Zhejiang Expressway Co Ld - Capital Increase

Date
14 October 2016

Parties
(i)   Communications Group

(ii)  Ningbo Expressway Co

(iii) Taizhou Expressway Co

(iv)  the Company

(v)   Zhejiang Communications Finance

Capital Contribution
Pursuant to the Capital Contribution Agreement, the Existing Shareholders and the Company agreed to contribute capital in cash to Zhejiang Communications Finance on a pro rata basis in proportion to their existing shareholding in Zhejiang Communications Finance in the aggregate amount of RMB1 billion, of which the Company agreed to contribute an amount of RMB350,000,000 based on its current shareholding in Zhejiang Communications Finance. The Company intends to satisfy the Capital Contribution by way of its internal resources.

Basis of determination of the Capital Contribution
The amount of capital contributions to be made by the Company and the Existing Shareholders in the aggregate sum of RMB1 billion was determined after arm's length negotiations amongst the parties with reference to the future capital need of Zhejiang Communications Finance.

Timing of the Capital Contribution
Subject to the Capital Contribution Agreement becoming effective, the capital contribution by the Company is expected to be made on or before 20 October 2016.

Conditions precedent and effective date
Completion of the Capital Contribution Agreement is conditional upon the approval of CBRC having been obtained in connection with the Capital Contribution Agreement, and the Capital Contribution Agreement will become effective on the date on which it is approved by CBRC.

REASONS FOR AND BENEFITS OF THE CAPITAL CONTRIBUTION
The Directors expect that Zhejiang Communications Finance will play a larger role as a fund management platform for the Communications Group following the merger of the Communications Group and Zhejiang Railway Investment Group in August 2016. The operation scale of Zhejiang Communications Finance is, however, constrained by the size of its capital and the existing capital level of Zhejiang Communications Finance is no longer sufficient to support its expansion and satisfy the business needs of the Communications Group (including the Company).

As a non-bank financial institution, the operations of Zhejiang Communications Finance are subject to various capital requirements imposed by the People's Bank of China and CBRC. For instance, the amount of financial debts that Zhejiang Communications Finance may issue must not exceed its total capital, the amount of short term securities investments it may hold (including short term currency funds and fixed income products) must not exceed 40% of its total capital, the amount of long term investments it may hold must not exceed 30% of its total capital, and the amount of guarantee it may provide to Communications Group and its subsidiaries must not exceed its total capital. The Capital Contribution is therefore necessary for the progressive development of Zhejiang Communications Finance. The Capital Contribution would also enable Zhejiang Communications Finance to cope with the enhanced regulatory requirements on capital sufficiency and capital management by non-bank financial institutions imposed by regulators such as the People's Bank of China and the CBRC.

It is important for Zhejiang Communications Finance to continue expanding its business scope in order to serve the subsidiaries of the Communications Group (including the Company), and the level of capital is an important criteria to be considered by the regulators when applying for the operation of new businesses. The Capital Contribution will enable Zhejiang Communications Finance to expand its  business scope, operate new business and maintain its status in the industry.

Zhejiang Communications Finance has shown a strong growth in income and profitability since its establishment in December 2012, with an average return on net assets at approximately 14% in the past three years. The Directors consider that the Capital Contribution will provide a satisfactory return to the Company.

Given the above, the Directors (including the independent non-executive Directors) are of the view that the terms of the Capital Contribution Agreement are on normal commercial terms, in the ordinary and usual course of business of the Company and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

INFORMATION ON ZHEJIANG COMMUNICATIONS FINANCE
Zhejiang Communications Finance is a limited liability company incorporated in the PRC on 9 November 2012 and approved by CBRC as a non-banking financial institution on 17 October 2012 with a registered capital of RMB1 billion as at the date of this announcement. As at the date of this announcement, Zhejiang Communications Finance is owned as to 40%, 35%, 15.625% and 9.375% by Communications Group, the Company, Ningbo Expressway Co and Taizhou Expressway Co, respectively, and Zhejiang Communications Finance is an associate of the Company.

Zhejiang Communications Finance is principally engaged in the business of providing financial services to the subsidiaries of Communications Group, including but not limited to advising the subsidiaries of Communications Group in relation to financing, letters of credit and other agency services; authorised insurance agency businesses; providing guarantees, accepting and discounting commercial notes, arranging for loans and financial leases, and receiving deposits of the subsidiaries of Communications Group.

According to the audited financial statements of Zhejiang Communications Finance, the total assets of Zhejiang Communications Finance as at 31 December 2015 were approximately RMB6,270,342,000. Zhejiang Communications Finance recorded an operating revenue of approximately RMB270,333,000 and a profit before tax of approximately RMB186,144,000 for the year ended 31 December 2015.

Upon completion of the Capital Contribution, the registered capital of Zhejiang Communications Finance will be increased from RMB1 billion to RMB2 billion, and the shareholding percentage of the Company and the Existing Shareholders in Zhejiang Communications Finance will remain unchanged.

LISTING RULES IMPLICATIONS
As at the date of this announcement, Communications Group holds approximately 67% of the issued share capital of the Company. By virtue of this shareholding interest, Communications Group is a controlling shareholder of the Company. As at the date of this announcement, Communications Group also directly and indirectly, through Ningbo Expressway Co and Taizhou Expressway Co, holds 65% of the issued share capital of Zhejiang Communications Finance. Therefore, Zhejiang Communications Finance, being a subsidiary of Communications Group, is a connected person of the Company and as a result, the transaction under the Capital Contribution Agreement constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules.

As the applicable percentage ratios in respect of the transactions contemplated under the Capital Contribution Agreement are more than 0.1% but less than 5%, the Capital Contribution Agreement is subject to the reporting, announcement and annual review requirements but exempt from the independent Shareholders' approval requirement under Chapter 14A of the Listing Rules.

Each of Mr. Zhan Xiaozhang, Mr. Wang Dongjie, Mr. Dai Benmeng and Mr. Zhou Jianping holds certain senior position in Communications Group, so they have abstained from voting on the board resolution with respect to the approval of the Capital Contribution Agreement. Save for Mr. Zhan Xiaozhang, Mr. Wang Dongjie, Mr. Dai Benmeng and Mr. Zhou Jianping, none of the Directors has any material interest in the Capital Contribution Agreement or is required to abstain from voting on the relevant Board resolutions to approve the same.

INFORMATION ON THE PARTIES
The Company is a joint stock company established under the laws of the PRC with limited liability on 1 March 1997, the H Shares of which are listed on the Main Board of the Stock Exchange. It is principally engaged in investing in, developing and operating high-grade roads in the PRC. The Group also carries on certain other businesses such as operation of gas stations, restaurants and shops in service areas, advertising at expressway interchanges and external road maintenance, as well as securities related business.

Communications Group is a wholly state-owned enterprise established in the PRC on 29 December 2001 and is principally engaged in a diverse range of businesses, including investment, operations, maintenance, toll collection and ancillary services of expressways, construction and building of transportation project, ocean and coastal transport, as well as real estate.

Ningbo Expressway Co. is a limited liability company incorporated in the PRC and a 75% owned subsidiary of Communications Group and is principally engaged in the operation and management of the Ningbo section of the Ningbo-Taizhou-Wenzhou expressway.

Taizhou Expressway Co. is a limited liability company incorporated in the PRC and a 75% owned subsidiary of Communications Group and is principally engaged in the operation and management of the Taizhou section of the Ningbo-Taizhou-Wenzhou expressway.

DEFINITIONS
In this announcement, unless the context specifies otherwise, the following defined expressions have the following meanings:

On behalf of the Board              
ZHEJIANG EXPRESSWAY CO., LTD.
ZHAN Xiaozhang                  
Chairman                       

Hangzhou, PRC, 14 October 2016

As of the date of this announcement, the executive directors of the Company are: Mr. ZHAN Xiaozhang, Mr. CHENG Tao and Ms. LUO Jianhu; the non-executive directors of the Company are: Mr. WANG Dongjie, Mr. DAI Benmeng and Mr. ZHOU Jianping; and the independent non-executive directors of the Company are: Mr. ZHOU Jun, Mr. PEI Ker-Wei and Ms. LEE Wai Tsang Rosa.