SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act of 1934
For the month of April, 2006
CHINA PETROLEUM & CHEMICAL CORPORATION
A6, Huixindong Street,
Chaoyang District Beijing, 100029
People's Republic of China
Tel: (8610) 6499-0060
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
----- -----
(Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934. )
Yes No X
----- -----
(If "Yes" is marked, indicate below the file number assigned to registrant in
connection with Rule 12g3-2(b): 82-__________. )
N/A
This Form 6-K consists of:
The notice of continuing connected transaction and annual general meeting of
China Petroleum & Chemical Corporation (the "Registrant") for the year 2005,
made by the Registrant in English on April 21, 2006.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
China Petroleum & Chemical Corporation
By: /s/ Chen Ge
-----------
Name: Chen Ge
Title: Secretary to the Board of Directors
Date: April 24, 2006
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ACTION
If you are in doubt as to any aspect of this circular or as to the action to be
taken, you should consult your stockbroker or other registered dealer in
securities, bank manager, solicitor, professional accountant or other
professional adviser.
If you have sold or transferred all your shares in China Petroleum & Chemical
Corporation, you should at once hand this circular together with the
accompanying form of proxy to the purchaser or to the bank, stockbroker or
other agent through whom the sale was effected for delivery to the purchaser or
transferee.
The Stock Exchange of Hong Kong Limited takes no responsibility for the
contents of this circular, makes no representation as to its accuracy or
completeness and expressly disclaims any liability whatsoever for any loss
howsoever arising from or in reliance upon the whole or any part of the
contents of this circular.
This circular is solely for the purpose of providing shareholders with certain
information in connection with an extraordinary general meeting of China
Petroleum & Chemical Corporation and is not an offer to sell or a solicitation
of an offer to buy any securities. Any sale of China Petroleum & Chemical
Corporation's securities in the United States will be made only by means of a
prospectus relating to such securities.
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[GRAPHIC OMITTED]
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(Stock Code: 0386)
Continuing Connected Transactions
Independent financial adviser to the
Independent Directors
[GRAPHIC OMITTED]
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A letter from the independent Directors of China Petroleum & Chemical
Corporation is set out on pages 18 to 19 of this circular. A letter from ICEA
containing its advice to the independent Directors is set out on pages 20 to 30
of this circular.
A notice convening a general meeting of China Petroleum & Chemical Corporation
to be held at Crowne Plaza Beijing - Park View Wuzhou, No. 8 North Si Huan
Zhang Road, Chaoyang District, Beijing on 24 May 2006 at 9 a.m. is set out on
pages 35 to 38 of this circular. Whether or not you are able to attend the
meeting, please complete and return the enclosed form of proxy in accordance
with the instructions printed thereon as soon as practicable and in any event
not less than 24 hours before the time appointed for holding the meeting.
Completion and return of the form of proxy will not preclude you from attending
and voting in person at the meeting or at any adjourned meeting should you so
wish.
21 April 2006
1
CONTENTS
Page
Definitions .................................................................................................1
Letter from the Board
1. Introduction .............................................................................................4
2 Continuing Connected Transactions ........................................................................5
2.1 Background ......................................................................................5
2.2 Historical figures and caps ....................................................................10
2.3 Estimated cap amounts of the Continuing Connected Transactions .................................11
3. The Listing Rules requirements...........................................................................15
4. Reasons for the Continuing Connected Transactions .......................................................15
5. Recommendation of the Board of Directors ................................................................16
6 Recommendation of the independent Directors .............................................................16
7. General Meeting .........................................................................................16
8 General information .....................................................................................17
9. Agreement Amendments ....................................................................................17
Letter from the Independent Board Committee ......................................................................18
Letter from ICEA 20
Appendix - General Information ...................................................................................31
Notice of Annual General Meeting .................................................................................35
2
DEFINITIONS
In this circular, unless otherwise indicated in the context, the following
expressions have the meaning set out below:
"Agency Agreement" the agency agreement dated 3 June 2000
regarding the appointment of Sinopec
Corp. as the exclusive sales agent of
the Sinopec Group ethylene enterprises
(as amended);
"Agreement Amendments" means the amendment of the
term of the Mutual Supply Agreement to 3
years commencing from 1 January 2007 and
the addition of sourcing of crude oil
and natural gas, including crude oil and
natural gas from overseas, as one of the
products and services to be provided by
the Sinopec Group under the Mutual
Supply Agreement;
"associates" has the meaning ascribed to it in the HK
Listing Rules;
"Board" the board of directors of Sinopec Corp.;
"Circular" Sinopec Corp.'s circular to its
Shareholders dated 21 April 2006;
"Community Services Agreement" the community
services agreement dated 3 June 2000 and
the supplemental agreement dated 26
September 2000 (as amended by the
Continuing Connected Transactions
Supplemental Agreement) regarding the
provision of, inter alia, certain
cultural, educational, hygiene and
community services by the Sinopec Group
to the Company;
"Company" Sinopec Corp. and its subsidiaries;
"Computer Software Licence Agreement" the computer
software licence agreement dated 3 June
2000 regarding the granting of licence
by the Sinopec Group to the Company to
use certain computer software of the
Sinopec Group;
"Continuing Connected the transactions under the Exempted
Transactions" Continuing Connected Transactions, the
Non-Major Continuing Connected
Transactions and the Major Continuing
Connected Transactions;
"Continuing Connected Transactions the agreement dated 31 March 2006
Supplemental Agreement" entered into between Sinopec Corp. (for
itself and on behalf of its
subsidiaries) and the Sinopec Group
Company (for itself and on behalf of the
members of the Sinopec Group) regarding
the amendments of the terms of the
Continuing Connected Transactions;
"Directors" the directors of Sinopec Corp.;
"Exempted Continuing Connected the transactions contemplated under the
Transactions" Intellectual Property Licence Agreement;
"General Meeting" the general meeting of Sinopec Corp. to
be held on 24 May 2006 for Independent
Shareholders of Sinopec Corp. to
consider and to approve the Agreement
Amendments, the Major Continuing
Connected Transactions, the Non-Major
Continuing Connected Transactions and
the caps for the Major Continuing
Connected Transactions;
"HK Listing Rules" the Rules Governing the Listing of
Securities on the Stock Exchange;
"Hong Kong Stock Exchange" The Stock Exchange of Hong Kong Limited;
"Independent Shareholders" the shareholders of Sinopec Corp. other
than Sinopec Group Company and its
associates;
3
"Intellectual Property Licence the Trademarks Licence Agreement, the
Agreements" Computer Software Licence Agreement and
the Patents and Proprietary Technology
Licence Agreement;
"ICEA" ICEA Capital Limited, a corporation
licensed under the Securities and
Futures Ordinance to carry out Type 1
regulated activities (dealing in
securities) and Type 6 regulated
activities (advising on corporate
finance);
"Land Use Rights Leasing the land use rights leasing agreement
Agreement" dated 3 June 2000 (as amended) regarding
the leasing of certain land use rights
by the Sinopec Group to the Company;
"Land Use Rights Leasing the land use rights leasing agreement
(Additional) Agreement" dated 22 August 2003 regarding the
leasing of certain land use rights by
the Sinopec Group to the Company;
"Latest Practicable Date" 19 April 2006;
"Major Continuing Connected the transactions relating to the sales
Transactions" and purchases of the products and
services under the Mutual Supply
Agreement;
"Mutual Supply Agreement" the mutual supply agreement dated 3 June
2000 and the supplemental agreement
dated 26 September 2000 (as amended)
regarding the provision of a range of
products and services from time to time
(1) by the Sinopec Group to the Company;
and (2) by the Company to the Sinopec
Group;
"Non-Major Continuing Connected the transactions relating to the
Transactions" desposit of money under the Mutual
Supply Agreement, the SPI Fund Document,
the Land Use Rights Leasing Agreement,
the Community Services Agreement and the
Properties Leasing Agreement;
"Patents and Proprietary Technology the patents and proprietary technology
Licence Agreement" licence agreement dated 3 June 2000
regarding the granting of licence by the
Sinopec Group to the Company to use
certain patents and proprietary
technology of the Sinopec Group;
"Properties Leasing Agreement" the properties
leasing agreement dated 3 June 2000 (as
amended) regarding the leasing of
certain properties by the Sinopec Group
to the Company;
"RMB" the lawful currency of the People's
Republic of China;
"Shanghai Stock Exchange" the Stock Exchange of Shanghai;
"Shareholders" the holder(s) of shares of Sinopec
Corp.;
"Sinopec Corp." China Petroleum & Chemical Corporation,
a joint stock limited company
incorporated in the PRC with limited
liability;
"Sinopec Group" Sinopec Group Company and its
subsidiaries (other than the Company);
"Sinopec Group Company" China Petrochemical Corporation, being
the controlling shareholder of Sinopec
Corp.;
"SPI Fund Document" a document jointly issued in 1997 by the
Ministry of Finance and the ministerial
level enterprise of the Sinopec Group
Company and its associates before the
industry reorganisation in 1998 (Cai
Gong Zi [1997] No. 268) relating to the
payment of insurance premium by Sinopec
Corp. to the Sinopec Group Company.
Under the SPI Fund Document, Sinopec
Corp. is required to pay twice a year an
insurance premium. Each time Sinopec
Corp. shall pay 0.2% of the historical
value of the fixed assets and the
average month-end inventory value of the
Company of the previous six months;
after the Sinopec Group Company has
received the premium from Sinopec Corp.,
the Sinopec Group Company will refund
20% of the paid premium to Sinopec Corp.
if Sinopec Corp. pays the semi-annual
premium on time according to the SPI
Fund Document ("Refund"). The Refund
would be 17% of the paid premium if
Sinopec Corp. failed to pay
4
the semi-annual premium on time. The
Refund shall be used by Sinopec Corp. in
the following manner: 60% shall be used
in dealing with accidents and potential
risks and safety measures; 20% shall be
used in safety education and training
and 20% shall be used in preventing
major accidents and potential risks and
as awards to units and individuals who
have made a special contribution to
safety production;
"Trademarks Licence Agreement" the trademarks
licence agreement dated 3 June 2000
regarding the granting of licence by the
Sinopec Group to the Company to use
certain trademarks of the Sinopec Group.
5
LETTER FROM THE CHAIRMAN
[GRAPHIC OMITTED]
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(Stock Code: 0386)
Executive Directors: Registered Office:
Chen Tonghai A6, Huixindong Street
Wang Jiming Chaoyang District
Mou Shuling Beijing, 100029
Zhang Jiaren People's Republic of China
Cao Xianghong
Non-Executive Directors:
Liu Genyuan
Gao Jian
Fan Yifei
Independent Directors:
Chen Qingtai
Ho Tsu Kwok Charles
Shi Wanpeng
Zhang Youcai
Employees' representative Director:
Cao Yaofeng
21 April 2006
To the Shareholders
Dear Sir or Madam,
Continuing Connected Transactions
1. INTRODUCTION
On 31 March 2006, Sinopec Corp. announced that it had entered into the
Continuing Connected Transaction Adjustment Agreements and proposed to enter
into the Continuing Connected Transactions with the Sinopec Group. The
Agreement Amendments, the Major Continuing Connected Transactions, the
Non-Major Continuing Connected Transactions and the caps for the Major
Continuing Connected Transactions are subject to the approval of the
Independent Shareholders.
The purpose of this letter is to provide you with further information
relating to the Continuing Connected Transactions proposed to be entered into
by the Company and to seek your approval of the ordinary resolution set out in
the notice of the General Meeting on pages 35 to 38 of this circular. The
recommendation of the independent Directors to the Independent Shareholders is
set out on pages 18 to 19 of this circular.
2. CONTINUING CONNECTED TRANSACTIONS
2.1 Background
On 24 December 2003, the Hong Kong Stock Exchange granted a waiver to
Sinopec Corp. from strict compliance with the relevant requirements of the HK
Listing Rules in respect of the Continuing Connected Transactions. Such waiver
will expire on 31 December 2006. Please refer to the announcement and circular
of Sinopec Corp. dated 28 October 2003 and 31 October 2003, respectively for
the background and conditions of the waiver. The
6
caps for the Continuing Connected Transactions granted under the waiver is set
out in section 2.2 under "Letter from the Chairman" of this Circular. Sinopec
Corp. has to date complied with the conditions of the waivers. Please refer to
the annual reports of Sinopec Corp. for further details of its compliance.
During preparation for its listing overseas, Sinopec Corp. and the
Sinopec Group Company entered into a number of agreements in 2000 to govern and
manage the Continuing Connected Transactions between them. These agreements
include the Mutual Supply Agreement, the Community Services Agreement, the Land
Use Rights Leasing Agreement, the Properties Leasing Agreement, the
Intellectual Property Licence Agreements, the Agency Agreement and the SPI Fund
Document. On 11 June 2001, as a result of the acquisition of Sinopec National
Star Petroleum Company, additional Continuing Connected Transactions were
contemplated and a continuing connected transactions adjustment agreement was
entered into between Sinopec Corp. and Sinopec Group Company under which the
terms of the Mutual Supply Agreement, the Community Services Agreement, the
Agency Agreement, the Land Use Rights Leasing Agreement and the Properties
Leasing Agreement were amended.
Besides, due to Sinopec Corp.'s business expansion, the Company leased
additional land with an area of approximately 50,000,000 square metres from the
Sinopec Group. As such, Sinopec Corp. and the Sinopec Group Company entered
into the Land Use Rights Leasing (Additional) Agreement on 22 August 2003. The
annual rental was approximately RMB273 million. The agreement provides that the
terms of the Land Use Rights Leasing Agreement shall be applicable to such
lease. A waiver was then obtained by Sinopec Corp. from the Hong Kong Stock
Exchange from strict compliance with the relevant requirements of the HK
Listing Rules in respect of such connected transactions for an indefinite
period. Please refer to the announcement of Sinopec Corp. dated 25 August 2003.
As a result of the amendments to the HK Listing Rules in March 2004, the
transactions under the Land Use Rights Leasing (Addition) Agreement, as the
relevant percentage ratios of the size tests (other than the profits test) fall
below 0.1%, are exempted from reporting, announcement and independent
shareholders' approval requirements under rule 14A.33 of the HK Listing Rules.
In addition, on 31 October 2004, as a result of the acquisition of the
petrochemical, catalyst and gas station assets and the disposal of the downhole
operation assets, Sinopec Corp. and the Sinopec Group Company entered into an
adjustment agreement supplementing the Land Use Rights Leasing Agreement and
Properties Leasing Agreement, and announced the increased cap for the
transactions under the Land Use Rights Leasing Agreement in an announcement
dated 1 November 2004.
Morever, in respect of the Continuing Connected Transactions commencing
from 1 January 2007, Sinopec Corp. and the Sinopec Group Company have entered
into the Continuing Connected Transactions Supplemental Agreement on 31 March
2006, in which adjustments were made to the terms of certain agreements
regarding Continuing Connected Transactions. Set out below are the summaries of
the Continuing Connected Transactions Agreements (as adjusted) and the
transactions contemplated thereunder:
The Continuing Connected Transactions are summarised below:
(1) Mutual Supply Agreement
On 3 June 2000, the Sinopec Group Company and Sinopec Corp. entered
into the Mutual Supply Agreement which term commenced on 1 January 2000
and will be valid until terminated by the parties. Pursuant to the
Continuing Connected Transactions Supplemental Agreement, the term of the
Mutual Supply Agreement was amended to expire on 31 December 2009. The
following transactions are contemplated under the Mutual Supply
Agreement:
(a) The products and services which are contemplated to be
supplied by the Company, including: crude oil, natural gas,
refined and petrochemcial products and by-products,
semi-finished products, water, electricity, gas, heat,
measurements quality inspection, provision of other related
or similar products and services and guarantee.
(b) The products and services which are contemplated to be
acquired by the Company, including:
(i) Supply: steel, wood, cement, coal, wind, hydrogen,
nitrogen, fresh water, chemical water, recycled water,
electricity, steam, heat supply, materials and
equipment parts, chemical raw materials, precious
metals, the sourcing of crude oil and natural gas,
including crude oil and natural gas from overseas(1)
and other related or similar products and services.
7
1 This is added pursuant to the Connected Transactions Supplemental
Agreement.
(ii) Storage and transportation: railway, vehicular
transport, water transport, pipeline transmission,
loading and unloading, wharves, warehousing and other
related or similar services.
(iii) Ancillary production: well drilling, well surveying,
well logging, exploration and development testing,
technological research, communication, fire control,
security guards, public security, chemical examination,
material examination, information, pressure containers
and pipelines inspection, metering inspection, computer
services, equipment research, airports, feasibility
study, design, construction, installation, production
of electromechanical instruments, inspection and
maintenance of equipment devices and electrical
equipment meters, works supervision, environmental
protection, repair and maintenance of roads, bridges
and culverts and slope protection, flood control and
other related or similar services.
(iv) Others: deposits and loans of finance companies, loan
guarantees, acting as agent in the collection and
payment of administrative services fees, labour
services, asset leasing and other related or similar
services.
According to the Mutual Supply Agreement, the transactions
conducted thereunder shall be priced in accordance with the following
terms:
(a) government-prescribed price;
(b) where there is no government-prescribed price but where there
is government-guidance price, the government-guidance price
will apply;
(c) where there is neither a government-prescribed price nor a
government-guidance price, the market price will apply; or
(d) where none of the above is applicable, the price is to be
agreed between the relevant parties for the provision of the
above products or service, which shall be the reasonable cost
incurred in providing the same plus 6% or less of such cost.
The pricing mechanisms set out in (a) to (c) above are based on
governmental or market levels. As to the pricing mechanism set out in (d)
above, the Directors believe that the 6% margin set out therein is in
line with the respective industries in the PRC market, accordingly, they
are of the view that the pricing mechanisms are fair and reasonable and
on normal commercial terms.
(2) Land Use Rights Leasing Agreement
On 3 June 2000, Sinopec Group Company and Sinopec Corp. entered
into the Land Use Rights Leasing Agreement which term commenced on 1
January 2000. According to the Land Use Rights Leasing Agreement, members
of the Sinopec Group have agreed to lease to the Company certain parcels
of land with an area of approximately 427,000,000 square metres. The
parcels of land which will be leased will mainly be used for main
production facilities, ancillary production facilities and certain petrol
stations operated by Sinopec Corp.
The land which will be leased can be divided into two types:
(i) those which members of the Sinopec Group have land use rights
certificates; and
(ii) those which members of the Sinopec Group have obtained
approval from the Ministry of Land and Resources evidencing
their rights to lease the land to the Company.
The rent payable under the Land Use Rights Leasing Agreement is
based on factors including the area of the land involved and their
location. According to the Land Use Rights Leasing Agreement, the rent
may be reviewed every three years commencing from 2000 and any such
revised rent shall not be higher than the prevailing market rent as
confirmed by an independent valuer.
Regarding authorised land for operation owned by members of the
Sinopec Group, land for industrial use are leased to the Company for a
term of 50 years and land for commercial use for 40 years. Regarding land
over which members of the Sinopec Group have been granted land use rights
with consideration, they are leased for a
8
term up to the date of expiry of the respective land use rights
certificates. The term of the lease in each case commenced from 1 January
2000. The Company may require members of the Sinopec Group to renew the
term of the lease by giving notice to it twelve months before the expiry
of the lease.
(3) Community Services Agreement
On 3 June 2000, the Sinopec Group Company and Sinopec Corp. entered
into the Community Services Agreements which term commenced on 1 January
2000 and will be valid until terminated by the parties. Pursuant to the
Continuing Connected Transactions Supplemental Agreement, the term of the
Community Services Agreement was amended to expire on 31 December 2009.
The following services are contemplated to be acquired by the Company
under the Community Services Agreement:
(a) Culture, educational and hygiene services: education and
training centres, cadre schools, technical universities,
primary schools, secondary schools, technical schools, staff
polytechnic schools, medical care and sanitation, culture and
physical education, newspapers and magazines, broadcasting
and television, printing and other related or similar
services.
(b) Community services: living services (including management
centres), property management, environmental sanitation,
greening, nurseries, kindergartens, sanatoriums, canteens,
collective quarters, public transport, resignation and
retirement management, settlement of land occupiers,
re-employment service centres and other related or similar
services.
The Community Services Agreement has identical pricing mechansim
for the Mutual Supply Agreement which is set out in section 2.1(1) above.
(4) Safety Production Insurance Fund (the "SPI Fund")
With the approval of the Ministry of Finance, the Sinopec Group
Company has established the SPI Fund. The SPI Fund currently provides
insurance cover on a consolidated basis on certain assets used in the
operations of the Company.
Under the SPI Fund Document, Sinopec Corp. is required to pay twice
a year an insurance premium amounting to 0.2% of the historical value of
the fixed assets and the average month-end inventory value of the Company
of the previous six months.
After the receipt by Sinopec Group Company of the premium from
Sinopec Corp., the Sinopec Group Company will refund 20% of the paid
premium to Sinopec Corp. if Sinopec Corp. pays the semi-annual premium on
time according to the SPI Fund Document ("Refund"). The Refund would
equal to 17% of the paid premium if Sinopec Corp. fails to pay the
semi-annual premium on time. The Refund shall be used by Sinopec Corp. in
dealing with accidents and potential risks and safety measures, in safety
education and training, in preventing major accidents and potential
risks, and as rewards to units and individuals who have made a special
contribution to safety production.
(5) Properties Leasing Agreement
On 3 June 2000, the Sinopec Group Company and Sinopec Corp. entered
into the Properties Leasing Agreement which term commenced on 1 January
2000. Properties which will be leased will mainly be used for ancillary
production facilities, offices premises and petrol stations operated by
the Company. Under the agreement, members of the Sinopec Group have
agreed to lease to the Company certain properties with a gross floor area
of approximately 2,608,000 square metres. The rent payable under the
Properties Leasing Agreement is based on factors including the area of
the properties involved, their location and the nature and purpose of use
of the properties. The rent may be reviewed once a year and any revised
rent shall not be higher than the prevailing market rent. Property taxes
and land use fees in relation to the properties shall be borne by the
Sinopec Group.
The properties are leased by the Sinopec Group to the Company for a
term of 20 years commencing from 1 January 2000.
If Sinopec Group Company proposes to sell a property leased by the
Company to a third party, Sinopec Corp. shall have a pre-emptive right to
purchase such property under the same terms.
9
(6) Intellectual Property Licence Agreements
Sinopec Corp. and the Sinopec Group Company entered into the
Intellectual Property Licence Agreements on 3 June 2000. Each of the
Intellectual Property Licence Agreements is for a term of 10 years
commencing from 1 January 2000.
While the above intellectual property rights are granted to the
Company at no cost, Sinopec Corp. shall, before 31 December of each year,
pay to the Sinopec Group Company all such expenses which Sinopec Group
Company has paid in the relevant year according to the relevant laws and
regulations for maintaining the validity of the relevant trademarks,
patents and computer software.
(7) Agency Agreement
On 3 June 2000, Sinopec Group Company, representing the ethylene
enterprises, and Sinopec Corp. entered into the Agency Agreement which
became effective on 1 January 2000 and continues until terminated by the
parties. Sinopec Corp. is appointed as the exclusive agent for the sale
of the products produced by the ethylene enterprises under the Agency
Agreement. Sinopec Corp. will receive an agency fee which is equal to
0.2% to 1% of the amount of purchase price actually received by Sinopec
Corp. Sinopec Corp. shall bear the expenses incurred in collecting
payment for the purchases. As Sinopec Corp. has completed the acquisition
of principal ethylene production business from the Sinopec Group, selling
ethylene products of the Sinopec Group as agent is no longer required.
Sinopec Corp. does not envisage any transactions will be conducted under
the Agency Agreement which will trigger the reporting, announcement and
independent shareholders' approval requirements under Chapter 14A of the
HK Listing Rules.
2.2. Historical figures and caps
The historical figures and existing caps of the above Continuing
Connected Transactions for the past three financial years are set out below:
Existing caps#
(Expressed in
monetary values
Existing caps using financial
granted under data of Sinopec
the existing Corp. for the
waiver which is period ended
due to expire on 31 December
Transactions 31 December 2006 2005) 2003 2004 2005
Mutual Supply Agreement
(i) annual expenditures of the 18% of the total RMB137.829 RMB55.656 RMB61.086 RMB75.486
Company for the purchase of operating billion billion billion billion
products and services expenses (13.57%) (10.97%) (9.86%)
(except financial services)
from the Sinopec Group
(ii) annual revenues generated by 14% of the total RMB115.236 RMB32.134 RMB42.771 RMB58.579
the Company for the sale of operating billion billion billion billion
products and services revenues (7.16%) (6.92%) (7.12%)
(except provision of
guarantee) to the Sinopec
Group
(iii) the aggregate of the average 2.5% of the RMB20.578 RMB4.039 RMB2.791 RMB2.605
month-end balance of total operating billion billion billion billion
deposits and total amount of revenues (0.91%) (0.45%) (0.32%)
interest received in respect
of these deposits
Land Use Rights Leasing Agreement
annual rental payable by the RMB2.75 billion* RMB2.146 RMB2.447 RMB2.557
Company billion billion billion
Community Services Agreement
annual expenditures for the 2% of the total RMB15.314 RMB1.783 RMB1.74 RMB1.79
provision of products and operating billion billion billion billion
services by the Sinopec Group expenses (0.43%) (0.31%) (0.23%)
to the Company
10
Safety Production Insurance Fund
Document
annual premium payable by the The amount RMB762 RMB876 RMB999
Company specified in the million million million
SPI Fund Document
Properties Leasing Agreement
annual rental payable by the RMB730 million RMB567 RMB567 RMB568
Company million million million
Intellectual Property Licence
Agreements
annual payment by the Company RMB35 million RMB9 RMB10 RMB10
million million million
* The original cap was RMB2.15 billion. The cap was adjusted to
RMB2.45 billion in November 2004. After aggregating the existing
rent of RMB301 million under the Land Use Rights Leasing (Addition)
Agreement, the cap is RMB2.75 billion. In relation to the
adjustment in November 2004, please refer to the announcement of
Sinopec Corp. dated 1 November 2004. Sinopec Corp. also proposes to
increase the cap from RMB2.75 billion to RMB3.3 billion for the
year 2006. Please refer to section 2.3(4) below for further
details.
# The monetary amounts are for illustration only.
2.3 Estimated cap amounts of the Continuing Connected Transactions
Sinopec Corp. estimates the annual caps for the applicable Continuing
Connection Transactions for the years 2007 to 2009 to be as follows:
Major Continuing Connected Transactions
(1) Annual revenues under the Mutual Supply Agreement: The products and
services sold by the Company to the Sinopec Group under the Mutual
Supply Agreement principally consist of raw materials and
petrochemical products such as crude oil, natural gas, refined oil
products and petrochemical products. Over the past three years,
international prices of raw materials such as crude oil have
experienced significant fluctuation. The price of crude oil
increased from over US$20 per barrel three years ago to the highest
of over US$70 per barrel.
The annual revenues received by the Company in respect of products
and services provided to the Sinopec Group under the Mutual Supply
Agreement from 2003 to 2005 were RMB32.134 billion, RMB42.771
billion and RMB58.579 billion, respectively, representing 7.16%,
6.92% and 7.12%, respectively, of the total operating revenues of
Sinopec Corp. in the relevant period.
Taking into account historical figures for the past three years and
material uncertainties such as possible price fluctuation in raw
materials and products such as crude oil, natural gas, refined oil
products and petrochemical products in the next three years,
possible changes in price control over refined oil products by the
Chinese government and possible increase in the volume of
procurement of crude oil by Sinopec Corp. for refineries of Sinopec
Group Company, and in view of the revenues which might be generated
by the Company through the provision of products and services to
the Sinopec Group under the Mutual Supply Agreement, Sinopec Corp.
is of the view that flexibility should be built into the cap for
such transactions. The Company expects that the annual revenue
which may be generated under the Mutual Supply Agreement can be
maintained within 14% of the Company's total operating revenues for
the years 2007 to 2009. In view of the historical acceptance of
maintaining the cap at 14% of the total operating revenues by the
Independent Shareholders and the market, Sinopec Corp. proposes
that the cap for the revenues which may be generated from the the
provision of products and services under the Mutual Supply
Agreement for the years 2007 to 2009 shall be determined taking
into account a percentage of the total operating revenues of the
relevant year. However, in order to offer further protection to the
Independent Shareholders and in view of the requirement of
expressing the cap in monetary sums under the HK Listing Rules,
Sinopec Corp. will comply with the cap in absolute monetary terms
as set out below.
11
The proposed caps for the transactions regarding the provision of
products and services by Sinopec Corp. under the Mutual Supply
Agreement are as follows:
o 2007 - RMB131 billion
o 2008 - RMB134.1 billion
o 2009 - RMB136.2 billion
(2) Annual expenditures of the Company under the Mutual Supply
Agreement: The product and services bought by the Company from the
Sinopec Group under the Mutual Supply Agreement principally consist
of certain ancillary raw materials and services required by the
major operating business of Sinopec Corp.
The annual expenditures in respect of products and services bought
by Sinopec Corp. from the Sinopec Group under the Mutual Supply
Agreement from 2003 to 2005 were RMB55.656 billion, RMB61.086
billion and RMB75.486 billion, respectively, representing 13.57%,
10.97% and 9.86%, respectively, of the total operating expenses of
Sinopec Corp. in the relevant period.
Taking into account historical figures for the past three years and
material uncertainties such as possible price fluctuation in raw
materials and products in the next three years, possible changes in
price control over refined oil products by the Chinese government,
possible increase of production volume of Sinopec Group Company's
refineries and possible increase of Sinopec Corp.'s oil from PSC,
and in view of the necessity of purchasing products and services
from the Sinopec Group under the Mutual Supply Agreement for
Sinopec Corp.'s continued operation, Sinopec Corp. is of the view
that flexibility should be built into the caps for such
transactions. The Company expects that the cap for the Mutual
Supply Agreement can be maintained within 18% of the Company's
total operating expenses for the years 2007 to 2009. In view of the
historical acceptance of fixing the caps at 18% of the total
operating expenses by the Independent Shareholders and the market,
Sinopec Corp. proposes that the cap for the purchase of products
and services under the Mutual Supply Agreement for the years 2007
to 2009 shall be determined taking into account a percentage of the
total operating expenses of the relevant year. However, in order to
offer further protection to the Independent Shareholders and in
view of the requirement of expressing the cap in monetary sums
under the HK Listing Rules, Sinopec Corp. will comply with the cap
in absolute monetary terms set out below. The proposed caps for the
purchase of products and services by Sinopec Corp. under the Mutual
Supply Agreement are as follows:
o 2007 - RMB147.6 billion
o 2008 - RMB148.7 billion
o 2009 - RMB152.8 billion
Non-Major Continuing Connected Transactions
(3) The total amount of deposits under the Mutual Supply Agreement: The
average amount of deposits of the Company with the Sinopec Group's
financial institutions under the Mutual Supply Agreement from 2003
to 2005 were RMB4.039 billion, RMB2.791 billion and RMB2.605
billion, respectively, representing 0.91%, 0.45% and 0.32%,
respectively, of Sinopec Corp.'s total operating revenues of the
relevant year.
Sinopec Corp. is of the view that the Sinopec Group's financial
institutions can generally offer more favourable terms and interest
rates as compared to other financial institutions or banks. As
such, Sinopec Corp. is of the view that provided the potential
risks associated can be contained, depositing with the Sinopec
Group's financial institutions on an continuing basis will bring
commercial advantages and better returns to Sinopec Corp. and its
shareholders as a whole. Taking into account historical figures,
estimated cash flow situation of Sinopec Corp. in the future and
the historical acceptance of fixing the caps at 2.5% of the total
operating revenues by the Independent Shareholders and the market,
Sinopec Corp. proposes that the average month-end balance of
deposits with, and total amount of interest revenues from, the
Sinopec Group's financial institutions under the Mutual Supply
Agreement for the years 2007 to 2009 shall be
12
determined taking into account a percentage of the total operating
revenues of the relevant year. However, in order to offer further
protection for the Independent Shareholders and in view of the
requirement of expressing the cap in monetary sums under the HK
Listing Rules, Sinopec Corp. will comply with the cap in absolute
monetary terms set out below. The proposed cap for the transactions
regarding the deposits with the Sinopec Group's financial
institutions under the Mutual Supply Agreement are as follows:
o 2007 - RMB5.5 billion
o 2008 - RMB5.5 billion
o 2009 - RMB5.5 billion
(4) Land Use Rights Leasing Agreement: At present, the Company leases
land use rights from the Sinopec Group under two agreements, namely
the Land Use Rights Leasing Agreement and the Land Use Rights
Leasing (Addition) Agreement. As the nature of these transactions
are identical, Sinopec Corp. will combine the two into one category
and, through amendments to the agreements, the Land Use Rights
Leasing Agreement will also govern the transactions under the Land
Use Rights Leasing (Addition) Agreement and the Land Use Rights
Leasing (Addition) Agreement will be terminated. In 2005, the
annual rent payable by the Company under the Land Use Rights
Leasing Agreement (after the combination) was RMB2.557 billion.
According to the Land Use Rights Leasing Agreement, the Sinopec
Group Company may adjust the rent once every three years.
Due to a substantial increase in land values in China as a result
of the growing economy, rapid govermental policies reforms which
restrict the use of state-owned land without payment, the level of
rent paid by Sinopec Corp. at present is below market levels. After
negotiations between Sinopec Corp. and Sinopec Group Company, as
the continue use of the relevant land is crucial to the ongoing
operation of the Company, Sinopec Corp. and Sinopec Group Company
have agreed that the rent level for 2006 should be brought closer
to market levels. To ensure that the rent payable by Sinopec Corp.
for 2006 will remain to be on normal commercial terms, a PRC
qualified property valuer, Beijing Zhongdi Real Estate Appraisal
Co. Ltd, was appointed to value the adjusted rent and it has
concluded that it is lower than market level of RMB11.31 per square
meter which was determined using average land prices. Accordingly,
Sinopec Corp. proposes that the cap for 2006 shall be adjusted to
RMB3.3 billion. Also taking into account possible payment of
additional rent as a result of potential business expansion,
Sinopec Corp. estimates that the total annual rent payable under
the Land Use Rights Leasing Agreement (including the rent
previously included under the Land Use Rights Leasing (Addition)
Agreement), and in respect of the land leased by the Sinopec Group
to the subsidiaries of Sinopec Corp., will be RMB3.5 billion for
each year from 2007 to 2009. The revised rent has been considered
by a PRC qualified property valuer to be lower than the market
value.
(5) Community Services Agreement: The fees paid under the Community
Services Agreement from 2003 to 2005 were RMB1.783 billion, RMB1.74
billion and RMB1.79 billion, respectively. Taking into account
historical figures and possible increase in the costs of raw
material and labour, Sinopec Corp. proposes that the annual cap for
the Community Services Agreement from 2007 to 2009 shall be RMB2
billion, respectively.
(6) SPI Fund Document: The premium paid under the SPI Fund Document
from 2003 to 2005 were RMB762 million, RMB876 million and RMB 999
million, respectively. Taking into account historical figures and
possible expansion of Sinopec Corp.'s operations, it is proposes
that the annual cap for the SPI Fund Document from 2007 to 2009
shall be RMB1.25 billion, RMB1.4 billion and RMB1.55 billion,
respectively.
(7) Properties Leasing Agreement: The annual rent paid under the
Properties Leasing Agreement from 2003 to 2005 were RMB567 million,
RMB567 million and RMB568 million, respectively. Taking into
account historical figures, Sinopec Corp. proposes to maintain an
annual cap of RMB730 million for the rent payable under the
Properties Leasing Agreement.
Exempted Continuing Connected Transactions
(8) Intellectual Property Licence Agreements: Based on historial
figures, Sinopec Corp. estimates that the annual fee payable by the
Company to the Sinopec Group under the Intellectual Property
License
13
Agreements will not exceed 0.1% of each of the percentage
raios (other than the profit ratio). As such, the relevant
transactions will be exempt from reporting, announcement and
independent shareholders' approval requirements pursuant to the
exemption for de minimis transactions under rule 14A.33 of the HK
Listing Rules.
3. THE LISTING RULES REQUIREMENTS
As Sinopec Group Company is the holder of approximately 71.2% of the
total issued shares of Sinopec Corp., it is a substantial shareholder and a
connected person of Sinopec Corp. The Continuing Connected Transactions will
constitute continuing connected transactions of Sinopec Corp. under the Listing
Rules.
Pursuant to rule 14A.34 of the HK Listing Rules, the annual amount of
each of the transactions under 2.3(3) to (7) above (i.e. the Non-Major
Continuing Connected Transactions) are less than 2.5% the percentage ratios
(other than the profit ratio), and as such, the transactions in 2.3(4) to (7)
above will be exempted from the Independent Shareholders approval requirement
pursuant to rule 14A.34, and the transaction in 2.3(3) above will be exempted
from independent shareholders' approval requirement pursuant to rule 14A.66, of
the HK Listing Rules. Sinopec Corp. will still be subject to reporting and
announcement requirements under Chapter 14A of the HK Listing Rules.
The transactions under 2.3(1) to (2) above (i.e. Major Continuing
Connected Transactions) will be subject to the reporting, announcement and
Independent Shareholders approval requirements in accordance with rule 14A.35
of the HK Listing Rules.
4. REASONS FOR THE CONTINUING CONNECTED TRANSACTIONS
As the Sinopec Group Company and/or its associates have operated with the
Company as an integrated organisation prior to the restructuring of the Sinopec
Group Company and the establishment of Sinopec Corp., a number of internal
transactions are being conducted every year. After the restructuring and the
listing of the shares of Sinopec Corp. on the Hong Kong Stock Exchange, a
number of transactions conducted or to be conducted between the Company and the
Sinopec Group Company and/or its associates will constitute continuing
connected transactions under the HK Listing Rules.
The Continuing Connected Transactions of the Company are conducted in the
ordinary and usual course of business of the Company. Such transactions will
continue to be conducted on an arm's length basis and on terms that are fair
and reasonable to the Company. Owing to the long-term co-operation relationship
between the Company and the Sinopec Group and the advantages, good reputation
and gigantic scale of the Sinopec Group in various aspects, the Board is of the
opinion that the entering into of such transactions on an continuing basis is
essential to the continuation of Sinopec Corp's business and will be beneficial
to the Company as the Continuing Connected Transactions facilitate and will
facilitate the business operation and growth of the Company and reduce the
unnecessary risks which might incur during the course of operation.
5. RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board (including the independent Directors) considers that the terms
of each of the Continuing Connected Transactions are based on normal commercial
terms, are fair and reasonable to its Independent Shareholders and each of the
Continuing Connected Transactors is in the interests of Sinopec Corp. and the
Shareholders as a whole.
6. RECOMMENDATION OF THE INDEPENDENT DIRECTORS
The Continuing Connected Transactions constitute continuing connected
transactions of, Sinopec Corp. under the HK Listing Rules.
ICEA has been appointed as an independent financial adviser to advise the
independent Directors in respect of, amongst other things, the Major Continuing
Connected Transactions. The independent Directors are Messrs. Chen Qingtai, Ho
Tsu Kwok Charles, Shi Wanpeng and Zhang Youcai.
The independent Directors, having taken into account the advice of ICEA,
consider that the Major Continuing Connected Transactions and the Agreement
Amendments are fair and reasonable so far as the Independent Shareholders are
concerned and accordingly recommend the Independent Shareholders vote in favour
of the ordinary resolutions which will be proposed at the General Meeting.
14
The text of the letter from independent Directors is set out on pages 18
to 19 of this circular and the text of the letter from ICEA containing its
advice is set out on pages 20 to 30 of this circular.
7. GENERAL MEETING
You will find on pages 35 to 38 of this circular a notice of the General
Meeting to be held at Crowne Plaza Beijing - Park View Wuzhou, No. 8 North Si
Huan Zhong Road, Chaoyang District, Beijing, PRC on 24 May 2006 at 9 a.m.
A form of proxy for use in connection with the General Meeting has
already been dispatched to shareholders. Whether or not you are able to attend
the meeting, please complete and return the form of proxy in accordance with
the instructions printed thereon as soon as practicable and in any event not
less than 24 hours before the time appointed for holding the meeting.
Completion and return of the form of proxy will not preclude you from attending
and voting in person at the meeting or at any adjourned meeting should you so
wish.
Sinopec Group Company and its associates will abstain from voting at the
General Meeting.
As the General Meeting will also be the annual general meeting of Sinopec
Corp. for 2005, Sinopec Corp. believes more shareholders would be encouraged to
participate at the meeting and would minimise adminstrative costs of Sinopec
Corp. and avoid the inconvenience of convening a separate general meeting.
Sinopec Corp. believes that information contained in this announcement and to
be contained in the circular will be sufficient for Independent Shareholders to
make an informed decision.
8. GENERAL INFORMATION
Your attention is drawn to the texts of the letter from the independent
Directors and from ICEA containing their recommendations regarding, amongst
other things, the Major Continuing Connected Transactions.
9. AGREEMENT AMENDMENTS
Rule 14A.35 of the HK Listing Rules provides that the duration of
continuing connected transactions should generally be no more than 3 years.
Accordingly, Sinopec Corp. and Sinopec Group Company have entered into the
Continuing Connected Transactions Supplemental Agreement under which the
duration of the Mutual Supply Agreement and the Community Services Agreement
will be reduced to 3 years commencing from 1 January 2007. Incidentally, the
parties have agreed to include the sourcing of crude oil and natural gas,
including crude oil and natural gas from overseas, as one of the products and
services to be provided by the Sinopec Group under the Mutual Supply Agreement.
Under rule 14A.36 of the HK Listing Rules, the above amendments relating
to the Mutual Supply Agreement (ie. the Agreement Amendments) will be subject
to the approval of the Independent Shareholders.
By order of the Board
China Petroleum & Chemical Corporation
Chen Tonghai
Chairman
15
LETTER FROM THE INDEPENDENT BOARD COMMITTEE
[GRAPHIC OMITTED]
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(Stock Code: 0386)
Independent Directors
Chen Qingtai
Ho Tsu Kwok Charles
Shi Wanpeng
Zhong Youcai
21 April 2006
To the Independent Shareholders
Dear Sir or Madam,
Continuing Connected Transactions
INTRODUCTION
We refer to the circular (the "Circular") dated 21 April 2006 issued by
Sinopec Corp. to its shareholders of which this letter forms part. Terms
defined in the Circular shall have the same meanings when used in this letter,
unless the context otherwise requires.
We are writing to you to set out our recommendation whether or not the
Major Continuing Connected Transactions and Agreement Amendments are fair and
reasonable so far as the Independent Shareholders are concerned. The terms and
the reasons for the Major Continuing Connected Transaction and Agreement
Amendments are summarised in the letter from the Chairman set out on pages 4 to
17 of the Circular. In considering the fairness and reasonableness, the
independent Directors have been advised by ICEA. You are strongly urged to read
ICEA's letter to the independent Directors which is set out on pages 20 to 30
of this Circular.
RECOMMENDATION
We have discussed with the management of Sinopec Corp. the reasons for
Agreement Amendments and the Major Continuing Connected Transaction, the
mechanism for the determination of the price for the Major Continuing Connected
Transaction, the terms of thereof, and the basis upon which their terms have
been determined. We have also considered the key factors taken into account by
ICEA in arriving at its opinion regarding the terms of the Major Continuing
Connected Transactions as set out in the letter from the Chairman on pages 4 to
17 of the Circular, which we urge you to read carefully.
The independent Directors concur with the views of ICEA and consider that
the terms of the Major Continuing Connected Transactions and the Agreement
Amendments to be in the best interest of Sinopec Corp. and are fair and
reasonable so far as the Independent Shareholders are concerned. Accordingly,
the independent Directors unanimously recommend the Independent Shareholders
vote in favour of the ordinary resolution relating to the matters set out in
this Circular which is contained in the notice of the General Meeting at the
end of the Circular.
Yours faithfully
Chen Qingtai Ho Tsu Kwok Charles Shi Wanpeng Zhong Youcai
Independent Directors
16
LETTER FROM ICEA
The following is the text of the letter of advice to the independent Directors
and the Independent Shareholders from ICEA in relation to the Continuing
Connected Transactions for the purpose of incorporation in this circular.
[GRAPHIC OMITTED]
21 April 2006
To the independent Directors and the Independent Shareholders
Dear Sirs,
CONTINUING CONNECTED TRANSACTIONS
We refer to our engagement as the independent financial adviser to advise
the independent Directors and the Independent Shareholders with respect to the
terms of Non-exempt Continuing Connected Transactions Agreements (as defined
below) and the Major Continuing Connected Transactions and their relevant caps
for each of the three years ending 31 December 2007, 2008 and 2009 between
Sinopec Corp. and its associates. Pursuant to the HK Listing Rules, the Major
Continuing Connected Transactions are subject to, among other things, the
approval of the Independent Shareholders at general meeting of the Company.
Details of the continuing connected transactions are summarized in the Circular
to its Shareholders. This letter has been prepared for inclusion in the
Circular and capitalized terms used in this letter shall have the same meaning
as defined in the Circular unless the context otherwise requires.
On 24 December 2003, the Hong Kong Stock Exchange granted a waiver to
Sinopec Corp. from strict compliance with the relevant requirements of the HK
Listing Rules in respect of the Continuing Connected Transactions. Such waiver
will expire on 31 December 2006. Sinopec Corp. expects to continue the
Continuing Connected Transactions after the expiry of the waiver. Please refer
to the announcement and circular of Sinopec Corp. dated 28 October 2003 and 31
October 2003, respectively for the background and conditions of the waiver. On
31 March 2006, Sinopec Corp. and the Sinopec Group Company have entered into
the Continuing Connected Transactions Supplemental Agreement. The Continuing
Connected Transactions Supplemental Agreement made adjustments to the terms of
certain agreements regarding the Continuing Connected Transactions. The
adjustments will become effective on 1 January 2007.
Our review will be limited to the non-exempt continuing connected
transaction(s) subjected to Independent Shareholders' approval or non-exempt
continuing connected transactions agreement(s) with the terms of which exceeded
three years pursuant to Chapter 14A of the HK Listing Rules. The agreements
under our review therefore include: (i) SPI Fund Document, (ii) the Mutual
Supply Agreement (as amended), (iii) Land Use Rights Leasing Agreement (as
amended), and (iv) Properties Leasing Agreement (as amended) (together known as
the "Non-exempt Continuing Connected Transactions Agreements"). For all other
continuing connected transactions agreements, including the Intellectual
Property Licence Agreements, they are not within the scope of our work to opine
on.
On the other hand, our opinion on the non-exempt continuing connected
transactions will be limited to the non-exempt continuing connected
transactions subjected to Independent Shareholdersi| approval which exceed 2.5%
of the applicable percentage ratios, which are the Major Continuing Connected
Transactions. For all other continuing connected transactions, as they do not
exceed 2.5% of the applicable percentage ratios, they are not within the scope
of our work.
We, ICEA, have been retained as the independent financial adviser to
advise the independent Directors and the Independent Shareholders as to whether
or not the terms of the Non-exempt Continuing Connected Transactions
Agreements, and the Major Continuing Connected Transactions and their relevant
caps are on normal commercial terms, in the ordinary and usual course of
business, and are fair and reasonable and in the interest of the Company and
its Shareholders as a whole.
In formulating our recommendation, we have relied, without assuming any
responsibility for independent
17
verification, on the information, opinions and facts supplied and
representations made to us by the Directors, who have assumed full
responsibility for the accuracy of the information contained in the Circular,
and that any information and representations made to us are true, accurate and
complete in all material respects as at the date hereof and that they may be
relied upon. We have no reason to doubt the truth, accuracy and completeness of
the information and representation provided to us by the Company. We have
discussed with the management of the Company regarding their plans and
prospects of the Company. We have also relied on certain information available
to the public and have assumed such information to be accurate and reliable,
and we have not independently verified the accuracy of such information. We
have studied the relevant market and other conditions and trends relevant to
the pricing of the Major Continuing Connected Transactions. We have also
assumed that statements and representations made or referred to in the Circular
were accurate at the time they were made and continue to be accurate at the
date of the Circular.
We consider that we have reviewed sufficient information to reach an
informed view in order to provide a reasonable basis for our advice. We have
not, however, carried out any independent verification of the information
provided to us nor have we conducted any form of independent in-depth
investigation into the business affairs or assets and liabilities of Sinopec
Corp., Sinopec Group Company, or any of their respective subsidiaries or
associated companies. Additionally, we did not conduct any physical inspection
of the properties or facilities of Sinopec Corp., Sinopec Group Company, or any
of their respective subsidiaries or associated companies. It is not within our
terms of engagement to comment on the commercial feasibility of the Major
Continuing Connected Transactions, which remains the responsibility of the
Directors. As the independent financial adviser to the independent Directors
and the Independent Shareholders, we have not been involved in the negotiations
in respect of the terms of the Major Continuing Connected Transactions. Our
opinion with regard to the terms thereof has been made on the assumption that
all obligations to be performed by each of the parties to the Major Continuing
Connected Transactions will be fully performed in accordance with the terms
thereof.
Our opinion is necessarily based upon the financial, economic, market,
regulatory, and other conditions as they exist on, and the facts, information,
and opinions made available to us as of the date of this letter. We have no
obligation to update this opinion to take into account events occurring after
the date that this opinion is delivered to the independent Directors and the
Independent Shareholders. This letter is for the information of the independent
Directors and the Independent Shareholders solely in connection with their
consideration of the Major Continuing Connected Transactions and, except for
its inclusion in the Circular, is not to be quoted or referred to, in whole or
in part, nor shall this letter be used for any other purpose, without our prior
written consent.
PRINCIPAL FACTORS CONSIDERED
In arriving at our opinion, we have taken into consideration the
principal factors and reasons set out below. In reaching our conclusion, we
have considered the results of the analyses in light of each other and
ultimately reached our opinion based on the results of all analyses taken as a
whole.
1. NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS AGREEMENTS
1.1 SPI Fund Document
With the approval of the Ministry of Finance, the Sinopec Group Company
has established the SPI Fund which currently provides insurance cover on a
consolidated basis on certain assets used in the operations of the Company,
effective on 1 January 1997.
Under the SPI Fund Document, Sinopec Corp. is required to pay twice a
year an insurance premium amounting to 0.2% of the historical value of the
fixed assets and the average month-end inventory value of the Company of the
previous six months.
After the receipt by Sinopec Group Company of the premium from Sinopec
Corp., the Sinopec Group Company will refund 20% of the paid premium to Sinopec
Corp. if Sinopec Corp. pays the semi-annual premium on time according to the
SPI Fund Document ("Refund"). The Refund would equal to 17% of the paid premium
if Sinopec Corp. fails to pay the semi-annual premium on time. The Refund shall
be used by Sinopec Corp. in dealing with accidents and potential risks and
safety measures, in safety education and training, in preventing major
accidents and potential risks, and awards to units and individuals who have
made a special contribution to safety production.
The establishment of the SPI Fund was approved by the State Council and
the SPI Fund Document was issued by Ministry of Finance. The SPI Fund document
is continued to be effective unless otherwise indicated by the State Council or
Ministry of Finance. Any amendment or execution of supplemental agreement to
the SPI Fund Document
18
must be approved by the Ministry of Finance. It is impracticable to request the
Ministry of Finance to renew the SPI Fund Document every three years in
accordance with the requirement of the Listing Rules. As such, we are of the
view that it is normal business practice for contracts similar to the SPI Fund
Document with a term exceeds three years.
1.2 Mutual Supply Agreement (as amended)
On 3 June 2000, the Sinopec Group Company and Sinopec Corp. entered into
the Mutual Supply Agreement which term commenced on 1 January 2000 and will be
valid until terminated by the parties. Pursuant to the Continuing Connected
Transactions Supplemental Agreement, the term of the Mutual Supply Agreement
was amended to for the three years ending 31 December 2009. Details of the
transactions contemplated under the Mutual Supply Agreement (as amended) are
set out in the Letter from the Chairman in this Circular.
1.2.1 Basis for Pricing
According to the Mutual Supply Agreement (as amended), the
transactions under such agreement shall be priced in accordance with the
following terms:
(a) government-prescribed price;
(b) where there is no government-prescribed price but where there
is government-guidance price will apply;
(c) where there is neither a government-prescribed price nor a
government-guidance price, the market price will apply; or
(d) where none of the above is applicable, the price is to be
agreed between the relevant parties for the provision of the
above products or services, which shall be the reasonable
cost incurred in providing the same plus not more than 6% of
such costs.
Based on the above, the priority is set from (a) to (d) such that
the price mechanism in (b) to (d) would only apply where the preceding
price mechanism(s) are inapplicable. Pricing mechanism (a) and (b) are
based on government-prescribed price or government-guidance price; while
(c) is based on market price, we are of the opinion that using
government-prescribed price, government-guidance price or market price
are the fair pricing mechanisms references as they are either under
government direction or market forces. As such, we are of the opinion
that price mechanism in (a) to (c) are fair and reasonable and in the
interests of the Company and its Shareholders as a whole.
As for price mechanism (d), the Company advised that no more than
6% margin respective to the categories of products stated above is what
they believed to be the normal practice in the PRC across respective
industries. Such margin has taken into account, among other things, the
costs, selling expenses, administrative expenses and other miscellaneous
expenses incurred for providing such products or services, as well as the
margin required for providing such products and services.
Based on our review on the published accounts of the Company, we
noted that the net profit margin for the years ended 31 December 2001,
2002, 2003, 2004 and 2005 were approximately 5.3%, 5.0%, 4.6%, 5.5% and
5.0% respectively, with an average over five years of approximately
5.08%. As the historical net profit margin of the Company averaged to
5.08%, which approximates the 6% margin in pricing mechanism (d) with
immaterial variance, we are of the opinion that the 6% margin in pricing
mechanism (d) is reasonable.
Based on the above, we are of the opinion that the pricing
mechanism of Mutual Supply Agreement (as amended) is fair and reasonable
and in the interest of the Company and its Shareholders as a whole.
1.3 Land Use Rights Leasing Agreement (as amended)
On 3 June 2000, Sinopec Group Company and Sinopec Corp. entered into the
Land Use Rights Leasing Agreement which term commenced on 1 January 2000.
According to the Land Use Rights Leasing Agreement, Sinopec Group Company
agreed to lease certain parcels of land with an area of approximately
427,000,000 square metres. The parcels of land which will be leased will mainly
be used for main production facilities, ancillary production facilities and
certain petrol stations operated by Sinopec Corp.
19
Regarding authorized land for operation owned by members of the Sinopec
Group, land for industrial use are leased to the Company for a term of 50 years
and land for commercial use for 40 years.
We confirm that it is fair and reasonable and is normal business practice
under the Land Use Rights Leasing Agreement (as amended) in relation to land
use rights for a term of 40 to 50 years, based on the following reasons:
o we have discussed with Beijing Zhongdi Huaxia Valuation
Consultation Centre Company Limited, which they confirmed that it
is normal business practice in the PRC to have land use rights
leasing contracts of similar type with such duration. Beijing
Zhongdi Huaxia Valuation Consultation Centre Company Limited is a
professional property valuer incorporated in the PRC, and is a
third party independent of the Company and its connected persons;
o we believe the long lease term is to the benefit of the Company and
would assist to minimize any potential disruption to the Company's
business operations arising from the expiry of a short lease term;
o certain assets of the Company are located on the lands leased from
Sinopec Group, and the continued operation of such assets would
depend on the Company's ability to occupy the relevant land;
o according to the Land Use Rights Leasing Agreement (as amended),
the rent may be reviewed every three years and such revised rent
shall not be higher than the prevailing market rent as confirmed by
an independent valuer; and
o according to the Land Use Rights Leasing Agreement, the Company
may, by giving six monthsi| written notice, terminate the lease of
all or some of the leased lands.
1.4 Properties Leasing Agreement (as amended)
On 3 June 2000, the Sinopec Group Company and Sinopec Corp. entered into
the Properties Leasing Agreement which term commenced on 1 January 2000. Under
the agreement, members of the Sinopec Group have agreed to lease to the Company
certain properties with aggregate gross floor area of approximately 2,608,000
square metres. The rent may be reviewed once a year and any revised rent shall
not be higher than the prevailing market rent. Property taxes and land use fees
in relation to the properties shall be borne by the Sinopec Group. Properties
which will be leased will mainly be used for ancillary production facilities,
office premises and petrol stations operated by the Company.
The properties are leased by the Sinopec Group to the Company for a term
of 20 years commencing from 1 January 2000.
We confirm that it is fair and reasonable and is normal business practice
for Properties Leasing Agreement with a leasing term of 20 years, based on the
following reasons:
o we have discussed with Beijing Zhongdi Huaxia Valuation
Consultation Centre Company Limited, which they confirmed that it
is normal business practice in the PRC to have property leasing
agreements of this type with such duration. Beijing Zhongdi Huaxia
Valuation Consultation Centre Company Limited is a professional
property valuer incorporated in the PRC, and is a third party
independent of the Company and its connected persons;
o we believe the long lease term is to the benefit of the Company and
would help to minimize any potential disruption to the Company's
business operations arising from the expiry of a short lease term;
o certain assets of the Company are located on the buildings leased
from Sinopec Group, and the continued operation of such assets
would depend on the Company's ability to occupy the relevant
buildings;
o based on the Properties Leasing Agreement, the rent will be
reviewed once a year and any such revised rent shall not be higher
than the prevailing market rent; and
o according to the Properties Leasing Agreement, the Company may, by
giving six monthsi| written notice, terminate the lease of all or
some of the leased properties.
20
2. PROPOSED CAPS OF MAJOR CONTINUING CONNECTED TRANSACTIONS
The table below sets out (i) the historical figures for the three years
ended 31 December 2003, 2004 and 2005; (ii) annual caps under the existing
waiver for 2005; and (iii) the proposed caps for each of the three years ending
31 December 2007, 2008 and 2009 of the Major Continuing Connected Transactions.
Historical figures Proposed caps
(in RMB million) (in RMB million)
Annual caps
for year 2005
For the years ended (in RMB million) For the years ending
31 December 31 December
2003 2004 2005 2007 2008 2009
2.1 Annual 55,656 61,086 75,486 137,829 147,600 148,700 152,800
expenditures of (18% of the
the Company for total
the purchase of operating
products and expenses in
services (except 2005)
for financial
services) from
the Sinopec Group
2.2 Annual revenues 32,134 42,771 58,579 115,236 131,000 134,100 136,200
generated by the (14% of the
Company for the total
sale of products operating
and services revenue in
(except for 2005)
provision of
guarantee) to the
Sinopec Group
2.1 Annual expenditures of the Company for the purchase of products and
services (except for financial services) from the Sinopec Group
As mentioned in the Letter from the Chairman in this Circular, the
products and services which are contemplated to be acquired by the Company
under the Mutual Supply Agreement (as amended) include as follows:
(i) Supply: steel, wood, cement, coal, wind, hydrogen, nitrogen, fresh
water, chemical water, recycled water, electricity, steam, heat
supply, materials and equipment parts, chemical raw materials,
precious metals, the sourcing of crude oil and natural gas,
including crude oil and natural gas from overseas and other related
or similar products and services.
(ii) Storage and transportation: railway, vehicular transport, water
transport, pipeline transmission, loading and unloading, wharves,
warehousing and other related or similar services.
(iii) Ancillary production: well drilling, well surveying, well logging,
exploration and development testing, technological research,
communication, fire control, security guards, public security,
chemical examination, material examination, information, pressure
containers and pipelines inspection, metering inspection, computer
services, equipment research, airports, feasibility study, design,
construction, installation, production of electromechanical
instruments, inspection and maintenance of equipment devices and
electrical equipment meters, works supervision, environmental
protection, repair and maintenance of roads, bridges and culverts
and slope protection, flood control and other related or similar
services.
(iv) Others: deposits and loans of finance companies, loan guarantees,
acting as agent in the collection and payment of administrative
services fees, labour services, asset leasing and other related or
similar services.
As discussed with the Company, the proposed caps for the products and
services (except for financial services which are less than 2.5% of the
applicable percentage ratios) purchased by the Company from the Sinopec Group
are determined with reference to:
(i) The previous transactions conducted and transaction amounts in
respect of products and services provided by the Sinopec Group to
the Company.
(ii) The possible price increase in raw materials and products in the
next three years.
21
(iii) The estimated growth in the demand of products and services from
Sinopec Group as a result of business growth of the Company,
including the increasing overseas business portion of the Sinopec
Group.
The Company has complied the above forecasts based on due and careful
analysis of, among other things, certain global economic figures, regional
economic figures, trend analysis of key industry trends in the PRC. We
considered such analysis to be reasonable for determining future volume of
relevant transactions.
The Directors are of the view that the proposed caps will provide
sufficient increment to the Company in meeting future demand and capture its
expansion plan.
Based on the Company's 2005 audited figures, the caps for 2005 was
RMB137,829 million, equivalent to approximately 18% of the total operating
expenses. We noted that the proposed caps for the years ending 31 December
2007, 2008 and 2009 (which are RMB147,600 million, 148,700 million and 152,800
million respectively) represents approximately 7.1%, 7.9% and 10.9% increment
respectively when compared to the caps for 2005. Sinopec Group has extensive
experience in supplying of key materials for the Company's production,
providing storage and transportation services, and providing ancillary
production services to the Company. Sinopec Group has, from time to time,
update and optimize the existing technologies, products and processes to
upgrade the products and services provided to the Company.
Owing to the long-term co-operation relationship between the Company and
the Sinopec Group and the advantages, good reputation and gigantic scale of the
Sinopec Group in various aspects, the Board is of the opinion that the entering
into of such transactions on an continuing basis is essential to the
continuation of Sinopec Corp.'s business and will be beneficial to the Company
as the transactions facilitate and will facilitate the business operation and
growth of the Company and reduce the unnecessary risks which might incur during
the course of operation. We consider that the purchase of products and services
(except for financial services) of the Company from the Sinopec Group are
necessary and essential to the Company and are in the interests of the Company
and its Shareholders as a whole.
We are of the view that, given the possible price increase of the raw
materials supplies market in future years, possible increase in transportation
price, the dominant position of the Company in the PRC, the long-term
relationship between the Company and the Sinopec Group, and the strategic
importance of the smooth operations of the Company, higher proposed caps
compared to the historical figures can be justified. We are of the view that
the proposed caps are fair and reasonable so far as the interests of the
Company and its Shareholders as a whole.
2.2 Annual revenues generated by the Company for the sale of products and
services (except for provision of guarantee) to the Sinopec Group
As mentioned in the Letter from the Chairman in this Circular, the
products and services which are contemplated to be supplied by the Company
under the Mutual Supply Agreement (as amended), includes: crude oil, natural
gas, refined and petrochemical products and by-products, semi-finished
products, water, electricity, gas, heat, measurements quality inspection,
provision of other related or similar products and services and guarantee.
As discussed with the Company, the proposed caps of the sales of products
and services (except provision of guarantee) by the Company to the Sinopec
Group are determined by reference to:
(i) The previous transactions conducted and transaction amounts in
respect of products and services provided by the Company to the
Sinopec Group.
(ii) The volatility and uncertainties such as possible price increase in
raw materials and products such as crude oil, natural gas, oil
refinery and petrochemical products.
(iii) The possible adjustment in pricing mechanism of petrochemical
products by the Chinese government.
(iv) With the increase of refinery capacity of the Sinopec Group, the
amount of crude oil sales through the Company to the Sinopec Group
will be increased.
The Company has complied the above forecasts based on due and careful
analysis of, among other things, certain global economic figures, regional
economic figures, trend analysis of key industry trends in the PRC. We
considered such analysis to be reasonable for determining future volume of
relevant transactions.
Based on the Company's 2005 audited figures, the caps for 2005 was
RMB115,236 million, represented
22
approximately 14% of the total operating revenue. We noted that the proposed
caps for the years ending 31 December 2007, 2008 and 2009 (which are RMB131,000
million, 134,100 million and 136,200 million respectively) represents
approximately 13.7%, 16.4% and 18.2% increment respectively when compared to
the proposed caps for 2005. The Company has a dominant position in the
petroleum and petrochemical industry in the PRC. Along with the fast paced
business development of the Sinopec Group, the demand for products supplied by
the Company is expected to increase significantly in future.
Annual revenue generated by the Company for the sale of product and
services (except for provision of guarantee) to the Sinopec Group for the three
years ended 31 December 2003, 2004 and 2005 accounts for approximately 7.7%,
7.2% and 7.3% of the total revenue of the Company in respective years. In view
of (i) the long-term co-operation relationship between the Company and the
Sinopec Group; (ii) the sales volume to the Sinopec Group; and (iii) the fact
that such transactions are in normal commercial terms,we consider that the
entering into of such transactions on a continuing basis with Sinopec Group
will generate stable income to the Company, and hence, will be beneficial to
the Company and is in the interest of the Company and its Shareholders as a
whole.
We are of the view that, given the possible increase in energy price in
future years, the substantial increase of energy demand in China, the possible
change of pricing mechanism of petroleum products, and business growth of the
Company and Sinopec Group, the proposed caps can be justified, and are fair and
reasonable so far as the interests of the Company and its Shareholders as a
whole.
3. Annual review of non-exempt continuing connected transactions
As discussed with the Company, the Company will comply with the annual
review requirements of HK Listing Rules, in particular:
(i) Each year the independent Directors will review the continuing
connected transactions and confirm in the annual report that the
transactions have been entered into:
o in ordinary and usual course of business of the Company;
o either on normal commercial terms or, if there are not
sufficient comparable transactions to judge whether they are
on normal commercial terms, on terms no less favourable to
the Company than terms available to or from (as appropriate)
independent third parties; and
o in accordance with the relevant agreement governing them on
terms that are fair and reasonable and in the interests of
the Shareholders as a whole; and
(ii) Each year the auditors must provide a letter to the Directors (with
a copy provided to Hong Kong Stock Exchange at least 10 business
days prior to the bulk printing of the Company's annual report),
confirming that the continuing connected transactions:
o have received the approval of the Directors;
o are in accordance with the pricing policies of the Company if
the transactions involve provision of goods or services by the
Company;
o have been entered into in accordance with the relevant
agreement governing the transactions; and
o have not exceeded the caps disclosed in the previous
announcement(s).
Based on the above, we are of the view that there are appropriate
measures in place to monitor the non-exempt continuing connected transactions
and protect the interest of the Company and its Shareholders as a whole.
4. RECOMMENDATION
Having considered the above principal factors and reasons, we consider
that (i) the Major Continuing Connected Transactions are on normal commercial
terms, in the ordinary and usual course of business, and fair and reasonable so
far as the interest of the Company and its Shareholders as a whole; (ii) the
proposed caps of the Major Continuing Connected Transactions are reasonably
determined, and fair and reasonable so far as the interest of the Company and
its Shareholders as a whole; (iii) entering into Major Continuing Connected
Transactions is in the interest of the
23
Company and its Shareholders as a whole; and (iv) the Non-exempt Continuing
Connected Transactions Agreements with duration longer than three years are
normal business practices. As such, we recommend the Independent Shareholders
vote in favour of the ordinary resolutions set out in the notice of General
Meeting at the end of this Circular.
Yours faithfully,
For and on behalf of
ICEA Capital Limited
Fabian Shin
Executive Director
24
APPENDIX GENERAL INFORMATION
1. RESPONSIBILITY STATEMENT
This circular includes particulars given in compliance with the Hong Kong
Listing Rules for the purpose of giving information with regard to Sinopec
Corp. The Directors collectively and individually accept full responsibility
for the accuracy of the information contained in this circular and confirm,
having made all reasonable enquiries, that to the best of their knowledge and
belief there are no other facts the omission of which would make any statement
herein misleading.
2. DISCLOSURE OF INTERESTS
As of the Latest Practicable Date:
(i) none of the directors, supervisors or senior management of Sinopec
Corp. had any interest in any shares of Sinopec Corp.;
(ii) none of the directors, supervisors and senior management of Sinopec
Corp. had any interests or short positions in the shares,
underlying shares of Sinopec Corp. or any associated corporations
(as defined in Part XV of the SFO) which was recorded in the
register required to be kept under section 352 of the SFO or
otherwise notified to Sinopec Corp. and the Stock Exchange pursuant
to the Model Code for Securities Transactions by Directors of
Listed Companies;
(iii) Sinopec Corp. has not granted its Directors, chief executives or
their respective spouses or children below 18 any rights to
subscribe for its equity securities or debt securities;
(iv) none of the Directors was materially interested in any contract or
arrangement entered into by any member of the Company and which was
significant in relation to the business of the Company taken as a
whole;
(v) none of the Directors or any professional advisers named in
paragraph 9 of this Appendix had any direct or indirect interest in
any assets which have been, since 31 December 2005, acquired or
disposed of by or leased to any member of the Company, or are
proposed to be acquired or disposed of by or leased to any member
of the Company; and
(vi) the Directors are not aware that any Director had, as at the Latest
Practicable Date, any interest in any business which competes or is
likely to compete, either directly or indirectly, with the business
of the Company which would require disclosure under the HK Listing
Rules.
3. SUBSTANTIAL SHAREHOLDERS
As at the Latest Practicable Date, the interests or short positions of
substantial shareholders who are entitled to exercise or control the exercise
of 10% or more of the voting power at any of Sinopec Corp.'s general meetings
and other persons who are required to disclose their interests pursuant to Part
XV of the SFO (including those who are entitled to exercise or control the
exercise of 5% or more of the voting power at any of Sinopec Corp.'s general
meetings, but excluding the Directors and Supervisors) in the shares and
underlying shares of equity derivatives of Sinopec Corp. as recorded in the
register required to be kept under Section 336 of the SFO are as follows:
Information disclosed by the shareholders of H share according to the Securities and Futures Ordinance
Number of share Approximate
interests held or percentage of Sinopec
Name of shareholders Nature regarded as held Corp's interests
(H share) (%)
JPMorgan Chase & Co Beneficial owner 139,831,090 0.83(L)
Investment manager 786,058,905 4.68(L)
Custodian corporation 767,725,495 4.58(L)(P)
Alliance Capital Management L.P. Corporate interest 1,321,698,581 7.88(L)
25
J.P. Morgan Chase & Co. Beneficial owner 46,454,000 0.28(L)
Investment manager 634,707,194 3.78(L)
Others 347,184,277 2.07(L)(P)
Citigroup Inc. Beneficial owner 804,090,069 4.79(L)
Beneficial owner 676,796,537 4.03(S)
Custodian corporation 138,266,059 0.82(L)(P)
Security interest 700,000 0.004(L)
Note: (L): Long position, (S): Short position (P): Lending pool
4. LITIGATION
No member of the Company is engaged in any litigation or arbitration of
material importance and there is no litigation or claim of material importance
known to the Directors to be pending or threatened by or against any member of
the Company.
5. SERVICE CONTRACTS
None of the Directors had entered into any service contract with Sinopec
Corp. or any member of the Company (excluding contracts expiring or
determinable by the employer within one year without payment of compensation
(other than statutory compensation)).
6. PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS
Pursuant to the articles of association of Sinopec Corp., a general
voting shall be made at the shareholders meeting by a show of hands. However,
(i) chairman of the meeting, (ii) at least two shareholders or proxies of such
shareholders with voting rights, and (iii) one or more shareholders including
proxy or proxies of such shareholders accounting individually or jointly 10% or
more of Sinopec Corp. shares with voting right(s), shall have the right to
request for a voting by poll before or after a voting by show of hands.
Issues concerning election of the chairman or suspension of a meeting
shall be voted by poll. Other issues shall be voted by poll at the time to be
decided by the chairman, and the meeting can go on with discussion of other
matters. The result of such voting shall also be regarded as the resolution
adopted at the meeting.
7. MATERIAL ADVERSE CHANGE
The Directors are not aware of any material adverse change in the
financial or trading position of the Company since 31 December 2005, being the
date of the latest published audited financial statements of Sinopec Corp.
8. CONSENTS
ICEA has given and have not withdrawn their respective written consents
to the issue of this circular with the inclusion of their reports and letters
(if any), as the case may be, and references to their names in the form and
context in which they respectively appear.
As at the Latest Practicable Date, ICEA did not have any shareholding in
any member of the Company and it did not have any right, whether legally
enforceable or not, to subscribe for or nominate persons to subscribe for
securities of any member of the Company.
9. QUALIFICATIONS OF EXPERTS
The following are the qualifications of the professional advisers who
have given opinions or advice contained in this circular:
Names Qualifications
ICEA Capital Limited a corporation licensed under the
Securities and Futures Ordinance to
carry out Type 1 regulated
activities (dealing in securities)
and Type 6 regulated activities
(advising on corporate finance)
26
10. MISCELLANEOUS
(a) The Company Secretary is Mr. Chen Ge.
(b) The registered office and head office of Sinopec Corp. is A6,
Huixindong Street, Chaoyang District, Beijing 100029, PRC.
11. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the
registered office of Sinopec Corp. at A6 Huixindong Street, Chaoyang District,
Beijing 100029, PRC and the offices of Herbert Smith, 23rd Floor, Gloucester
Tower, 11 Pedder Street, Central, Hong Kong during normal business hours on any
business day from the date of this circular until 8 May 2006:
1. The Mutual Supply Agreement
2. The Land Use Rights Leasing Agreement
3. The Community Services Agreement
4. The Safety Production Insurance Fund Document
5. The Properties Leasing Agreement
6. The Land Use Rights Leasing (Additional) Agreement
7. The Continuing Connected Transactions Supplemental Agreement
8. The letter from ICEA to the independent Directors dated 21 April 2006
9. The letter from the independent Directors to the Independent
Shareholders dated 21 April 2006
27
NOTICE OF ANNUAL GENERAL MEETING
[GRAPHIC OMITTED]
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(Stock Code: 0386)
NOTICE OF ANNUAL GENERAL MEETING FOR THE YEAR 2005
(REISSUE)
NOTICE IS HEREBY GIVEN that the annual general meeting ("Annual General
Meeting") of China Petroleum & Chemical Corporation ("Sinopec Corp.") for the
year 2005 will be held at Crowne Plaza Beijing - Park View Wuzhou, No. 8 North
Si Huan Zhong Road, Chaoyang District, Beijing, China on Wednesday, 24 May 2006
at 9:00 a.m. for the following purposes:
By way of ordinary resolutions:
1. To consider and approve the report of the 2nd Session of the Board of
Directors of Sinopec Corp. (including the report of the Board of
Directors of Sinopec Corp. for the year 2005).
2. To consider and approve the report of the 2nd Session of the Supervisory
Committee of Sinopec Corp. (including the report of the Supervisory
Committee of Sinopec Corp. for the year 2005).
3. To consider and approve the audited accounts and audited consolidated
accounts of Sinopec Corp. for the year ended 31 December 2005.
4. To consider and approve Plan for Profit Appropriation and the Final
Dividend of Sinopec Corp. for the year ended 31 December 2005.
5. To appoint the PRC and international auditors, respectively, of Sinopec
Corp. for the year 2006 and to authorise the Board of Directors to
determine their remuneration.
6. To elect the Third Session of the Board of Directors of Sinopec Corp.
(including the independent non-executive directors). According to the
Articles of Association of Sinopec Corp., election of the members of the
Board of Directors will be by way of cumulative voting.
7. To elect the shareholder representative supervisors of the Third Session
of the Supervisory Committee of Sinopec Corp.
8. To consider and approve the Service Contracts between Sinopec Corp. and
Directors of the Third Session of the Board Directors and Supervisors of
the Third Session of the Supervisory Committee (including emoluments
provisions).
9. To consider and approve resolutions regarding continuing connected
transactions for 2007 to 2009:
Approve major continuing connected transactions, amendments of
agreements, non-major continuing connected transactions and caps for
major continuing connected transactions and authorise the Board of
Directors of Sinopec Corp. to, at its discretion, take any other action
or issue any other documents necessary to implement the major continuing
connected transactions and supplemental agreements for connected
transactions;
By Way of Special Resolutions:
10. To consider and approve resolutions regarding the proposed issuance of
commercial paper:
The issue as commercial paper based on prevailing market terms and
compareable commercial papers issued in the PRC. The maximum amount of
the commercial paper shall not exceed 10% of the latest audited amount of
28
the net assets at the time of the issue. The effective period of the
approval shall commence from the date on which the resolution is approved
at 2005 AGM by shareholders and end on the completion of the 2006 AGM.
The Chairman shall be authorised to determine matters relevant to the
issue of the commercial paper based on the needs of Sinopec Corp. and
market conditions;
11. To approve the proposed amendments to the Articles of Association and its
schedules of Sinopec Corp. and to authorise the Secretary to the Board of
Directors to, on behalf of Sinopec Corp., deal with all applications,
filings, registrations and recording relevant to the proposed amendments
to the Articles of Association and its schedules.
A shareholder of Sinopec Corp., China Petrochemical Corporation, has
notified us that it is proposing to nominate an additional two persons as
candidates for the Independent Non-executive Directors of Third Session
of the Board of Directors by way of the proposal of supplemental
resolutions in April 2006. To ensure that shareholders' rights will be
preserved, the proxy form in relation to the election of the directors
will be published by the Board of Directors at the time of announcing the
supplemental resolutions proposed by China Petrochemical Corporation and
dispatched to each of the H shareholder. Investors are reminded to pay
attention to this.
By Order of the Board
China Petroleum & Chemical Corporation
Chen Ge
Secretary to the Board of Directors
Beijing, PRC, 21 April 2006
Notes:
1. Eligibility for attending the Annual General Meeting
Holders of Sinopec Corp.'s H Shares whose names appear on the register of
members maintained by Hong Kong Registrars Limited and holders of domestic
shares whose names appear on the domestic shares register maintained by China
Securities Registration and Clearing Company Limited Shanghai Branch Company at
the close of business on Monday, 24 April 2006 are eligible to attend the
Annual General Meeting.
2. Proxy
(1) A member eligible to attend and vote at the Annual General Meeting
is entitled to appoint, in written form, one or more proxies to
attend and vote on its behalf. A proxy need not be a shareholder of
Sinopec Corp.
(2) A proxy should be appointed by a written instrument signed by the
appointor or its attorney duly authorised in writing. If the form
of proxy is signed by the attorney of the appointor, the power of
attorney authorising that attorney to sign or the authorisation
document(s) must be notarised.
(3) To be valid, the power of attorney or other authorisation
document(s) which have been notarised together with the completed
form of proxy must be delivered, in the case of holders of domestic
shares, to the registered address of Sinopec Corp. and, in the case
of holder of H Shares, to Hong Kong Registrars Limited, not less
than 24 hours before the time designated for holding of the Annual
General Meeting.
(4) A proxy may exercise the right to vote by a show of hands or by
poll. However, if more than one proxy is appointed by a
shareholder, such proxies shall only exercise the right to vote by
poll.
3. Registration procedures for attending the Annual General Meeting
(1) A shareholder or his proxy shall produce proof of identity when
attending the meeting. If a shareholder is a legal person, its
legal representative or other persons authorised by the board of
directors or other governing body of such shareholder may attend
the Annual General Meeting by producing a copy of the resolution of
the board of directors or other governing body of such shareholder
appointing such persons to attend the meeting.
(2) Holders of H Shares and domestic shares intending to attend the
Annual General Meeting should return the reply slip for attending
the Annual General Meeting to Sinopec Corp. on or before Thursday,
4 May 2006.
(3) Shareholder may send the above reply slip to Sinopec Corp. in
person, by post or by fax.
4. Closure of Register of Members
The register of members of Sinopec Corp. will be closed from Monday, 24
April 2006 to Wednesday, 24 May 2006 (both days inclusive).
5. Procedures for demanding a poll to vote on resolutions
Subject to the rules of the stock exchanges to which the shares of
Sinopec Corp. are listed, the following persons may demand a resolution to be
decided on a poll, before or after a vote is carried out by a show of hands:
29
(1) the chairman of the meeting;
(2) at least two shareholders present in person or by proxy entitled to
vote thereat; or
(3) one or more shareholders present in person or by proxy and
representing 10%o or more of all shares carrying the right to vote
at the meeting singly or in aggregate.
Unless a poll is demanded, a declaration shall be made by the chairman
that a resolution has been passed on a show of hands. The demand for a
poll may be withdrawn by the person who demands the same.
6. Resolution for approved by independent shareholders
Resolution number 9 is a resolution which require the approval by
independent shareholders under the Hong Kong Listing Rules. China Petrochemical
Corporation and its associations (as defined under the Hong Kong Listing Rules)
will abstain from voting.
7. Other Business
(1) The Annual General Meeting will not last for more than one working
day. Shareholders who attend shall bear their own travelling and
accommodation expenses.
(2) The address of the Share Registrar of H Shares of Sinopec Corp.,
Hong Kong Registrars Limited is at:
Rooms 17121716, 17th Floor
Hopewell Centre
183 Queen's Road East
Hong Kong
(3) The address of the Share Registrar for A Shares of Sinopec Corp.,
China Securities Registration and Clearing Company Limited Shanghai
Branch Company is at:
72 Pu Jian Road
Pudong District
Shanghai
(4) The registered address of Sinopec Corp. is at:
A6 Huixindong Street
Chaoyang District
Beijing 100029
The People's Republic of China Telephone
No.: (+86) 10 6499 0060
Facsimile No.: (+86) 10 6499 0022
30