointed to advise the Independent Board Committee in respect of the terms of the Proposed Transactions and the Ongoing Connected Transactions as mentioned above.
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 fulfilment of the conditions of the Conditional Agreement), Shareholders and investors are reminded to exercise caution when dealing in the shares of the Company.
VI. 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 which 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 |
| "Board" | the board of Directors |
| "BVI" | the British Virgin Islands |
| "Company" | China Travel International Investment Hong Kong Limited  ) |
| "Completion" | completion of the Proposed Transactions which is subject to the conditions as set out in the Conditional Agreement dated 21st March, 2001 being fulfilled or waived (if applicable) by the Company |
| "Conditional Agreement" | the conditional agreement dated 21st March, 2001, entered into between the Company and CTS Holdings regarding the Proposed Transactions |
| "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 the Company upon Completion |
| "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 the Company upon Completion |
| "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 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 BVI on 17th January, 2000 with limited liability |
| "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 Holdings upon Completion |
| "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 the Company upon Completion |
| "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 |
| "CTS Holdings Group" | CTS Holdings and its subsidiaries (for the purpose of this announcement, excluding the Group and ASL Group) |
| "Directors" | the directors of the Company |
| "EGM" | the extraordinary general meeting of the Company to be held at 2:30 p.m. on Friday, 4th May, 2001 at 3rd Floor, Coral Room, Furama Hotel Hong Kong, 1 Connaught Road Central, Hong Kong, 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) Limitada ( ), 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 requires, shall include those companies which will become subsidiaries of the Company upon Completion |
| "HYR Splendid" | Hubei Yangtze River Splendid China Cruise Co. Ltd.  ) |
| "Independent Board Committee" | an independent committee of the Board, comprising Dr. Yeh Meou Tsen, Geoffrey, Dr. Fong Yun Wah and Mr. Wong Man Kong, Peter, appointed by the Board 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 Rules" | the Rules Governing the Listing of Securities on the Stock Exchange |
| "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 as a result of Completion and as described in the paragraph headed "Particulars of the Ongoing Connected Transactions" above |
| "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 paragraph headed "Information on the Tourism Group" in the Company's announcement dated 21st March, 2001 will be present immediately prior to Completion |
| "Shareholder(s)" | shareholder(s) of the Company |
| "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 upon Completion |
| "Tourism Group" | ASL Group excluding Fu Wa |
| "Travel Permit Administration" | the general administration services provided in Hong Kong for the application of tourist visas and travel permits for entry into the PRC |
By order of the board of
China Travel International Investment Hong Kong Limited
Shen Zhuying
Managing Director
Hong Kong, 9th April, 2001
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