If the Board decides to buy back A Shares during the Relevant Period, such buy-back may need to be
pursued or implemented after the end of the Relevant Period.
An explanatory statement giving certain information regarding the Buy-back Mandate is set out in
Appendix V to this circular.
In relation to the resolutions regarding the Proposed Issuance of A Share, among the ten Directors,
six connected Directors, Mr. Ma Yongsheng, Mr. Zhao Dong, Mr. Yu Baocai, Mr. Ling Yiqun, Mr. Li Yonglin and Mr. Liu Hongbin were required to abstain and had abstained from voting in the Board meeting held on 24 March 2023 in respect of Resolutions
No. 2 to No. 6 and Resolution No. 10 as set out in the section headed “II. PROPOSED ISSUANCE OF A SHARES”. All remaining four Directors, i.e. all the independent non-executive Directors who were entitled to vote, unanimously approved all the
resolutions at the Board meeting. The format and procedure for passing the resolutions were in compliance with the Company Law of the PRC and the Articles of Association.
Your attention is drawn to the letter from the Independent Board Committee as set out on pages 30 to
31 of this circular which contains its recommendation to the Independent Shareholders as to voting in respect of the Proposed Issuance of A Shares, the Subscription Agreement and the transactions contemplated thereunder at the AGM and to the letter
from the Independent Financial Adviser as set out on pages 32 to 59 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders in relation to the Proposed Issuance of A Shares, the Subscription
Agreement and the transactions contemplated thereunder therein.
Your attention is also drawn to the additional information set out in the Appendices to this
circular.
In relation to the resolutions regarding Other Matters, the Board is of the view that the
resolutions as set out in the Notice of AGM and the Notice of H Shareholders Class Meeting are in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders to vote in favour of the resolutions
in relation to Other Matters to be proposed at the AGM and the H Shareholders Class Meeting.
The AGM will be held at Beijing Chaoyang U-Town Crowne Plaza, No. 3 Sanfeng North Area, Chaoyang
District, Beijing, PRC on Tuesday, 30 May 2023 at 9:00 a.m. and the H Shareholders Class Meeting will be held at the same venue immediately following the conclusion of the AGM and the A Shareholders Class Meeting. The Notice of Annual General
Meeting for 2022 and First H Shareholders Class Meeting for 2023 is set out in this circular. The proxy forms and the reply slip of the AGM and the H Shareholders Class Meeting will be despatched to the H Shareholders with this circular.
If you intend to appoint a proxy to attend the AGM and/or the H Shareholders Class Meeting, you are
required to complete and return the enclosed proxy forms in accordance with the instructions printed thereon as soon as possible. For H Shareholders, the proxy forms should be returned to the Company’s H Share Registrar, Hong Kong Registrar Limited
(the address is 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong) in person or by post as soon as possible but in any event not less than 24 hours before the time stipulated for convening the AGM (i.e. before 9 a.m. on 29 May
2023, Hong Kong time). Completion and return of the proxy forms will not preclude you from attending and voting in person at the AGM and/or the H Shareholders Class Meeting should you so wish.
If you intend to attend the AGM and/or the H Shareholders Class Meeting in person or by proxy, you
are required to complete and return the reply slip to the Board Secretariat of Sinopec Corp. by personal delivery, post or facsimile during hours between 9:00 a.m. and 11:30 a.m., 2:00 p.m. and 4:30 p.m. on every business day on or before
Wednesday, 10 May 2023. Failure to complete or return the reply slip will not preclude eligible Shareholders from attending the AGM and/or the H Shareholders Class Meeting should they so wish.
Shareholders (or their proxies) shall vote by poll.
As at the Latest Practicable Date, China Petrochemical Corporation, the controlling shareholder of
the Company (holding 80,572,167,393 Shares, representing approximately 67.20% of the total issued share capital of the Company), and its associate, Sinopec Century Bright Capital Investment Ltd. (a wholly-owned subsidiary of China Petrochemical
Corporation, through HKSCC Nominees Limited, holding 767,916,000 Shares, representing approximately 0.64% of the total issued share capital of the Company), will abstain from voting at the AGM in respect of Resolutions No. 13 to 17 and Resolution
No. 21 as set out in the Notice of AGM (corresponding to Resolutions No. 2 to No. 6 and Resolution No. 10 as set out in the section headed “II. PROPOSED ISSUANCE OF A SHARES”).
The register of holders of H Shares will be closed from Friday, 28 April 2023 to Tuesday, 30 May
2023, both days inclusive, during which period no transfer of H Shares will be effected. In order to qualify for attending the AGM and/or the H Shareholders Class Meeting, all transfer documents of H Shares accompanied by the relevant share
certificates must be lodged with the Hong Kong Registrars Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong by no later than 4:30 p.m. on Thursday, 27 April 2023.
(a joint stock limited company
incorporated in the People’s Republic of China with limited liability)
We have been appointed by the Board as the Independent Board Committee to advise you on whether, in
our opinion, (i) the terms of the Subscription Agreement are fair and reasonable, (ii) the Subscription Agreement and the transactions contemplated thereunder are on normal commercial terms or better and in the ordinary and usual course of business
of the Group; and (iii) the Subscription Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole. Somerley Capital Limited has been appointed as the Independent Financial Adviser to
advise us and the Independent Shareholders in this regard.
We wish to draw your attention to (i) the letter from the Board as set out on pages 6 to 29 of the
Circular and Appendices I to IV which contains the details of the Subscription Agreement and the transactions contemplated; and (ii) the letter from the Independent Financial Adviser as set out on pages 32 to 59 of the Circular which contains its
advice and recommendation in respect of the Subscription Agreement and the transactions contemplated thereunder, as well as the principal factors and reasons for its advice and recommendation.
Having considered the terms of the Subscription Agreement and the transactions contemplated
thereunder and taking into account the advice and recommendation of the Independent Financial Adviser, we are of the view that (i) the terms of the Subscription Agreement are fair and reasonable; (ii) the Subscription Agreement and the transactions
contemplated thereunder are, although not conducted in the ordinary and usual course of business of the Group, on normal commercial terms; and (iii) the Subscription Agreement and the transactions contemplated thereunder are in the interests of the
Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the relevant resolutions regarding the Subscription Agreement and the transactions contemplated thereunder at the AGM.
Cai Hongbin Ng, Kar Ling
Johnny Shi Dan Bi Mingjian
The following is the text of a letter of advice from Somerley Capital Limited prepared for the
purpose of inclusion in this circular, setting out its advice to the Independent Board Committee and the Independent Shareholders in respect of the Subscription Agreement and the transactions contemplated thereunder.
We refer to our appointment to advise the Independent Board Committee and the Independent
Shareholders in connection with the Subscription Agreement and the transactions contemplated thereunder. Details of the aforesaid transactions are set out in the letter from the Board contained in the circular of the Company (the “Circular”) to its Shareholders dated 13 April 2023, of which this letter forms part. Unless otherwise defined, terms used in this letter shall have the same meanings as those defined in the Circular.
As at the Latest Practicable Date, China Petrochemical Corporation is a connected person of the
Company by virtue of being the controlling shareholder of the Company. Therefore, the entering into of the Subscription Agreement and the transactions contemplated thereunder constitutes a connected transaction of the Company under Chapter 14A of
the Hong Kong Listing Rules and are subject to the reporting, announcement and Independent Shareholders’ approval requirements under the Hong Kong Listing Rules.
The Independent Board Committee comprising all the independent non-executive Directors, namely Mr.
Cai Hongbin, Mr. Ng, Kar Ling Johnny, Ms. Shi Dan, and Mr. Bi Mingjian, has been established to make a recommendation to the Independent Shareholders in relation to the Subscription Agreement and the transactions contemplated thereunder. Somerley
Capital Limited has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in the same regard.
We are not associated or connected with the Company, the Subscriber or their respective core
connected persons or associates. In the two years prior to this appointment, we did not have other engagement with the Company or its associates except for having been the independent financial adviser to the Company to provide our independent
advice in relation to the renewal of continuing connected transactions and discloseable transactions as contained in the circular dated 3 September 2021 and our appointment as the independent financial adviser to Sinopec Kantons Holdings Limited
(934.HK) to provide our independent advice in relation to the renewal of non-exempt continuing connected transactions as contained in the circular dated 15 November 2022. We do not consider our past engagements as independent financial adviser give
rise to any conflict for Somerley Capital Limited to act as the Independent Financial Adviser for the transactions contemplated under the Subscription Agreement. Apart from normal professional fees payable to us in connection with this appointment,
no arrangement exists whereby we will receive any fees or benefits from the Company, the Subscriber or their respective core connected persons or associates.
In formulating our advice and recommendation, we have reviewed information on the Company, including
but not limited to, the Subscription Agreement, annual reports of the Company for the year ended 31 December 2021 (“FY2021”) (the “2021 Annual Report”) and for the year
ended 31 December 2022 (“FY2022”) (the “2022 Annual Report”) (together, as the “Reports”) and other information contained in the
Circular.
In addition, we have relied on the information and facts supplied, and the opinions expressed, by
the Directors and management of the Company (collectively, the “Management”) and the respective professional advisers of the Company, which we have assumed to be true, accurate and complete in all material
aspects at the time they were made and will remain true, accurate and complete in all material aspects up to the date of the AGM. We have also sought and received confirmation from the Group that no material facts have been omitted from the
information supplied by them and that their opinions expressed to us are not misleading in any material respect. We consider that the information we have received is sufficient for us to formulate our opinion and recommendation as set out in this
letter and have no reason to believe that any material information has been omitted or withheld, nor to doubt the truth or accuracy of the information provided to us. We have, however, not conducted any independent investigation into the businesses
and affairs of the Group or the Subscriber nor have we carried out any independent verification of the information supplied.
In formulating our opinion and recommendation regarding the Subscription Agreement, we have
considered the following principal factors and reasons:
Sinopec Corp. was established on 25 February 2000 as a joint stock limited company in China (“PRC”). Sinopec Corp. is one of the largest integrated energy and chemical companies in China and together with its subsidiaries, is engaged in the exploration and production, pipeline transportation and sale of
petroleum and natural gas; the production, sale, storage and transportation of refinery products, petrochemical products, coal chemical products, synthetic fibre, and other chemical products; the import and export, including an import and export
agency business, of petroleum, natural gas, petroleum products, petrochemical and chemical products, and other commodities and technologies, and research, development and application of technologies and information; hydrogen energy business and
related services such as hydrogen production, storage, transportation and sales; battery charging and swapping, solar energy, wind energy and other new energy business and related services.
As disclosed in the 2022 Annual Report, the Group has upstream, mid-stream and downstream integrated
energy and petrochemical operations and its refining capacity ranks first in China. The Group is also well equipped with a well-developed sales network for refined oil products and is the largest supplier of refined oil products in China; and in
terms of ethylene production capacity, the Group ranks first in China, and has a well-established marketing network for chemical products.
Set out below is the summary of the Group’s audited financial performance (prepared in accordance with the International
Financial Reporting Standards (“IFRS”)) for the three years ended 31 December 2020 (“FY2020”), 2021 and 2022 as extracted from the respective Reports:
As shown above, the Group demonstrated a gradual growth in revenue during the past three financial
years. In FY2021, the Group reported revenue of approximately RMB2,740.9 billion, representing an increase of approximately 30.2% from approximately RMB2,104.7 billion in FY2020. Such increase was mainly due to increases in revenue from primary
business including but not limited to gasoline, diesel, crude oil and basic chemical feedstock. Revenue of the Group in FY2022 grew by a further approximately 21.1% to approximately RMB3,318.2 billion. Based on the 2022 Annual Report, such increase
was also mainly attributable to increases in revenue derived from primary business including but not limited to sales of refined oil products and chemical products.
The Group reported a significant increase in operating profit of approximately 590.5% to
approximately RMB94.6 billion in FY2021. Such increase was mainly attributable to a higher operating profit margin between FY2020 and FY2021 and, as disclosed in the 2021 Annual Report, such increase in operating profit was due to the increase of
international crude oil prices and steady improvement of market demand, the Company increased its processing volume and sales volume. Operating profit for FY2022 fell by approximately 19.9% to approximately RMB75.8 billion. Such change in profit
was due to weak domestic demand of domestic petroleum and petrochemical products, and decreased operating margin for domestic refining and chemicals under high crude oil price circumstance.
Profit attributable to shareholders of the Company increased by approximately 115.6% to approximately RMB72.0 billion
in FY2021 mainly because of improvement in operating profit as mentioned above. We note such increase was partially offset by the increase in income tax expense of approximately 269.8% from approximately RMB6.3 billion in FY2020 to approximately
RMB23.3 billion in FY2021. The increase in income tax expense was mainly due to the increased burden in deferred taxation in FY2021 from net deferred tax assets of approximately RMB7.9 billion in FY2020 to net deferred tax liabilities of
approximately RMB6.3 billion in FY2021. Profit attributable to shareholders of the Company decreased by approximately 8.1% in FY2022. Such decrease was mainly a result of lower reported operating profit.
Set out below is the summary of the Group’s financial position as at 31 December 2021 and 2022
(prepared in accordance with the IFRS), as extracted from the respective Reports:
The Group reported total assets of approximately RMB1,889.3 billion as at 31 December 2021 and
approximately RMB1,948.6 billion as at 31 December 2022. Total non-current assets of the Group as at 31 December 2021 and 31 December 2022 mainly comprised property, plant and equipment and right-of-use assets. Balance of total non-current assets
increased from approximately RMB1,331.2 billion as at 31 December 2021 to approximately RMB1,425.5 billion as at 31 December 2022. Such increase was mainly attributable to increase in property, plant and equipment by approximately 5.3% and increase
in construction in progress by approximately 25.7% which is due to increase in investment in transition.
Total current assets of the Group as at 31 December 2021 and 31 December 2022 mainly comprised,
among other things, cash and cash equivalents, time deposits with financial institutions and inventories. Total current assets of the Group decreased by approximately 6.3% as at 31 December 2022. Such decrease was mainly a result of the cash and
deposit decrease. Cash and cash equivalents and time deposits with financial institutions to total assets represents approximately 11.8% as at 31 December 2021 and approximately 7.4% as at 31 December 2022.
The Group reported total liabilities of approximately RMB974.2 billion as at 31 December 2021 and
approximately RMB1,012.4 billion as at 31 December 2022. Total current liabilities of the Group as at 31 December 2021 and 31 December 2022 mainly comprised short-term debts, trade accounts payable and bills payable, contract liabilities and other
payables. Current liabilities of the Group as at 31 December 2022 slightly increased by approximately 4.1% as compared to the balance as at 31 December 2021, mainly due to increases in the balances for short-term debts and trade accounts payable
and bills payables.
Total non-current liabilities of the Group slightly increased by approximately 3.6% from
approximately RMB332.9 billion as at 31 December 2021 to approximately RMB345.0 billion as at 31 December 2022. We note the increase was mainly due to the increases in balance for long-term debts and loans from Sinopec Group Company and fellow
subsidiaries.
As disclosed in the Reports, the Group’s liability-to-asset ratio, which is calculated by dividing
total liabilities by total assets, slightly increased from approximately 51.51% as at 31 December 2021 to approximately 51.91% as at 31 December 2022, which was mainly due to decrease in the balance for current assets for reasons stated above and
increase in current liabilities for reasons outlined in the paragraph above. The Group’s net current liabilities increased by around 73.1% from approximately RMB83.3 billion as at 31 December 2021 to approximately RMB144.2 billion as at 31 December
2022.
Total equity attributable to shareholders of the Company was approximately RMB774.2 billion and
approximately RMB784.7 billion respectively as at 31 December 2021 and 31 December 2022. Based on the total number of issued Shares as at the Latest Practicable Date of 119,896,407,646, total equity attributable to shareholders of the Company per
Share was approximately RMB6.54 as at 31 December 2022.
As disclosed in “Feasibility report on the use of proceeds raised from the Proposed Issuance of A
Shares” in Appendix II to the Circular, in March 2022, the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) released the “14th Five-Year Plan for Modern Energy System (《「十四五」現代能源體系規劃》)” which
underscores the modern energy industry’s entry into the phase of innovation and upgrades, while keenly sets attaining the “dual carbon” goals, the energy system is grappling with a new need for reform, and a pressing need to further enhance the
leading and strategic support role played by scientific and technological innovation, as well as aiming to comprehensively upgrade the energy industrial base and modernise the industrial chain. As also disclosed in “Feasibility report on the use of
proceeds raised from the Proposed Issuance of A Shares” in Appendix II to the Circular, in April 2022, six departments including the Ministry of Industry and Information Technology, the NDRC, the Ministry of Science and Technology, the Ministry of
Ecology and Environment, the Ministry of Emergency Management and the NEA released “the Guiding Opinions on Promoting High-quality Development of Petrochemical and Chemical Industries during the 14th Five-Year Plan Period
(《關於「十四五」推動石化化工行業高質量發展的指導意見》)” which emphasized on the need for improvements to the level of innovative development, improving the supply quality of chemical products, and accelerating the development of high-end polyolefin, industrial specialty
gas, high-performance rubber and plastic materials, high-performance fiber, bio-based materials, special lubricating grease and other products.
Therefore, to seize investment opportunities which may arise from PRC government policies such as
the aforementioned, and as one of the largest integrated energy and chemical companies in China, the Group is expecting to increase capital expenditure in the development of projects in the fields of high value-added materials and clean energy,
which will be beneficial to further enhance the core competitiveness and sustainable operation of the Group.
We have discussed and understood from the Company that having considered its business development
needs and the expected capital expenditure of its new projects as a whole and among which, five projects which are mainly in the fields of high value-added materials (such as POE and EVA, which would help the Group’s chemical business to improve
quality and increase efficiency) and clean energy (such as natural gas and high-purity hydrogen for fuel cells), are expected to be partially financed with all of the net proceeds from the Proposed Issuance of A Shares. Details of such five new
projects are set out in “Feasibility report on the use of proceeds raised from the Proposed Issuance of A Shares” in Appendix II to the Circular. We have discussed and understand from the Management that these investment projects only form part of
the Group’s plan for transition and will be beneficial to the Company and its Shareholders in the long run. The Proposed Issuance of A Shares will not only provide the necessary funding required for the Group’s business development plans, but will
also signify the continuous support from China Petrochemical Corporation, being its controlling shareholder, and its confidence in the Group’s prospects.
Please refer to the letter from the Board in the Circular for more information on the use of
proceeds.
In ascertaining the fairness and reasonableness of the Proposed Issuance of A Shares and the need
for additional funding, we have reviewed and noted from the Company’s annual reports that with the stable growth of China’s GDP despite the slowdown of global economy, the Group has continuously expanded its business in markets such as crude oil
and natural gas, refined oil products and chemical products to primarily facilitate the domestic demand in China. According to the Reports, for each of the years ended 31 December 2021 and 2022, the Group had, in existence, 9 and 8 major projects
in China with accumulated investments of approximately RMB59.0 billion and approximately RMB68.0 billion respectively. In addition, according to the annual report for the year ended 31 December 2020, the 2021 Annual Report and the 2022 Annual
Report, the Group had a total capital expenditure of approximately RMB137.1 billion, RMB167.9 billion and RMB189.1 billion respectively for each of FY2020, FY2021 and FY2022 and net cash generated from operating activities (prepared in accordance
with the IFRS) of approximately RMB168.5 billion, RMB225.2 billion and RMB116.3 billion in FY2020, FY2021 and FY2022. Such capital expenditure to net cash generated from operating activities ratio of around 81.4% for FY2020, around 74.6% for FY2021
and around 162.6% for FY2022 further implied the necessity of the Company to obtain further financing on its capital expenditure for business development. Furthermore, according to the 2022 Annual Report, the Group had a planned capital expenditure
of RMB165.8 billion for 2023. We have discussed and understand from the Management that the Group’s demand for funding is relatively large, capital expenditure has been consistently high in recent years and given the size and scale of the Group’s
business operations, working capital needs are also relatively significant.
Based on our understanding, the Group has been predominately funding its business operations and
working capital requirements as well as capital expenditure needs including for its projects by way of internal resources, bank borrowings and issuing debts. We note the Group’s liability-to-asset ratio has been gradually increasing over the years.
We noted from our review of the Reports, the Group reported cash and cash equivalents and time
deposits with financial institutions balance of approximately RMB222.0 billion and approximately RMB145.1 billion as at 31 December 2021 and 31 December 2022 respectively, which represented a decrease of approximately 34.6%. We have discussed and
understand from the Management that the Group’s cash is mainly earmarked for working capital purposes and capital expenditure. In this respect, we would also concur that funding from other sources is required to ensure continued business
development and ongoing investments of the Group, including that of new projects as described above.
Having considered the above, in particular, the Group has a genuine funding need for its business
operations for the purpose of satisfying capital expenditure and the Proposed Issuance of A Shares can provide it with new funding for its operations and capital expenditure that would be considered as beneficial to improving the Group’s capital
structure, and financial risk resistance, we consider the entering into of the Subscription Agreement fair and reasonable.
Based on our understanding, the Company has also considered the possibility of a rights issue or an
open offer exercise as a possible funding source for the required RMB12 billion proceeds. However, the Company opt to proceed with the Proposed Issuance of A Shares considering, in particular (i) the Company is dually listed on the Shanghai Stock
Exchange and the Hong Kong Stock Exchange, a rights issue or an open offer exercise will require a relatively lengthy process and potentially more significant administrative costs; (ii) the possible need of having to offer a reasonable level of
discount to Shareholders to incentivise participation rate; and (iii) the fact that the Proposed Issuance of A Shares in this case, which will raise the same amount of funding required with certainty. In addition, the Proposed Issuance of A Shares
is also preferred over the use of rights issue or an open offer exercise for the purpose of raising the required RMB12 billion proceeds because as discussed in the section above under the heading “2.1 Reasons for the Subscription Agreement”, given
A Shares of the Company is trading at a premium to H Shares of the Company (to be discussed in the section headed “4.1 Review of historical Shares closing prices” below), and the fact that China Petrochemical Corporation is subscribing for A Shares
rather than H Shares means the Company is able to raise the required RMB12 billion proceeds with lesser dilution impact.
We also understand that the Company has considered procurement of additional bank borrowings and/or
issuance of debt instruments as a possible funding source for the required RMB12 billion proceeds. Given the existing financial structure of the Group, the consistently high levels of capital expenditure in recent years, and the gradual increase in
the liability-toasset ratio of the Company, and based on factors discussed in the section headed “2.1 Reasons for the Subscription Agreement”, we concur that the Proposed Issuance of A Shares would be a preferred method to raise the required RMB12
billion funding for the development of new projects. In addition, based on our discussion with the Company, we understand equity financing in general was preferred to raise the required RMB12 billion proceeds over debt financing in this case
because equity financing is able to better facilitate the long-term nature of the projects.
We have also enquired the Management whether other potential investors were considered as
subscribers. Based on our understanding, the Company has considered the possibility of issuances of Shares to other potential investors as a possible funding source for the required RMB12 billion proceeds. However, due to the uncertainties
associated with time required to procure and approach suitable investors, the possible lengthy negotiations involved and in particular, the fact that the Company may have to provide the potential investors with a reasonable level of discount to its
existing market prices to attract sufficient interests for the amount it intends to raise and that other potential investors may not agree to a longer than required lockup period as compared to the Subscriber, the Management considered the Proposed
Issuance of A Shares to the Subscriber preferable.
In totality, after considering all the above, we concur that the Proposed Issuance of A Shares is in
the interests of the Company and its shareholders as a whole.
The Subscription Agreement shall take effect after being executed by the legal or authorised
representatives, as well as the satisfaction of the following conditions:
In the event that any of the aforementioned conditions is not satisfied, the Subscription Agreement
shall terminate automatically.
As at the Latest Practicable Date, save for condition (1) above has been partly satisfied in that
the Board has approved the Subscription Agreement and the Proposed Issuance of A Shares and condition (2) above has been satisfied, the remaining conditions have not been satisfied.
The following share price chart illustrates the daily closing price of the A Shares and H Shares
(translated to RMB per H Share for comparison purposes) as quoted on the Shanghai Stock Exchange and the Hong Kong Stock Exchange respectfully, during the period from 1 January 2022 up to and including the Latest Practicable Date (the “Review Period”) against the Issue Price of RMB5.36 per A Share. We consider the Review Period to be sufficient in reflecting the recent trading pattern of the Shares.
Source: Bloomberg
For illustrative purposes, the Issue Price of RMB5.36 per A Share represents:
We note from the chart above that, during the Review Period, the closing price of the A Shares
fluctuated between RMB3.98 and RMB5.70 per A Share, with an average closing price of approximately RMB4.39 per A Share. Besides, H Shares of the Company fluctuated between HK$3.10 and HK$4.90 (equivalent to RMB2.70 and RMB4.27 per H Share, with an
average closing price of approximately HK$3.82 (equivalent to RMB3.33) per H Share. Furthermore, according to the Company’s circular dated 31 March 2022 and the announcement of the Company dated 29 December 2022, the Company has conducted Shares
repurchases since 21 September 2022 to safeguard the value of the Company and the interests of its shareholders and it was noted, the closing price of A and H Shares had respectively improved from RMB4.25 to RMB4.36 and HK$3.45 and HK$3.77
(equivalent to RMB3.01 and RMB3.28) between 21 September 2022 and 30 December 2022. Moreover, the Company has also announced in both 2021 and 2022 that the Subscriber increased its shareholding interest in the Company by way of on-market
acquisitions and in order to demonstrate the Subscriber’s confidence in the Company’s future development prospects, the Subscriber also had plans to further increase its shareholding in the Company by way of on-market acquisitions, which have been
considered supportive to the Company’s trading performance. In addition, we note from the Share price chart that the recent Share prices of both the A Shares and H Shares were trading at a recent year high of RMB5.70 and HK$4.90 respectively in mid
and late March 2023. Given the A Shares have been trading above the H Shares during the Review Period, the Subscriber’s RMB12 billion capital investment to the Company by way of subscription of A Shares under the Proposed Issuance of A Shares will
result in less dilution to the percentage interest of the existing public Shareholders as compared to H Shares subscription. Further, it is noted that the Issue Price is within the range of the closing prices of the A Shares during the Review
Period and represents premium of approximately 22.10% over the average closing price of the A Shares during the Review Period and the Issue Price is also at a premium of approximately 25.53% over the highest closing prices of H Shares throughout
the Review Period. In this respect, we consider the Issue Price to be fair and reasonable.
In further assessing the Issue Price, we have conducted price-to-earnings ratio (the “PER”) and price-to-book ratio (the “PBR”) analysis with comparable companies. We consider the use of PER and PBR to be a suitable valuation methodology as it is a common
financial analysis tool used to evaluate companies with a proven track record and positive net asset value. In identifying comparable companies, we have considered companies: (i) with shares listing on the stock exchanges in the PRC; (ii) which are
principally engaged in integrated energy services including but not limited to, exploration/production and distribution services for crude oil, natural gas and/or refined petroleum products; and (iii) with the latest market capitalisation ranging
between ±75% of the Company’s market capitalisation as at the Latest Practicable Date. In this respect, we have identified two comparable entities (the “Comparable Companies”), namely PetroChina Company
Limited (“PetroChina”) (stock codes: 857.HK and 601857.SH) and CNOOC Limited (“CNOOC”) (stock codes: 883.HK and 600938.SH) with criteria as stated above.
Set out in the table below are the details of the Comparable Companies and their respective PER
and PBR:
Source: Website of the Hong Kong Stock Exchange, Bloomberg
Notes:
As shown in the table above, the PER of the Comparable Companies ranged from around 5.82 times to
7.32 times with an average of around 6.57 times. The PER of the Company represented by the Issue Price of around 9.80 times is higher than the average and the maximum of the PER of the Comparable Companies, which is considered favourable. PBR of
the Comparable Companies ranged from around 0.80 times to 1.41 times with an average of around 1.11 times. The PBR of the Company represented by the Issue Price of around 0.82 times is within the range which is considered in line with the market.
We also noted that the PBR of the Company as represented by the market price has recently reached the highest level during the Review Period in view of the recent increase in A Share price. Based on the above, we consider the Issue Price fair and
reasonable.
To further assess the fairness and reasonableness of the Issue Price and the lock-up period, we
have conducted our independent research based on comparable analysis through identifying non-public issuances of A shares by companies listed on the Shanghai Stock Exchange (excluding companies under prolonged suspension or debt restructuring),
which have been initially announced with details on the terms of the issuances by way of announcement(s) published and completed during the period from 1 January 2022 up to and including date of Subscription Agreement (being 24 March 2023). We
consider the review period chosen to be fair and reasonable as it reflects the prevailing market environment at the time of entering into the Subscription Agreement. Based on the aforementioned criteria, on a best effort basis, we have noted and
reviewed 29 non-public issuances of A shares (together as the “Comparable Issues”).
Notwithstanding that the subject companies constituting the Comparable Issues may have different
principal activities, market capitalisation, profitability and financial position as compared with those of the Company, and different reasons for their respective fund-raising activities, we would still consider, in light of our selection
criteria, capturing recent non-public issues of A shares by listed companies (or their subsidiaries) under similar market conditions and sentiments can provide Shareholders with a broad perspective of recent market trend of this type of transaction
which is similar to that of the Proposed Issuance of A Shares proposed by the Company.
Source: Website of the Shanghai Stock Exchange, Bloomberg
Note:
We note from the table above that 15 out of the total 29 Comparable Issues involved issue of A
shares to controlling/substantial shareholders/connected person(s), which are similar to the Proposed Issuance of A Shares and therefore, it is not an uncommon practice to involve connected persons in non-public issuance of A shares in the market.
Furthermore, we also note from the table above that the price as of the price benchmark date for
all of the 29 Comparable Issues represented a discount to its respective average trading price for the period of last 20 trading days immediately preceding the price benchmark date (“Comparable Discounts”).
According to Measures for the Administration of the Issuance of Securities by Listed Companies
(《上市公司證券發行註冊管理辦法)》) promulgated by CSRC at 17 February 2023, the issue price of issuance of A shares to target subscribers should not be lower than 80% of the average trading price for the period of last 20 trading days preceding the price
benchmark date (the “Basic Pricing Criteria”) and as such, primarily pricing basis for all of the Comparable Issues were based on the Basic Pricing Criteria. Though we note that 9 of the 29 Comparable Issues
had involved an optional criteria in addition to the Basic Pricing Criteria, which was the issue price being benchmarked to also the audited net asset value attributable to the ordinary shareholders of the company per share (the “Optional Pricing Criteria”). However, we are confirmed by the legal advisers of the Company that such Optional Pricing Criteria is not a mandatory requirement in the case of issuance of shares to controlling
shareholders similar to the Proposed Issuance of A Shares and was therefore only adopted by a few Comparable Issues.
As such, in view of the reasons including that (i) the pricing basis for arriving at the Issue
Price is in full compliance with the Basic Pricing Criteria and the applicable regulatory requirements and is in line with the Comparable Issues; and (ii) most importantly, the Issue Price of the Proposed Issuance of A Shares is equivalent to the
average trading price of the A Shares for the period of last 20 trading days preceding the Price Benchmark Date which is considered better than the minimum requirement under the Basic Pricing Criteria and is better than the Comparable Discounts as
discussed above, we are of the view that the pricing basis for arriving at the Issue Price is in line with the market practice and accordingly, is considered reasonable.
We also noted that the use of “lock-up” mechanism is common amongst the Comparable Issues and the
range of lock-up periods of the Comparable Issues is between 6 months to 36 months. Since the Proposed Issuance of A Shares imposes a lock-up period requirement of 36 months to the Subscriber which is at the top end of the lock-up periods under the
Comparable Issues and exceed the relevant regulatory requirements of no less than 18 months,we are therefore of the view that such lock-up period is reasonable.
In light of the above, we are of the view that key terms of the Proposed Issuance of A Shares,
including the Issue Price and lock-up period, are fair and reasonable and in line with the general market.
As disclosed in the letter from the Board of the Circular, the shareholding structure of the Company
(i) as at the Latest Practicable Date and (ii) immediately after the completion of the Proposed Issuance of A Shares (assuming that a total of 2,238,805,970 A Shares will be issued under the Proposed Issuance of A Shares and there will be no other
change in the number of issued Shares in the Company until the completion of the Proposed Issuance of A Shares):
As shown in the table above and assuming the completion of the Subscription Agreement, including
the Proposed Issuance of A Shares, the shareholding in the Company held by the Independent Shareholders will be diluted and reduced by approximately 0.37% from 32.16% to 31.57%.
Although the shareholding interest of the existing Independent Shareholders will be diluted,
considering (i) the reasons for the Subscription Agreement as discussed under the section under “2. Reasons for the Subscription Agreement” above; and (ii) the terms of the Subscription Agreement, including the Subscription Price, being fair and
reasonable as discussed under sections headed “4. Evaluation of the principal terms of the Subscription Agreement” above, we are of the view that the dilution effect of around 0.59% on the shareholding of the Independent Shareholders is acceptable.
As disclosed in the letter from the Board in the Circular, gross proceeds to be received by the
Company from the Proposed Issuance of A Shares is approximately RMB12 billion. Immediately upon completion of the Proposed Issuance of A Shares, it is expected that the cashflow of the Group will be increased with the amount of the net proceeds of
the Proposed Issuance of A Shares to be received by the Company.
Immediately upon completion of the Proposed Issuance of A Shares it is expected that net assets of
the Group will also be enhanced as the new A Shares to be issued will be accounted for as equity in the consolidated accounts of the Group and accordingly, the Group’s liability-to-asset ratio of approximately 51.91% as at 31 December 2022 is
expected to decrease immediately after completion of the Proposed Issuance of A Shares.
As further disclosed in “Feasibility report on the use of proceeds raised from the Proposed
Issuance of A Shares” in Appendix II to the Circular, after the proceeds are available, the total share capital of the Company will increase, and since it will take time for the benefits of the fundraising through the Proposed Issuance of A Shares
can be reflected, there is a risk that the financial indicators such as earnings per share of the Company may, in the short term, be diluted. However, with the implementation of the aforementioned projects to be funded with the net proceeds raised
and the realization of benefits, the Management expects that the Company’s business development strategy will gain strong support and the Company’s long-term profitability will be effectively enhanced.
On the above basis, the Directors consider and we concur, that the financial position of the Group
is expected to be strengthened after completion of the Proposed Issuance of A Shares.
It should be noted that the aforementioned analysis is for illustrative purpose only and do not
purport to represent how the financial position/results of the Group will be upon completion of the Proposed Issuance of A Shares.
Having considered, in particular:
we are of the view that the terms of the Proposed Issuance of A Shares are fair and reasonable and
in the interest of the Company and its Shareholders as a whole.
RECOMMENDATION
Having considered of the above principal factors and reasons, we consider that, though the
Subscription Agreement is not in the ordinary and usual course of the business of the Company, terms of the Subscription Agreement and the transactions contemplated thereunder are on normal commercial terms and are fair and reasonable so far as the
Independent Shareholders are concerned, and is in the interest of the Company and its Shareholders as a whole. We therefore advise that the Independent Shareholders, and the Independent Board Committee to recommend the Independent Shareholders, to
vote in favour of the ordinary resolution to be proposed at the AGM.
Ms. Lyan Tam is a licensed person registered with the Securities and Futures
Commission and as a responsible officer of Somerley to carry out Type 6 (advising on corporate finance) regulated activities under the SFO and has over 20 years of experience in corporate finance industry.
China Petroleum & Chemical Corporation (“Sinopec Corp.” or the “Company”) is a company listed
on the main board of the Shanghai Stock Exchange. In order to meet the capital needs of the Company’s business development and enhance the Company’s capital strength and profitability, the Company has prepared a demonstration and analysis report on
the plan of the issuance of A Shares to Target Subscribers in 2023 in accordance with the Company Law of the People’s Republic of China (《中華人民共和國公司法》), the Securities Law of the People’s Republic of China (《中華人民共和國證券法》) and the Administrative
Measures for the Registration of the Issuance Securities by Listed Companies (《上市公司證券發行註冊管理辦法》) (the “Administrative Measures for Registration”) and other relevant laws, administrative regulations, departmental regulations, normative documents and
the Articles of Association.
Unless otherwise specified in this demonstration and analysis report, the relevant terms have the
same meaning as those in the Proposal for the Issuance of A Shares to Target Subscribers in 2023 of China Petroleum & Chemical Corporation (《中國石油化工股份有限公司2023年度向特定對象發行A股股票預案》).
The type of Shares to be issued is domestically listed domestic Shares (A Shares), with a par value
of RMB1.00 each.
The Company adopts the method of issuing shares to target subscribers in the Issuance, and China
Petrochemical Corporation, the controlling Shareholder, will subscribe for all the A Shares to be issued at the average trading price of the A Shares in the 20 trading days preceding the Pricing Benchmark Date, reflecting China Petrochemical
Corporation’s resolution and confidence to strongly support the high-quality transformation and development of the Company. China Petrochemical Corporation, the controlling Shareholder, has a solid financial status, which can better guarantee the
provision of subscription funds, and thus the issuance of Shares to target subscribers by the Company features greater certainty and higher issuance efficiency.
The Administrative Measures for Registration stipulates that when a listed company issues shares to
target subscribers, the issue price shall not be less than 80% of the average trading price of the company’s shares in the 20 trading days preceding the pricing benchmark date; if the board of directors of a listed company resolves to determine all
the target subscribers in advance, and the target subscribers are the controlling shareholders, the shares subscribed for by the target subscribers shall not be transferred within 18 months from the date of closing of the issuance. The Issue Price
determined by the Company in the Issuance Plan is the average trading price of A Shares in the 20 trading days preceding the Pricing Benchmark Date, and the target subscribers shall be subject to the lock-up period of 36 months. The Issue Price and
lock-up period for the target subscribers set out in the Issuance Plan offer better protection to the rights and interests of all Shareholders, especially minority Shareholders.
Equity financing fares better in terms of long-term planning and synergy,
which is conducive to the Company’s better implementation of the projects to be financed with the proceeds, achieving the dual goals of balanced long-term and robust development and enhanced capacity to resist financial risk, so as to better align
with and support the realisation of the Company’s strategic goals. The sustained development of the Company’s businesses and the ongoing implementation of the projects financed with the proceeds will help eliminate the dilutive impact of the newly
increased share capital from the Issuance on the current returns and protect the interests of the existing Shareholders of the Company.
On the other hand, in order to seize the opportunities for transformation and development, the
Company’s capital expenditure has been consistently high in recent years and the debt ratio has also increased. The Company is characterised by its diversely enriched business matrix and a relatively high demand for daily working capital. Selection
of equity financing is conducive to further optimising its capital structure and protecting the interests of all Shareholders in the long run.
In view of the above, it is necessary for the Company to issue Shares to target subscribers and is
appropriate for the Company to select such financing method at this stage.
The target subscriber in the Issuance is China Petrochemical Corporation, the controlling
Shareholder of the issuer, and the target subscriber has subscribed for all the A Shares to be issued in cash. The scope for the selection of target subscribers is in compliance with the relevant provisions of the Administrative Measures for
Registration and other laws and regulations, and therefore the scope for the selection is appropriate.
Moreover, in order to support the transformation, upgrading and development of the Company, the
Subscription Price made by China Petrochemical Corporation is the average trading price of A Shares in the 20 trading days preceding the Pricing Benchmark Date, while the other investors generally require that the issue price shall be discounted to
the average trading price of A Shares in the 20 trading days preceding the Pricing Benchmark Date, thus such selection of the target subscriber offers better protection to the interests of the Company and minority Shareholders.
The A Shares will be issued to one target subscriber, namely China Petrochemical Corporation, the
controlling Shareholder of the issuer, which is in compliance with the limit on the number of target subscribers of not exceeding 35 under the requirements of the CSRC and other securities regulatory authorities, and therefore the number of target
subscribers is appropriate.
The target subscribers in the Issuance shall have appropriate abilities to identify and bear risks,
and shall have corresponding capital strength. The target subscriber is in compliance with the relevant provisions of the Administrative Measures for Registration and other laws and regulations, and the criteria for the selection of target
subscribers is appropriate.
In view of the above, the scope, number and criteria for the selection of target subscribers are
reasonable and in compliance with the requirements of relevant laws and regulations.
According to Article 56 of the Administrative Measures for Registration, “When a listed company
issues shares to a specific subscriber, the issue price shall be no less than eighty percent of the average price of the Company’s shares for the twenty trading days prior to the pricing benchmark date”; Article 57, “When the board of directors of
a listed company resolves to determine all the target subscribers in advance, and if the target subscriber falls within any of the following circumstances, the pricing benchmark date can be the announcement date of the resolution of the board of
directors on the issuance of shares, the announcement date of the resolution of the general meeting or the first day of the issue period: (I) the controlling shareholder of the listed company, the actual controller or its controlled associates”.
The Pricing Benchmark Date of the issuance of A Shares is the date of the announcement of the
resolution of the fifteenth meeting of the eighth session of the Board of the Company. The issue price of the Shares to be issued to the target subscriber is the average price of A Shares in the 20 trading days prior to the Pricing Benchmark Date
(the result is rounded up to the nearest two decimal places).
Average trading price of A Shares in the 20 trading days preceding the Pricing Benchmark Date =
Total trading amount of Shares in the 20 trading days preceding the Pricing Benchmark Date/Total trading volume of Shares in the 20 trading days prior to the Pricing Benchmark Date. The Issue Price will be adjusted accordingly if there occurs any
ex-right or ex-dividend event (such as distribution of dividend, bonus issue or capitalisation of capital reserves) from the Pricing Benchmark Date to the issue date.
According to the above pricing principles, the price of A Shares to be issued by the Company to the
target subscriber is RMB5.36 per Share, which can better protect the rights and interests of all Shareholders, especially minority Shareholders.
The pricing principles and basis of the Issuance are in line with the relevant provisions of the
Administrative Measures for Registration and other laws and regulations, and the pricing principles and basis of the Issuance are reasonable.
The pricing methods and procedures of the Issuance are in compliance with the relevant provisions
of the Administrative Measures for Registration and other laws and regulations. The Company has held a Board meeting and disclosed the relevant announcements on the website of the stock exchange and through information disclosure media which are
qualified under the requirements stipulated by the CSRC, and will be submitted to the Company’s general meeting for consideration.
The pricing methods and procedures of the Issuance are in compliance with the relevant provisions
of the Administrative Measures for Registration and other laws and regulations, and the pricing methods and procedures of the Issuance are reasonable.
In view of the above, the principles, basis, methods and procedures of the pricing of the Issuance
are reasonable and in compliance with the requirements of relevant laws and regulations.
The Issuance of the Company is not conducted through advertisement, public inducement or other
disguised public manner, and complies with the provisions of Paragraph 3, Article 9 of the Securities Law.
or that seriously affect the independence of the Company’s production and business operation.
In view of the above, the Company complies with the relevant provisions of the Administrative
Measures for Registration, and there are no circumstances under which issuance of securities to target subscribers is prohibited. The issuance method also meets the requirements of relevant laws and regulations, and is in compliance with laws and
regulations and is feasible.
The Issuance Plan has been considered and approved at the fifteenth meeting of the eighth session
of the Board of the Company, and has been disclosed on the website of the Shanghai Stock Exchange and on the information disclosure media which are qualified under the requirements stipulated by the CSRC, and the necessary review procedures and
information disclosure procedures have been performed. The Issuance Plan is subject to the approval of Shareholders at the general meeting of the Company, the approval by the competent state-owned capital regulatory authority, the review and
approval by the Shanghai Stock Exchange and the registration from the CSRC prior to the implementation thereof.
In view of the above, there are no circumstances under which issuance of securities to target
subscribers is prohibited. The Issuance complies with the relevant provisions of the Administrative Measures for Registration and other laws and regulations. The issuance method also meets the requirements of relevant laws and regulations, and the
review procedures and issuance method are in compliance with laws and regulations and are feasible.
The Company’s plan for the issuance of Shares to target subscribers has been considered and
approved by the Board, and the independent Directors of the Company have expressed their independent opinions on the proposal in relation to the Issuance. The implementation of the Issuance Plan is conducive to maintaining the Company’s sustained
and stable development and improving its profitability, thereby enhancing the Company’s comprehensive competitiveness, which is in line with the interests of all Shareholders.
The Plan of the Issuance of Shares to Target Subscribers and related documents are disclosed on the
information disclosure media which are qualified under the requirements stipulated by the CSRC, which ensures the right of all Shareholders to be informed. The Company will hold a general meeting to review the Issuance Plan, and all Shareholders
will vote in a fair manner on a non-WVR basis. Resolutions in relation to matters related to the Issuance will be resolved at the general meeting which must be passed by more than two-thirds of the voting rights held by Shareholders attending the
meeting, and the votes of minority investors shall be counted separately. Shareholders of the Company may exercise their rights through on-site or online voting.
As the issuance of Shares to target subscribers constitutes a connected transaction, the related
Directors have abstained from voting when the relevant proposal is considered at the meeting of the Board of the Company. The related Shareholders will also abstain from voting when voting on the proposal regarding the issuance of Shares to target
subscribers at the Company’s general meeting.
In view of the above, the Issuance Plan has been considered and approved by the Board, and the
Board believes that the Issuance Plan is in the interests of all Shareholders; the disclosure procedures performed in respect of the Issuance Plan and related documents ensure Shareholders’ right to information. At the same time, the Issuance Plan
will be subject to a fair vote by Shareholders attending the general meeting, which will be fair and reasonable.
In accordance with the requirements of the Opinions of the General Office of the State Council on
Further Strengthening the Work of Protection of the Legitimate Rights and Interests of Minority Investors in the Capital Markets (Guo Ban Fa [2013] No. 110) (《國務院辦公廳
關於進一步加強資本市場中小投資者合法權益保護工作的意見》(國辦發[2013]110號)), Certain Opinions of the State Council on Further
Promoting the Sound Development of Capital Markets (Guo Fa [2014] No. 17) (《國務院關於進一步促進資本市場健康發展的若干意見》 (國發
[2014]17號)) and the Guidelines on Matters concerning the Dilution of Current Returns of the Initial Offering, Refinancing and Major Asset Restructuring (CSRC Notice [2015] No. 31) (《關於首發及再融資、重大資產重組攤薄即期回報有關事項的指導意見》(證監會公告[2015]31 號)), in order to
protect the interests of minority investors, the Company analysed the impact of the Issuance on the dilution of current returns, and proposed measures to mitigate the dilution, and China Petrochemical Corporation, the controlling shareholder and
actual controller of the Company, and the Directors and the senior management of the Company have also given commitments as to ensuring the effective implementation of the remedial measures to mitigate the dilution. For details, please refer to the
“China Petroleum & Chemical Corporation Matters on Dilution of Current Returns by the Issuance of A Shares to Target Subscribers, Remedial Measures and the Commitments of Related Entities” published on the website of the Shanghai Stock
Exchange.
In view of the above, it is necessary and feasible for the Company to issue Shares to target
subscribers. The Issuance Plan is fair and reasonable, and complies with the requirements of relevant laws and regulations. The implementation of the Issuance Plan will be conducive to further improving the Company’s sustainable profitability and
comprehensive competitiveness, which is in line with the Company’s development strategy and in the interests of the Company and all Shareholders.
In order to proactively respond to China’s energy transition strategy and work towards China’s
“dual carbon” goals, China Petroleum & Chemical Corporation (the “Company” or “Sinopec Corp.”) strives towards implementing the 14th Five-Year Plan for a Modern Energy System (《“十四五”現代能源體系規劃》) and leading the transition, upgrading and
development of the petroleum and petrochemical industries. The Company intends to issue domestically listed domestic shares (A Shares) to China Petrochemical Corporation (“China Petrochemical Corporation”), the controlling Shareholder of the
Company, after taking into account the development stage of the Company and the opportunities and challenges it faces, to raise up to RMB12.00 billion (inclusive), which will be used for business development and upgrades geared towards clean
energy, high value-added materials and other sectors. The proposed issuance to target subscribers (the “Issuance”) demonstrates China Petrochemical Corporation’s resolution and confidence in supporting the high-quality development of the Company,
and is beneficial to optimising the Company’s business structure, enhancing the Company’s business continuity, further strengthening its core competitiveness and effectively promoting the implementation of the Company’s green and low-carbon
development strategy.
The feasibility analysis on the use of proceeds raised from the Issuance conducted by the Board of
the Company is as follows:
The Company intends to raise no more than RMB12.00 billion from the Issuance and the net proceeds
(after deducting the issuance expenses) will be used to finance the following projects:
Unit: RMB0’000
If the actual proceeds after deducting the issuance expenses are less than the amount of proceeds
intended to be used for the above-mentioned projects, the shortfall shall be covered by the Company’s self-raised funds. The Company may make appropriate adjustments to the sequential order and amount of proceeds to be invested in the
above-mentioned projects based on the practical needs of the projects. Before the proceeds raised are in place, the Company will finance the projects with its self-raised funds in advance according to the actual implementation progress of the
projects to be financed with the proceeds from the Issuance, which shall be replaced with the proceeds raised from the Proposed Issuance of A Shares in accordance with the procedures stipulated in the relevant regulations after the same are in
place.
In September 2020, China has set forth the “dual carbon” goals for carbon dioxide emissions to peak by 2030, whilst
striving to achieve carbon neutrality by 2060. China attaches great importance to the clean energy industry and has rolled out a series of policies to support the development of the clean energy industry. In March 2022, the National Development and
Reform Commission (NDRC) and the National Energy Administration (NEA) released the 14th Five-Year Plan for a Modern Energy System (《“十四五”現代能源體系規劃》), which underscores the modern energy industry’s entry into the phase of innovation and upgrades,
while keenly sets on attaining the “dual carbon” goals, the energy system is grappling with a new need for reform, and a pressing need to further enhance the leading and strategic support role played by scientific and technological innovation, as
well as aiming to comprehensively upgrade the energy industrial base and modernise the industrial chain. In April 2022, six departments including the Ministry of Industry and Information Technology, the NDRC, the Ministry of Science and Technology,
the Ministry of Ecology and Environment, the Ministry of Emergency Management and the NEA released the Guiding Opinions on Promoting High-quality Development of Petrochemical and Chemical Industry during the 14th Five-Year Plan Period
(《關於“十四五”推動石化化工行業高質量發展的指導意見》), which pointed out that by 2025, the petrochemical and chemical industries will basically establish a high-quality development pattern characterised by strong independent innovation capabilities, reasonable structure
and layout,
whilst being environmentally-friendly, safe and low-carbon. The capability of ensuring the supply of high-end product
will be greatly improved, and core competitiveness will be significantly enhanced, thereby taking solid strides in attaining high degree of self-reliance. Moreover, petrochemical and chemical enterprises are encouraged to develop and utilise “green
hydrogen” in a reasonable and orderly manner according to local conditions, so as to promote coupling demonstration as between the refining and coal chemical industry and “green power” and “green hydrogen”.
The Company continues to accelerate the pace of low carbon energy transition in recent years,
promoting synergistic development of natural gas production, supply, storage and sales, whilst proactively mapping out its hydrogen energy business. The projects to be financed with the proceeds from the Issuance are geared towards the field of
clean energy, deemed a pertinent measure to take in proactive response to China’s “dual carbon” strategy, an effective way to meet the demand for clean energy and a concrete action taken to implement sustainable development, thereby falling well in
line with the development strategies of the Company. Through the Issuance, the Company plans to further enhance its capacity to supply natural gas and high-purity hydrogen for fuel cells, so as to adapt to the trend of transformation of China’s
energy consumption structure.
Since the 21st century, the iteration and advancement of global industrial technologies have become
more inextricably linked with industries such as new chemical materials. Accelerating the development of new materials plays a vital role in promoting technological innovation and in supporting industrial upgrading and reform.
In the context of global industrial optimisation and upgrading, China attaches great importance to
the development of its new materials industry. The Guiding Opinions on Promoting High-quality Development of Petrochemical and Chemical Industries during the 14th Five-Year Plan Period (《關於“十四五”推動石化化工行業高質量發展的指導意見》) emphasized on the need to enhance
the level of innovative development, improve the supply quality of chemical products, and accelerate the development of high-end polyolefin, industrial specialty gas, high-performance rubber and plastic materials, high-performance fiber, biobased
materials, special lubricating grease and other products.
In recent years, the Company’s chemical business has adhered to the “basic + high-end” strategy,
continuously accelerating technological innovation, attaining close integration of its production, sales, research and application, enhancing its R&D efforts on high-end products and high value-added materials, striving to fill technological
gaps, and focusing on expanding its high-end market share. The projects to be financed with the proceeds from the Issuance include the construction of projects in the field of high value-added materials such as POE and EVA, being conducive to
further promoting business transformation and upgrades, thereby laying a solid foundation for the Company to upgrade and extend itself into the field of high value-added materials.
In 2022, the CSRC issued the Three-year Action Plan to Promote the Improvement of the Quality of
Listed Companies (2022-2025) (《推動提高上市公司質量三年行動方案 (2022-2025)》), proposing to optimise the resource allocation function of the capital market, as well as guiding and promoting listed companies to hone their competitiveness in their principal
businesses, so as to improve the quality and efficiency of development. The State-owned Assets Supervision and Administration Commission of the State Council (SASAC) issued the Work Plan on Improving the Quality of Listed Companies Controlled by
Central Enterprises (《提高央企控股上市公司質量工作方案》), which emphasises the need to steer listed companies into giving full play to the functions of capital market in serving the development of enterprises and optimising resource allocation, so as to realise
the integrated development and mutual promotion between industrial operation and capital operation, and increase the proportion of direct financing, improve capital structure and promote the development of principal businesses by giving
consideration to development needs and market conditions.
The Issuance by the Company is conducive to giving full play to its status as a listed company,
which is an important measure for the Company to implement its development strategies, optimise its capital structure and enhance its risk resistance capabilities. The implementation of the projects to be financed with the proceeds from the
Issuance is conducive to enhancing the Company’s capability in supplying clean energy such as natural gas and high-purity hydrogen for fuel cells, facilitating the Company to build green and low-carbon competitiveness, promoting the chemical
business to reach medium and high-end, enhancing the resilience of the industrial chain and improving the value creation capabilities.
According to the Action Plan for Carbon Dioxide Peaking before 2030 (《2030年前碳達峰行動方案》), China will
actively expand its usage of clean energy such as natural gas and hydrogen energy. In April 2020, five departments, including the NDRC, the Ministry of Finance, the Ministry of Natural Resources, the Ministry of Housing and Urban-Rural Development,
and the NEA, jointly released the Implementation Opinions on Accelerating the Construction of Natural Gas Reserve Capacity (《關於加快推進天然氣儲備能力建設的實施意見》), spelling out its agenda “to give priority to the construction of underground gas storage, LNG
terminals along the northern coast and large-scale LNG storage tanks in key areas. Existing LNG terminals are encouraged to expand the scale of storage tanks, and that urban clusters are encouraged to build and share gas storage facilities so as to
form a regional gas storage and peak shaving center. By taking advantage of the characteristics of LNG storage tanks, being suitable for storage with flexibility in transportation
options, pilot demonstration of LNG tank container multimodal transportation will be promoted and various measures
will be taken to improve gas storage capacity”. In March 2022, the NDRC released the Mid-to-long-term Plan for Development of Hydrogen Industry (2021-2035) (《氫能產業發展中長期規劃(2021-2035年)》), which clearly propounded that hydrogen energy is considered an
important part of the future national energy system, serving as a major carrier for energy end-users to achieve green and low-carbon transformation, and key to steering the development direction for emerging strategic and future industries.
In an era characterised by vigorous efforts in clean energy and new infrastructure development,
strong demand continues for high-end materials for use in clean energy and new infrastructure, which prompted the successive roll-out of a series of encouraging policies for the field of high value-added materials, covering that of POE and EVA.
According to the Catalogue of Guidance on Industrial Structure Adjustment (2019) (《產業結構調整指導目錄 (2019年本)》) released by the NDRC, specialty polyolefins such as metallocene polyethylene, engineering plastics and high-performance resins are listed as
encouraged industries.
All the projects to be financed with the proceeds from the Issuance are classed as the nation’s
encouraged and prioritised industries. The implementation of the projects to be financed with the proceeds from the Issuance is thus of great significance in terms of meeting the product demand in the market and driving the development of related
industries. The strong support of the governmental policies fosters a beneficial environment for the implementation of the projects to be financed with the proceeds from the Issuance.
According to a Bloomberg report, global investment in reducing energy consumption, driven by energy
crisis and policy initiatives, has surged to a record high of US$1.1 trillion in 2022, making it a first for global investment in energy transition to equal that of fossil fuels. According to the International Energy Agency, total investments in
clean energy technologies and infrastructure is expected to reach US$4.5 trillion in 2030. Strong demands continue around the world for LNG and hydrogen energy, being, respectively, the cleanest fossil energy and the key medium in facilitating the
transition from fossil energy to renewable energy.
LNG has become an essential option among green energy by virtue of its low-carbon and
environmentally-friendly characteristics. The current domestic output of LNG energy is unable to meet the huge demand at present, thereby resulting in higher LNG prices in 2022. According to data from the National Bureau of Statistics and the
General Administration of Customs, China produced 17.43 million tons of LNG and imported 63.44 million tons of LNG. As China’s demand for LNG energy continues on the rise while its dependence on foreign sources remains high, it is thus imminent to
accelerate the construction of its own gas storage facilities. Hydrogen, a form of secondary energy with wide sources which is clean, carbon-free, flexible and efficient, has thus emerged as an important medium for promoting the clean and efficient
use of traditional fossil
energy whilst channeling support for large-scale development of clean energy, as well as serving as a major carrier
for energy end-users to achieve green and low-carbon transformation. China’s hydrogen energy industry is still within the early stages of development, thus further enhancing the innovation capability of the hydrogen energy industry, improving the
purification level of hydrogen and improving the efficiency and quality of hydrogen production are important measures to improve the layout of the hydrogen energy industry.
Implementation of the projects to be financed with the proceeds from the Issuance is thus spurred
on by the current supply and demand of LNG and hydrogen energy, the global emphasis on clean energy, the long-term goal of sustainable development and the State’s myriad measures and policies to promote clean energy.
Scientific advancement and technological innovation have become a new driver for global economic
and social development, and high-end manufacturing has become the focus of a new round of competition among countries. Being the indispensable materials that build the foundation supporting strategic emerging industries and major projects, high-end
polyolefins and other new materials have attracted worldwide attention.
China is currently the largest consumer of high-end polyolefins in Asia. In 2022, China imported
0.692 million tons of POE and 1.2022 million tons of EVA. POE, EVA and other high-end polyolefin materials are widely used in photovoltaic films, foaming materials, hot melt adhesives, wires and cables by virtue of their low relative density,
chemical resistance, good water resistance, good mechanical strength, electrical insulation and other characteristics. In recent years, the development of downstream industries has been continuously driving the demand for POE, EVA and other high
value-added materials, but there still exist structural contradictions in China’s polyolefin industry, which supplies, predominantly, low-end generalpurpose materials. Supply of high-end products such as high value-added polyolefins are,to a
significant extent, dependent on imports. High-end, differentiated and diversified development is thus the must-go road for future market application of China’s high-end polyolefins and other new materials.
The industries of POE, EVA and other high value-added materials involved in the projects to be
financed with the proceeds from the Issuance are booming and projecting a promising market outlook. The implementation of the projects to be financed with the proceeds from the Issuance will help to increase China’s production capacity of high-end
polyolefins and high-performance resins, reinforce the Company’s position in the industrial chain of high value-added materials such as high-end polyolefins, effectively realise import substitution to meet the market’s urgent demand for high-end
production capacity.
As a world-leading large scale integrated energy and petrochemical company with business operations
throughout the entire value chain, the Company exhibits strong capacity of economies of scale. The integrated business structure carries strong synergistic advantages among its various business segments, enabling the Company to continuously tap
into potentials to attain efficient and comprehensive utilisation of its resources.
In terms of technology, by proactively following the innovation-driven development strategy and
leveraging the advantages of integrated business and the model of productionsales-R&D coordination, the Company makes sweeping efforts to promote technological research in key areas such as new chemical materials, clean energy, green and
low-carbon development, and accelerates the development progress of cutting-edge technologies. The Company is armed with a strong research team, having made new breakthroughs in a series of key R&D projects, and maintained the leading position
in the comprehensive advantages of patents among domestic enterprises, with its overall technology and strong technological innovation capabilities at a globally advanced level.
As for management and talents, the Company has established an outstanding management team with
sound structure, sophisticated skillsets and team spirit, which performs its duties diligently and takes on as its benchmark the world-class management standard. The Company owns a group of professional talent teams possessing extensive capacities
in production and operation, marketing and research and development, with a focus on refined management in production and operation, backed by significant strength in cost efficiency.
From the market perspective, the Company adheres to a market-oriented approach to further optimise
the entire industrial chain, whilst striving to expand its coverage and sales in the market. The Company’s huge business matrix and extensive operation network enables it to benefit from the geographical advantage of proximity to market. The
construction sites of the projects to be financed with the proceeds from the Issuance are endowed with promising geographical advantage, which is conducive to the yielding of considerable benefits.
With decades of experience in the industry, the Company has accumulated abundant underlying
reserves in terms of technology, management, talents, market and other aspects, thereby providing strong backing for the successful implementation of the projects to be financed with the proceeds from the Issuance, and facilitating the Company’s
firm strides taken towards launching into the middle and high-end of the industrial chain and value chain.
The total expected investment of this project is RMB5,561.69 million, and the proceeds intended to
be invested are RMB4,500 million.
The main construction work contemplated in this project involves the building of five new 270,000 m3 LNG storage tanks, BOG treatment facilities, flare facilities, ten new sets of loading facilities, and relevant supporting facilities. After completion of the
construction work, the natural gas storage capacity will increase by 810 million m3. This project primarily supplies gas to North China, which shall help alleviate the
tight supply and demand of natural gas in the region.
The implementation entity of this project is Sinopec Tianjin Liquefied Natural Gas Co., Ltd.
(中石化天津液化天然氣有限責任公司), a subsidiary of the Company.
The construction site of this project is located in the north end of East Breakwater, Donggang
Pond, Nangang Industrial Zone, Binhai New Area, Tianjin (天津市濱海新區南港工業區東港池東突堤北端).
The construction period of this project is three years.
The total investment of this project is RMB5,561.69 million, the breakdown of which is as follows:
Unit: RMB0’000
The after-tax internal rate of return of this project is 8%, and the after-tax
investment payback period is 12 years (inclusive of the construction period).
This project has been approved by the Tianjin Development and Reform Commission and the approval on
the environmental impact assessment of this project has been received from the Ecology and Environment Bureau of Tianjin Economic-Technological Development Area.
Approval on the grant of the right to use sea areas for the construction of this project has been
obtained from Tianjin Municipal Bureau of Planning and Natural Resources, and the land assignment contract in respect of the related land has been signed. The Company is actively pursuing the application for the land use right certificate.
The total expected investment of this project is RMB207.06 million, and the proceeds intended to be
invested are RMB200 million.
The main construction work contemplated in this project includes the construction of facilities to
purify hydrogen generated as industrial by-product from the existing chemical system as complemented by the construction of hydrogen analysis and testing as well as loading facilities. After completion of the construction work, the production
capacity of the purification facilities will reach 10,000Nm3/h, equivalent to 7,200 tons of high-purity hydrogen for fuel cells per year. This project is a further
extension of the Company’s hydrogen energy value chain, and will serve the demand for high-purity hydrogen gas for hydrogen fuel cell vehicles in Beijing.
The implementation entity of this project is the Company’s Beijing Yanshan Branch.
The construction site of this project is located in the chemical plant of the Beijing Yanshan
Branch of the Company.
The construction period of this project is one year.
The total investment of this project is RMB207.06 million, the breakdown of which is as follows:
Unit: RMB0’000
The after-tax internal rate of return of this project is 13.07%, and the after-tax investment
payback period is 7.55 years (inclusive of the construction period).
This project has been filed with the Bureau of Economy and Information Technology of Fangshan
District of Beijing and the approval on the environment impact assessment of this project has been received from the Ecology and Environment Bureau of Fangshan District of Beijing.
The land use right certificate for the land involved in this project has been obtained.
(III) Maoming Branch Oil Refining Transformation and
Upgrading and Ethylene Quality Revamping Project
The total expected investment of this project is RMB33,057.46 million and the proceeds to be
invested is RMB4,800 million.
The construction work contemplated in this project consists of the transformation and upgrading of
refining facilities component and the component on quality revamping of ethylene. Application of the proceeds will be mainly geared towards fields in relation to high value-added materials (such as production facilities for thermoplastic polymer
new material) for the quality revamping of ethylene component. The products so derived are mainly used in fields such as new energy vehicle, precision instrument, electronics, etc.
The implementation entity of this project is the Company’s Maoming Branch.
The construction site of this project is located in Maoming Branch, at Maoming, Guangdong province.
The construction period of this project is three years.
The total investment of this project is RMB33,057.46 million, the breakdown of which is as follows:
Unit: RMB0’000
The after-tax internal rate of return of this project is 11.89%, and the
after-tax investment payback period is 9.22 years (inclusive of the construction period).
The approval on the environmental impact assessment of the oil refining facilities transformation
and upgrading component of this project has been obtained from the Ecology and Environment Bureau of Maoming. The NDRC approval for this project and approval on the environmental impact assessment of the quality revamping of ethylene component are
still in progress.
Part of the land involved in this project is leased from China Petrochemical Corporation and a
long-term lease contract has been signed; application for land use right certificates for part of the additional land is in progress.
The total expected investment of this project is RMB1,090.76 million, and the proceeds intended to
be invested are RMB900 million.
The main construction work contemplated in this project involves the construction of a new 50,000
tpa POE unit together with supporting utility and auxiliary facilities. The products of this project will be mainly used in high efficiency battery packaging adhesive film, thermoplastic polyolefin elastomer, polymer modification, automotive, wire
and cable and other fields.
The implementation entity of this project is the Company’s Maoming Branch.
The construction site of this project is located in Maoming Petrochemical Ethylene Plant (茂名石化乙烯廠)
(Maoming Petrochemical Industrial Park), at High-Tech Industry Development Zone, Maoming.
The construction period of this project is three years.
The total investment of this project is RMB1,090.76 million, the breakdown of which is as follows:
Unit: RMB0’000
The after-tax internal rate of return of this project is 11.64%, and the
after-tax investment payback period is 9.32 years (inclusive of construction period).
This project has been filed with the Economic Development Bureau of the Administration Committee of
Maoming High-Tech Industry Development Zone, and the application for approval on environmental impact assessment are still in progress.
The land involved in this project is leased from China Petrochemical Corporation and a long-term
lease contract has been signed.
The total expected investment of this project is RMB2,158.32 million, and the proceeds to be
invested are RMB1,600 million.
The main construction work contemplated in this project involves the construction of a new set of
100,000 tpa EVA unit together with auxiliary utility facilities. Whilst the products derived from this project are mainly used in PV cell, functional film, hot melt adhesive, wire and cable and other fields.
The implementation entity of this project is ZhongKe (Guangdong) Refinery & Petrochemical
Company Limited, a subsidiary of the Company.
The construction site of this project is located in the factory area of ZhongKe (Guangdong)
Refinery & Petrochemical Company Limited, at Zhanjiang Development Zone, Guangdong Province.
The construction period of this project is two years.
The total investment of this project is RMB2,158.32 million, the breakdown of which is as follows:
Unit: RMB0’000
The after-tax internal rate of return of this project is 15.16%, and the
after-tax investment payback period is 7.51 years (inclusive of the construction period).
This project has been filed with the Development and Reform and Commerce Bureau of Zhanjiang
Economic and Technological Development Zone, and the approval on environmental impact assessment has been obtained from the Ecology and Environment Bureau of Zhanjiang. The land use right certificate for the land involved in this project has been
obtained.
The investment projects to be financed with the proceeds from the Issuance under the Issuance are
focused on the Company’s principal businesses, in line with the relevant national industrial policies and the Company’s overall future development strategy, and are conducive to enhancing the
Company’s comprehensive strength. The implementation of the abovementioned projects will enhance the Company’s supply
capacity for natural gas and high-purity hydrogen for fuel cells, improve the production capacity of POE, EVA and other high value-added materials, further expand the Company’s business scale and market competitiveness, facilitate the Company’s
active transition into clean energy and high value-added materials, enhance its industry influence and give full play to its pioneering, exemplary, leading role, thereby strengthening operational sustainability of the Company.
Upon the proceeds being in place, the total assets and net assets of the Company will increase and
the debt ratio will reduce, which is conducive to enhancing the stability of the Company’s capital structure and its risk resistance capabilities. The Issuance is an important strategic measure for the Company to broaden its business field and
achieve sustainable development. After the proceeds are in place, the total share capital of the Company will increase, and since it will take time for the benefits from the fundraising through the Issuance be reflected, there is a risk that
financial indicators such as earnings per share of the Company may, in the short term, be diluted. However, with the implementation of the above-mentioned projects to be financed with the proceeds from the Issuance and the realisation of benefits
therefrom, the Company’s business development strategy will gain strong support and its long-term profitability will be effectively enhanced.
The plan on use of proceeds raised from the Issuance conforms to the relevant national industrial
policies and the industry development trend, and is in line with the future strategic plan and business expansion needs of the Company, thus being satisfactory in terms of feasibility. Through the Issuance, the Company’s capital strength will be
enhanced and its strategy will be effectively implemented, which is beneficial to the Company’s sustainable development and continuous improvement of profitability in the long term and an essential move that the Company takes to maintain the
inherent value of its shares, enhance its capital operation strength, broaden its business fields and realise its strategic plans.
Work of Protection of the Legitimate Rights and Interests of Minority Investors in the Capital
Markets (Guo Ban Fa [2013] No. 110) (《國務院辦公廳關於進一步加強資本市場中小投資者合法權益保護工作的意見》(國辦發[2013]110號)), Certain Opinions of the State Council on Further Promoting the Sound Development of Capital Markets (Guo Fa [2014] No. 17)
(《國務院關於進一步促進資本市場健康發展的若干意見》(國發[2014]17號)) and the Guidelines on Matters concerning the Dilution of Current Returns of the Initial Offering, Refinancing and Major Asset Restructuring (CSRC Notice [2015] No. 31)
(《關於首發及再融資、重大資產重組攤薄即期回報有關事項的指導意見》(證監會公告[2015]31號)), in order to protect the interests of the minority investors, after analysing the impact of the dilution of current returns as a result of the Issuance, the Company formulated specific remedial
measures, and the related parties have promised to facilitate the effective implementation of these measures. Details are as follows:
The gross proceeds to be raised from the issuance of A Shares of the Company to its controlling
Shareholder, China Petrochemical Corporation, will not exceed RMB12 billion (inclusive). After completion of the Issuance, the total share capital and net assets of the Company will increase and will have impacts on the key financial indicators of
the Company. (I) Key assumptions
effects of the Issuance on the earnings per Share of the Company, and does not represent the
Company’s judgement on the actual number of Shares to be issued in the Issuance. The total share capital will be subject to the actual number of Shares issued.
The calculation is based on the assumptions that the net profit attributable to equity Shareholders
of the Company and the net profit attributable to equity Shareholders of the Company excluding extraordinary gains and losses in 2023 are 10% higher than, equal to and 10% lower than those in 2022, respectively. Such analysis is only used to
determine the impact of the dilution of current returns as a result of the Issuance on the Company’s key financial indicators and does not constitute a profit forecast of the Company. Investors should not make their investment decisions in reliance
on such analysis. The Company assumes no responsibility for compensating for any loss incurred by investors as a result of making investment decisions based on such analysis.
Based on the above assumptions, the Company calculated the dilutive effects of the Issuance on the
current returns of the Shareholders and details of the key financial indicators are as follows:
After completion of the Issuance, the total share capital and net assets of the Company will
increase and the overall capital strength of the Company will improve. However, as the implementation and the generation of economic returns from the projects to be financed with the proceeds will need a certain period of time, and the earnings per
Share and other financial indicators of the Company may be exposed to potential dilution in the short term, investors should be aware of the relevant risks.
In addition, the Company’s what-if analysis on the net profit attributable to equity Shareholders
of the Company before and after excluding extraordinary gains and losses in 2023 in estimating the dilutive effect of the Issuance on current returns and the specific remedial measures formulated by the Company to mitigate the risk of dilution of
current returns do not constitute a profit forecast of the Company, and the specific remedial measures do not represent any guarantee of the Company’s future profit. Investors should not make their investment decisions based on such analysis and
measures and should be aware of the relevant risks.
For detailed description of the necessity and reasonableness of the Issuance, please refer to the
“Feasibility Report on the Use of Proceeds Raised from the Issuance of A Shares to Target Subscribers in 2023 of China Petroleum & Chemical Corporation” issued by the Company.
The projects to be financed with the proceeds raised from the Issuance have high correlation with
the principal businesses of the Company. The Company is a large-scale integrated energy and petrochemical company with upstream, mid-stream and downstream operations. The Company is a large-scale oil and gas producer in China; ranking first in
China in terms of refining capacity; and being equipped with well-developed refined oil products sales network, and the Company is the largest supplier of refined oil products in China; ranking first in China in terms of ethylene production
capacity, and being armed with a well-established marketing network for chemical products.
The projects to be financed with the proceeds are those involving the fields of clean energy and
high value-added materials. The implementation of the projects is conducive to improving the supply capacity of natural gas and highly purified hydrogen for fuel cells of the Company so as to accommodate the trend of energy consumption structure
transformation in the PRC, and is conducive to further promoting business transformation and upgrades, thereby laying a solid foundation for the Company to upgrade and extend itself to the field of high value-added materials. The implementation of
the projects to be financed with the proceeds is conducive to further consolidating the Company’s market position and enhancing its comprehensive strength.
The Company has a profound reserve in human resources, technology, market and other aspects, which
provides a good foundation for the implementation of the projects to be financed with the proceeds, please refer to “(IV) The Company’s abundant underlying reserves provide strong support for the successful implementation of the projects” under
“III. Feasibility of the Projects to be Financed with the Proceeds” in the “Feasibility Report on the Use of Proceeds Raised from the Issuance of A Shares to Target Subscribers in 2023 of China Petroleum & Chemical Corporation” for details.
In order to protect the interests of investors, ensure the effective use of the proceeds raised,
prevent the risk of dilution of Shareholders’ current returns, and improve the Company’s ability to create sustainable returns for Shareholders, the Company intends to adopt the following measures after completion of the Issuance:
Leveraging its advantages in integration, the Company will strive to optimise its operation, expand
its market and sales, reduce costs and improve efficiency so as to effectively improve the Company’s operational efficiency and profitability. Under the strategical development initiatives driven by innovation, the Company will promote
technological breakthroughs in key areas such as new chemical materials, new energy and green and low carbon. At the same time, the Company will expedite its low-carbon energy transition, strive to build itself into a provider of integrated energy
services covering that of “oil, gas, hydrogen, electricity and service”, actively develop renewable energy business (including hydrogen and photovoltaic energy) and create new profit drivers, thus promoting the high-quality development of the
Company.
The Board of the Company has fully analysed the feasibility of the projects to be financed with the
proceeds raised from the Issuance and considers that the relevant projects are in line with the national industrial policies, the industrial development trends and the Company’s overall future development direction and are with promising market
outlook and profitability. Through the Issuance, the Company will continuously optimise its business structure, build its core competitiveness and promote its strategic transformation. Upon receipt of the proceeds, the Company will accelerate the
construction of the projects to be financed with the proceeds and strive to realise expected investment income from such projects.
In order to regulate the management and utilisation of the proceeds, the Company has formulated the
Measures on the Management of Proceeds (《募集資金管理辦法》) in accordance with relevant requirements in relation to the supervision of proceeds, which contains detailed requirements on the depositing, management and use of proceeds. In addition, the
Company will set up a designated account for the proceeds from the Issuance and enter into a tripartite supervision agreement with the bank and the sponsor whereby the sponsor, the bank and the Company will be jointly responsible for supervising
the proceeds. The Company will also actively assist the sponsor and the supervising bank on the inspection and supervision of the use of the proceeds for the purpose of ensuring the reasonable and compliance use of the proceeds and preventing
relevant risks.
(IV) Continuously improving the Company’s governance
structure to effectively manage and control the Company’s operational and management risks
The Company will continue to improve its governance structure and enhance its internal control
system to guarantee the Board, board of supervisors and the management be able to exercise their powers and perform their duties in a regulated and effective manner. Such measures and systems will effectively protect the interests of investors,
especially the legitimate rights and interests of the minority shareholders.
The Company has maintained a good level of cash dividend distribution in strict compliance with the
Articles of Association. In order to optimise the profit distribution policy of the Company, enhance the transparency of the decision-making on profit distribution, actively create returns for investors and safeguard the interests of Shareholders,
according to the Notice regarding Further Implementation of Cash Dividend Distribution by Listed Companies (Zheng Jian Fa [2012] No. 37) (《關於進一步落實上市公司現金分紅有關事項的通知》(證監發[2012]37號)), the No. 3 Guidelines for the Supervision on Listed Companies – Cash
Dividend Distribution of Listed Companies (CSRC Announcement [2022] No. 3) (《上市公司監管指引第3號–上市公司現金分紅》(證監會公告[2022]3號)) issued by the CSRC and other relevant requirements, the Board has considered and approved the Dividend Distribution and Return Plan
for Shareholders for the Next Three Years (2023-2025) of China Petroleum & Chemical Corporation, which has further clarified, among others, the profit distribution methods, conditions for and rates of cash dividend and the time interval for
profit distribution and improved the decision-making mechanism and adjusting mechanism for profit distribution.
The remedial measures formulated by the Company to mitigate the dilution do not constitute any
guarantee of the Company’s future profit. Investors should not make their investment decisions in reliance on such measures. The Company accepts no responsibility for compensating for any loss incurred by investors as a result of making investment
decisions based on such measures. Investors should be aware of the relevant investment risks.
In order to ensure the effective implementation of the remedial measures to be adopted by the
Company to mitigate the dilution of current returns upon completion of the Issuance, in accordance with the relevant requirements of the CSRC, all the Directors and the senior management of the Company have made the following commitments:
For the purpose of ensuring the effective implementation of the remedial measures to be adopted by
the Company to mitigate the dilution of current returns, in accordance with the relevant requirements of the CSRC, China Petrochemical Corporation, the controlling Shareholder and de facto controller of the Company, has made the following
commitments:
“1. not to intervene in the Company’s operation and management beyond its
authority or misappropriate the Company’s interests.
In accordance with the requirements of the laws and regulations including the Notice regarding
Further Implementation of Cash Dividend Distribution by Listed Companies (Zheng Jian Fa [2012] No. 37) (《關於進一步落實上市公司現金分紅有關事項的通知》(證監發[2012]37 號)), the No. 3 Guidelines for the Supervision on Listed Companies – Cash Dividend Distribution of Listed
Companies (2022 Revision) (CSRC Announcement [2022] No. 3) (《上市公司監管指引第3號–上市公司現金分紅(2022年修訂)》(證監會公告[2022]3號)) issued by the CSRC and the Articles of Association of China Petroleum & Chemical Corporation (the “Articles of Association”), in order
to further implement the dividend distribution policy, regulate cash dividend of China Petroleum & Chemical Corporation (the “Company”), enhance the transparency of decision-making process for cash dividend and safeguard the legitimate rights
and interests of investors, the Company formulated the Dividend Distribution and Return Plan for Shareholders of China Petroleum & Chemical Corporation for the Next Three Years (2023-2025) (the “Plan”). The Plan was considered and approved at
the fifteenth meeting of the eighth session of the Board of the Company, and will be proposed to the general meeting for consideration, the details of which are as follows:
The Company focuses on its strategic objectives and future sustainable development, and after
giving full consideration to its current and future profit scale, stage of development and financing environment, etc. on the basis of comprehensive analysis of the Company’s actual situation, business development goals, cash flows and future
development needs, etc., the Company establishes a continuous and stable return plan and mechanism for its investors, so as to make systematic profit distribution, in order to ensure the continuity and stability of its profit distribution policy.
The Company places emphasis on delivering reasonable return to the investors. The Company shall pay
due attention to the opinions of minority Shareholders through various channels when allocating its profits. The profit distribution policy of the Company shall be continuous and stable, taking into account of the long-term interests of the
Company, the overall interests of all Shareholders and the Company’s sustainable development.
The Company may adjust the Plan in case of war, natural disasters and other force majeure events,
or where changes to the external environment of the Company result in material impact on the production and operation of the Company, or where there are significant changes in the Company’s own operations or financial condition, or where the Board
of the Company considers it necessary. The Board shall, upon detailed discussion and investigation, fully take the opinions of the independent Directors into account, and the independent Directors shall perform due diligence by expressing opinions.
Such adjustment shall be proposed at the general meeting for voting upon consideration and approval by the Board, and shall be voted and passed by more than two thirds of voting rights held by Shareholders present.
The Company shall disclose in detail its formulation, implementation and adjustment of the profit
distribution policy in its annual report; should there be any adjustment or change to the profit distribution policy, detailed descriptions shall be provided as to whether the conditions and procedures for such adjustment or change are compliant.
If the conditions for cash dividend distribution have been satisfied and the Company does not propose a cash dividend distribution plan, the Company shall, in its annual report, describe in detail such reasons as well as the purpose and usage plan
for cash retained in the Company that is not distributed as cash dividends, and independent Directors shall issue independent opinions thereon.
In case of any matter that has not been covered in this Plan, the laws, regulations, normative
documents and the Articles of Association shall apply. This Plan shall be interpreted by the Board of the Company and shall take effect from the date on which it is considered and approved at the general meeting of the Company and the issuance of A
Shares to target subscribers by the Company in 2023 is completed.
In accordance with the Hong Kong Listing Rules, this appendix serves as the explanatory statement
to provide you with requisite information reasonably necessary to enable you to make an informed decision on whether to vote for or against the special resolution(s) to be proposed at the AGM and the Class Meetings for the grant of the Buy-back
Mandate to the Directors.
BUY-BACK MANDATE
Reasons for Buying Back Shares
The Directors believe that the grant of Buy-back Mandate has comprehensively taken into
consideration the overall value of the Company, Shareholders’ interests and future development needs and is flexible and feasible, and that the flexibility afforded by the Buy-back Mandate would be beneficial to and in the best interest of the
Company and its Shareholders. Such buy-backs may, depending on market conditions and funding arrangements at such time, lead to an enhancement of the net asset value per share and/or earnings per share of the Company. Such buy-backs will only be
made when the Directors believe that such buy-backs will benefit the Company and its Shareholders.
Exercise of the Buy-back Mandate
Subject to the passing of the relevant special resolution(s) set out in the notice, the special
resolution(s) approving the grant to the Board of the Buy-back Mandate at the A Shareholders Class Meeting and H Shareholders Class Meeting, the Board will be granted the Buy-back Mandate until the earlier of: (a) the conclusion of the next annual
general meeting of the Company; or (b) the date on which the authority conferred by this proposal is revoked or varied by a special resolution at an annual general meeting and/or a class meeting of A Shares and/or a class meeting of H Shares (“Relevant Period”). If the Board decides to buy back A Shares during the relevant period, such A Share buy-backs may need to be pursued or implemented after the end of the Relevant Period.
The exercise in full of the A Share Buy-back Mandate (on the basis of 95,115,471,046 A Shares in
issue as at the Latest Practicable Date and there is no change to the number of issued A Shares prior to the date of the AGM, the A Shareholders Class Meeting and H Shareholders Class Meeting) would result in a maximum of 9,511,547,104 A Shares
being bought back by the Company during the Relevant Period, being the maximum of 10% of the total A Shares in issue as at the date of passing the relevant resolution(s).
The exercise in full of the H Share Buy-back Mandate (on the basis of 24,780,936,600 H Shares in
issue as at the Latest Practicable Date and there is no change to the number of issued H Shares prior to the date of the AGM, the A Shareholders Class Meeting and H Shareholders Class Meeting) would result in a maximum of 2,478,093,660 H Shares
being bought back by the Company during the Relevant Period, being the maximum of 10% of the total H Shares in issue as at the date of passing the relevant resolution(s).
Funding of Buy-backs
In buying back its Shares, the Company intends to apply funds from the Company’s internal resources
(which may include surplus funds and retained profits) legally available for such purpose in accordance with the Articles of Association and the applicable laws, rules and regulations of the PRC.
The Company is empowered by its Articles of Association to buy back its Shares. Under PRC laws, H
Shares so bought back will be treated as cancelled and the Company’s registered capital will be reduced by an amount equivalent to the aggregate nominal value of the H Shares so cancelled. The Company may not buy back securities on the Hong Kong
Stock Exchange for a consideration other than cash or for settlement otherwise than in accordance with the trading rules of the Hong Kong Stock Exchange from time to time. A share bought back will be dealt with in accordance with relevant PRC laws
and regulations, Articles of Association and Shanghai Listing Rules.
GENERAL
The Directors consider that there would not be a material adverse impact on the working capital and
on the gearing position of the Company in the event that the Buy-back Mandate is to be exercised in full at any time during the proposed buy-back period (as compared with the position disclosed in the latest published audited accounts contained in
the annual report of the Company for the year ended 31 December 2022). However, the Directors will not propose to exercise the Buy-back Mandate to such extent as would, in the circumstances, have a material adverse effect on the working capital
requirements of the Company or the gearing levels of the Company. The number of A Shares and/or H Shares to be bought back on any occasion and the price and other terms upon which the same are bought back will be decided by the Directors at the
relevant time having regarded to the circumstances then prevailing, in the best interests of the Company.
The Directors have undertaken to the Hong Kong Stock Exchange that, so far as the same may be
applicable, they will exercise the powers of the Company to make buy-backs under the Buy-back Mandate in accordance with the Hong Kong Listing Rules, the Articles of Association and the applicable laws, rules and regulations of the PRC.
H SHARE PRICES
The highest and lowest prices at which the H Shares have been traded on the Hong Kong Stock Exchange during each of the
twelve months preceding the Latest Practicable Date were as follows:
SHARE BOUGHT BACK BY THE COMPANY
Details of the Shares bought back by the Company (whether on the Hong Kong Stock Exchange or
otherwise) in the six months prior to the Latest Practicable Date are as follows:
A Shares repurchased by the Company:
H Shares repurchased by the Company:
DISCLOSURE OF INTERESTS
If as a result of a share buy-back by the Company, a substantial Shareholder’s proportionate
interest in the voting rights of the Company increases, such increase will be treated as an acquisition for the purpose of the Takeovers Code. Accordingly, a Shareholder, or group of Shareholders acting in concert, could obtain or consolidate
control of the Company or become obligated to make a mandatory offer in accordance with Rule 26 of the Takeovers Code.
The Directors are not aware of any consequences which will arise under the Takeovers Code and/or
any similar applicable law, as a result of any buy-backs to be made under the Buy-back Mandate. Moreover, the Directors will not make share buy-backs on the Hong Kong Stock Exchange if such buy-backs would result in the requirements under Rule 8.08
of the Hong Kong Listing Rules not being complied with.
None of the Directors nor, to the best of their knowledge having made all reasonable enquiries, any
of their close associates has a present intention to sell A Shares and/or H Shares to the Company under the Buy-back Mandate in the event that the Buy-back Mandate is approved by the Shareholders and the conditions (if any) to which the Buy-back
Mandate is subject are fulfilled.
The Company has not been notified by any core connected persons (as defined in the Hong Kong
Listing Rules) of the Company that they have a present intention to sell any A Shares and/or H Shares to the Company, or that they have undertaken not to sell any A Shares and/or H Shares held by them to the Company in the event that the Buy-back
Mandate is approved by its Shareholders and the conditions (if any) to which the Buy-back Mandate is subject are fulfilled.
This circular, for which the Directors collectively and individually accept full responsibility,
includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief
the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.
As at the Latest Practicable Date, the interest or short positions of the Directors, Supervisors
and chief executive of the Company in Shares, underlying Shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange
pursuant to Divisions 7 and 8 of Part XV of SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO); (b) were required, pursuant to Section 352 of the SFO, to be entered in the register
referred to therein; or (c) were required, pursuant to the Model Code for Securities Transactions by Directors of the Listed Issuers (the “Model Code”) as set out in Appendix 10 of the Hong Kong Listing
Rules, to be notified to the Company and the Stock Exchange, are as follows:
Save as disclosed above, as at the Latest Practicable Date, none of the Directors, Supervisors and
chief executive of the Company had any interests or short positions in Shares, underlying Shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which (a) were required to be notified to the
Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO); (b) were required, pursuant to Section 352 of the SFO,
to be entered in the register referred to therein; or (c) were required, pursuant to the Model Code, to be notified to the Company and the Hong Kong Stock Exchange.
As at the Latest Practicable Date, the following persons (other than the Directors, Supervisors and
chief executive of the Company) had interests or short positions in the Shares and underlying Shares which were recorded in the register required to be kept by the Company under section 336 of the SFO or would fall to be disclosed to the Company
under the provisions of Division 2 and 3 of Part XV of the SFO:
Note:
Save as disclosed above, so far as the Directors are aware, as at the Latest Practicable Date, no
other person had any interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO.
Save as disclosed below, as at the Latest Practicable Date, none of the Directors was a director or
employee of a company which has an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO:
As at the Latest Practicable Date, none of the Directors, Supervisors or their respective close
associates has any competing interests which would be required to be disclosed under Rule 8.10 of the Hong Kong Listing Rules if each of them was a controlling shareholder of the Company.
As at the Latest Practicable Date, none of the Directors or Supervisors has any existing or
proposed service contract with any member of the Group which did not expire or was not determinable by the Group within one year without payment of compensation (other than statutory compensation).
As at the Latest Practicable Date, there had been no material adverse change in the financial or
trading position of the Group since 31 December 2022 (being the date to which the latest published audited financial statements of the Company were made up).
The following is the qualifications of the expert who has given opinion or advice contained or
referred to in this circular:
As at the Latest Practicable Date, the Independent Financial Adviser had no shareholding interest
in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities of any member of the Group.
As at the Latest Practicable Date, the Independent Financial Adviser had no interest, direct or
indirect, in any assets which had been, since 31 December 2022 (being the date to which the latest published audited accounts of the Company were made up), acquired or disposed of by or leased to any member of the Group, or were proposed to be
acquired or disposed of by or leased to any member of the Group.
The Independent Financial Adviser has given and has not withdrawn its written consent to the issue
of this circular with the inclusion herein of its letter/report on the same date and references to its name in the form and context in which it appears.
A copy of the Subscription Agreement will be available on the websites of the Hong Kong Stock
Exchange (http://www.hkexnews.hk) and the Company (http://www.sinopec.com) from the date of this circular up to and including 26 April 2023.
(a joint stock limited company incorporated in the People’s Republic of China with limited liability)
(Stock Code: 00386)
NOTICE OF ANNUAL GENERAL MEETING FOR 2022 AND FIRST H SHAREHOLDERS CLASS MEETING FOR 2023
NOTICE IS HEREBY GIVEN that the annual general meeting (“Annual General Meeting” or “AGM”) of China Petroleum & Chemical Corporation (“Sinopec Corp.” or the “Company”) for 2022 will be held at Beijing Chaoyang U-Town Crowne Plaza, No. 3 Sanfeng North Area, Chaoyang District, Beijing, PRC on Tuesday, 30 May 2023 at 9:00 a.m. and that the first H shareholders class meeting of Sinopec Corp.
for 2023 (the “H Shareholders Class Meeting”) will be held at the same venue immediately following the conclusion of the AGM and the first A shareholders class meeting of Sinopec Corp. for 2023.
Unless otherwise indicated, capitalised terms used in this notice have the same meanings as those
defined in the circular of the Company dated 13 April 2023 (the “Circular”).
Resolutions to be considered and approved at the Annual
General Meeting
By way of non-cumulative voting:
It is proposed by the Board to the Shareholders at the AGM to consider and approve the distribution
of a final dividend of RMB0.195 (tax inclusive) per share held by the shareholders on the relevant record date (20 June 2023), combining with the interim dividend of RMB0.16 (tax inclusive) per share which has been declared and distributed by the
Company, the annual cash dividend will be RMB0.355 (tax inclusive) per share for the year 2022.
A proposal will be submitted to the AGM for granting a mandate to the Board (or Director(s)
authorised by the Board) to determine, within the extent of the amount of bonds that may be issued, the matters relating to the issuance of debt financing instruments, including (but not limited to) determining the registration, the actual amount
to be issued, interest rate, term, target of issuance, use of proceeds of the relevant debt financing instruments, preparation, signing and disclosure of all necessary documents, and to deal with other relevant matters related to the issuance of
debt financing instrument(s) under this resolution. The relevant debt financing instruments include but not limited to RMB or foreign currency denominated debt financing instruments, such as short-term debentures, super-short term debentures,
medium term notes, asset backed notes, corporate bonds, asset backed securities, overseas market bonds in RMB and/or foreign currency, etc.
Subject to authorisation by the AGM, the Board will in turn authorise the Chairman and/or President
and/or a Director designated by the Chairman to carry out the above matters of registration and issuance.
This resolution will expire at the conclusion of the 2023 annual general meeting of Sinopec Corp.
after being approved at the AGM.
Pursuant to the relevant requirements in the Articles of Association, if approval has been granted
by way of a special resolution in a general meeting of the Company, the Company may issue domestic shares (A Shares) and overseas listed foreign shares (H
Shares) separately or jointly (the “Relevant Issuance”) at
a 12-month interval and the number of A Shares and H Shares intended to be issued will not exceed 20% of the outstanding shares in issue for each class of such shares without convening a class general meeting by the Company to seek approval for the
Relevant Issuance.
On 18 May 2022, the annual general meeting of the Company for 2021 had approved the granting of a
general mandate to the Board (or the Directors authorised by the Board) to issue domestic shares and/or overseas listed foreign shares of the Company (the “2021 General Mandate”). From the date of granting
the 2021 General Mandate up to the Latest Practicable Date, the Board approved the Proposed Issuance of A Shares, which is still subject to the approval of Shareholders at the AGM. Save as disclosed above, there is no other issuance of Shares under
the 2021 General mandate.
In order to keep the flexibility of issuance of new shares, it is proposed to the shareholders at
the Annual General Meeting, to grant the general mandate to the Board (or the Directors authorised by the Board) to issue A Shares and H Shares of the Company by way of special resolution (“General Mandate”):
If the Board decides to buy back A Shares during the Relevant Period, such
buy-back may need to be pursued or implemented after the end of the Relevant Period.
Resolutions 1 to 7, 12, 14, 18 to 20 are ordinary resolutions and Resolutions 8
to 11, 13, 15 to 17, 21 and 22 are special resolutions.
Resolutions to be considered and approved at the H
Shareholders Class Meeting
By way of non-cumulative voting and by special resolution
Company (if applicable);
If the Board decides to buy back A Shares during the Relevant Period, such
buy-back may need to be pursued or implemented after the end of the Relevant Period.
Beijing, PRC
13 April 2023
Notes:
Holders of A Shares whose names appear on the domestic shares register maintained by China Securities
Depository & Clearing Corporation Limited Shanghai Branch and holders of H Shares whose names appear on the register of members maintained by Hong Kong Registrars Limited at the close of business on Friday, 28 April 2023 are eligible to attend
the Annual General Meeting. Holders of H Shares whose names appear on the register of members maintained by Hong Kong Registrars Limited at the close of business on Friday, 28 April 2023 are also eligible to attend the H Shareholders Class Meeting.
Holders of H Shares who wish to attend the AGM and/or the H Shareholders Class Meeting shall lodge their share certificates accompanied by the transfer documents with Hong Kong Registrars Limited (the address is Shops 1712-1716, 17th Floor,
Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong) before 4:30 p.m. on Thursday, 27 April 2023.
Board Secretariat of Sinopec Corp.
22 Chaoyangmen North Street
Chaoyang District Beijing 100728
PRC
Attn: Chen Dongdong
Telephone No.: (+86) 10 5996 9671
Facsimile No.: (+86) 10 5996 0386
As of the date of this notice, directors of the Company are: Ma Yongsheng*, Zhao Dong*, Yu Baocai#, Li Yonglin#,
Liu Hongbin#, Cai Hongbin+, Ng, Kar Ling Johnny+, Shi Dan+ and Bi Mingjian+