PROPOSED ISSUE OF CNY DENOMINATED BONDS

Transcription

1 NOT FOR DISTRIBUTION IN OR INTO THE UNITED STATES Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. This announcement is for information purposes only and does not constitute an invitation or a solicitation of an offer to acquire, purchase or subscribe for securities or an invitation to enter into an agreement to do any such things, nor is it calculated to invite any offer to acquire, purchase or subscribe for any securities. This announcement is not an offer of securities for sale in the PRC, Hong Kong, the United States or elsewhere. The Bonds are not available for general subscription in Hong Kong or elsewhere. This announcement does not constitute or form a part of any offer to sell or a solicitation of any offer tobuy securitiesin theunited States(includingitsterritories andpossessions, anystateof theunited States and the District of Columbia). Neither this announcement nor any copy hereof may be taken into or distributed, directly or indirectly, in or into the United States. The document is being given to you on the basis that you have confirmed your representation that you are not located or resident in the United States and, to the extent you purchase the securities described herein, you will be doing so pursuant to Regulation S under the United States Securities Act of 1933, as amended (the U.S. Securities Act ). The securities referred to herein have not been and will not be registered under the U.S. Securities Act or any state securities laws of the United States, and may not be offered or sold within the United States absent registration under the U.S. Securities Act or except pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act. Sinotrans will not engage in a public offering of securities in the United States and does not intend to register any of its securities under the U.S. Securities Act. (A joint stock limited company incorporated in the People s Republic of China with limited liability) (Stock Code: 0598) PROPOSED ISSUE OF CNY DENOMINATED BONDS PROPOSED ISSUE OF CNY DENOMINATED BONDS The Board is pleased to announce that Sinotrans proposes to conduct through its wholly-owned subsidiary, the Issuer, an international offering of the Bonds. Upon completion of the Bonds Issue, the gross proceeds of the Bonds Issue are expected to be immediately on-lent by the Issuer to the Borrower in the form of the Loan guaranteed by Sinotrans as described further below

2 The net proceeds of the Bonds Issue is intended to be applied for repayment of existing debt and general corporate purposes. The completion of the Bonds Issue is subject to (amongst other things) market conditions and investor demand. An extract of recent corporate and financial information regarding the Group which include information that may not have previously been made public will be provided by Sinotrans to certain institutional investors in connection with the Bonds Issue. HSBC and Morgan Stanley are the joint global coordinators in respect of the Bonds Issue. The pricing of the Bonds Issue, including the aggregate principal amount, will be determined through a book building exercise to be conducted by HSBC, Morgan Stanley, Bank of China, ABC International (as joint book-runners and joint lead managers). Sinotrans intends to seek a listing of the Bonds on the Stock Exchange. An application will be made to the Stock Exchange for the listing of, and permission to deal in, the Bonds by way of debt issues to professional investors only. There is no guarantee that an approval of listing of the Bonds on the Stock Exchange will be obtained. Approval of the listing of the Bonds on the Stock Exchange is not to be taken as an indication of the merits of Sinotrans or the Bonds. As no binding agreement in relation to the Bonds Issue has been entered into as at the date of this announcement, the Bonds Issue may or may not materialize. Investors and shareholders of Sinotrans are urged to exercise caution when dealing in the securities of Sinotrans. A further announcement in respect of the Bonds Issue will be made by Sinotrans should the Subscription Agreement be signed. THE PROPOSED BONDS ISSUE The Board is pleased to announce that Sinotrans proposes to conduct through its wholly-owned subsidiary, the Issuer, an international offering of the Bonds. Upon completion of the Bonds Issue, the gross proceeds of the Bonds Issue are expected to be immediately on-lent by the Issuer to the Borrower in the form of the Loan. The due payment of all sums expressed to be payable by the Borrower under the Loan is to be unconditionally and irrevocably guaranteed by Sinotrans. The entire issued share capital of the Issuer is proposed to be charged in favour of the trustee of the Bonds (for itself and for the benefits of the holders of the Bonds) to secure the payment obligations under the Bonds, and facilitate enforcement of the Loan and the related guarantee. The net proceeds of the Bonds Issue is intended to be applied for repayment of existing debt and general corporate purposes. HSBC and Morgan Stanley are the joint global coordinators in respect of the Bonds Issue. The pricing of the Bonds Issue, including the aggregate principal amount, will be determined through a book building exercise to be conducted by HSBC, Morgan Stanley, Bank of China, ABC International (as joint book-runners and joint lead managers). As at the date hereof, the aggregate principal amount, the offer price for the Bonds, interest rates and the terms and conditions of the Bonds Issue have not been determined yet. Upon finalizing the terms of the Bonds, HSBC, - 2 -

3 Morgan Stanley, Bank of China, ABC International, the Issuer, Sinotrans and the Borrower will enter into the Subscription Agreement. Sinotrans will make a further announcement in respect of the Bonds Issue should the Subscription Agreement be signed. In connection with the Bonds Issue, Sinotrans will provide certain institutional investors with recent corporate and financial information regarding the Group which include information that may not have previously been made public. An extract of such information is attached to this announcement. The Bonds have not been, and will not be, registered under the U.S. Securities Act. The Bonds Issue will only be offered outside the United States in compliance with Regulation S under the U.S. Securities Act. None of the Bonds will be offered to the public in Hong Kong or elsewhere and none of the Bonds will be placed to any connected persons (as defined in the Listing Rules) of Sinotrans. The completion of the Bonds Issue is subject to (amongst other things) market conditions and investor demand. Sinotrans intends to seek a listing of the Bonds on the Stock Exchange. An application will be made to the Stock Exchange for the listing of, and permission to deal in, the Bonds by way of debt issues to professional investors only. There is no guarantee that an approval of listing of the Bonds on the Stock Exchange will be obtained. Approval of the listing of the Bonds on the Stock Exchange is not to be taken as an indication of the merits of Sinotrans or the Bonds. As no binding agreement in relation to the Bonds Issue has been entered into as at the date of this announcement, the Bonds Issue may or may not materialize. Investors and shareholders of Sinotrans are urged to exercise caution when dealing in the securities of Sinotrans. DEFINITIONS In this announcement, the following expressions shall have the meanings set out below unless the context requires otherwise: ABC International Board Borrower Bonds Bonds Issue ABCI Capital Limited( 農銀國際融資有限公司 ), one of the joint book-runners and joint lead managers in respect of the Bonds Issue the board of the Directors Sinotrans (Hong Kong) Logistics Limited 中國外運 ( 香 ) 物流有限公司, a company incorporated in Hong Kong with limited liability and is a wholly-owned subsidiary of Sinotrans the CNY denominated bonds proposed to be issued by the Issuer the proposed issue of the Bonds by the Issuer - 3 -

4 Bank of China CNY Directors Group Hong Kong HK$ HSBC Listing Rules Loan Issuer Morgan Stanley PRC Sinotrans Stock Exchange Bank of China Limited( 中國銀行股份有限公司 ), one of the joint book-runners and joint lead managers in respect of the Bonds Issue Renminbi, the lawful currency of the PRC the directors of Sinotrans Sinotrans and its subsidiaries the Hong Kong Special Administrative Region of the PRC Hong Kong dollar, the lawful currency of Hong Kong The Hongkong and Shanghai Banking Corporation Limited( 香 上海 豐銀行有限公司 ), one of the joint global coordinators, joint lead managers and joint book-runners in respect of the Bonds Issue the Rules Governing the Listing of Securities on the Stock Exchange the loan to be granted by the Issuer to the Borrower out of the gross proceeds of the Bonds Issue Sinotrans Sailing Ltd, a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of Sinotrans, being the issuer of the Bonds Morgan Stanley & Co. International plc, one of the joint global coordinators, joint lead managers and joint book-runners in respect of the Bonds Issue the People s Republic of China excluding for the purposes of this announcement, Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan Sinotrans Limited, a company incorporated in the PRC with limited liability whose shares are listed on the main board of the Stock Exchange The Stock Exchange of Hong Kong Limited - 4 -

5 Subscription Agreement United States the subscription agreement proposed to be entered into between, HSBC, Morgan Stanley, Bank of China, ABC International, the Issuer, Sinotrans and the Borrower in relation to the Bonds Issue pursuant to which the joint lead managers will subscribe and pay for or procure subscribers to subscribe and pay for the Bonds the United States of America, its territories, its possessions and all areas subject to its jurisdiction % per cent By order of the Board of Sinotrans Limited Gao Wei Company Secretary Beijing, 28 May 2014 As at the date of this announcement, Zhao Huxiang, Zhang Jianwei, Tao Suyun and Li Guanpeng are executive Directors; Wang Lin, Yu Jianmin and Jerry Hsu are non-executive Directors; and Guo Minjie, Lu Zhengfei, Liu Kegu and Liu Junhai are independent non-executive Directors

6 Extract of recent corporate and financial information of Sinotrans Limited (as of 28 May 2014) - 6 -

7 RISK FACTORS In addition to other information in this Offering Circular, you should carefully consider the following risk factors, together with all other information contained in this Offering Circular (including the financial statements and the notes thereto), before purchasing the Bonds. The risks and uncertainties described below may not be the only ones that the Group faces. Additional risks and uncertainties that the Group is not aware of or that the Group currently believes are immaterial may also adversely affect its business, financial condition or results of operations. If any of the possible events described below occur, the Group s business, financial condition or results of operations could be materially and adversely affected, the trading price of the Bonds could decline and investors may lose all or part of their investment. This Offering Circular also contains forward-looking statements that involve risks and uncertainties. The Group s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the considerations described below and elsewhere in this Offering Circular. Risks Relating to the Group The Group s business is materially affected by conditions in financial markets and the global economy The success and profitability of the Group s activities depend, in part, on global economic growth and demand for freight forwarding and logistics services. While the global economy as a whole is slowly recovering from a recent financial crisis, various areas of uncertainty remain, including, for example, the rapid slowdown in the growth rate of developing economies. The Group s freight forwarding and logistics businesses are particularly sensitive to import and export volumes and the level of manufacturing and consumption in the PRC economy and demand for its services will increase with higher level of economic activities. Export volumes of the PRC has continued to increase over the past decade but in recent years, the pace of increase has slowed down as a result of, among other things, rising costs of production in the PRC and the uncertain state of the global economy. It is expected the PRC economy will experience structural adjustments and be unlikely to continue the same fast pace of growth as in recent years. It is also uncertain whether global and regional economic conditions will improve or such improvement can be sustained and whether any such improvement in global and regional economic conditions will lead to an improvement in the performance of the freight forwarding and logistics industry. Any worsening of the global and regional economic conditions may lead to a further decrease in the demand for freight forwarding and logistics services. It is difficult to predict how long these conditions will persist and how the Group s businesses and operating markets will be adversely affected. The Group s business is affected by its pricing power and fluctuations in supply and demand The Group s freight forwarding business relies primarily on the transportation capacity of third parties. As such, the pricing of the services obtained by the Group and the pricing of the services provided by the Group has a deciding impact on its profitability. In the freight forwarding business, the most important cost is the fees paid for employing the transportation services of third parties (in particular marine freight rates, which are subject to significant cyclical fluctuations in demand). While the Group is generally able to pass on its freight costs to its customers, in some cases where the Group has contracted for transportation capacity in advance it may be exposed to the risk of subsequent fluctuations in freight rates. In addition, the Group expects increased competition resulting from further deregulation and other structural changes in the freight forwarding industry to depress the level of margins that it can charge. In the shipping agency business, even though the PRC governments have issued certain price guidelines, the actual market rates tend to be decided by the supply and demand balance in the market and are generally lower than those provided in the guidelines. A decrease in the Group s pricing power may have an adverse effect on its business, financial condition and/or results of operations

8 The Group s main business segment account for a substantial part of its business and has comparatively low profitability The Group s business segments include freight forwarding, shipping agency and storage and terminal services. Of these business segments, freight forwarding is the largest, accounting for 84.5 per cent. and 83.1 per cent., respectively, of its revenue from external customers for the years ended 31 December 2013 and Due to this high level of concentration, any downturn in the freight forwarding business may have a particularly marked effect on the Group s results of operations. In addition, the Group s profit margins in the freight forwarding business segment (calculated by dividing segment results by segment total revenue) were 1.75 per cent. and 1.43 per cent., respectively, in the years ended 31 December 2013 and 2012, which are lower than the average profit margins of the Group s other business segments. As a result, the Group s overall operating margins were 2.15 per cent. and 1.44 per cent., respectively, in the years ended 31 December 2013 and 2012, reflecting, in part, the concentration of the Group s business on the less profitable freight forwarding segment. The competitive landscape in the freight forwarding and logistics industry is rapidly changing The freight forwarding and logistics industry is currently undergoing some important changes, which might have an impact on the competitive landscape that the Group faces. The rapid growth in e-commerce, for example, is expected to become a shaping force on the logistics business. On the one hand, the expansion in e-commerce increases the demand for inland shipping services and for high-volume handling of small, individual packages. On the other hand, online retailers increasingly expect their logistics partners to integrate their operations into such retailers warehousing and fulfilment operations to achieve efficiency. Some retailers might even develop their own logistics solutions, displacing the need for some of the Group s services. The same need for integration is also seen in the Group s contract logistics services, where manufacturers increasingly expect tighter integration with the Group s logistics operations. The continued success of the Group will depend on its ability to develop service models that meet the needs of these customers. Furthermore, as online platforms for the reservation and management of freight capacity become more established, such platforms might increasingly displace parts of the traditional role of the freight forwarder as an intermediary. Online platforms might also facilitate the standardisation of operational procedures and the direct procurement by customers of services from multiple shipping and logistics providers, allowing competitors with less established resources to occupy a niche. The increased use of online platforms might also increase the transparency in pricing, potentially lowering the Group s pricing power. In addition, the Group expects continued deregulation of the freight forwarding industry, including the lifting of restrictions on foreign capital and the abolishment of licensing requirements, to result in the lowering of entry barriers. This might result in increased competition in the industry. Inability of the Group to adapt quickly to these changes might result in decreased competitiveness, which might have a material impact on the Group s business, financial condition and/or results of operations. The Group is subject to intense competition in the businesses in which it operates The Group faces intense competition in all of the markets in which it operates. Some of the Group s competitor may have greater operational, financial, technical, marketing and other resources, or may be more specialised in their particular market, have more efficient cost structures or may be more adaptable to - 8 -

9 changes. These factors may provide them with a competitive advantage over the Group, which may enable such competitors to develop similar or better services, or offer them at lower prices. This could exert significant competitive pressure on the Group s business. In relation to the freight forwarding business, the Group faces competition in areas including freight rates, freight capacity, transit time, network coverage, service reliability, inland transportation services, quality of customer services, value-added services and other customer requirements. These factors may result in the reduction of the Group s freight charges in order to stay competitive. In addition, the freight forwarding business is currently undergoing some significant changes, which might result in a different competitive landscape and require the Group to adapt quickly. In relation to the shipping agency business, the Group competes on the basis of its ability to provide comprehensive solutions and highly specialised services. However, the Group faces a large number of competitors in this business and continued deregulation and lowering of licensing requirements might result in more competition. In relation to the logistic business, as the logistics industry of the PRC is still in the early stage of development, competition is fierce, as different competitors race to develop a successful business model meeting the needs of the local markets. The above and other factors may increase the competition faced by the Group. As a consequence, the Group may have to lower its prices or charges in order to attract customers, which in turn may also adversely affect its business, financial condition and results of operations. The Group may also experience a loss of market share if it is unable to compete effectively. The Group s results of operations are affected by seasonality The results of operations of the Group are affected by seasonality, such as the impact of holidays on the demand for consumer goods and seasonal fluctuations in the volume of shipping. As a result, the results of operations of the Group may fluctuate significantly and comparisons of operating results between different periods within a single financial year, or between different periods in different financial years, are not necessarily meaningful and may not be relied upon as indications of the overall performance of the Group. The Group is exposed to default by its customers and/or payment delays The Group is exposed to counterparty risks to the extent that any of its customers fails to fulfil their obligations under the contracts into which the Group enters with them. The reasons for such non-payment or payment delays may include the customer s insolvency or bankruptcy, a general downturn in the global economy, an inability by the customer to raise sufficient financing to honour its contractual obligations, and strategic or other business-related decisions by the customer. The Group had a significant level of trade receivables (less allowance for impairment of receivables), amounting to RMB6,807 million and RMB7,163 million, respectively, as of 31 December 2013 and 2012, accounting for 22.8 per cent. and 24.5 per cent. of the Group s total assets as of those dates. While the Group believes that the level of trade receivables have generally remained stable and there is no concentration of credit risk due to its diversified customer base, any significant non-payment or payment delays may have an adverse effect on the Group s business, financial condition and/or results of operations

10 Joint venture entities account for a significant portion of the Group s profit The Group operates a number of joint ventures, including DHL-Sinotrans International Air Courier Company Limited and others. The Group derives a significant share of its profits from these joint ventures. In the years ended 31 December 2013 and 2012, the Group s share of profit of joint ventures were RMB649 million and RMB704 million respectively, accounting for 43.6 per cent. and 57.1 per cent. of the Group s profit before income tax for those years. Accordingly, adverse developments in the business or financial results of these entities could have a material negative impact on the Group s results of operations. In addition, there is a possibility that the Group s joint venture partners may: have economic or business interest inconsistent with the Group s; take actions contrary to the Group s instructions or requests or contrary to the Group s objectives or policies; be unable or unwilling to fulfil the obligations under the relevant joint venture agreements; have financial difficulties; or have disputes with the Group in relation to the provisions in the joint venture agreements. Further, as a result of entry barriers restricting foreign capital from entering into the freight forwarding or logistics industries having been relaxed, it is possible that the Group s joint venture partners might decide to enter into these businesses on their own, which might bring competition to or result in changes in or termination of the existing joint venture arrangements. Any of these above circumstances might negatively affect the performance of these joint ventures, in turn resulting in lower or negative contribution from these joint ventures to the Group s results of operations. The Group s proposed disposal of key assets in its marine transportation business has not been completed and is subject to closing conditions The Group has proposed to dispose of certain key assets in its marine transportation business as part of its strategy to better focus its resources on its profitable core business (see Description of the Company s Business Recent Developments Disposal of the marine transportation business ). The completion of these disposals are subject to the satisfaction of a number of conditions precedent, including regulatory consent and approval by the relevant lenders. In addition, some of these disposals have conditions precedent that are interlinked. It is thus possible a failure to satisfy a condition precedent in one of the disposals might delay or prevent the completion of all of the other disposals unless the relevant parties agree to a waiver. A failure to complete the disposals might have a material impact on the successful execution of the Group s strategy and in turn affect its financial condition or results of operation. The Group s insurance coverage may not be sufficient to cover its liabilities arising from the inherent risks associated with its business activities The Group s business operations are subject to inherent risks, including accidents or other incidents causing the loss of or damage to cargo or shipment delays, or other losses or damages which might result in liability to the Group. These events may cause a disruption or cessation in the Group s operations, and may adversely affect its business, financial condition, results of operations and prospects. The Group s insurance may not be adequate to cover all potential liabilities or risks to which it may be subject. Further, there is no assurance that insurance will be generally available in the future or, if available, that the premiums will not

11 increase or remain commercially justifiable. The occurrence of any of these events may result in the interruption of the Group s operations, damage to its reputation and subject the Group to significant losses or liabilities. If the Group incurs substantial liability and the insurance does not, or is insufficient to, cover its liability, its business, financial condition, results of operations and prospects may be adversely affected. Future capital expenditure means the Group may require external financing to meet capital requirements and may not be able to secure such financing The Group operates in a capital-intensive industry and requires the procurement of substantial new capital to finance the Group s operations, future development and growth. The Group presently sources such capital for its businesses primarily through a combination of internal cash, trade finance and external debt financing. The Group s growth strategy and the further expansion of its business may require significant additional investments and capital. The Group s operations and expansion plans are dependent upon and limited by its ability to secure additional financing, on commercially acceptable terms or at all. The terms of the Group s debt financing arrangements may require it to pledge collateral to the lenders and may contain restrictive financial covenants or covenants which increase its costs or restrict its business and operations. While the Group has so far been able to borrow the funds necessary to finance operations in the current market environment, prolonged disruptions to the credit markets could limit its ability to borrow funds from its current funding sources or cause its continued access to funds to become more expensive. As a result, the Group may be forced to delay raising capital or pay unattractive interest rates, thereby, increasing its interest expense, decreasing its profitability and significantly reducing its financial flexibility, which may adversely affect its business, financial condition, results of operations and prospects. Fluctuations in exchange rates may have an adverse effect on the Group The Group makes and receives certain payments, and have certain assets and liabilities, denominated in foreign currency and is affected by changes in exchange rates. In particular, the Group has a portion of its revenues and transportation and related charges denominated in U.S. dollars. The Group also has certain borrowings in U.S. dollars. The value of the Renminbi against the U.S. dollar and other currencies may fluctuate significantly and is affected by, among other things, central government policy, the domestic and international economies and the supply and demand of currency. On 21 July 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy generally resulted in an appreciation in the value of the Renminbi against the U.S. dollar over time. It is possible that the PRC government could adopt a more flexible currency policy, which could result in further and more significant revaluations of the Renminbi against the U.S. dollar or any other foreign currency. The Company estimates that a 5 per cent. appreciation of the Renminbi against the U.S. dollar would result in an approximately RMB13.4 million decrease in its consolidated profit before income tax for the year ended 31 December Fluctuations in exchange rates may have an adverse effect on the Group. The Group may be unable to maintain its health, safety and environmental standards The Group is required by its customers, governments and regulatory agencies to maintain health, safety and environmental standards in the course of providing its services. In the event of any change in these standards, the Group may have to incur additional expenses to comply with such changes. Any failure to maintain required standards may result in the cancellation of the Group s present contracts, the Group not being awarded new contracts or regulatory authorities imposing fines, penalties and sanctions on the Group, revoking its licences and permits or prohibiting the Group from continuing its operations, each of which

12 could have an adverse effect on the Group. A failure to maintain healthy, safety and environmental standards could also result in injuries, death, damage to property and to the environment, which may in turn result in liability and damage to the Group s reputation and adversely affect the Group s business, financial condition, results of operations and prospects. The Group may not be able to detect and prevent fraud or other misconduct committed by its employees, representatives, agents, customers or other third parties The Group may be exposed to fraud or other misconduct committed by its employees, representatives, agents, customers or other third parties that could subject it to litigation, financial losses and sanctions imposed by governmental authorities, as well as affect its reputation. The Group s internal control procedures are designed to monitor its operations and ensure overall compliance. However, such internal control procedures may be unable to identify all incidents of noncompliance or suspicious transactions in a timely manner if at all. Furthermore, it is not always possible to detect and prevent fraud and other misconduct, and the precautions the Group takes to prevent and detect such activities may not be effective. There is no assurance that fraud or other misconduct will not occur in the future. If such fraud or other misconduct does occur, it may cause negative publicity as a result. The Group may be unable to attract or retain sufficient skilled and/or qualified personnel The Group s continued success will depend on its ability to retain key management staff and train new employees. If members of its senior management team are unable or unwilling to continue in their present positions, the Group s business, financial condition and/or results of operations may be adversely affected. Moreover, the Group s competitors may also be expanding their operations and may require additional skilled and qualified personnel. As a result, the Group may, from time to time, experience difficulties in attracting and retaining highly skilled employees. If the Group is unable to maintain a sufficient number of skilled and qualified personnel required for its operation, this will constrain the Group s growth and may have an adverse effect on its business, financial condition, results of operations and prospects. Labour shortages could increase the cost of labour and hinder the Group s service capacity, which may adversely affect its business, financial condition, results of operations and prospects. The Group is exposed to risks of litigation and third party liabilities The Group s operations involve inherent risks to both persons and property. For example, a collision at sea could result in the loss of cargo or the loss of life. Defending private actions can be costly and timeconsuming. If a judgment against the Group were to be rendered, the Group may be exposed to substantial financial liability, which in turn may adversely affect the Group s reputation and prospects. The Group employs vessels that operate in waters that are governed by the laws of the respective countries for the trading areas under their jurisdictions. In the event of a fuel spill or a leakage of hazardous cargoes in tank containers, including but not limited to petroleum or petrochemical products or damaged container cargo, the Group may be liable for containment, clean-up and salvage costs and other damages arising

13 Political, economic and other risks in the markets where the Group has operations may cause serious disruptions to its business, which in turn may adversely affect the Group s business, financial condition and/or results of operations The Group operates in ports around the world, including in emerging markets. Many of the economies in the countries where the Group operates differ from the economies of most developed countries in many respects, including: extent of government involvement; political stability; level of development; growth rate; control of foreign exchange; and allocation of resources. The Group s business will be subject to the political, economic and social conditions of the countries in which it has operations. For example, the Group will be exposed to risks of political unrest, strikes, war and economic and other forms of instability, such as natural disasters, epidemics, widespread transmission of communicable or infectious diseases, acts of God, terrorist attacks and other events beyond its control that may adversely affect local economies, infrastructures and livelihoods. These events could result in disruption to the Group s or its customers businesses and seizure of, or damage to, its customers cargoes. Such events could also cause the destruction of key equipment and infrastructure and the partial or complete closure of particular ports and sea passages, such as the Suez or Panama canals, potentially resulting in higher costs, or congestions of ports or sea passages, vessel delays or cancellations on some trade routes. Furthermore, these events could lead to reductions in, or in the growth rate of, world trade, which could in turn reduce demand for the Group s vessels and services. These risks may cause serious disruptions to the Group s business, which in turn may adversely affect the Group s business, financial condition and/or results of operations. The Group provides services relating to, and has operations in, certain countries that are subject to economic sanctions The Group provides logistical support to certain Chinese customers operating projects (including steel plants, mining and construction and engineering) in certain sanctioned countries that are subject to economic and other sanctions imposed by the United Nations, the United States of America, the European Union and the United Kingdom, such as Iraq, Liberia, Iran and Myanmar, and has, or is in the process of establishing, subsidiaries in certain sanctioned countries for providing project logistics services. In addition, the freight forwarding services of the Group facilitate the shipment of freight to destinations worldwide. Although the Group has implemented systems and controls to reject any shipments originating from or destined to sanctioned countries if such shipments may be in violation of sanctions, it may not be able to ensure that its systems and controls reject all such shipments, nor can it prevent transfers or onward shipments by third party customers or intermediaries to such countries. The Group has procedures in place to confirm, prior to the acceptance of each engagement, that the shipment of the relevant cargo to the relevant destination or recipient is not restricted under sanctions. In addition, the Group also works with transportation providers, which are typically international marine shipping companies, insurance providers and intermediaries, who have their own clearance procedures in relation to sanctions, to perform due diligence on the cargos and the

14 vessel registrations to minimise the risks that its freight forwarding assignments are in violation of sanctions. However, there is no assurance that the Group is always able to interpret and apply the sanction regulations correctly, and the Group cannot predict the interpretation or implementation of policies of the U.S. or any foreign government. Although the Group s operations and activities in sanctioned countries are limited, representing in the aggregate less than 1 per cent. of its consolidated revenue or profit, these may nevertheless have an adverse effect on the investment in the Bonds. Any freight forwarding to and from a sanctioned countries may also result in violation of the insurance policies obtained by the Group which could render the insurance cover ineffective. It is also possible that, as a result of activities by the Group in these countries, the Group may attract media or investors attention, which may distract the Group s management, consume its internal resources and affect investors perception of the Group. The Group is controlled by, and procures certain key supplies from, SINOTRANS & CSC As of 31 December 2013, SINOTRANS & CSC directly and indirectly controls 60 per cent. of the Company s issued share capital. Consequently, SINOTRANS & CSC will be able to exercise substantial influence over matters requiring shareholders approval, including election of directors, approval of significant corporate transactions and approval of final dividend payments, except when SINOTRANS & CSC is required to be excluded from voting due to a conflict of interest. The strategic goals and interests of SINOTRANS & CSC may not always be aligned with the Group s strategy and interests and could reduce the level of management flexibility that would otherwise exist with a more diversified shareholder base. The interests of the Group s controlling shareholder may also differ from those of the holders of the Bonds. In addition, the Group has historically maintained a close business relationship with SINOTRANS & CSC, which provides the Group with, among other things, transportation and logistics services, general business services, the leasing of containers, the leasing of property, financing and cash pooling. If the provision of these supplies, services and facilities by SINOTRANS & CSC is terminated, this could result in disruption of the Group s business and, if the Group is not able to replace any of them on substantially similar terms, this could increase the Group s future costs for such supplies, services and facilities and adversely affect the Group s results of operation. There is also no assurance that in the future SINOTRANS & CSC will continue to be a controlling shareholder of the Group, or provide the Group the same level of support. Resources consolidation may not proceed or bring about benefits as expected The Group is continuing negotiations with the SINOTRANS & CSC group regarding further reorganisations, with a view to facilitating appropriate consolidation of core business operations and related assets into the Group, to reduce potential competition between the Group and the rest of the SINOTRANS & CSC group and to expand the business coverage of the Group. The method and subject matter of any such further reorganisation is still under consideration, and may be implemented over a period of time. While the Group believes that such further reorganisation will be beneficial to the Group s business, there is no assurance that such transactions will proceed or bring about the benefits as expected. The Group may suffer losses on its securities holdings The Group has certain investments in the shares of publicly traded companies, which may be subject to price fluctuations. As of 31 December 2013, the Group held available-for-sale financial assets included in noncurrent assets in the amount of RMB1,158 million, including mainly listed shares in Air China Limited, China Eastern Air Holding Company and BOE Technology Group Co., Ltd., which the Group generally holds as a strategic investor. If the fair values of the securities held by the Group suffer significant or prolonged declines, the Group may need to perform write-downs and suffer impairment losses

15 The Group may suffer losses as a result of its guarantees As of 31 December 2013, the Group had outstanding guarantees in the amount RMB million in relation to the liabilities of non-group entities, including joint ventures in which the Group holds an interest. If the Group is required to make payments under such guarantees, its financial condition and results of operations may be adversely affected. As of 31 December 2013, the Group has made provisions in the amount of RMB68.95 million in relation to a loan guarantee provided to a joint venture. There is no assurance that the financial condition of such joint venture will not further deteriorate, requiring the Group to pay out on its guarantee. The Group s future success depends, in part, on the successful implementation of its strategies The Group anticipates that successful implementation of its strategies and effective change of focus to more profitable sectors in different business cycles will be important for its future growth. Whether the Group succeeds in pursuing new growth opportunities will depend on its ability to modify its business plans, expand its existing customer relationships, develop new customer relationships and take advantage of changing market conditions, which may include expanding or changing geographic focus or entering into new strategic alliances or new markets. The plans for growth will depend upon a number of factors, some of which are within the Group s control and some of which are not. These factors include, but are not limited to, the Group s ability to modify its business plans, maintain, expand or develop its customer relationships, joint ventures or alliances, hire, train and retain qualified personnel to manage and operate its growing business and identify additional new markets. The failure to manage any of these factors effectively, including the Group s ability to identify, purchase, develop and integrate itself into any new businesses, could adversely affect the Group s business, financial condition and results of operations. Risks Relating to the PRC A substantial part of the Group s assets are located in the PRC and a substantial part of the Group s revenue is sourced from the PRC. Accordingly, the Group s business, financial condition, results of operations and prospects are subject, to a significant degree, to economic, political and legal developments in the PRC. Changes in the PRC economic, political and social conditions, as well as government policies may adversely affect the Group s business, financial condition and/or results of operations The Group s business, financial condition and results of operations depend to a significant extent on the economic developments in the PRC. The PRC s economy differs from the economies of most other countries in many respects, including the degree of government intervention in the economy such as government control of foreign exchange and the allocation of resources, the general level of economic development and growth rates. While the PRC economy has experienced significant growth in the past 30 years, this growth has been uneven across different periods, regions and amongst various economic sectors. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. The PRC government also exercises significant control over the PRC s economic growth through the allocation of resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Since late 2003, the PRC government has, at times, implemented a number of measures, such as increasing the PBOC s statutory deposit reserve ratio and imposing commercial bank lending guidelines, which had the effect of slowing down the growth of credit availability. In 2008 and 2009, in response to the global financial crisis, the PRC government relaxed such requirements but, since early 2010, has begun to tighten

16 such requirements again, partly in response to the recovery in the growth of the PRC economy. Any future actions and policies adopted by the PRC government could materially affect the Chinese economy, which may adversely affect the Group s business, financial condition and/or results of operations. Compliance with environmental laws and other government regulations may increase the Group s cost of doing business The Group is subject to various state and local environmental laws and regulations of the PRC. These laws and regulations impose limitations on the discharge of pollutants into the environment and establish standards for the transportation, storage and disposal of hazardous waste. The PRC government may impose significant fines or penalties for violations of these environmental laws and regulations. Some environmental laws impose joint and several strict liability for remediation of spills and releases of oil and hazardous substances. Under these laws and regulations, the Group could be liable for environmental damages without regard to negligence or fault on the Group s part. As a result, these laws expose the Group to potential liability for the conduct of or conditions caused by others. The Group may also be liable for the Group s acts that are or were in compliance with all applicable laws at the time such acts were performed. Environmental laws in the PRC have historically been subject to frequent changes. The Group is unable to predict the future costs or other future effects of environmental laws on the Group s operations. In addition, any changes in environmental or other laws affecting the Group s business may further increase the Group s costs, which could have a material adverse effect on the Group s business, financial condition, results of operations and prospects. Rigid foreign exchange control by the PRC government may adversely affect the Group s ability to satisfy its foreign exchange liabilities The Group has significant exposure to foreign currency risk as a substantial part of its obligations are denominated in foreign currencies, principally in U.S. dollars. Depreciation or appreciation of the Renminbi against foreign currencies affects its results significantly because a significant portion of its revenue and operating costs are denominated in Renminbi and its foreign currency payments generally exceed its foreign currency receipts. Even though the Group has a portion of its revenue denominated in U.S. dollars and other foreign currencies, it is not able to hedge its foreign currency exposure effectively other than by retaining its foreign currency denominated earnings and receipts to the extent permitted by the State Administration of Foreign Exchange ( SAFE ), or subject to certain restrictive conditions, entering into foreign exchange forward option contracts with authorised banks. However, SAFE may limit or eliminate the Group s ability to purchase and retain foreign currencies in the future. In addition, certain foreign currency transactions under the capital account are still subject to limitations and require approvals from SAFE. This may affect its ability to obtain foreign exchange through debt or equity financing, including by means of loans or capital contributions. As such, there is no assurance that the Group will be able to obtain sufficient foreign exchange to satisfy its foreign exchange liabilities. Uncertainty with respect to the PRC legal system, lack of uniform interpretation and effective enforcement may cause significant uncertainties to the Group s operations As a substantial part of the Group s businesses are conducted, and a substantial part of the Group s assets are located, in the PRC, its operations are governed principally by PRC laws and regulations. The PRC legal system is based on written statutes while prior court decisions can only be cited as reference. Since 1979, the PRC government has promulgated laws and regulations in relation to economic matters such as foreign investment, corporate organisation and governance, commerce, taxation, foreign exchange and trade, with a view to developing a comprehensive system of commercial law. However, the PRC has not developed a fully integrated legal system and recently enacted laws and regulations that may not sufficiently cover all aspects of economic activities in the PRC. In particular, because these laws and regulations are relatively