Sinopec Engineering Group Co Ltd. — Regulatory Filings 2015

Sep 15, 2015

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement.

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中石化煉化工程(集團)股份有限公司 SINOPEC Engineering (Group) Co., Ltd.[*]

(a joint stock limited liability company incorporated in the People’s Republic of China) (Stock Code: 2386)

ANNOUNCEMENT

RENEWAL OF TECHNOLOGY R&D FRAMEWORK AGREEMENT, FINANCIAL SERVICES FRAMEWORK AGREEMENT AND ENGINEERING AND CONSTRUCTION SERVICES FRAMEWORK AGREEMENT AND THE ANNUAL CAPS

AND

THE CONTINUING CONNECTED TRANSACTIONS AND MAJOR TRANSACTIONS UNDER THE FINANCIAL SERVICES FRAMEWORK AGREEMENT

I. INTRODUCTION

Reference is made to the Company’s announcement dated 31 August 2015 in relation to the renewal of the Technology R&D Framework Agreement, the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement and the Annual Caps (the “ Previous Announcement ”). In this announcement, unless the context otherwise requires, the capitalised terms used herein shall have the same meanings as those defined in the Previous Announcement.

Pursuant to the relevant guidance letter on the pricing policies for continuing connected transactions issued by the Hong Kong Stock Exchange, the Company hereby provides more details of the pricing policies of the continuing connected transactions under each of the Technology R&D Framework Agreement and the

• For identification purposes only.

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Engineering and Construction Services Framework Agreement (the “ Continuing Connected Transactions ”), and the Company’s relevant internal control measures. Please refer to the following content in this announcement for further details.

In addition, as disclosed in the Previous Announcement, each of the applicable “percentage ratios” calculated for the purpose of Chapter 14A of the Hong Kong Listing Rules based on the relevant Proposed Annual Caps in respect of the transactions under the Financial Services Framework Agreement will exceed 5% on an annual basis and the annual consideration will exceed HK$10,000,000. Under Rule 14A.76(2) of the Hong Kong Listing Rules, such transactions will constitute the Company’s non-exempt continuing connected transactions, and are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules. The Company hereby supplements that, in terms of the proposed maximum daily balance of deposits and interest income as well as the proposed maximum daily balance of entrustment loans for each of the years ended 31 December 2016, 2017 and 2018, one or more of the applicable “percentage ratios” calculated according to Rule 14.07 of the Hong Kong Listing Rules will exceed 25%. The services of deposits and entrustment loans under the Financial Services Framework Agreement will also constitute a major transaction of the Company under Chapter 14 of the Hong Kong Listing Rules, and are subject to the announcement, circular and Independent Shareholders’ approval requirements under Chapter 14 of the Hong Kong Listing Rules. Please refer to the Previous Announcement and the Company’s circular to the Shareholders dated 14 September 2015 for further details.

II. THE PRICING POLICY UNDER THE TECHNOLOGY R&D FRAMEWORK AGREEMENT

As disclosed in the Previous Announcement, the pricing of the relevant products and services provided under the Technology R&D Framework Agreement shall be determined in accordance with the following principles in ascending order:

• (1) government-prescribed price and government-guided price: if at any time, the government-prescribed price is applicable to any particular product or service, such product or service shall be supplied at the applicable government-prescribed price. Where a government-guided fee standard is available, the price will be agreed within the range of the government-guided price;

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• (2) market price: the price of the same or similar products, technology or services provided by an Independent Third Party during the ordinary course of business on normal commercial terms; and

• (3) agreed price: to be determined by adding a reasonable profit over a reasonable cost.

Historically, there was no government-prescribed price or government-guided fee standard which was applicable to the Technology R&D Services provided by the Group to Sinopec Group and those provided by Sinopec Group to the Group under the Technology R&D Framework Agreement. If, during the term of the Technology R&D Framework Agreement, there is any mandatory government-prescribed price or government-guided fee standard specifically applicable to the Technology R&D Services to be provided by the Group to Sinopec Group or those to be provided by Sinopec Group to the Group, relevant parties to the agreement shall be obliged to use the applicable government-prescribed price or agree the price of such services within the range of the government-guided fee standard.

For the Technology R&D Services provided by the Group to Sinopec Group, the pricing of which is determined mainly by reference to the agreed price. Historically, such services have been specifically customised to the request of the relevant members of Sinopec Group. As such, there are no comparable services where a market price is ascertainable. If, during the term of the Technology R&D Framework Agreement, Sinopec Group continues to request for customised services to be provided by the Group, there will not be applicable market prices for such services.

For the Technology R&D Services provided by Sinopec Group to the Group, the pricing of which is determined mainly by reference to the market price.

III. THE PRICING POLICY UNDER THE ENGINEERING AND CONSTRUCTION SERVICES FRAMEWORK AGREEMENT

As disclosed in the Previous Announcement, the pricing of the relevant products and services provided under the Engineering and Construction Services Framework Agreement shall be determined in accordance with the following principles in ascending order:

• (1) government-prescribed price and government-guided price: if at any time, the government-prescribed price is applicable to any particular product or service, such product or service shall be supplied at the applicable government-prescribed price. Where a government-guided fee standard is available, the price will be agreed within the range of the government-guided price;

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• (2) tender and bidding price: where tender and bidding process is necessary under applicable laws, regulations and rules, the price ultimately determined in accordance with the tender and bidding process;

• (3) market price: the price of the same or similar products, technology or services provided by an Independent Third Party during the ordinary course of business on normal commercial terms; and

• (4) agreed price: to be determined by adding a reasonable profit over a reasonable cost.

Historically, there was no government-prescribed price or government-guided fee standard which was applicable to the engineering and construction services provided by the Group to Sinopec Group and those provided by Sinopec Group to the Group under the Engineering and Construction Services Framework Agreement. If, during the term of the Engineering and Construction Services Framework Agreement, there is any mandatory government-prescribed price or government-guided fee standard specifically applicable to the engineering and construction services to be provided by the Group to Sinopec Group or the services to be provided by Sinopec Group to the Group, relevant parties to the agreement shall be obliged to use the applicable government-prescribed price or agree the price of such services within the range of the government-guided fee standard.

For the engineering and construction services provided by the Group to Sinopec Group, the pricing of which is determined mainly by reference to the tender and bidding price. The price and the tender and bidding process are conducted in accordance with the Bidding Law of the People’s Republic of China 《中華人民( 共和國招標投標法》). In term of market price, as the tender and bidding process is an open and transparent process based on market participation, the tender and bidding price under such process reflects the applicable price available in the open market. Hence, the tender and bidding price is the market price. The agreed price is only applied for services under certain circumstances (e.g. for services with unique technological advantages).

For the services provided by Sinopec Group to the Group under the Engineering and Construction Services Framework Agreement, the pricing of which is determined mainly by reference to the agreed price. Historically, such services were not typically subject to tender and bidding process due to the common type and nature of such services as well as the high frequency of the procurement of such services. The Company does not anticipate the type, the nature, and the frequency of the procurement of the services to be procured from Sinopec Group by the Group during the term of the Engineering and Construction Services Framework Agreement to significantly deviate from those of the services the Group currently procures from Sinopec Group. In the event that the services to be procured from Sinopec Group by the Group are mandatorily subject to tender

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and bidding process, the price and the process will be conducted in accordance with the Bidding Law of the People’s Republic of China. In addition, historically, the Group did not use the market price for the procurement of such services from Sinopec Group because the agreed price and terms have generally been more competitive than the available market price and terms from Independent Third Parties, which will further economise the procurement funds of the Group, increase the efficiency of the allocation of its procurement resources, as well as achieve economies of scale.

IV. PROCEDURES AND INTERNAL CONTROL MEASURES FOR PRICING AND TERMS OF THE CONTINUING CONNECTED TRANSACTIONS

The Company has internal control measures for regulating the entering into of the Continuing Connected Transactions (including the relevant pricing mechanism). Such measures include the following:

• (1) The Company will supervise the Continuing Connected Transactions in accordance with the procedures set forth in the Company’s internal control manual on continuing connected transactions (including the relevant pricing mechanism).

• (2) For the Technology R&D Services provided by the Group to Sinopec Group where the agreed price is used, with a view to arriving at a reasonable profit, the agreed price is determined through arm’s length negotiations between the relevant parties after making references to the average gross profit margins (generally around 15%, which will be adjusted subject to various factors including the size of the business and the technologies required) of similar businesses in the most recent financial year, and taking into account various factors, including the type of business, the complexity of the projects and the technologies involved, as well as the prevailing market and business conditions. As to the Group, such price is subject to the review and approval of the Company’s technology department (or the technology department of the relevant subsidiary of the Company), or depending on the actual circumstances, such price will be reported by the Company’s technology department to the Company’s management for its further review and approval (or will be reported by the technology department of the relevant subsidiary of the Company to the management of such subsidiary for its further review and approval). The technology department and the management of the Company or the technology department of the relevant subsidiary of the Company and the management of such subsidiary (as the case may be) will take into account factors including the type of business, the complexity of the projects and the technologies involved, as well as the prices of one to two relevant comparable services recently provided by the Group to Independent Third Parties in the past three months (if any) to

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ensure that the price of the technology R&D services provided by the Group to Sinopec Group is fair and reasonable, and is determined on normal commercial terms or on terms no less favourable to the Group than the terms available to Independent Third Parties.

For the Technology R&D Services provided by Sinopec Group to the Group where the market price is used, before entering into any transactions with the relevant members of Sinopec Group, the Group will actively seek to obtain market price information through various channels, for examples, obtaining quotes from at least one independent vendor which provides the same or similar products, technologies or services, and, where available, obtaining market price information of the same or similar products, technologies or services through various independent industry information vendors (such as industry organisations and professional organisations). The Company’s technology department will review and compare such quotes and, where available, the market price information with the quotes offered by the relevant members of Sinopec Group, or depending on the actual circumstances, the Company’s technology department will report the quotes and, where available, the market price information to the Company’s management for its further review, to determine whether to accept the quotes offered by the relevant members of Sinopec Group, so as to ensure that the price of the technology R&D services provided by Sinopec Group to the Group is fair and reasonable, and is determined on normal commercial terms or on terms no less favourable to the Group than the terms available from Independent Third Parties.

• (3) For the engineering and construction services under the Engineering and Construction Services Framework Agreement provided by the Group to Sinopec Group under circumstances where the agreed price is used, with a view to arriving at a reasonable profit, such price will be determined through arm’s length negotiations between the relevant parties after making references to the gross profit margins of various business segments as disclosed in the Company’s annual report for the most recent financial year, and taking into account various factors, including the type of business, the complexity of the projects and the technologies involved, as well as the prevailing market and business conditions. As to the Group, such price is subject to the review and approval of the marketing department of the relevant subsidiary of the Company, or depending on the actual circumstances, such price will be reported by the marketing department of the relevant subsidiary of the Company to the management of such subsidiary for its further review and approval. The marketing department and the management (as the case may be) of the relevant subsidiary of the Company will take into account factors including the type of business, the complexity of the projects and the technologies involved, as well as the scope and the price of at least one relevant comparable service recently (generally in the past three months to around one year given that the agreed

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price is only applied for services under certain circumstances (e.g. for services with unique technological advantages)) provided by the Group to Independent Third Parties to ensure that the price of the engineering and construction services provided by the Group to Sinopec Group is fair and reasonable, and is determined on normal commercial terms or on terms no less favourable to the Group than the terms available to Independent Third Parties.

For the services under the Engineering and Construction Services Framework Agreement provided by Sinopec Group to the Group, relevant vendors will provide a cost list in respect of the relevant services provided by Sinopec Group to the Group, and the Group will then seek to obtain the prices of relevant comparable services provided by at least three (where applicable) independent vendors to determine the reasonable costs and profits for ascertaining the agreed price of the services provided by Sinopec Group to the Group through arm’s length negotiations between the relevant parties. As to the Group, such price is subject to the review and approval of the marketing department and the procurement department of the relevant subsidiary of the Company, or depending on the actual circumstances, such price will be reported by the marketing department and the procurement department of the relevant subsidiary of the Company to the management of such subsidiary for its further review and approval. The marketing department, the procurement department and the management (as the case may be) of the relevant subsidiary of the Company will take into account factors including the scope, the quality and the prices of relevant comparable services provided by independent vendors to ensure that the price of the services provided by Sinopec Group to the Group is fair and reasonable, and is determined on normal commercial terms or on terms no less favourable to the Group than the terms available from Independent Third Parties.

• (4) The Risk Management Committee of the Company will conduct sampling inspections on the effectiveness of the abovementioned internal control measures at least twice a year, and will periodically review and examine the implementation of the Continuing Connected Transactions.

• (5) The Company’s external auditors will conduct an annual review on the pricing and the annual caps of the Continuing Connected Transactions.

• (6) The Company’s Audit Committee will review at least twice a year the analysis reports and the improvement measures prepared by the Company’s management based on the implementation of the Continuing Connected Transactions by the Company and/or its relevant subsidiaries.

• (7) The independent non-executive Directors will conduct an annual review of the implementation and enforcement of the Continuing Connected Transactions (including the relevant pricing mechanism).

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By implementing the above measures, the Directors consider that the Company has established sufficient internal control measures to ensure that the Continuing Connected Transactions are fair and reasonable, on normal commercial terms or on terms no less favourable to the Company than the terms available to or from Independent Third Parties (as the case may be), and in the interests of the Company and the Shareholders as a whole.

By order of the Board SINOPEC ENGINEERING (GROUP) CO., LTD. SANG Jinghua Vice President and Secretary to the Board

Beijing, the PRC 14 September 2015

As at the date of this announcement, the executive Directors are LU Dong, YAN Shaochun, SUN Lili (employee representative director) and WU Derong (employee representative director); the non-executive Directors are ZHANG Jianhua and LI Guoqing; and the independent non-executive Directors are HUI Chiu Chung, Stephen, JIN Yong and YE Zheng.

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