According to the company’s website press release on January 3, 2023,
CONTINUING CONNECTED TRANSACTION
Sanjiang Chemical Nitrogen Gas Sales Agreement
On 1 January 2023, Sanjiang Chemical and Jiahua New Material entered into the Sanjiang Chemical Nitrogen Gas Sales Agreement pursuant to which, Sanjiang Chemical has agreed to supply nitrogen gas to Jiahua New Material for a period of one year ending on 31 December 2023 at an annual cap not exceeding RMB5,500,000.
LISTING RULES IMPLICATION
Jiahua New Material, a company established in the PRC with limited liability, is a direct wholly-owned subsidiary of Jiahua Energy Chemical Co. and Jiahua Energy Chemical Co. is owned as to approximately 36.77% by Jiahua, which is ultimately controlled by Mr. Guan and Ms. Han.
As Ms. Han is Mr. Guan’s wife and an executive Director and Mr. Guan is a controlling Shareholder of the Company, each of Jiahua Energy Chemical Co. and Jiahua New Material is therefore an associate of Mr. Guan and Ms. Han and is thus a connected person of the Company and the transactions contemplated under the Sanjiang Chemical Nitrogen Gas Sales Agreement constitute continuing connected transaction(s) of the Company under Chapter 14A of the Listing Rules.
As the applicable ratios in respect of the considerations under the Sanjiang Chemical Nitrogen Gas Sales Agreement are less than 5%, the Sanjiang Chemical Nitrogen Gas Sales Agreement and the transactions contemplated thereunder are therefore subject to reporting and announcement requirements but are exempt from the circular (including independent financial advice) and the independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.
On 1 January 2023, Sanjiang Chemical and Jiahua New Material entered into the Sanjiang Chemical Nitrogen Gas Sales Agreement pursuant to which, Sanjiang Chemical has agreed to supply nitrogen gas to Jiahua New Material for a period of one year ending on 31 December 2023 at an annual cap not exceeding RMB5,500,000.
SANJIANG CHEMICAL NITROGEN GAS SALES AGREEMENT
Date
1 January 2023
Parties
(1) Sanjiang Chemical, an indirect wholly-owned subsidiary of the Company, as supplier; and
(2) Jiahua New Material, a connected person of the Company, as purchaser.
Subject matter
Pursuant to the Sanjiang Chemical Nitrogen Gas Sales Agreement, Sanjiang Chemical has agreed to supply nitrogen gas to Jiahua New Material for the year ending 31 December 2023.
Term
The Sanjiang Chemical Nitrogen Gas Sales Agreement shall become effective on 1 January 2023 and has a term ending on 31 December 2023 which may be renewable upon further agreement by the parties (subject to compliance with the Listing Rules).
Consideration
Pursuant to the Sanjiang Chemical Nitrogen Gas Sales Agreement, the purchase price for nitrogen gas shall be at a price which is the weighted average of those obtained by Jiahua New Material from its independent suppliers for the relevant product of comparable quality and volume during the same month of supply, which take into account the price increment of production cost of nitrogen gas. The relevant purchase price shall be tallied on the end of each calendar month, and shall be payable on or before the end of the following months.
In order to ensure that the selling price for relevant product of comparable quality is no less favourable than the prevailing market price, the Group would compare quotations given by Sanjiang Chemical to other independent purchasers for nitrogen gas of comparable quality and volume after taking into account the additional transportation costs that may be incurred and analyse such market information, and the unit selling price for nitrogen gas will be agreed after arm’s length negotiation with Jiahua New Material. Accordingly, the Board considers that such methods and procedures can ensure that the supply of nitrogen gas will be conducted on normal commercial terms and not prejudicial to the interests of the Company and its Shareholders as a whole.
The Company will comply with the relevant Listing Rules requirements when the respective terms of the Sanjiang Chemical Nitrogen Gas Sales Agreement is renewed.
Historical transaction amounts and annual caps
Sanjiang Chemical had the following amounts received from Jiahua New Material in respect of the sales of nitrogen gas:
For the period from 1 January 2022 to 30 November 2022 (i.e. the latest available of management accounts) RMB’000
Actual transaction amount received by Sanjiang Chemical from Jiahua New Material 3,332
For the year ending 31 December 2022 RMB’000
Historical annual caps in respect of the sales of nitrogen gas to Jiahua New Material 5,500
Proposed Annual Caps
Based on:
- the expected amount of purchasing to be made by Jiahua New Material from Sanjiang Chemical for the year ending 31 December 2023; and
- the estimated market price of relevant goods for the year ending 31 December 2023, it is expected that the estimated annual cap for the Sanjiang Chemical Nitrogen Gas Sales Agreement for the year ending 31 December 2023 is RMB5,500,000.
Such projection is assumed solely for determining the annual caps and shall not be regarded as any indication directly or indirectly as to the respective revenue, profitability or trading prospects of the Group. The independent non-executive Directors and the auditor of the Company will on a regular basis be provided with the (i) Sanjiang Chemical Nitrogen Gas Sales Agreement; (ii) agreements entered into between the Group and independent third parties for provision of nitrogen gas; and (iii) fee quotations provided by independent third parties for the provision of nitrogen gas for review and comparison purposes.
The independent non-executive Directors will also review and compare the relevant payment terms, payment method and price payable under these agreements to ensure that the transactions contemplated under the Sanjiang Chemical Nitrogen Gas Sales Agreement are conducted on normal commercial terms. The auditor of the Company will review and confirm the transactions contemplated under the Sanjiang Chemical Nitrogen Gas Sales Agreement are conducted in accordance with the terms of the Sanjiang Chemical Nitrogen Gas Sales Agreement.
REASONS FOR THE TRANSACTIONS
The principal activities of the Group are the manufacture and supply of ethylene oxide, ethylene glycol, polypropylene, methyl tert-butyl ether and surfactants in the PRC. The Group was also engaged in the provision of processing services for polypropylene, methyl tert-butyl ether and surfactants to its customers and the production and supply of other chemical products such as C4, pentene and industrial gases, namely oxygen, nitrogen gas and argon in the PRC. Jiahua New Material, a company established in the PRC with limited liability, is a directly wholly-owned subsidiary of Jiahua Energy Chemical Co. and Jiahua Energy Chemical Co. is a limited liability company established in the PRC and is principally engaged in the business of production and trading of desalinated water, steam, chlorine gas and sulfuric acid. Jiahua Energy Chemical Co. is currently listed on the Shanghai Stock Exchange (stock code: 600273). Other than Jiahua, there are no other shareholders who individually hold more than 10% or above interests in Jiahua Energy Chemical Co..
Reasons for entering into Sanjiang Chemical Nitrogen Gas Sales Agreement
The entering into of the Sanjiang Chemical Nitrogen Gas Sales Agreement will enable the Group to extend its business relationships between the Group and Jiahua Energy Chemical Co. and its wholly-owned subsidiary, Jiahua New Material, and further bring synergies to the parties. In addition, as the production base of the Group is situated close to that of Jiahua Energy Chemical Co. and its wholly-owned subsidiary, Jiahua New Material, the delivery costs of goods to be borne by the Group can be reduced. The Sanjiang Chemical Nitrogen Gas Sales Agreement is non-exclusive and non-compulsory in nature, which allows the Group to maximize the usage of its relevant production facilities for gas production at the time of having spare capacity. In view of the foregoing reasons, the Group entered into the Sanjiang Chemical Nitrogen Gas Sales Agreement with Jiahua New Material.
The Directors (including the independent non-executive Directors) are of the view that the terms and conditions of Sanjiang Chemical Nitrogen Gas Sales Agreement are fair and reasonable and on normal commercial terms and in the ordinary and usual course of business of the Group and that the entering into Sanjiang Chemical Nitrogen Gas Sales Agreement is in the interests of the Company and its Shareholders as a whole.
LISTING RULES IMPLICATION
Jiahua New Material, a company established in the PRC with limited liability, is a directly wholly-owned subsidiary of Jiahua Energy Chemical Co. and Jiahua Energy Chemical Co. is owned as to approximately 36.77% by Jiahua, which is ultimately controlled by Mr. Guan and Ms. Han.
As Ms. Han is the wife of Mr. Guan and is an executive Director and Mr. Guan is a controlling Shareholder of the Company, each of Jiahua Energy Chemical Co. and Jiahua New Material is therefore an associate of Mr. Guan and Ms. Han and is thus a connected person of the Company and the transactions contemplated under Sanjiang Chemical Nitrogen Gas Sales Agreement constitute continuing connected transaction(s) of the Company under Chapter 14A of the Listing Rules.
As the applicable ratios in respect of the consideration under the Sanjiang Chemical Nitrogen Gas Sales Agreement are less than 5%, the Sanjiang Chemical Nitrogen Gas Sales Agreement and the transactions contemplated thereunder are therefore subject to reporting and announcement requirements but are exempt from the circular (including independent financial advice) and the independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.
Ms. Guan is an executive Director and the daughter of Mr. Guan and Ms. Han.
Ms. Han and Ms. Guan were interested in the Sanjiang Chemical Nitrogen Gas Sales Agreement and they therefore abstained from voting on the board resolutions of the Company approving the Sanjiang Chemical Nitrogen Gas Sales Agreement and the transactions contemplated thereunder. Save as disclosed, none of the Directors had any material interest in the Sanjiang Chemical Nitrogen Gas Sales Agreement and none of them were required to abstain from voting on the board resolutions of the Company in respect thereof.
