Sinopec Engineering Group Co Ltd. — Regulatory Filings 2015

Aug 31, 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)

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

As disclosed in the Prospectus, the continuing connected transactions under the Technology R&D Framework Agreement are subject to the reporting, annual review and announcement requirements but are exempted from Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules, and the continuing connected transactions under each of the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

A waiver in respect of the continuing connected transactions under the Technology R&D Framework Agreement and the Engineering and Construction Services Framework Agreement from compliance with the announcement and/or Independent Shareholders’ approval requirements expiring on 31 December 2015 has been granted by the Hong Kong Stock Exchange, details of which are described in the Prospectus. An interim waiver in respect of the continuing connected transactions under the Financial Services Framework Agreement from compliance with the Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules granted by the Hong Kong Stock Exchange expired on 31 December 2013. At the second extraordinary general meeting of the Company for the year 2013, the Independent Shareholders approved, among other things, the

* For identification purposes only.

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Financial Services Framework Agreement, the continuing connected transactions thereunder and the annual caps for the year ended 31 December 2014 and the year ending 31 December 2015. The original term of each of the Framework Agreements is three years commencing on the Listing Date. The term of each of the Framework Agreements has been extended for another three years commencing on 1 January 2016, subject to the Independent Shareholders’ approval (if applicable).

On 28 August 2015, the Board reviewed and approved, among other things, the proposals on the terms of the Framework Agreements, the continuing connected transactions thereunder and the Annual Caps and to convene the EGM for the Independent Shareholders to consider and, if thought fit, approve, among other things, the terms of the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the continuing connected transactions thereunder and the Proposed Annual Caps. Sinopec Group and its associates will abstain from voting at the EGM in respect of the ordinary resolutions to approve the terms of the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the continuing connected transactions thereunder and the Proposed Annual Caps.

A circular containing, among other things, (i) details of each of the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the continuing connected transactions thereunder and the Proposed Annual Caps, (ii) a letter from the Independent Board Committee to the Independent Shareholders, (iii) a letter from the Independent Financial Adviser, together with (iv) a notice to convene the EGM, will be despatched to the Shareholders on or around 11 September 2015.

I. INTRODUCTION

As disclosed in the Prospectus, the continuing connected transactions under the Technology R&D Framework Agreement are subject to the reporting, annual review and announcement requirements but are exempted from Independent Shareholders’ approval requirement under Chapter 14A of the Listing Rules, and the continuing connected transactions under each of the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

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A waiver in respect of the continuing connected transactions under the Technology R&D Framework Agreement and the Engineering and Construction Services Framework Agreement from compliance with the announcement and/or Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules expiring on 31 December 2015 has been granted by the Hong Kong Stock Exchange during the Company’s listing application process, details of which are described in the Prospectus. An interim waiver in respect of the continuing connected transactions under the Financial Services Framework Agreement from compliance with the Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules granted by the Hong Kong Stock Exchange during the Company’s listing application process expired on 31 December 2013. At the second extraordinary general meeting of the Company for the year 2013, the Independent Shareholders approved, among other things, the Financial Services Framework Agreement, the continuing connected transactions thereunder and the annual caps for the year ended 31 December 2014 and the year ending 31 December 2015, details of which are described in the Company’s circular to Shareholders dated 10 September 2013. The original term of each of the Framework Agreements is three years commencing on the Listing Date. The term of each of the Framework Agreements has been extended for another three years commencing on 1 January 2016, subject to the Independent Shareholders’ approval (if applicable).

On 28 August 2015, the Board reviewed and approved, among other things, the proposals on the terms of each of the Framework Agreements, the continuing connected transactions thereunder and the Annual Caps and to convene the EGM for the Independent Shareholders to consider and, if thought fit, approve, among other things, the terms of each of the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the continuing connected transactions thereunder and the Proposed Annual Caps. Sinopec Group and its associates will abstain from voting at the EGM in respect of the ordinary resolutions to approve the terms of the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the continuing connected transactions thereunder and the Proposed Annual Caps.

A circular containing, among other things, (i) details of each of the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the continuing connected transactions thereunder and the Proposed Annual Caps, (ii) a letter from the Independent Board Committee to the Independent Shareholders, (iii) a letter from the Independent Financial Adviser, together with (iv) a notice to convene the EGM, will be despatched to the Shareholders on or around 11 September 2015.

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II. TECHNOLOGY R&D FRAMEWORK AGREEMENT

1. Provision of Technology R&D Services by the Group to Sinopec Group

(a) Principal Terms

Signing Date and Term

The Company entered into a technology R&D framework agreement with Sinopec Group on 19 December 2012, as amended by a supplemental agreement dated 28 August 2015 (collectively, the “ Technology R&D Framework Agreement ”). Pursuant to the supplemental agreement, the term of the Technology R&D Framework Agreement has been extended by both parties after arm’s length negotiations for another three years from 1 January 2016 to 31 December 2018. Relevant subsidiaries or associated companies of both parties will enter into separate contracts which will set out the specific terms and conditions according to the principles provided in the Technology R&D Framework Agreement.

Service Scope

Pursuant to the Technology R&D Framework Agreement, the Group will provide technology development; technology consulting; technology services; technology licensing; application for, maintenance, licensing and transfer of patents, and other technology research and development services (the “ Technology R&D Services ”) to Sinopec Group and/or its associates.

Pricing Policy

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;

• (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

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

Termination

Before the termination of the Technology R&D Framework Agreement, the parties may, according to the Hong Kong Listing Rules, negotiate and sign a new framework agreement or extend or renew such framework agreement to ensure the normal running of the production operations of the relevant parties after expiration of the term of the Technology R&D Framework Agreement.

(b) Commercial Rationale and Benefits of the Transactions

As a leading energy engineering company in the PRC, the Group has made remarkable engineering achievements and has rich engineering experience, with strong capability in engineering application and enginerering amplification of oil refining, petrochemicals and new coal chemicals technologies. In addition, the Group poses a good understanding of the diversified demands from clients in the industries. Thus, the Group is capable of providing high-quality technology R&D services to its clients.

(c) Historical Amounts

The revenue generated from the provision of the Technology R&D Services by the Group to Sinopec Group and/or its associates for the two years ended 31 December 2013 and 2014 and the six months ended 30 June 2015 were approximately RMB151,895,000, RMB94,284,000 and RMB56,013,000, respectively.

(d) Existing Annual Caps and Annual Caps for the years 2016, 2017 and 2018

As disclosed in the Prospectus and the announcement published by the Company on 17 March 2014 in respect of the adjustments to the annual caps for the continuing connected transactions under the Technology R&D Framework Agreement, the existing annual caps for each of the years ended 31 December 2013 and 2014 and the year ending 31 December 2015 are set out below:

				For the year
		**For the **	year ended	ending 31
		31 December		December
		2013	2014	2015
			(RMB’000)
Total	fees	151,895	180,000	200,000

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The maximum aggregate annual amount of fees for each of the years ending 31 December 2016, 2017 and 2018 shall not exceed the caps set out below:

		**For the **	**year ending 31 **	December
		2016	2017	2018
			(RMB’000)
Total	fees	195,000	195,000	218,000

(e) Basis of Caps

In determining the above annual caps for each of the years ending 31 December 2016, 2017 and 2018, respectively, the Company has considered the following: (i) the expected technology research and development projects that the Group will undertake every year for Sinopec Group and/or its associates; and (ii) the expected new research and development projects and technology services in the coming three years.

2. Provision of Technology R&D Services by Sinopec Group to the Group

(a) Principal Terms

Signing Date and Term

We entered into the Technology R&D Framework Agreement with Sinopec Group. The term of the Technology R&D Framework Agreement has been extended by both parties after arm’s length negotiations for another three years from 1 January 2016 to 31 December 2018. Relevant subsidiaries or associated companies of both parties will enter into separate contracts which will set out the specific terms and conditions according to the principles provided in the Technology R&D Framework Agreement.

Service Scope

Pursuant to the Technology R&D Framework Agreement, Sinopec Group and/or its associates will provide Technology R&D Services to the Group.

Pricing Policy and Termination

Please refer to the section headed “II. TECHNOLOGY R&D FRAMEWORK AGREEMENT - 1. Provision of Technology R&D Services by the Group to Sinopec Group - (a) Principal Terms” of this announcement.

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(b) Commercial Rationale and Benefits of the Transactions

The Group primarily focuses on engineering application and engineering amplification of oil refining, petrochemicals, new coal chemicals and other technologies, whilst Sinopec Group primarily focuses on research in oil refining, petrochemical, new coal chemicals and other technologies and analysis in laboratory parameters of such technologies. As part of its strengths and strategies, the Group has established close cooperative relationships with some of its clients (including Sinopec Group and/or its associates) to jointly develop new technologies and methods to facilitate the application of such technologies. These technologies will sometimes be licensed by the Group (with the permission of such clients) to its clients in the oil refining and chemical industries. In connection with those technologies and methods which the Group has developed with Sinopec Group and/or its associates, certain portions of the total license fees which the Group receive from its clients will be paid by the Group to the relevant research and development institutions under Sinopec Group as fees for Technology R&D Services received from Sinopec Group and/or its associates.

(c) Historical Amounts

The Group did not incur any expenses for the purchase of Technology R&D Services from Sinopec Group and/or its associates for the two years ended 31 December 2013, 2014 and the six months ended 30 June 2015.

(d) Existing and Proposed Annual Caps

Existing Annual Caps

As disclosed in the Prospectus, the existing annual caps for each of the years ended 31 December 2013 and 2014 and the year ending 2015 are set out below:

				For the year
		**For the **	year ended	ending 31
		31 December		December
		2013	2014	2015
			(RMB’000)
Total	fees	30,000	50,000	50,000

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Proposed Annual Caps

The proposed annual caps for each of the years ending 31 December 2016, 2017 and 2018 are set out below:

		**For the **	**year ending 31 **	December
		2016	2017	2018
			(RMB’000)
Total	fees	5,000	5,000	10,000

(e) Basis of Caps

In determination of the above annual caps for each of the years ending 31 December 2016, 2017 and 2018, the Company has considered the change in the way of cooperation with Sinopec Group in respect of R&D. With the Group’s increase in R&D investments, the Group may commission Sinopec to complete certain specific technology R&D. Both parties will adopt a market-oriented approach when determining the price and carry out relevant transactions. The parties will also share the equity interests in the transactions.

3. Implications under the Hong Kong Listing Rules

Sinopec Group holds more than 10% of the Company’s issued share capital and is therefore a substantial shareholder of the Company. Under Rules 14A.07(1) and 14A.07(4) of the Hong Kong Listing Rules, Sinopec Group and its associates are connected persons of the Company. Accordingly, the transactions under the Technology R&D Framework Agreement between the Group and Sinopec Group and/or its associates constitute continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules.

The transactions under the Technology R&D Framework Agreement are entered into during the ordinary course of business on normal commercial terms where, as the Directors currently expect, each of the applicable “percentage ratios” (except for the profit ratio) calculated for the purpose of Chapter 14A of the Hong Kong Listing Rules will not exceed 5% on an annual basis. Under Rule 14A.76(2) of the Hong Kong Listing Rules, the transactions under the Technology R&D Framework Agreement will be subject to the reporting, announcement and annual review requirements under Chapter 14A of the Hong Kong Listing Rules but will be exempted from Independent Shareholders’ approval requirement under Chapter 14A of the Hong Kong Listing Rules.

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III. FINANCIAL SERVICES FRAMEWORK AGREEMENT

1. Principal Terms

2. (a) Signing Date and Term

The Company entered into a financial services framework agreement with Sinopec Group on 19 December 2012, as amended by a supplemental agreement dated 22 April 2013 and a second supplemental agreement dated 28 August 2015 (collectively, the “ Financial Services Framework Agreement ”). Pursuant to the second supplemental agreement, the term of the Financial Services Framework Agreement has been extended by both parties after arm’s length negotiations for another three years from 1 January 2016 to 31 December 2018, subject to Independent Shareholders’ approval at the EGM.

(b) Scope of Services

Pursuant to the Financial Services Framework Agreement, Sinopec Finance and Sinopec Century Bright will provide financial services to the Group, such financial services primarily include deposits, loans, entrustment loans, settlement services, entrustment investments, financial and financing consulting, credit certification, insurance agency, exchange settlement, bond underwriting, foreign exchange business, and related consultancy and agency financial services. The Group enters into separate contracts with Sinopec Finance and Sinopec Century Bright, which set out the specific terms and conditions according to the principles provided in the Financial Services Framework Agreement.

(c) Pricing Policy

The pricing of the services provided under the Financial 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 financial service, such 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;

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

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

The pricing of the services provided under the Financial Services Framework Agreement are mainly determined by reference to (1) the government-prescribed price and government-guided price; and (2) the market price. In the event that the agreed price has to be 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 taking into account the prevailing market and business conditions.

In addition to the above, the Financial Services Framework Agreement provides that the services shall be provided in accordance with the following pricing principles:

• (i) Deposits services: the interest rate applicable to the Group’s deposits with the Sinopec Finance Companies will not be lower than: (x) the minimum interest rate published by the PBOC for deposits of a similar type for the same period (applicable to deposits with Sinopec Finance only); (y) the interest rate for deposits of a similar type for the same period placed by other members of Sinopec Group; and (z) the interest rate for deposits of a similar type for the same period offered by independent commercial banks to the Group;

• (ii) Entrustment loan services: the interest rates applicable to the Group’s entrustment loans to Sinopec Group through Sinopec Finance shall be (x) on normal commercial terms; (y) no less favourable than interest rates or comparable entrustment loans provided by other members of Sinopec Group to Sinopec Group through Sinopec Finance; and (z) generally not lower than the interest rates for bonds or loans available in the PRC market issued/provided by companies or financial institutions of credit ratings and risk profile similar to those of Sinopec Group or Sinopec Corp.; and

• (iii) Settlement and other financial services: the service fees for settlement, entrustment loans and other financial services charged by Sinopec Finance shall not be higher than (x) fees charged by independent commercial banks or financial institutions; and (y) fees charged to other members of Sinopec Group for similar services.

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(d) Termination

Before the termination of the Financial Services Framework Agreement, the parties may, according to the Hong Kong Listing Rules, negotiate and sign a new framework agreement or extend or renew the Financial Services Framework Agreement to ensure the normal running of the production operations of the relevant parties after expiration of the term of the Financial Services Framework Agreement.

2. Commercial Rationale and Benefits of the Deposits and Entrustment Loans

(a) Deposits

• (i) Centralised cash management. It is the Group’s policy to centralise its cash management function. As the terms offered by the Sinopec Finance Companies are no less favourable than the deposit interest rates published by the PBOC or independent commercial banks in Hong Kong for deposits of a similar type for the same period, the terms of placing deposits with the Sinopec Finance Companies are no less favourable to the Group than placing deposits with independent commercial banks. In addition, the centralised deposit of funds with the Sinopec Finance Companies will enable the Group to use the Sinopec Finance Companies as a primary clearing and settlement platform, provide the Group with access to a centralised cash pool (both onshore and offshore), giving the Group the flexibility to make timely withdrawals from time to time to meet its funding needs and reduce the need for the Group to obtain third party financing, which will in turn help it achieve a lower cost of funding and maximise cost and operational efficiencies.

• (ii) Clearing and settlement platform. In the Group’s ordinary course of business, as Sinopec Group is the Group’s single largest client, the Group transacts with numerous subsidiaries/affiliated companies of Sinopec Group. In line with Sinopec Group’s internal group policy, such subsidiaries/affiliated companies generally maintain settlement accounts with the Sinopec Finance Companies. The centralised maintenance of deposits by the Group with the Sinopec Finance Companies will facilitate clearing with other members of the Sinopec Group (some of whom are the Group’s clients), reduce the time required for transit and turnaround of funds and is generally more administratively efficient than settlement through independent banks. It would not be efficient for Sinopec Group (and its affiliates) and the Group to separately maintain bank accounts with independent banks for clearing and settlement.

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• (iii) Familiarity with the Group’s business. As the Sinopec Finance Companies only provide financial services to members of the Sinopec Group and its subsidiaries, they have over the years acquired extensive knowledge of the Group’s industry. In the context of the Group, the Sinopec Finance Companies are familiar with the Group’s capital structure, business operations, funding needs and cash flow pattern, which enables them to better anticipate the Group’s business needs. As a result, the Sinopec Finance Companies are well-positioned to provide the Group with bespoke and cost efficient services which would not be easy for independent commercial banks to replicate.

• (iv) Flexibility to the Group. The Group has the sole discretion to deposit and withdraw its deposits with the Sinopec Finance Companies from time to time. There is no restriction on the Group’s ability to deposit its cash with independent commercial banks in or outside the PRC now or in the future should the Group so wishes. Currently, the Group maintains deposits with independent commercial banks in and outside the PRC and expects to continue to do so depending on the Group’s contractual and other requirements. The Group chooses to deposit its cash with the Sinopec Finance Companies as this helps the Group centralise the treasury management function.

(b) Entrustment loans

• (i) Lack of comparable alternative fund allocation options. Due to the nature of the Group’s business, the Group receives significant amounts of prepayments from clients from time to time, which may not be immediately required for its operational needs. Such prepayments are in effect advance payments from the Group’s clients, which the Group will apply towards performance of the underlying contracts as appropriate (such as purchase of raw materials and equipment, and payment of the Group’s sub-contractors) and are only temporarily idle. Therefore, the Group needs to invest such surplus cash conservatively as it is an advance/deposit from the Group’s clients. Given the Group’s need to match funds within a relatively short time whilst maintaining flexibility to pay the Group’s trade payables from time to time, there is a lack of comparable alternative fund allocation options. From the Group’s perspective, the provision of entrustment loans to Sinopec Group is a safe, cost efficient and flexible option for investing such cash surplus, which may not otherwise be available in the open market.

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• (ii) Credit rating of Sinopec Group. Sinopec Group is the borrower of the entrustment loans. Pursuant to the terms of the entrustment loans, Sinopec Group has the sole obligation to repay principal and interest (and any late payment interest). In 2015, Sinopec Group obtained an AA- long term corporate credit rating from Standard & Poor with a stable outlook and an Aa3 credit rating from Moody’s. As at the Latest Practicable Date, Sinopec Group had a registered capital of RMB274.867 billion. Sinopec Group ranked second in 2015 in Fortune Global 500. The Group therefore considers that lending to Sinopec Group is a low risk fund allocation option. During the two years ended 31 December 2013 and 2014 and the six months ended 30 June 2015, Sinopec Group has not defaulted under any of the entrustment loans provided by the Group. Taking into account the creditworthiness of Sinopec Group and clean repayment history, the entrustment loans provided by the Group are generally unsecured. The Group considers that providing entrustment loans to Sinopec Group is a comprehensive, low risk fund allocation option due to the top-tier credit rating of Sinopec Group and clean repayment history, generating a higher return for the Group than deposits which would have been the only other fund allocation option for the Group given the investment policy with respect to such funds.

• (iii) Efficient and flexible cash management. Provision of entrustment loans to Sinopec Group will allow the Group to allocate its surplus cash efficiently within a relatively short timeframe. The Group’s entrustment loans to Sinopec Group generally do not exceed one year (the majority are for a period of one year or six months), enabling the Group to deploy its financial resources efficiently and flexibly. Upon the expiry of the entrustment loans, the Group will receive the principal amount and the interest payment in relation to such entrustment loans from Sinopec Finance. Any new loans to Sinopec Group will be subject to normal approval procedures in the usual way. Furthermore, whilst the Group has historically provided entrustment loans to Sinopec Group and expects to continue to do so in the future, the Group is not under any legal or other obligation to provide entrustment loans to Sinopec Group. Pursuant to the entrustment loan agreements, the Group is entitled to early terminate the loans (without penalty) at its option in which case current deposit interest rate will apply.

• (iv) Normal commercial terms. The Group understands that there is no market standard rate for entrustment loans as the interest rate is determined through arm’s length negotiations between the parties based on, among other things, relative bargaining power, risk profile and security value. The Group generally uses the prevailing base deposit rate published by the PBOC as a reference point with an upward adjustment taking into account the amount

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and term of the loan. In addition, the Group will refer to the list of interest rates which specifies the range of interest rates for different entrustment loan amounts and terms. Such list has been agreed by Sinopec Group and the Board after arm’s length negotiations and will be reviewed and re-negotiated by the parties periodically. Based on such list, the Group’s Chief Financial Officer and finance department will decide the interest rates of the entrustment loan agreements to be entered into between Sinopec Group and the Group. The Group will also make reference to other comparable rates, such as the interest rates for bonds or loans available in the PRC market issued/provided by companies or financial institutions of credit ratings and risk profile similar to those of Sinopec Group or Sinopec Corp., for the purpose of ensuring that the interest rates for the entrustment loans are in the interests of the Company and the Shareholders as a whole. The interest rates on entrustment loans provided by the Group to Sinopec Group are generally higher than the yield on principal-guaranteed wealth management products available in the PRC market.

Taking into account (i) that the interest rates on the Group’s entrustment loans are generally higher than yield on principal-guaranteed investment products available in the open market; (ii) Sinopec Group’s strong credit rating and clean repayment history; (iii) the potential significant drain on the Group’s time and resources to seek alternative borrowers and a lack of comparable alternative fund allocation options compatible with the Group’s needs; and (iv) that the Group can early terminate its entrustment loans at its option (in which case the current deposit interest rate will apply), the Company considers that the continuing connected transactions under the Financial Services Framework Agreement are in the interests of the Company and the Shareholders as a whole.

(c) Internal control and corporate governance measures

Although there is no limit on the percentage of the Group’s total liquid and/or surplus funds to be deposited with the Sinopec Finance Companies or loaned to Sinopec Group, the Company considers that for the reasons explained above, such policy is in the interests of the Company and the Shareholders as a whole. In addition, the Board has considered the risks (such as the possible material adverse change in the financial conditions of the Sinopec Finance Companies) in association with the use of the services provided by Sinopec Finance and Sinopec Century Bright under the Financial Services Framework Agreement

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instead of the same services provided by independent commercial banks. The Group has further adopted (i) an independent financial system; (ii) risk management measures; (iii) internal control measures; and (iv) corporate governance measures with respect to the transactions under the Financial Services Framework Agreement in order to further safeguard the interests of the Independent Shareholders. The relevant measures include, but not limited to, the following:

• The Sinopec Finance Companies and Sinopec Group will provide sufficient information including various financial indicators (as well as annual and interim financial statements) at the end of every quarter to enable the Group to monitor and review the financial condition of the Sinopec Finance Companies and Sinopec Group.

• The Group will, from time to time at its sole discretion, request for the deposits with the Sinopec Finance Companies and the entrustment loans through Sinopec Finance to Sinopec Group to be withdrawn or early terminated (either in full or in part) to assess and ensure the liquidity and safety of its deposits and entrustment loans.

• Sinopec Group has undertaken, unconditionally and irrevocably, that it shall provide capital injection to Sinopec Finance in case of any payment difficulties arising from its operations. Such undertaking provides indemnification for the Group’s deposits with Sinopec Finance under the Financial Services Framework Agreement.

• The Group has adopted a Cash Management Policy (資金管理辦法) and an Internal Bank Management Policy (內部銀行管理辦法). Such policies provide that the Group’s cash should be centrally managed in order to maximise the benefits of a cash pool. The Company’s finance department is responsible for administering the Cash Management Policy. When providing entrustment loans to connected persons (whether through Sinopec Finance or otherwise), the Group will consider the interest rate, service fees, term and use of loan and creditworthiness of the ultimate borrower based on principles of maximum return, cost control and risk control. The entrustment loan agreements (setting out interest rate, service fees, term and use of loan) are first approved by the Company’s finance department, then the Company’s Chief Financial Officer and ultimately by the Chairman of the Board.

• The Company’s management will prepare risk assessment reports of the funds deposited with the Sinopec Finance Companies and entrustment loans to Sinopec Group every quarter which will be submitted to the Board for consideration.

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• The independent non-executive Directors will independently scrutinise the implementation and enforcement of the transactions (including the pricing mechanism) under the Financial Services Framework Agreement. Only independent non-executive Directors may vote in respect of matters under the Financial Services Framework Agreement.

• Before entering into any transactions under the Financial Services Framework Agreement with the Sinopec Finance Companies, the Company will obtain at least three quotes from independent financial institutions for similar services of the same term. The Company will compare such quotes with those offered by the Sinopec Finance Companies, and decide whether to accept the offer from the Sinopec Finance Companies.

• In the event that there is any change in the fees or interest rates for the services provided by the Sinopec Finance Companies to the Group under the Financial Services Framework Agreement, the Sinopec Finance Companies are required to notify the Company of (i) such change in the fees or interest rates; and (ii) the pricing information for the similar services provided by the Sinopec Finance Companies to other members of Sinopec Group. The relevant internal audit personnel of the Company will then check the aforementioned information to ensure that such revised fees or interests rates are not less favourable than the fees or interests rates offered by the Sinopec Finance Companies to the other members of Sinopec Group for similar services.

For further details of the Group’s internal control and corporate governance measures, please refer to the section headed “Connected Transactions” in the Prospectus.

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3. Historical Amounts

Set out below (i) the fees in relation to settlement and other financial services paid to the Sinopec Finance Companies; (ii) the maximum daily balance of deposits and interest income arising from such deposits with the Sinopec Finance Companies; and (iii) the maximum daily balance of entrustment loans arranged through Sinopec Finance for each of the years ended 31 December 2013 and 2014 and the six months ended 30 June 2015:

			For the six
			months
	**For the **	year ended	ended 30
	31 December		June
	2013	2014	2015
		(RMB’000)
Service fees in relation to
settlement and other financial
services	3,038	2,208	2,280
Maximum daily balance of deposits
and interest income	3,990,435	5,509,595	5,835,577
Maximum daily balance of
entrustment loans	9,500,000	11,600,000	10,600,000

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4. Existing and Proposed Annual Caps

(a) Existing Annual Caps

As disclosed in the Prospectus and the circular to Shareholders dated 10 September 2013, the existing annual caps for each of the years ended 31 December 2013 and 2014 and the year ending 31 December 2015 are set out below:

			For the year
	**For the **	year ended	ending 31
	31 December		December
	2013	2014	2015
		(RMB’000)
Service fees in relation to
settlement, entrustment loans and
other financial services	25,600	31,850	37,900
Maximum daily balance of deposits
and interest income	5,500,000	6,500,000	7,500,000
Maximum daily balance of
entrustment loans	11,000,000	14,000,000	17,000,000

(b) Proposed Annual Caps

The proposed annual caps for each of the years ending 31 December 2016, 2017 and 2018 are set out below:

	**For the **	**year ending 31 **	December
	2016	2017	2018
		(RMB’000)
Service fees in relation to
settlement and other financial
services	4,620	5,080	5,580
Maximum daily balance of deposits
and interest income	8,000,000	8,500,000	9,000,000
Maximum daily balance of
entrustment loans	16,600,000	19,400,000	22,500,000

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(c) Basis of the Proposed Annual Caps

In determining the above annual caps for each of the years ending 31 December 2016, 2017 and 2018, respectively, the Company has mainly considered:

• (1) During the Company’s listing application process, the Company’s balance of demand deposits and deposit interest at Sinopec Finance and Sinopec Century Bright, as well as the interest income arising from the entrustment loans were taken into account when determining the annual caps for the connected transactions under the Financial Services Framework Agreement; while the service fees payable by the Company in relation to the entrustment loans shall be listed under the item “service fees in relation to settlement, entrustment loans and other financial services”. However, when calculating and paying the Company’s income arising from the entrustment loans, Sinopec Finance directly deducts the relevant service fees from such income, resulting in that the service fees payable by the Company in relation to the entrustment loans cannot be separately reflected in the financial statement. Therefore, the Company’s auditors did not include the service fees in relation to the entrustment loans, but considered the amounts as included in “the maximum daily balance of deposits and interest income” category when they calculated and audited the actual amounts incurred of the “service fees in relation to settlement, entrustment loans and other financial services” in the Company’s historical financial statements. The Company believes that the auditors’ understanding and approach are correct. As such, with respect to the estimate of the connected transactions for the period from 2016 to 2018, “service fees in relation to settlement, entrustment loans and other financial services” category shall be revised as “service fees in relation to settlement and other financial services”, which means that the service fees in relation to the entrustment loans will no longer be estimated separately, but will be deemed as included in “the maximum daily balance of deposits and interest income” category;

• (2) the utilisation rate of the above-mentioned annual caps for each of the years ended 31 December 2013 and 2014 and for the six months ended 30 June 2015;

• (3) the interest rates and fee rates in connection with deposits, entrustment loans and other financial services;

• (4) the expected increase in the Group’s business volume for the years 2016, 2017 and 2018; and

• (5) the Group’s expected net cash flow generated by its operating activities during the years 2016, 2017 and 2018.

— 19 —

When determining whether funds are placed as deposits with the Sinopec Finance Companies or loaned to Sinopec Group through the provision of entrustment loans, the Group will take into account the following factors based on principles of maximum return, cost control and risk control: (i) the funding plan which specifies the Group’s long term and short term funding needs, operational needs and capital expenditure requirements; (ii) the Group’s fund allocation needs with reference to the interest rates offered for deposits and entrustment loans; (iii) the amount of cash inflow from business operations; and (iv) the service fees charged and terms of entrustment loan.

5. Implications under the Hong Kong Listing Rules

The following diagram sets out the shareholding relationship among Sinopec Group, Sinopec Finance, Sinopec Century Bright and the Company as at the Latest Practicable Date.

==> picture [299 x 148] intentionally omitted <==

----- Start of picture text -----

Sinopec Group
70.80% 51% 67.01% [(1)] 100%
Sinopec Corp. the Company
49%
Sinopec
Sinopec Finance
Century Bright
----- End of picture text -----

Note:

• (1) Sinopec Group directly and/or indirectly holds 2,967,200,000 Domestic Shares (including 59,344,000 Domestic Shares held by its wholly-owned subsidiary, SAMC), representing 67.01% of the issued total share capital of the Company.

As shown above, Sinopec Group holds more than 10% of the Company’s issued share capital and is therefore a substantial shareholder of the Company. Under Rules 14A.07(1) and 14A.07(4) of the Hong Kong Listing Rules, Sinopec Group and its associates (including Sinopec Century Bright and Sinopec Finance) are connected persons of the Company. Accordingly, the transactions under the Financial Services Framework Agreement between the Group and Sinopec Group and/or its associates constitute continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules.

— 20 —

The transactions under the Financial Services Framework Agreement are entered into during the ordinary course of business on normal commercial terms where, as the Directors currently expect, each of the applicable “percentage ratios” (except for the profit ratio) calculated for the purpose of Chapter 14A of the Hong Kong Listing Rules 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.

IV. ENGINEERING AND CONSTRUCTION SERVICES FRAMEWORK AGREEMENT

1. Principle Terms

2. (a) Signing Date and Terms

The Company entered into an engineering and construction services framework agreement with Sinopec Group on 19 December 2012, as amended by a supplemental agreement dated 28 August 2015 (collectively, the “ Engineering and Construction Services Framework Agreement ”). According to the supplemental agreement, the term of the Engineering and Construction Services Framework Agreement has been extended by both parties after arm’s length negotiations for another three years from 1 January 2016 to 31 December 2018, subject to Independent Shareholders’ approval at the EGM. Relevant subsidiaries or associated companies of both parties will enter into separate contracts which will set out the specific terms and conditions according to the principles provided in the Engineering and Construction Services Framework Agreement.

(b) Service Scope

• (i) Provision of engineering and construction services by the Group to Sinopec Group: Pursuant to the Engineering and Construction Services Framework Agreement, the Group will provide the following engineering and construction services to the Sinopec Group and/or its associates: engineering consulting; project management; project supervision; contracting; engineering design; construction; testing and inspection and repair services; equipment manufacturing services; procurement services and equipment leasing; technology licensing, technology transfer and engineering technology services; labour supply service; and other engineering supporting services.

— 21 —

• (ii) Provision of services by Sinopec Group to the Group: Pursuant to the Engineering and Construction Services Framework Agreement, Sinopec Group and/or its associates will provide the following services in respect of the Group’s engineering and construction services business: supply of equipment and materials; procurement services and equipment leasing; technology licensing, technology transfer and engineering technology services; labour supply service; other supporting services.

(c) Pricing Policy

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:

• (i) 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;

• (ii) 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;

• (iii) 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

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

The pricing of the Engineering and Construction Services Framework Agreement are mainly determined by reference to the tender and bidding price. The agreed price is applied for services under certain circumstances (e.g. for services with unique technological advantages). Such price will be determined through arm’s length negotiations between the relevant parties after making reference to the average gross profit margins 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 technology involved, as well as the prevailing market and business conditions.

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(d) Termination

Before the termination of the Engineering and Construction Services Framework Agreement, the parties may, according to the Hong Kong Listing Rules, negotiate and sign a new framework agreement or extend or renew such framework agreement to ensure the normal running of the production operations of the relevant parties after expiration of the term of the Engineering and Construction Services Framework Agreement.

2. Commercial Rational and Benefits of the Engineering and Construction Services Framework Agreement

There are specific technology and quality standard requirements in the oil industry. With a leading position in the oil industry, Sinopec Group ranked second in 2015 in Fortune Global 500 and has steadily growing capital expenditure plan. By relying on its scale and strength, Sinopec Group can provide the Company with stable supply of equipment/ materials, procurement services and technical services and other supporting products and services. Pursuant to relevant terms under the Engineering and Construction Services Framework Agreement, the Group is able to procure products and services from Sinopec Group at prices no higher than the prices offered by other independent suppliers.

Sinopec Group mainly adopts public tendering process for its engineering project. In consideration of the Group’s being a leading energy chemical engineering company in the PRC and the long-term relationship maintained with Sinopec Group, Sinopec Group is likely to increase its demand for the Group’s products and services for its future capital expenditure plan.

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3. Historical Amounts

Set out below (i) the revenue generated from the provision of engineering and construction services by the Group to the Sinopec Group and/or its associates; and (ii) the expenditure incurred for the provision of services by Sinopec Group and/or its associates to the Group for each of the years ended 31 December 2013 and 2014 and the six months ended 30 June 2015.

			For the six
			months
	**For the **	year ended	ended 30
	31 December		June
	2013	2014	2015
		(RMB’000)
Revenue generated from the
provision of engineering and
construction services by the Group
to the Sinopec Group and/or its
associates	16,487,033	19,256,633	9,380,710
Expenditure incurred for the
provision of services by Sinopec
Group and/or its associates to the
Group	1,024,863	1,089,543	652,718

4. Existing and Proposed Annual Caps

Existing Annual Caps

As disclosed in the Prospectus, the annual caps for each of the years ended 31 December 2013 and 2014 and the existing annual cap for the year ending 31 December 2015 are set out below:

			For the year
	**For the **	year ended	ending 31
	31 December		December
	2013	2014	2015
		(RMB’000)
Revenue generated from the
provision of engineering and
construction services by the Group
to the Sinopec Group and/or its
associates	21,000,000	24,000,000	27,600,000
Expenditure incurred for the
provision of services by Sinopec
Group and/or its associates to the
Group	1,800,000	2,000,000	2,100,000

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Proposed Annual Caps

The maximum aggregate annual amount of fees for each of the years ending 31 December 2016, 2017 and 2018 shall not exceed the caps set out below:

For the year ending 31 December 2016 2017 2018 (RMB’000) Revenue generated from the provision of engineering and construction services by the Group to the Sinopec Group and/or its associates 22,000,000 24,000,000 25,000,000 Expenditure incurred for the provision of services by Sinopec Group and/or its associates to the Group 2,200,000 2,300,000 2,400,000

Basis of Caps

In determining the above annual caps for the Group’s provision of engineering and construction services to the Sinopec Group and/or its associates for each of the years ending 31 December 2016, 2017 and 2018, the Company has mainly considered the following:

• (i) historical operating income generated from the provision of engineering and construction services by the Group to Sinopec Group and/or its associates, as well as such amounts as a percentage of the Group’s total operating income for the corresponding year;

• (ii) the total amount of backlog and new contracts value in connection with the provision of engineering and construction services by the Group to Sinopec Group, as well as such amounts as a percentage of the total amount of the Group’s backlog and new contracts value as at 30 June 2015;

• (iii) the Group’s business development plan for 2016, 2017 and 2018, and the operating income in connection with the engineering and construction services provided by the Group to Sinopec Group as a percentage of the Group’s total operating income; and

• (iv) Sinopec Group’s investment plan in relation to, among other things, oil refinery, petrochemicals, new coal chemicals, and natural gas during the period from 2016 to 2018.

— 25 —

In determining the above annual caps for the provision of services by Sinopec Group and/or its associates to the Group, the Company has mainly considered:

• (i) historical expenditure incurred for the provision of services by Sinopec Group and/or its associates to the Group;

• (ii) the expenditure incurred for the provision of services by Sinopec Group to the Group as a percentage of the revenue generated from the provision of engineering and construction services by the Group to Sinopec Group; and

(iii) the Group’s business development plan for the years 2016, 2017 and 2018.

5. Implications under the Hong Kong Listing Rules

As shown in the diagram under “2. Financial Services Framework Agreement - (i) Implications under the Hong Kong Listing Rules” above, Sinopec Group holds more than 10% of the Company’s issued share capital and is therefore a substantial shareholder of the Company. Under Rules 14A.07(1) and 14A.07(4) of the Hong Kong Listing Rules, Sinopec Group and its associates are connected persons of the Company. Accordingly, the transactions under the Engineering and Construction Services Framework Agreement between the Group and Sinopec Group and/or its associates constitute continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules.

The transactions under the Engineering and Construction Services Framework Agreement are entered into during the ordinary course of business on normal commercial terms where, as the Directors currently expect, each of the applicable “percentage ratios” (except for the profit ratio) calculated for the purpose of Chapter 14A of the Hong Kong Listing Rules 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.

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V. APPROVAL BY DIRECTORS AND INDEPENDENT SHAREHOLDERS

On 28 August 2015, the Company held the sixteenth meeting of the First session of the Board to consider and vote on the terms under each of the Framework Agreements, the continuing connected transactions thereunder and the Annual Caps. After discussion, all the non-connected Directors unanimously approved the relevant proposals. Since the relevant proposals are related to a connected transaction with the Company’s controlling shareholder and Mr. ZHANG Jianhua serves as a director in a connected company, Mr. ZHANG Jianhua abstained from voting on the aforementioned proposals at the relevant Board meeting. Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng, being the independent non-executive Directors, unanimously approved the relevant proposals. All non-connected Directors (including the independent non-executive Directors) considered that (i) each of the Framework Agreements and the connected transactions thereunder are on normal commercial terms in the ordinary and usual course of the Group’s business, and (ii) the terms, the connected transactions and the Annual Caps are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

According to the Hong Kong Listing Rules, the Independent Board Committee has been formed. After considering the advice from the Independent Financial Advisor, the Independent Board Committee will advise the Independent Shareholders on the fairness and reasonableness of the terms under the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the connected transactions thereunder and the Proposed Annual Caps, whether they are in the interests of the Company and the Shareholders as a whole. To the best of the Directors’ knowledge, information and belief after making all due enquiry, no member of the Independent Board Committee has any material rights or interests in the aforementioned connected transactions.

ABCI Capital Limited has been appointed as the Independent Financial Advisor and will advise the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the terms under the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the connected transactions thereunder and the Proposed Annual Caps and whether they are in the interests of the Company and the Shareholders as a whole. It will also advise the Independent Shareholders on how to vote and other relevant issues.

— 27 —

The Company will convene the EGM for the Independent Shareholders to consider and approve (if think fit), among other things, the terms under the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the connected transactions contemplated thereunder and the Proposed Annual Caps. Sinopec Group and its associates will abstain from voting at the EGM in respect of the ordinary resolutions to approve the above matters.

VI. GENERAL INFORMATION

1. The Company

The Company is an international engineering corporation, with the leading edge in the PRC. The Group provides engineering services for a broad range of industries including oil refining, petrochemicals, new coal chemicals, inorganic chemicals, pharmaceutical chemicals, clean energy, storage and transportation engineering, environmental protection and energy saving engineering with a complete service chain involving research, development and licensing, preliminary consultation, financial assistance, design, procurement, construction and pre-commissioning/start-up services. With its industry experience of more than 60 years and continual innovation in technical expertise, the Group has achieved great success in the design and construction of large-scale and complex oil refining, petrochemical and new coal chemical projects, and possesses strong competitiveness.

2. Sinopec Group

Established in July 1998, Sinopec Group is a state-owned company and functions as a state-authorised investment organisation. Sinopec Group is the largest integrated oil and petrochemical enterprise in the PRC and is one of the largest integrated oil and petrochemical enterprises in the world. Sinopec Group principally engages in businesses including: (i) exploration, development, production and trading of oil and gas; (ii) oil processing and production, trading, transportation, distribution and marketing of oil products; (iii) production, distribution and trading of petrochemical and other chemical products; (iv) oil engineering; (v) utilities services and social services such as water and electricity; and (vi) international trading, R&D as well as manufacturing of chemical fiber, fertiliser and polyester related equipment.

— 28 —

3. Sinopec Finance

Sinopec Finance is a non-banking financial institution incorporated in the PRC in 1988 and is subject to the Administrative Measures on Finance Companies within Group Enterprises 《企業集團財務公司管理辦法》( ) and other relevant regulations promulgated by the PBOC and CBRC. Sinopec Finance is 51% owned by Sinopec Group and 49% owned by Sinopec Corp. The establishment of such non-banking financial institutions is subject to approval by the CBRC and its operation is subject to the ongoing supervision of the CBRC. Non-banking financial institutions shall comply with applicable regulations relating to interests rates issued by the PBOC and CBRC.

In the PRC, finance companies within group enterprises are only permitted under applicable PRC laws and regulations to provide financial services to enterprises within the same parent group. Therefore, Sinopec Finance only provides financial services to members of the Sinopec Group, including the Group.

As a non-banking financial institution, Sinopec Finance is subject to various regulatory and capital adequacy requirements, including capital adequacy ratios, loan-to-deposit ratios, limit on interbank loans and deposit reserve thresholds. The CBRC issued a regulatory guideline《企業集團財務公司管理辦法》in July 2004 (and as amended in December 2006) (the “ CBRC Guideline ”) with respect to the establishment and ongoing regulation of such non-banking financial institutions. The CBRC Guideline provided, among other things, that “ when applying for establishment of a finance company, the board of directors of the parent company shall undertake in writing that, if, in an emergency, the finance company faces difficulties in meeting its payment obligations, the parent company will increase the capital of the finance company as required to solve such payment difficulties. Such undertaking shall be contained in the articles of association of the finance company. ” Sinopec Group provided such undertaking to the CBRC on 18 December 2004 (the “ Parent Undertaking ”). The Parent Undertaking provides that, pursuant to the CBRC Guideline, Sinopec Group undertakes that if, in an emergency, Sinopec Finance faces difficulties in meeting its payment obligations, it will increase the capital of Sinopec Finance as required to solve such payment difficulties.

As at 31 December 2014, Sinopec Finance had total assets of RMB123.990 billion, shareholders’ equity of RMB18.597 billion, registered capital of RMB10.0 billion and a capital adequacy ratio of 23.82%. Based on the unaudited accounts of Sinopec Finance, as at 30 June 2015, Sinopec Finance had total assets of RMB122.909 billion, shareholders’ equity of RMB20.236 billion, registered capital of RMB10.0 billion and a capital adequacy ratio of 29.57%.

— 29 —

As at the Latest Practicable Date, the business scope of Sinopec Finance as set out in its business license includes: (i) providing financial and financing consultancy, credit certification and related consultancy and agency services to members of the group; (ii) assisting members of the group in settlement; (iii) providing guarantees to members of the group; (iv) providing entrustment loan and entrusted investment services; (v) providing bill acceptance and discount services to members of the group; (vi) processing the settlement of internal transfers between accounts and providing solution plans for relevant settlement and clearing; (vii) taking deposits from members of the group; (viii) providing loan and finance leases to members of the group; (ix) conducting inter-borrowings among finance companies; (x) issuing corporate bonds of finance companies upon approval; (xi) underwriting the corporate bonds issued by members of the group; (xii) making equity investments in financial institutions; (xiii) making investments in negotiable securities; (xiv) providing consumer credits, buyers’ credits and finance lease services to products of members of the group; and (xv) approved insurance agency services.

4. Sinopec Century Bright

Sinopec Century Bright is a company incorporated in Hong Kong with limited liability. It is licensed under the Money Lenders Ordinance (Cap. 163 of the Laws of Hong Kong). It is approved by the State Administration of Foreign Exchange of the PRC (中華人民共和國國家外匯管理局) as an offshore settlement center for centralised cash management for members of the Sinopec Group in year 2007. As at 31 December 2014, Sinopec Century Bright had total assets of US$45.014 billion and net assets of US$2.325 billion. Based on the unaudited accounts of Sinopec Century Bright, as at 30 June 2015, Sinopec Century Bright had total assets of US$50.925 billion and net assets of US$2.421 billion. In addition, Sinopec Century Bright has obtained an A1 rating from Moody’s with a stable outlook and an A+ rating from Standard & Poor with a stable outlook as well.

Sinopec Century Bright only provides financial services to members of the Sinopec Group (including the Group). Sinopec Century Bright is used as an interim/short term deposit platform by the Group particularly to settle trade payables and receivables in respect of overseas projects.

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VII. DEFINITIONS

In this announcement, unless the context otherwise requires, the following expressions shall have the following meanings.

• “Annual Caps” the Proposed Annual Caps and the annual caps in respect of Technology R&D Framework Agreement for each of the years ending 31 December 2016, 2017 and 2018, respectively

• “associate(s)” has the meaning ascribed thereto under the Hong Kong Listing Rules

• “Board” the board of directors of the Company

• “CBRC” China Banking Regulatory Commission (中國銀行業監 督管理委員會)

• “Company” SINOPEC Engineering (Group) Co., Ltd., a joint stock limited liability company incorporated under the laws of the PRC on August 28, 2012, which is listed on the Hong Kong Stock Exchange (Stock Code: 2386)

• “connected person(s)”

• has the meaning ascribed thereto under the Hong Kong Listing Rules

• “connected has the meaning ascribed thereto under the Hong Kong transaction(s)” Listing Rules

• “controlling has the meaning ascribed thereto under the Hong Kong shareholder(s)” Listing Rules

• “Director(s)” the director(s) of the Company

• “EGM”

• the third extraordinary general meeting of the Company for the year 2015 proposed to be convened and held on 26 October 2015

• “Engineering and an engineering and construction services framework Construction agreement entered into between the Company and Services Sinopec Group on 19 December 2012, as amended by a Framework second supplemental agreement dated 28 August 2015 Agreement”

— 31 —

• “Financial Services a financial services framework agreement entered into Framework between the Company and Sinopec Group on 19 Agreement” December 2012, as amended by a supplemental agreement dated 22 April 2013 and a second supplemental agreement dated 28 August 2015

• “Framework the Technology R&D Framework Agreement, the Agreements” Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement

• “Group” the Company and its subsidiaries

• “HK$”

• the lawful currency of Hong Kong

• “Hong Kong” the Hong Kong Special Administrative Region of the PRC

• “Hong Kong the Rules Governing the Listing of Securities on The Listing Rules” Stock Exchange of Hong Kong Limited, as amended, supplemented or otherwise modified from time to time

• “Hong Kong Stock The Stock Exchange of Hong Kong Limited Exchange”

• “Independent a committee comprising independent non-executive Board Directors Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong Committee” and Mr. YE Zheng under the Board which is set up for the purpose of advising the Independent Shareholders on the terms of the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the continuing connected transactions thereunder and the Proposed Annual Caps

— 32 —

• “Independent ABCI Capital Limited, a corporation licensed to carry Financial out type 1 (dealing in securities) and type 6 (advising on Adviser” corporate finance) regulated activities as defined under the Securities and Futures Ordinance and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the terms under the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement, the continuing connected transactions thereunder and the Proposed Annual Caps

• “Independent Shareholders other than Sinopec Group and its Shareholders” associates

• “Independent Third party(ies) not connected with any of the Directors, the Party(ies)” supervisors, the chief executive, or the substantial shareholders of the Company or any of its subsidiaries or their respective associates

• “Latest Practicable Date”

• 26 August 2015, being the latest practicable date before the publication of this announcement for ascertaining certain information

• “Listing Date” 23 May 2013, on which our H Shares are listed and from which dealings therein are permitted to take place on the Hong Kong Stock Exchange

• “PBOC”

• People’s Bank of China (中國人民銀行)

• “PRC” or “People’s the People’s Republic of China which, for the purpose Republic of of this announcement, excludes Hong Kong, Macau China” Special Administration Region of the PRC and Taiwan

• “Proposed Annual the proposed annual caps in respect of each of the Caps” Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement for each of the years ending 31 December 2016, 2017 and 2018, respectively

• “Prospectus” the prospectus of the Company dated 10 May 2013

• “R&D” research and development

• “RMB” the lawful currency of the PRC

— 33 —

• “SAMC”

• Sinopec Assets Management Co., Ltd. (中國石化集團資 產經營管理有限公司), a company incorporated in the PRC with limited liability and a wholly-owned subsidiary of Sinopec Group

• “Share(s)”

• share(s) in the share capital of the Company, with a nominal value of RMB1.00 each

• “Shareholder(s)”

• holder(s) of the Shares

• “Sinopec Century Sinopec Century Bright Capital Investment Limited Bright” (中國石化盛駿國際投資有限公司), a limited liability company incorporated in Hong Kong on 29 November 1994 and a connected person of the Company, with 100% of its equity interest being held by Sinopec Group

• “Sinopec Corp.” China Petroleum & Chemical Corporation (中國石油化 工股份有限公司), a joint stock limited liability company incorporated under the laws of the PRC, which is listed on the Hong Kong Stock Exchange (Stock Code: 0386), Shanghai Stock Exchange (Stock Code: 600028), the London Stock Exchange (Stock Code: SNP) and the New York Stock Exchange (Stock Code: SNP) and is a subsidiary of Sinopec Group

• “Sinopec Finance” Sinopec Finance Co., Ltd. (中國石化財務有限責任公 司), a limited liability company incorporated in the PRC in 1998 and a connected person of the Company, with 49% of its equity interest being held by Sinopec Corp. and 51% of its equity interest being held by Sinopec Group

• “Sinopec Finance Sinopec Century Bright and Sinopec Finance Companies”

• “Sinopec Group”

• China Petrochemical Corporation (中國石油化工集團公 司), a state-owned enterprise incorporated under the laws of the PRC and established in July 1998 upon reorganisation of the former China Petrochemical Corporation (中國石油化工總公司), and the Company’s Controlling Shareholder

— 34 —

• “subsidiary” or

• “subsidiaries”

• has the meaning ascribed thereto in section 2 of the Companies Ordinance (Chapter 622 of the laws of Hong Kong), as amended, supplemented or otherwise modified from time to time

• “substantial has the meaning ascribed thereto in the Hong Kong shareholder(s)” Listing Rules

• “Technology R&D a technology R&D framework agreement entered into Framework between the Company and Sinopec Group on 19 Agreement” December 2012, as amended by a supplemental agreement dated 28 August 2015

• “US$” the lawful currency of the United States of America, its territories, its possessions and all areas subject to its jurisdiction

• “%” percentage ratio

By order of the Board SINOPEC ENGINEERING (GROUP) CO., LTD. SANG Jinghua

Vice President and Secretary to the Board

• Beijing, the PRC 31 August 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.

— 35 —