Annual Report 2019

Report of the Directors 92 CHINA MERCHANTS PORT HOLDINGS COMPANY LIMITED (i) On 19 December 2019, China Merchants Container Services Limited (“ CMCS ”), a subsidiary of the Company and Euroasia Dockyard Enterprise and Development Limited (“ Euroasia ”) entered into a new cooperation agreement (the “ New Euroasia Cooperation Agreement ”) to renew the lease of a piece of land in Tsing Yi (the “ Tsing Yi Leased Land ”). The New Euroasia Cooperation Agreement has a term of one year commencing on 1 January 2020 and ending on 31 December 2020. The annual rental fees to be paid by CMCS to Euroasia under the New Euroasia Cooperation Agreement is HK$16,500,000 for the year ending 31 December 2020. As disclosed in the announcement of the Company dated 19 December 2019, the transactions contemplated under the New Euroasia Cooperation Agreement were considered as continuing connected transactions of the Company and accordingly, the Directors resolved to set the annual cap in respect of the rental fees to be paid by CMCS to Euroasia under the New Euroasia Cooperation Agreement at HK$16,500,000 for the year ending 31 December 2020. However, upon further discussion with the Directors with regard to the accounting treatment of the renewal of lease of the Tsing Yi Leased Land under the New Euroasia Cooperation Agreement, the renewal of lease of the Tsing Yi Leased Land constitutes to a lease modification and resulted in the recognition of right-of-use assets in the Group’s consolidated financial statements in accordance with the requirements under Hong Kong Financial Reporting Standard 16 “Leases” (“ HKFRS 16 ”) which is effective during the year ended 31 December 2019. Accordingly, the transaction under the New Euroasia Cooperation Agreement would be regarded as an acquisition of asset and constitutes a connected transaction of the Company. Pursuant to HKFRS 16, right-of-use assets in respect of the lease of the Tsing Yi Leased Land for the lease period from 1 January 2019 to 31 December 2019 of HK$15,900,000 is recognised, which is to be depreciated over the lease term on a straight line basis. Euroasia is an indirect wholly-owned subsidiary of CMG, the ultimate holding company of the Company, and accordingly, a connected person of the Company. The applicable percentage ratios set out in Rule 14.07 of the Listing Rules in respect of the New Euroasia Cooperation Agreement exceed 0.1% but are below 5%, which is the same as the applicable percentage ratios in respect of the annual cap in respect of the rental fees to be paid by CMCS to Euroasia under the New Euroasia Cooperation Agreement as disclosed in the announcement dated 19 December 2019.