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First Tractor Company Limited Proxy Solicitation & Information Statement 2024
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Proxy Solicitation & Information Statement
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THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer or registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.
If you have sold or transferred all your Shares in FIRST TRACTOR COMPANY LIMITED*, you should at once hand this circular to the purchaser or the transferee or to the bank, licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.
第一拖拉机股份有限公司
FIRST TRACTOR COMPANY LIMITED*
(a joint stock company incorporated in The People's Republic of China with limited liability)
(Stock Code: 0038)
CONTINUING CONNECTED TRANSACTIONS – FINANCIAL SERVICES AGREEMENT
Independent Financial Adviser to the Independent Board Committee and Independent Shareholders
Unless the context requires otherwise, capitalised terms used herein shall have the same meanings as those set out in the section headed "Definitions" of this circular.
A letter from the Board is set out on pages 5 to 17 of this circular and a letter from the Independent Board Committee to the Independent Shareholders is set out on pages 18 to 19 of this circular. A letter of advice from Gram Capital to the Independent Board Committee and the Independent Shareholders is set out on pages 20 to 30 of this circular.
A notice convening the EGM to be held at 2:30 p.m. on 18 December 2024 (Wednesday) at the Conference Room, No. 154 Jianshe Road, Luoyang, Henan Province, the PRC, together with the proxy form had been issued to the H Shareholders separately.
Whether or not you are able to attend the EGM in person, you are requested to complete and return the forms of proxy in accordance with the instructions printed thereon. The proxy forms shall be lodged with the Company's H Share registrar, Hong Kong Registrars Limited, at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, or at the registered address and principal place of business of the Company at No. 154 Jianshe Road, Luoyang, Henan Province, the PRC (as far as A Shareholders are concerned), as soon as possible and in any event not less than 24 hours before the time scheduled for holding the EGM (or any adjourned meetings thereof). Completion and delivery of the forms will not preclude you from attending and voting in person at the EGM or any adjourned meeting (as the case may be) should you so wish.
- For identification purposes only
2 December 2024
CONTENTS
Page
Definitions 1
Letter from the Board 5
Letter from the Independent Board Committee 18
Letter from Gram Capital 20
Appendix – General Information 31
- i -
DEFINITIONS
In this circular, unless the context otherwise requires, the following terms shall have the following meanings:
“A Share(s)”
the domestic ordinary share(s) of RMB1.00 each in the share capital of the Company, which are listed on the Shanghai Stock Exchange and subscribed for and traded in RMB
“A Shareholder(s)”
holder(s) of A Share(s)
“Abstained Directors”
Mr. Li Xiaoyu, Mr. Fang Xianfa, Mr. Yang Jianhui and Mr. Miao Yu, who abstained from voting on the Board resolutions in respect of the Financial Services Agreement and the respective annual caps
“annual cap(s)”
the maximum aggregate annual value(s) in respect of the transactions contemplated under the Financial Services Agreement for each of the three years ending 31 December 2027 (in the case of deposit services and loan services, the highest balance at any point in time; in the case of other financial services, the highest total annual value)
“associate(s)”
has the same meaning as ascribed to this term under the Hong Kong Listing Rules
“Board”
the board of Directors
“Company”
First Tractor Company Limited* (第一拖拉機股份有限公司), a joint stock company with limited liability incorporated in the PRC, the H Shares and A Shares of which are listed on the main board of the Stock Exchange (stock code: 0038) and the Shanghai Stock Exchange (stock code: 601038), respectively
“connected person(s)”
has the same meaning as ascribed to this term under the Hong Kong Listing Rules
“controlling shareholder”
has the same meaning ascribed to it under the Hong Kong Listing Rules
“Director(s)”
the director(s) of the Company
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DEFINITIONS
"EGM"
the extraordinary general meeting of the Company to be convened and held at 2:30 p.m. on 18 December 2024, Wednesday at the Conference Room, No. 154 Jianshe Road, Luoyang, Henan Province, the PRC, for the Independent Shareholders to consider, among other things, and, if thought fit, approve the Financial Services Agreement and the proposed annual cap amounts
"Existing Financial Services Agreement"
the financial services framework agreement dated 29 March 2022 entered into between the Company and Sinomach Finance, details of which are set out in announcement of the Company 29 March 2022
"Financial Services Agreement"
the framework agreement dated 15 November 2024 entered into between the Company and Sinomach Finance in relation to the provision of deposit, loans and other financial services
"Group"
the Company and its subsidiaries
"H Share(s)"
the overseas listed foreign share(s) having a nominal value of RMB1.00 each in the share capital of the Company, which are subscribed for and traded in Hong Kong dollars, which are listed on the Stock Exchange
"H Shareholder(s)"
holder(s) of H Share(s)
"Hong Kong"
Hong Kong Special Administrative Region of the PRC
"Hong Kong Listing Rules"
the Rules Governing the Listing of Securities on the Stock Exchange (as amended from time to time)
"Independent Board Committee"
an independent committee of the Board comprising all the independent non-executive Directors, namely Mr. Edmund Sit, Mr. Wang Shumao and Mr. Xu Liyou
"Independent Financial Adviser" or "Gram Capital"
Gram Capital Limited, a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the SFO, being the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the transactions for the deposit services under the Financial Services Agreement and the proposed annual caps thereunder
"Independent Shareholder(s)"
Shareholder(s) other than YTO and its associate(s)
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DEFINITIONS
"Latest Practicable Date"
28 November 2024, being the latest practicable date prior to the distribution of this circular for ascertaining certain information contained herein
"NFRA"
National Financial Regulatory Administration
"PRC"
The People’s Republic of China
"RMB"
Renminbi, the lawful currency of the PRC
"SFO"
the Securities Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended from time to time
"Shanghai Listing Rules"
Shanghai Stock Exchange Share Listing Rules
"Shareholder(s)"
shareholder(s) of the Company
"Sinomach"
China National Machinery Industry Corporation* (中國機械工業集團有限公司), a limited liability company incorporated in the PRC and a controlling shareholder of YTO holding approximately 88.22% equity interest in YTO as at the Latest Practicable Date
"Sinomach Finance"
Sinomach Finance Co., Ltd.* (國機財務有限責任公司), a company established in the PRC and approved by the former China Banking and Insurance Regulatory Commission as a non-bank financial institution and a non wholly-owned subsidiary of Sinomach
"Sinomach Group"
(i) Sinomach; (ii) subsidiaries of Sinomach; and (iii) 30%-controlled companies of Sinomach and their subsidiaries other than YTO Group and the Group
"Stock Exchange"
The Stock Exchange of Hong Kong Limited
"YTO"
YTO Group Corporation* (中國一拖集團有限公司), a limited liability company incorporated in the PRC and the controlling shareholder of the Company holding approximately 48.81% equity interest in the Company as at the Latest Practicable Date
"%"
per cent.
-
For identification purposes only
-
3 -
DEFINITIONS
Certain figures set out in this circular are subject to rounding adjustments. Accordingly, figures shown as the currency conversion or percentage equivalents may not be an arithmetic sum of such figures.
Any discrepancy in any table between totals and sums of amounts listed in this circular is due to rounding.
The English names of the Chinese nationals, companies, entities, departments, facilities, certificates, titles and the like are translation of their Chinese names and are included in this circular for identification purposes only and should not be regarded as their official English translation. In the event of any inconsistency, the Chinese names prevail.
The English text of this circular shall prevail over the Chinese text in the event of inconsistency.
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LETTER FROM THE BOARD
第一拖拉机股份有限公司
FIRST TRACTOR COMPANY LIMITED*
(a joint stock company incorporated in The People's Republic of China with limited liability)
(Stock Code: 0038)
Board of Directors:
Mr. Li Xiaoyu
Mr. Wei Tao
Mr. Fang Xianfa
Mr. Yang Jianhui
Mr. Miao Yu
Mr. Edmund Sit
Mr. Wang Shumao
Mr. Xu Liyou**
Registered and principal office:
No.154 Jianshe Road
Luoyang
Henan Province
The PRC
** Independent non-executive Director
2 December 2024
To the Shareholders
Dear Sir or Madam,
CONTINUING CONNECTED TRANSACTIONS – FINANCIAL SERVICES AGREEMENT
I. INTRODUCTION
Reference is made to the announcement of the Company dated 15 November 2024 in respect of the Financial Services Agreement.
The Existing Financial Services Agreement will expire on 31 December 2024. Based on the operational and financial management needs of the Group, and on the premise of ensuring the safety of the funds and stable returns of the Group, while taking into account the previous business transactions between the parties, on 15 November 2024, the Company entered into the Financial Services Agreement for a term of three years commencing from 1 January 2025 to 31 December 2027 (both days inclusive).
LETTER FROM THE BOARD
According to the Hong Kong Listing Rules, an Independent Board Committee has been established to consider and advise the Independent Shareholders in respect of the transactions for the deposit services under the Financial Services Agreement. Gram Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders as to whether or not the terms and conditions of the transactions for the deposit services under the Financial Services Agreement and the relevant annual caps are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Under the Hong Kong Listing Rules, Gram Capital is only required to opine on the transactions for the deposit services under the Financial Services Agreement including the relevant annual caps thereunder. Gram Capital will not provide opinion on the provision of loans and other financial services under the Financial Services Agreement and relevant annual caps thereunder. Notwithstanding such arrangement, details of the provision of loans and other financial services under the Financial Services Agreement are included in this circular so that Shareholders can have a full picture of the background regarding the resolution to be proposed at the EGM and make an informed decision in the voting of the relevant resolution at the EGM.
The purpose of this circular is to provide you with information regarding (i) details of the Financial Services Agreement and the transactions contemplated thereunder (including the respective annual caps); (ii) the letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in respect of the transactions for the deposit services under the Financial Services Agreement and the relevant annual caps; and (iii) the letter from Gram Capital to the Independent Board Committee in respect of the transactions for the deposit services under the Financial Services Agreement and the relevant annual caps.
II. CONTINUING CONNECTED TRANSACTIONS
(1) Financial Services Agreement
Details of the major terms of the Financial Services Agreement are as follows:
Date : 15 November 2024
Parties : the Company (on behalf of the Group); and
Sinomach Finance
LETTER FROM THE BOARD
Services to be provided
: Sinomach Finance will provide, and the Group will utilise, the financial services provided by Sinomach Finance on a non-exclusive basis, including:
(a) deposit services, including but not limited to demand deposit, agreement deposit, call deposit and time deposit in both domestic and foreign currency;
(b) provision of loans, including but not limited to working capital loans, fixed assets loan, buyer's credit, bill acceptance and discounting, and non-financing guarantees; and
(c) provision of other financial services, including but not limited to domestic and foreign currency settlement and management services, entrusted loans, financial and financing advisory, credit verification and related consultation, agency services, and other businesses approved by the NFRA.
Term
: From 1 January 2025 to 31 December 2027
Fees and charges
: Deposit services
The interest rate for the deposit shall be determined within the benchmark interest rate and floating rate range as published by the PBOC for the same type of deposit with the same term, provided that such rate shall be no less than the interest rate for the same kind of deposit with the same type and term offered by major independent commercial banks in the area during the same period and no less than the interest rate for the same kind of deposits with the same type and term provided by Sinomach Finance to other member companies with the same credit level, whichever is higher.
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LETTER FROM THE BOARD
Provision of loans
The interest rate for the loans shall be determined according to the relevant requirements for the Pricing Self-Regulatory Mechanism for Market Interest Rates (市場利率定價自律機制) and based on the loan prime rate, provided that such rate shall not exceed the interest rate for the same kind of loans with the same term offered by major independent commercial banks in the area and shall not exceed the interest rate for the same kind of loans with the same term provided by Sinomach Finance to other member companies with the same credit level, whichever is lower.
Provision of other financial services
No service fees shall be charged in respect of the settlement services.
The service fees for other financial services shall comply with the fees standard promulgated by the PBOC or the NFRA for the applicable kind of service and shall not exceed the fees standard for the same kind of service offered by major independent commercial banks in the area during the same period and shall not exceed the fees standard for the same kind of service provided by Sinomach Finance to other member companies with the same credit level, whichever is lower.
Non-exclusivity
The cooperation between the Group and Sinomach Finance is non-exclusive, and the Group has the right to decide whether it needs and accepts the services provided by Sinomach Finance, and the right to independently choose the services provided by other financial institutions, taking into account its own interests and based on the principle of maximising the interests of shareholders.
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LETTER FROM THE BOARD
Historical Figures and the Proposed Annual Caps for the Transactions under the Financial Services Agreement
The following table sets out the historical transaction amounts for each of the years ended 31 December 2022 and 2023, and for the six months ended 30 June 2024, the annual caps for each of the three years ending 31 December 2024, and the proposed annual caps for each of the three years ending 31 December 2027 under the Financial Services Agreement:
Unit: RMB0'000
| Historical transaction amounts | Annual caps | |||||
|---|---|---|---|---|---|---|
| For the year ended 31 December | For the six months ended 30 June 2024 | For the year ended/ending 31 December | ||||
| 2022 | 2023 | 2022 | 2023 | 2024 | ||
| Maximum daily balance of deposits (including accrued interest thereon) placed by the Group with Sinomach Finance | 199,750 | 199,962 | 197,827 | 200,000 | 200,000 | 200,000 |
| Credit facility (including accrued interest thereon) granted by Sinomach Finance to the Group | 198,001 | 219,327 | 197,633 | 240,000 | 240,000 | 240,000 |
| Maximum fees and charges paid by the Group to Sinomach Finance for the other financial services | 103 | 168 | 97 | 1,000 | 1,000 | 1,000 |
| Proposed annual caps | ||||||
| For the year ending 31 December | ||||||
| 2025 | 2026 | 2027 | ||||
| Maximum daily balance of deposits (including accrued interest thereon) placed by the Group with Sinomach Finance | 250,000 | 250,000 | 250,000 | |||
| Credit facility (including accrued interest thereon) granted by Sinomach Finance to the Group | 300,000 | 300,000 | 300,000 | |||
| Maximum fees and charges paid by the Group to Sinomach Finance for the other financial services | 1,000 | 1,000 | 1,000 |
LETTER FROM THE BOARD
Basis for the Proposed Annual Caps under the Financial Services Agreement
The proposed annual caps for each of the three years ending 31 December 2027 for the Financial Services Agreement are determined with reference to the following factors:
(1) the historical transaction amounts and the utilisation rate of the annual caps for deposit services and provision of loans between the Group and Sinomach Finance as at 31 December 2022, 31 December 2023 and 30 June 2024 amounted to approximately 100%;
(2) for the annual caps for the deposit services, taking into account (i) the expected increase in capital size of the Group with the steady development of the Group's business based on the Group's increasing net profit and positive net cash flow from operating activities for the two years ended 31 December 2023 and the six months ended 30 June 2024; (ii) the series of favourable government policies in the PRC supporting the development of the agricultural machinery industry, including the "Opinions on Comprehensively Promoting Rural Revitalisation and Accelerating Agricultural and Rural Modernisation", the "Implementation Opinions on Subsidies for the Purchase and Application of Agricultural Machinery (2024-2026)" and the "National High-Standard Farmland Construction Plan (2021-2030)", which will accelerate the modernisation of agriculture and rural areas and maintain the growth in the agricultural machinery industry; and (iii) the expected consolidation of the Group's advantages in the PRC market to seize the market development opportunities and the expected enhancement in effort by the Group in developing the overseas market to promote the ongoing robust growth of the Group, it is expected that the cash flow and capital size of the Group and the demand for deposit services of the Group will increase; and
(3) for provision of loans, taking into account (i) the future operation and development plan and capital needs of the Group, based on the continuous promotion of the Group in technological advancement and improvement in high horsepower intelligent tractors product and the future increase in capital investment in areas including research and development and equipment upgrade in view of the latest agricultural machinery subsidy policy released in the PRC and the significant trend towards large-scale and intelligent development of products, and (ii) the expected increase in the Group's demand for credit facility including bill acceptance and discounting according to the business development needs of the Group.
(2) Condition Precedent
The Financial Services Agreement shall be subject to the approvals by the respective board of directors of the parties (if needed), and the shareholders of Sinomach Finance (if needed) and the Independent Shareholders of the Company, including but not limited to such approvals as required under the applicable Hong Kong Listing Rules and Shanghai Listing Rules.
LETTER FROM THE BOARD
(3) Internal Control and Corporate Governance Measures
To ensure that the continuing connected transactions are conducted in compliance with the pricing terms agreed in the Financial Services Agreement and do not exceed the proposed annual caps, and safeguard the interests of the Shareholders and the Company, the Group has formulated the following internal control and corporate governance measures:
(1) before the Group and Sinomach Finance enter into transactions under the Financial Services Agreement, the Group will make reference to the pricing terms of at least three independent financial institutions in relation to the similar services with the same term. The Group will compare the abovementioned pricing terms with the pricing terms provided by Sinomach Finance and determine whether to accept the pricing terms provided by Sinomach Finance;
(2) the finance department of the Company will review and approve the deposit services, loan services and other financial services provided by Sinomach Finance to ensure that business cooperation is carried out in accordance with the provisions of the Financial Services Agreement, that the main terms are consistent with normal commercial terms, and that the interest rates or fees are implemented in accordance with the pricing policy set out in the Financial Services Agreement;
(3) the finance department of the Company will quarterly monitor the Company's deposit and loan balances with Sinomach Finance to ensure that they do not exceed the annual caps;
(4) the external auditors of the Company will regularly monitor, collect and evaluate data on continuing connected transactions under the Financial Services Agreement, and express opinions on whether the transactions under the Financial Services Agreement are conducted in accordance with the terms of the Financial Services Agreement; and
(5) the independent non-executive Directors and the auditors of the Company will conduct annual review on the transactions for deposit services under the Financial Services Agreement with report by the auditors to the audit committee of the Board and the independent non-executive Directors in accordance with the Hong Kong Listing Rules;
(6) Sinomach Finance will regularly provide its financial statements and financial indicators for the Company's review, and the Company will issue an ongoing risk assessment report on a semi-annual basis to assess the business and financial risks of Sinomach Finance. As at 30 June 2024, all the regulatory indicators of Sinomach Finance met the regulatory requirements, and Sinomach Finance had total assets of approximately RMB44.37 billion, net assets of approximately RMB4.22 billion, registered capital of RMB1.75 billion, capital adequacy ratio of 13.16%, liquidity ratio of 56.14%;
LETTER FROM THE BOARD
(7) the 36th Meeting of the Eighth Session of the Board considered and approved the "Risk Management Plan regarding carrying out financial business with Sinomach Finance Co., Ltd.", which effectively safeguard the liquidity and security of deposit of the Group with Sinomach;
(8) Sinomach has undertaken to provide capital injection to Sinomach Finance when necessary and not to withdraw capital in the event of liquidity issue of Sinomach Finance and to provide liquidity support to the greatest extent possible; and
(9) Sinomach Finance has undertaken that the deposits placed by the Company shall be primarily for the Company's financial needs and to ensure the safety of the deposits. In the event that the Company has financial needs exceeding the amount of deposits placed, Sinomach Finance shall use its best endeavours to satisfy the financial needs of the Company in accordance with the terms of the Financial Services Agreement and regulatory requirements.
The Directors are of the view that the above internal control and corporate governance measures can ensure that the transactions under the Financial Services Agreement will be conducted on normal commercial terms and will not be prejudicial to the interests of the Company and the Shareholders as a whole. The Company will also closely monitor the transaction amounts under the Existing Financial Services Agreement to ensure that the annual cap amount for the year ending 31 December 2024 will not be exceeded.
(4) Reasons for and Benefits of Entering into the Financial Services Agreement
Sinomach Finance, as a legally established and surviving non-bank financial institution approved by the former China Banking and Insurance Regulatory Commission (CBIRC), has the qualifications to provide financial services to the members of the Group, with safe and sound operation and strong performance capability. Sinomach Finance, as the settlement platform of the Group, is familiar with the business of the Company and is able to quickly respond to the capital needs of the Group and ensure the smooth cooperation, and as a result, facilitates the fund transfer within the Group. The provision of financial services by Sinomach Finance to the Company is conducive to the Company's effective capital management, the expansion of the Company's financing channels, improvement of the speed of settlement and turnover of funds, enhancement of the efficiency of the use of funds, and the sustained and benign development of the Company.
Sinomach Finance has legal and valid documents and information such as financial permit and business licence, and has established a relatively complete and reasonable internal control system, which can better control risks. The risks of the financial business such as related deposit and loan between the Company and Sinomach Finance are controllable.
LETTER FROM THE BOARD
Accordingly, the Directors (excluding the Abstained Directors) are of the view that (i) the continuing connected transactions contemplated under the Financial Services Agreement will be carried out in the ordinary and usual course of business of the Group and in the interest of the Company and its Shareholders as a whole; (ii) the terms of the Financial Services Agreement are on normal commercial terms and on terms not less favourable than those of similar transactions with independent third parties and are fair and reasonable; and (iii) the proposed annual caps of the transactions contemplated under the Financial Services Agreement for the three years ending 31 December 2027 are fair and reasonable.
(5) Information of the Parties
The Group is principally engaged in the production and sales of agricultural machineries and power machineries. The principal products include tractors of hi-powered and mid-powered, diesel engines and other accessories of tractors.
Sinomach Finance is a non-banking financial institution established in 2003 approved by the former China Banking and Insurance Regulatory Commission (CBIRC). Sinomach Finance is a non wholly-owned subsidiary of Sinomach, which is in turn held as to 100% by the State-owned Assets Supervision and Administration Commission of the State Council of the PRC. Sinomach Finance is principally engaged in the provision of financial services including deposits taking, provision of loans, underwriting of corporate bonds, as well as finance leasing, financial and financing consultation, settlement services, provision of guarantee, entrusted loan, handling bills acceptance and discounting, and other financial services that may be approved by the NFRA, to members of Sinomach Group. Sinomach Finance maintains a sound operational performance. As at 30 June 2024, all regulatory indicators of Sinomach Finance meet compliance requirements. Sinomach Finance has well-established management systems, effective risk management and sound performance ability, and has not been listed as a dishonest person subject to enforcement.
(6) Listing Rules Implications
Connected Persons
As at the Latest Practicable Date, YTO is the controlling shareholder of the Company, holding 548,485,853 A Shares, representing 48.81% equity interest in the Company. YTO is in turn held as to approximately 88.22% by Sinomach. Sinomach Finance is a non wholly-owned subsidiary of Sinomach. Pursuant to the Hong Kong Listing Rules, each of YTO, Sinomach and Sinomach Finance is a connected person of the Company.
Accordingly, the transactions contemplated under the Financial Services Agreement entered into by the Company with Sinomach Finance constitute continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules.
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LETTER FROM THE BOARD
Hong Kong Listing Rules Implications
The continuing connected transactions in respect of the provision of loans under the Financial Services Agreement will not be secured by any assets of the Group and are fully exempted from the annual reporting, announcement, and Independent Shareholders’ approval requirements pursuant to Rule 14A.90 of the Hong Kong Listing Rules.
As all the applicable percentage ratios in respect of the annual caps for the provision of other financial services under the Financial Services Agreement are less than 0.1%, the transactions contemplated thereunder are exempt from the annual reporting, annual review, announcement and independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules.
As one or more of the applicable percentage ratios in respect of the annual caps for the deposit services under the Financial Services Agreement are more than 5%, the transactions contemplated thereunder constitute continuing connected transactions of the Company and are subject to the annual reporting, annual review, announcement and independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules.
Shanghai Listing Rules Implications
As the A Shares are listed on the Shanghai Stock Exchange, the Company is also required to comply with relevant requirements of the Shanghai Listing Rules. Pursuant to the relevant provisions of the Shanghai Listing Rules, the transactions contemplated under the Financial Services Agreement are subject to the Independent Shareholders’ approval at the EGM.
III. RECOMMENDATIONS
The Directors consider that the terms of the Financial Services Agreement, the transactions contemplated thereunder and the respective proposed annual caps are fair and reasonable and in the interests of the Company and its Shareholders as a whole. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the ordinary resolution numbered 2 with respect to the Financial Services Agreement, the transactions contemplated thereunder and the respective annual caps to be proposed at the EGM.
LETTER FROM THE BOARD
If the Company fails to obtain the approval of the Shareholders or Independent Shareholders for the Financial Services Agreement at the EGM, the Company and Sinomach Finance agreed that, subject to full compliance with the applicable laws, regulations, the Hong Kong Listing Rules and the Shanghai Listing Rules, Sinomach Finance could provide loans to the Group (including but not limited to working capital loans, fixed assets loan, buyer's credit, bill acceptance and discounting and non-financing guarantees) and the parties will enter into separate agreements.
According to the Hong Kong Listing Rules, an Independent Board Committee has been established to consider and advise the Independent Shareholders in respect of the transactions for the deposit services under the Financial Services Agreement. Gram Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders as to whether or not the terms and conditions of the transactions for the deposit services under the Financial Services Agreement and the relevant annual caps are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.
The Independent Board Committee, having considered the terms and conditions of the transactions for the deposit services under the Financial Services Agreement and the relevant annual caps, and taken into account the advice of Gram Capital, is of the opinion that (i) the terms of the transactions for the deposit services under the Financial Services Agreement (including the relevant annual caps) are on normal commercial terms and are fair and reasonable; and (ii) the transactions for the deposit services under the Financial Services Agreement are conducted in the ordinary and usual course of business of the Group and in the best interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the relevant ordinary resolution to be proposed at the EGM as set out in the notice of the EGM.
Your attention is drawn to the letter from the Independent Board Committee which is set out on pages 18 to 19 of this circular which contains its recommendation to the Independent Shareholders in relation to the transactions for the deposit services under the Financial Services Agreement and the relevant annual caps. Your attention is also drawn to the letter of advice from Gram Capital which is set out on pages 20 to 30 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders in relation to the transactions for the deposit services under the Financial Services Agreement and the relevant annual caps. You are advised to read the said letters from the Independent Board Committee and Gram Capital before deciding how to vote at the EGM.
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LETTER FROM THE BOARD
IV. EGM
A notice convening the EGM to be held at 2:30 p.m. on 18 December 2024, Wednesday at the Conference Room, No. 154 Jianshe Road, Luoyang, Henan Province, the PRC together with the form of proxy had been issued to the H Shareholders separately and a copy of which can be downloaded from the Company's website (www.first-tractor.com.cn) and the website of the Stock Exchange (www.hkex.com.hk). The EGM will be held for the Shareholders to consider, among other things, and, if thought fit, approve the Financial Services Agreement, the transactions contemplated thereunder and the respective annual cap amounts. Voting on the aforesaid resolution will be taken by poll in accordance with the requirements of the Hong Kong Listing Rules.
The Abstained Directors are considered to have interests in the Financial Services Agreement and the transaction contemplated thereunder since Mr. Li Xiaoyu is the deputy general manager of Sinomach and all the Abstained Directors are also directors of YTO. Accordingly, the Abstained Directors abstained from voting on the Board resolutions in respect of the Financial Services Agreement and the respective annual caps. Save for the Abstained Directors, no other Director had a material interest in the Financial Services Agreement and the transaction contemplated thereunder.
As at the Latest Practicable Date, YTO is the controlling shareholder of the Company, holding 548,485,853 A Shares, representing 48.81% equity interest in the Company. As YTO is a connected person of the Company, YTO and its associates will abstain from voting on the resolution to approve the transactions contemplated under the Financial Services Agreement and the respective annual caps at the EGM. To the best of the Directors' knowledge, information and belief having made all reasonable enquires, other than YTO and its associates, no shareholder has a material interest in the Financial Services Agreement and the transactions contemplated thereunder and will be required to abstain from voting at the EGM on the resolution in respect of the same.
Whether or not you are able to attend the EGM in person, you are requested to complete and return the forms of proxy in accordance with the instructions printed thereon. The proxy forms shall be lodged with the Company's H Share registrar, Hong Kong Registrars Limited, at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, or at the registered address and principal place of business of the Company at No. 154 Jianshe Road, Luoyang, Henan Province, the PRC (as far as A Shareholders are concerned), as soon as possible and in any event not less than 24 hours before the time scheduled for holding the EGM (or any adjourned meetings thereof). Completion and delivery of the forms will not preclude you from attending and voting in person at the EGM or any adjourned meeting (as the case may be) should you so wish.
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LETTER FROM THE BOARD
Pursuant to the Hong Kong Listing Rules, any vote of Shareholders at a general meeting must be taken by poll. An announcement of the poll results of the EGM will be published by the Company in accordance with the requirements under the Hong Kong Listing Rules.
V. ADDITIONAL INFORMATION
Your attention is drawn to the additional information as set out in the appendix to this circular and the notice of the EGM which had been issued to the H Shareholders separately.
Yours faithfully,
By order of the Board
First Tractor Company Limited*
Yu Lina
Company Secretary
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For identification purposes only
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17 -
LETTER FROM THE INDEPENDENT BOARD COMMITTEE
The following is the text of a letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in relation to the Non-exempt CCT Agreement, the Non-exempt CCT Transaction and the relevant annual caps.
第一拖拉机股份有限公司
FIRST TRACTOR COMPANY LIMITED*
(a joint stock company incorporated in The People's Republic of China with limited liability)
(Stock Code: 0038)
2 December 2024
To the Independent Shareholders
Dear Sir or Madam,
CONTINUING CONNECTED TRANSACTIONS - FINANCIAL SERVICES AGREEMENT
We refer to the circular of the Company dated 2 December 2024 (the "Circular"), of which this letter forms part. Unless the context requires otherwise, capitalised terms used herein shall have the same meanings as those defined in the Circular.
We have been appointed by the Board as the members of the Independent Board Committee to consider the terms and conditions of the transactions for the deposit services as contemplated under the Financial Services Agreement and the relevant annual caps, and to advise the Independent Shareholders as to whether, in our opinion, the terms of the transactions for the deposit services under the Financial Services Agreement and the relevant annual cap amounts are fair and reasonable, on normal commercial terms, in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole. Gram Capital has been appointed as the independent financial adviser to advise us and the Independent Shareholders in respect of the Financial Services Agreement, the transactions for the deposit services under the Financial Services Agreement and the relevant annual cap amounts.
We wish to draw your attention to (i) the "Letter from the Board"; (ii) the "Letter from Gram Capital" to the Independent Board Committee and the Independent Shareholders which contains its advice in respect of the transactions for the deposit services under the Financial Services Agreement and the relevant annual cap amounts; and (iii) the additional information as set out in the appendix to the Circular.
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LETTER FROM THE INDEPENDENT BOARD COMMITTEE
Having considered the terms and conditions of the transactions for the deposit services under the Financial Services Agreement and the relevant annual cap amounts, and having taken into account the opinion of Gram Capital and, in particular, the factors, reasons and recommendations as set out in the "Letter from Gram Capital" on pages 20 to 30 of the Circular, we are of the opinion that (i) the terms of the transactions for the deposit services under the Financial Services Agreement (including the relevant annual caps) are on normal commercial terms and are fair and reasonable; and (ii) the transactions for the deposit services under the Financial Services Agreement are conducted in the ordinary and usual course of business of the Group and in the best interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution concerning the same to be proposed at the EGM.
Yours faithfully,
For and on behalf of the Independent Board Committee
Mr. Edmund Sit
Mr. Wang Shumao
Mr. Xu Liyou
Independent non-executive Directors
-
For identification purposes only
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19 -
LETTER FROM GRAM CAPITAL
Set out below is the text of a letter received from Gram Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Deposit Services for the purpose of inclusion in this circular.
Gram Capital Limited
嘉林資本有限公司
Room 1209, 12/F.
Nan Fung Tower
88 Connaught Road Central/
173 Des Voeux Road Central
Hong Kong
2 December 2024
To: The independent board committee and the independent shareholders of First Tractor Company Limited*
Dear Sir/Madam,
CONTINUING CONNECTED TRANSACTIONS IN RELATION TO DEPOSIT SERVICES
INTRODUCTION
We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the deposit services contemplated under the Financial Services Agreement (the “Deposit Services”) (including the relevant annual caps), details of which are set out in the letter from the Board (the “Board Letter”) contained in the circular dated 2 December 2024 issued by the Company to the Shareholders (the “Circular”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.
With reference to the Board Letter, the Existing Financial Services Agreement will expire on 31 December 2024. Based on the operational and financial management needs of the Group, and on the premise of ensuring the safety of the funds and stable returns of the Group, while taking into account the previous business transactions between the parties, on 15 November 2024, the Company entered into the Financial Services Agreement for a term of three years commencing from 1 January 2025 to 31 December 2027 (both days inclusive).
With reference to the Board Letter, the Deposit Services constitute continuing connected transactions of the Company, and is therefore subject to the annual reporting, annual review, announcement and Independent Shareholders’ approval requirements under the Chapter 14A of the Hong Kong Listing Rules.
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LETTER FROM GRAM CAPITAL
The Independent Board Committee comprising Mr. Edmund Sit, Mr. Wang Shumao and Mr. Xu Liyou (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the Deposit Services (including the relevant annual caps) are on normal commercial terms and are fair and reasonable; (ii) whether the Deposit Services (including the relevant annual caps) are in the interests of the Company and the Shareholders as a whole and conducted in the ordinary and usual course of business of the Group; and (iii) how the Independent Shareholders should vote in respect of the resolution to approve the Deposit Services (including the relevant annual caps) at the EGM. We, Gram Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.
INDEPENDENCE
During the past two years immediately preceding the Latest Practicable Date, apart from our engagement as the Independent Financial Adviser in respect of the Deposit Services, Gram Capital is engaged as the independent financial adviser to the independent board committee and independent shareholders of the Company in relation to the Company's continuing connected transaction regarding procurement, details of which are set out in the Company's announcement dated 29 October 2024 (the "Other IFA Engagement"). Save for the Other IFA Engagement, there was no other service provided by Gram Capital to the Company during the past two years immediately preceding the Latest Practicable Date.
Notwithstanding the Other IFA Engagement, as at the Latest Practicable Date, we were not aware of any relationships or interests between Gram Capital and the Company during the past two years immediately preceding the Latest Practicable Date, or any other parties that could be reasonably regarded as hindrance to Gram Capital's independence to act as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders.
Having considered the above, in particular (i) none of the circumstances as set out under Rule 13.84 of the Listing Rules existed as at the Latest Practicable Date; and (ii) the Other IFA Engagement is only independent financial advisory engagement, we are of the view that we are independent to act as the Independent Financial Adviser.
BASIS OF OUR OPINION
In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt
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LETTER FROM GRAM CAPITAL
the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. Our opinion is based on the Directors' representation and confirmation that there is no undisclosed private agreement/arrangement or implied understanding with anyone concerning the Deposit Services. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Hong Kong Listing Rules.
The Circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement therein or the Circular misleading. We, as the Independent Financial Adviser, take no responsibility for the contents of any part of the Circular, save and except for this letter of advice.
We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, Sinomach Finance or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Deposit Services. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. In addition, nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.
Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, it is the responsibility of Gram Capital to ensure that such information has been correctly extracted from the relevant sources while we are not obligated to conduct any independent in-depth investigation into the accuracy and completeness of those information.
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LETTER FROM GRAM CAPITAL
PRINCIPAL FACTORS AND REASONS CONSIDERED
In arriving at our opinion in respect of the Deposit Services, we have taken into consideration the following principal factors and reasons:
Information of the Group
With reference to the Board Letter, the Group is principally engaged in the production and sales of agricultural machineries and power machineries. The principal products include tractors of hi-powered and mid-powered, diesel engines and other accessories of tractors.
Set out below are the consolidated financial information of the Group for the two years ended 31 December 2023 and the six months ended 30 June 2024 (together with comparative figures) as extracted from the Company's annual report for the year ended 31 December 2023 (the "2023 Annual Report") and the Company's interim report for the six months ended 30 June 2024 (the "2024 Interim Report"):
| For the six months ended 30 June 2024 (unaudited) RMB | For the six months ended 30 June 2023 (unaudited) RMB | Year-on-year change % | For the year ended 31 December 2023 (audited) RMB | For the year ended 31 December 2022 (audited) RMB | Year-on-year change % | |
|---|---|---|---|---|---|---|
| Total operating revenue | 7,806,619,832.72 | 7,248,544,566.19 | 7.70 | 11,533,786,779.44 | 12,563,780,344.92 | (8.20) |
| - Agricultural machinery | 7,092,748,823.42 | 6,470,455,793.85 | 9.62 | 10,136,024,866.40 | 11,226,401,926.33 | (9.71) |
| - Power machinery | 713,871,009.30 | 772,462,748.76 | (7.59) | 1,392,135,889.46 | 1,229,063,188.29 | 13.27 |
| - Financial services | - | 5,626,023.58 | (100.00) | 5,626,023.58 | 108,315,230.30 | (94.81) |
| Operating profit | 1,077,306,515.25 | 818,317,831.85 | 31.65 | 996,266,250.37 | 588,018,899.85 | 69.43 |
| Net profit attributable to owners of the parent company | 905,349,574.14 | 754,144,938.68 | 20.05 | 997,022,699.99 | 681,050,957.24 | 46.39 |
As illustrated in the above table, the Group's total operating revenue was approximately RMB11.53 billion for the year ended 31 December 2023 ("FY2023"), representing a decrease of approximately 8.20% as compared to that for the year ended 31 December 2022 ("FY2022"). With reference to the 2023 Annual Report, such decrease was mainly due to decrease in sales volume of the Company's tractors. In contrast, the Group recorded significant increase of approximately 46.39% in net profit attributable to owners of the parent company for FY2023 as compared to that for FY2022. With reference to the 2023 Annual Report and as advised by the Directors, such increase was mainly due to increase in operating profit led by the Group's optimization of product mix and continuous improvement in cost effectiveness control across its value chain.
As illustrative in the above table, the Group's total operating revenue was approximately RMB7.81 billion for the six months ended 30 June 2024 ("1H2024"), representing an increase of approximately 7.70% as compared to that for the corresponding period in 2023. With reference to the 2024 Interim Report, such increase was mainly due to increase in the sales volume of the Company's main products. In addition, the Group recorded significant increases of approximately
LETTER FROM GRAM CAPITAL
20.05% in net profit attributable to owners of the parent company for 1H2024 as compared to that for the corresponding period in 2023. With reference to the 2024 Interim Report, such increase was mainly due to the aforesaid increase in total operating revenue as partially offset by increases in total operating cost and income tax expenses.
With reference to the 2024 Interim Report, the Company will seize the favourable opportunities arising from the construction of a strong agricultural country (the PRC) and the transformation and development of agricultural machinery and equipment, to consolidate and strengthen the Company's advantages in manufacturing, technology and products, so as to promote the sustainable, stable, and healthy development of the Company.
Information on Sinomach Finance
With reference to the Board Letter:
(i) Sinomach Finance is a non-banking financial institution established in 2003 approved by the former China Banking and Insurance Regulatory Commission (CBIRC). Sinomach Finance is principally engaged in the provision of financial services including deposits taking, provision of loans, underwriting of corporate bonds, as well as finance leasing, financial and financing consultation, settlement services, provision of guarantee, entrusted loan, handling bills acceptance and discounting, and other financial services that may be approved by the NFRA, to members of Sinomach Group. Sinomach Finance maintains a sound operational performance. As at 30 June 2024, all regulatory indicators of Sinomach Finance meet compliance requirements. Sinomach Finance has well-established management systems, effective risk management and sound performance ability, and has not been listed as a dishonest person subject to enforcement.
(ii) As at the Latest Practicable Date, YTO is the controlling shareholder of the Company and YTO is in turn held as to approximately 88.22% by Sinomach. Sinomach Finance is a non wholly-owned subsidiary of Sinomach, which is in turn held as to 100% by the State-owned Assets Supervision and Administration Commission of the State Council of the PRC. Accordingly, Sinomach Finance is a connected person of the Company.
Reasons for and benefits of the Deposit Services
With reference to the Board Letter, Sinomach Finance, as a legally established and surviving non-bank financial institution approved by the former China Banking and Insurance Regulatory Commission (CBIRC), has the qualifications to provide financial services to the members of the Group, with safe and sound operation and strong performance capability. Sinomach Finance, as the settlement platform of the Group, is familiar with the business of the Company and is able to quickly respond to the capital needs of the Group and ensure the smooth cooperation, and as a result, facilitates the fund transfer within the Group. The provision of financial services by
LETTER FROM GRAM CAPITAL
Sinomach Finance to the Company is conducive to the Company's effective capital management, the expansion of the Company's financing channels, improvement of the speed of settlement and turnover of funds, enhancement of the efficiency of the use of funds, and the sustained and benign development of the Company. Sinomach Finance has legal and valid documents and information such as financial permit and business licence, and has established a relatively complete and reasonable internal control system, which can better control risks. The risks of the financial business such as related deposit and loan between the Company and Sinomach Finance are controllable.
Having considered the above, we are of the view that the Deposit Services are in the interests of the Company and the Shareholders as a whole and are conducted in the ordinary and usual course of business of the Group.
Principal terms of the Deposit Services
1. Principal terms
Agreement date
15 November 2024
Parties
(1) The Company (on behalf of the Group); and
(2) Sinomach Finance
The Deposit Services
Pursuant to the Financial Services Agreement, Sinomach Finance will provide, and the Group will utilise, the financial services provided by Sinomach Finance on a non-exclusive basis. The Deposit Services include but not limited to demand deposit, agreement deposit, call deposit and time deposit in both domestic and foreign currency.
Term
From 1 January 2025 to 31 December 2027
Non-exclusivity
The cooperation between the Group and Sinomach Finance is non-exclusive, and the Group has the right to decide whether it needs and accepts the services provided by Sinomach Finance, and the right to independently choose the services provided by other financial institutions, taking into account its own interests and based on the principle of maximising the interests of the Shareholders.
LETTER FROM GRAM CAPITAL
2. Interest rate
Pursuant to the Financial Services Agreement, the interest rate for the deposit shall be determined within the benchmark interest rate and floating rate range as published by the PBOC for the same type of deposit with the same term, provided that such rate shall be no less than the interest rate for the same kind of deposit with the same type and term offered by major independent commercial banks in the area during the same period and no less than the interest rate for the same kind of deposits with the same type and term provided by Sinomach Finance to other member companies with the same credit level, whichever is higher.
For our due diligence purpose, we obtained lists of the Group's members with accounts in Sinomach Finance as at 31 December 2022 and 31 December 2023 and 30 June 2024. We randomly selected a member from each of the list as at 31 December 2022 and 31 December 2023 and 30 June 2024 and the Company provided us deposit documents governing the deposit interest rate of the selected member's account with Sinomach Finance and deposit documents governing the deposit interest rate of the selected member's account with independent third party bank. We noted from the aforesaid documents that the interest rates offered by Sinomach Finance were not less than those offered by independent third party banks.
With reference to the Board Letter, to ensure that the continuing connected transactions (including the Deposit Services) are conducted in compliance with the pricing terms agreed in the Financial Services Agreement and do not exceed the proposed annual caps, and safeguard the interests of the Shareholders and the Company, the Group has formulated internal control and corporate governance measures (the "Internal Control Measures"). Details of the Internal Control Measures are set out under the section headed "(3) Internal Control and Corporate Governance Measures" of the Board Letter. Having considered that the Internal Control Measures include, amongst others, (i) reviews and approvals by the Company's finance department; (ii) Sinomach Finance regularly providing its financial statements and financial indicators for the Company's review; (iii) annual review by independent non-executive Directors; and (iv) regular monitoring and evaluation by the Company's external auditors, we consider the Internal Control Measures to be adequate and appropriate.
With reference to the 2023 Annual Report, the independent non-executive Directors have reviewed, among other things, the continuing connected transactions (including the Deposit Services) for FY2023 and confirmed that the continuing connected transactions (including the Deposit Services) were (i) conducted in the ordinary and usual course of business of the Group; (ii) on normal commercial terms or better; and (iii) conducted in accordance with an agreement relating to the transaction on terms that are fair and reasonable and in the interests of the Shareholders as a whole.
The Company's auditors were also engaged to report on the Group's continuing connected transactions (including the Deposit Services) for FY2023 pursuant to Chapter 14A of the Hong Kong Listing Rules. Regarding the Group's continuing connected transactions (including the
LETTER FROM GRAM CAPITAL
Deposit Services), the auditors of the Company confirmed to the Board that (i) they had not noticed any matters that lead them to believe that the disclosed continuing connected transactions were not approved by the Board; (ii) they had not noticed any matters that lead them to believe that such transactions were not in compliance with the relevant agreements impacting those transactions in all material respects; and (iii) they had not noticed any matters that lead them to believe that the disclosed continuing connected transactions have exceeded the maximum annual total price disclosed in the Company's previous announcements of the disclosed continuing connected transactions.
3. Proposed annual caps
Set out below are the details of (i) the historical transaction amounts of the Deposit Services for the two years ended 31 December 2023 and the six months ended 30 June 2024 (together with respective annual caps); and (ii) the proposed annual caps for the three years ending 31 December 2027 in respect of the Deposit Services (the "Deposit Cap(s)") as extracted from the Board Letter:
| For the year ended 31 December 2022 RMB0'000 | For the year ended 31 December 2023 RMB0'000 | For the year ending 31 December 2024 ("FY2024") RMB0'000 | |
|---|---|---|---|
| Historical transaction amounts - Maximum daily balance of deposits placed by the Group with Sinomach Finance | 199,750 | 199,962 | 197,827 (Note) |
| Existing annual caps | 200,000 | 200,000 | 200,000 |
| Utilisation rates | 99.88% | 99.98% | Undetermined |
| For the year ending 31 December 2025 ("FY2025") RMB0'000 | For the year ending 31 December 2026 ("FY2026") RMB0'000 | For the year ending 31 December 2027 ("FY2027") RMB0'000 | |
| Deposit Cap(s) | 250,000 | 250,000 | 250,000 |
Note: The historical transaction amount was for 1H2024.
LETTER FROM GRAM CAPITAL
With reference to the Board Letter, the Deposit Caps were determined with reference to historical annual caps utilisation rates and that taking into account the future business development and the expected increase in cash flow and capital size of the Group (based on, amongst others, (i) the Group's positive net cash flow from operating activities and increasing net profit for the two years ended 31 December 2023 and 1H2024; and (ii) series of favourable government policies in the PRC supporting the development of the agricultural machinery industry), it is expected that the demand for deposit services of the Group will increase.
As depicted from the above table, the utilisation rates of existing annual caps were approximately 99.88% for FY2022 and approximately 99.98% for FY2023. The maximum daily balance of deposits placed by the Group with Sinomach Finance for 1H2024 also represented approximately 98.91% of the existing annual cap for FY2024.
To assess the fairness and reasonableness of the Deposit Caps, we discussed with the Company regarding the liquidity fund available to the Group. Based on the 2024 Interim Report and the information provided by the Company, the Group's liquidity fund as at 30 June 2024 comprised the followings:
(i) Monetary fund of approximately RMB2,050 million;
(ii) Time deposits of approximately RMB250 million under other current assets;
(iii) Large-denomination certificates of deposit and time deposit of approximately RMB3,727 million (at amortised cost); and
(iv) Structured deposit of approximately RMB750 million (classified as financial assets held for trading in the 2024 Interim Report).
The sum of the above is approximately RMB6,777 million and far exceeds the Deposit Caps of RMB2,500 million per annum.
Having also considered that the existing annual caps for FY2022 and FY2023 were mostly utilised and that the maximum daily balance of deposits placed by the Group with Sinomach Finance for 1H2024 also represented approximately 98.91% of the existing annual cap for FY2024, we consider that it is reasonable for the Company to set increased Deposit Caps of RMB2,500 million per annum for the Group's operational needs in future.
In light of the above, we consider that the Deposit Caps for the three years ending 31 December 2027 are fair and reasonable.
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LETTER FROM GRAM CAPITAL
Shareholders should note that as the Deposit Caps are relating to future events and were estimated based on assumptions which may or may not remain valid for the entire period up to 31 December 2027, and they do not represent forecasts of deposit balance under the Deposit Services. Consequently, we express no opinion as to how closely the actual deposit balance under the Deposit Services will correspond with the Deposit Caps.
Having considered the principal terms of the Deposit Services as set out above, we are of the view that the terms of the Deposit Services (including the Deposit Caps) are on normal commercial terms and are fair and reasonable.
Hong Kong Listing Rules implication
The Directors confirmed that the Company shall comply with the requirements of Rules 14A.53 to 14A.59 of the Hong Kong Listing Rules pursuant to which (i) the values of the Deposit Services must be restricted by their respective proposed annual caps; (ii) the terms of the Deposit Services (including their respective annual caps) must be reviewed by the independent non-executive Directors annually; (iii) details of independent non-executive Directors' annual review on the terms of the Deposit Services must be included in the Company's subsequent published annual reports. Furthermore, it is also required by the Hong Kong Listing Rules that the auditors of the Company must provide a letter to the Board confirming, among other things, whether anything has come to their attention that causes them to believe that the Deposit Services (i) have not been approved by the Board; (ii) were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and (iii) have exceeded their respective annual caps. In the event that the total amounts of the Deposit Services are anticipated to exceed their respective annual caps, or that there is any proposed material amendment to the terms of the Deposit Services, as confirmed by the Directors, the Company shall comply with the applicable provisions of the Hong Kong Listing Rules governing continuing connected transaction.
Given the above stipulated requirements for continuing connected transactions pursuant to the Hong Kong Listing Rules, we are of the view that there are adequate measures in place to monitor the Deposit Services and thus the interest of the Independent Shareholders would be safeguarded.
RECOMMENDATION
Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the Deposit Services are on normal commercial terms and are fair and reasonable; and (ii) the Deposit Services are conducted in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Deposit Services and we recommend the Independent Shareholders to vote in favour of the resolution in this regard.
LETTER FROM GRAM CAPITAL
Yours faithfully,
For and on behalf of
Gram Capital Limited
Graham Lam
Managing Director
Note: Mr. Graham Lam is a licensed person registered with the Securities and Futures Commission and a responsible officer of Gram Capital Limited to carry out Type 6 (advising on corporate finance) regulated activity under the SFO. He has around 30 years of experience in investment banking industry.
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For identification purpose only
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APPENDIX
GENERAL INFORMATION
1. RESPONSIBILITY STATEMENT
This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.
2. DISCLOSURE OF INTERESTS
(i) Interests and short positions of the Directors, supervisors and chief executive in the Company and its associated corporations
As at the Latest Practicable Date, none of the Directors, supervisors or chief executives of the Company had any interest or short position in any Shares, underlying Shares and/or debentures (as the case may be) of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which was required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which any such Director, supervisor or chief executive was taken or deemed to have under such provisions of the SFO) or which was required to be entered into the register required to be kept by the Company pursuant to section 352 of the SFO or which was otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") as contained in Appendix C3 to the Hong Kong Listing Rules.
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APPENDIX
GENERAL INFORMATION
(ii) Interests and short positions of substantial Shareholders
Save as disclosed below, as at the Latest Practicable Date, the Directors were not aware of any person who had any interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or was required to be notified to the Company and the Stock Exchange pursuant to section 324 of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group:
| Name | Capacity | Number of Shares interested^{1} | Approximate percentage of the relevant class of issued share capital of the Company (%) | Approximate percentage of the total issued share capital of the Company (%) | Class of Shares |
|---|---|---|---|---|---|
| YTO^{2} | Beneficial owner | 548,485,853(L) | 74.96 | 48.81 | A Share |
Notes:
- (L) – Long position
- Sinomach is the controlling shareholder of YTO. Sinomach is deemed to be interested in the Shares held by YTO by virtue of the SFO.
Save as disclosed above, there are no other persons (other than the Directors, supervisors or chief executives of the Company) who, as at Latest Practicable Date, had any interest or short position in the Shares or underlying Shares as recorded in the register required to be kept by the Company under section 336 of the SFO.
- DISCLOSURE OF OTHER INTERESTS OF THE DIRECTORS
(a) Interests in contract or arrangement
As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement subsisting at the Latest Practicable Date which was significant in relation to the business of the Group.
APPENDIX
GENERAL INFORMATION
(b) Interests in assets
As at the Latest Practicable Date, none of the Directors had any direct or indirect interests in any assets which had been acquired or disposed of by, or leased to, or which were proposed to be acquired or disposed of by, or leased to, any member of the Group since 31 December 2023, being the date to which the latest published audited accounts of the Group were made up.
(c) Interests in competing business
As at the Latest Practicable Date, none of the Directors or any of their respective associates of the Company were interested in any business apart from the Company's business, which competed or was likely to compete, either directly or indirectly, with the Company's business.
As at the Latest Practicable Date, none of the Directors was materially interested in any subsisting contract or arrangement which was significant in relation to the business of the Group, and no Director was interested in any assets which had been acquired or disposed of by or leased to (or are proposed to be acquired or disposed of by or leased to) any member of the Group since 31 December 2023, being the date to which the latest published audited accounts of the Group were made up.
4. DIRECTORS' EMPLOYMENT WITH SUBSTANTIAL SHAREHOLDER
Save as disclosed below, as at the Latest Practicable Date, none of the Directors or supervisors of the Company is a director or employee of a company which had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.
| Name of substantial shareholder of the Company | Position in the substantial shareholder of the Company | |
|---|---|---|
| Mr. Li Xiaoyu | Sinomach | Deputy General Manager |
| YTO | Director | |
| Mr. Fang Xianfa | YTO | Director |
| Mr. Yang Jianhui | YTO | Director |
| Mr. Miao Yu | YTO | Director |
APPENDIX
GENERAL INFORMATION
5. DIRECTORS' AND SUPERVISORS' SERVICE CONTRACTS
As at the Latest Practicable Date, none of the Directors or supervisors of the Company had entered, or proposed to enter, into a service contract with any member of the Group (excluding contracts expiring or determinable by the relevant member of the Group within one year without payment of compensation, other than statutory compensation).
6. MATERIAL ADVERSE CHANGE
As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2023, being the date to which the latest published audited accounts of the Group were made up.
7. EXPERT AND CONSENT
The following is the qualification of the expert who has given opinion or advice which is contained in this circular:
| Name | Qualification |
|---|---|
| Gram Capital | a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the SFO |
Gram Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they appear. The letter from Gram Capital contained herein was issued on 2 December 2024 and was made by Gram Capital for incorporation in this circular.
As at the Latest Practicable Date, Gram Capital did not have any direct or indirect interest in any assets which had since 31 December 2023 (being the date to which the latest published audited accounts of the Company were made up) been acquired or disposed of by or leased to, or which were proposed to be acquired or disposed of by or leased to, any member of the Group.
As at the Latest Practicable Date, Gram Capital was not beneficially interested in the share capital of any member of the Group, nor had any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
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APPENDIX
GENERAL INFORMATION
8. DOCUMENTS ON DISPLAY
Copies of the following documents will be available on the Stock Exchange’s website and the Company’s own website from the date of this circular up to and including the date of the EGM:
(a) the Financial Services Agreement;
(b) the letter from the Independent Board Committee, the text of which is set out on pages 18 to 19 of this circular;
(c) the letter from Gram Capital, the text of which is set out on pages 20 to 30 of this circular;
(d) the written consent of Gram Capital referred to in paragraph 6 of this Appendix; and
(e) this circular.
9. GENERAL
In the event of any inconsistency, the English language text of this circular shall prevail over the Chinese language text.