Reference is made to the Company’s announcement dated 30th October 2019 in relation to the continuing connected transactions between OOIL Group and COSCO SHIPPING Group. On 30th October 2019, the Company and COSCO SHIPPING entered into, among others, the Business Master Agreement for the provision of containerized liner, logistics and information technology services between OOIL Group and COSCO SHIPPING Group, for a term of three years from 1st January 2020 to 31st December 2022.
Reference is also made to the Company’s announcement dated 21st May 2021 in relation to, among others, the revision of the annual caps for the provision of VOCC services by OOIL Group to COSCO SHIPPING Group contemplated under the Business Master Agreement for the financial year ended 31st December 2021 and the financial year ending 31st December 2022.
The Board anticipated that the Existing VOCC Cap and the Existing Network Cap will not be sufficient to meet the expected transactions and business growth for the financial year ending 31st December 2022. The Board has resolved to increase the Existing VOCC Cap and the Existing Network Cap, while all the terms of the Business Master Agreement remain unchanged.
LISTING RULES IMPLICATIONS
COSCO SHIPPING indirectly controls more than 50% of the issued share capital of the Company. Accordingly, members of COSCO SHIPPING Group are connected persons of the Company under Chapter 14A of the Listing Rules. The transactions contemplated under the Business Master Agreement constitute the continuing connected transactions of the Company.
Pursuant to Rule 14A.54 of the Listing Rules, the Company shall re-comply with the requirements under Chapter 14A of the Listing Rules applicable to the respective annual caps for the continuing connected transactions under the Business Master Agreement before such annual caps are exceeded.
As the highest of the applicable percentage ratios of each of the Revised VOCC Cap and the Revised Network Cap exceeds 0.1% but is less than 5%, the Revised VOCC Cap and the Revised Network Cap are subject to the reporting, announcement and annual review requirements under Chapter 14A of the Listing Rules and are exempt from the circular (including independent financial advice) and independent shareholders’ approval requirements pursuant to Rule 14A.76(2) of the Listing Rules.
BACKGROUND
Reference is made to the Company’s announcement dated 30th October 2019 in relation to the continuing connected transactions between OOIL Group and COSCO SHIPPING Group. On 30th October 2019, the Company and COSCO SHIPPING entered into, among others, the Business Master Agreement for the provision of containerized liner, logistics and information technology services between OOIL Group and COSCO SHIPPING Group, for a term of three years from 1st January 2020 to 31st December 2022.
Reference is also made to the Company’s announcement dated 21st May 2021 in relation to, among others, the revision of the annual caps for the provision of VOCC services by OOIL Group to COSCO SHIPPING Group contemplated under the Business Master Agreement for the financial year ended 31st December 2021 and the financial year ending 31st December 2022.
The Board anticipated that the Existing VOCC Cap and the Existing Network Cap will not be sufficient to meet the expected transactions and business growth for the financial year ending 31st December 2022. The Board has resolved to increase the Existing VOCC Cap and the Existing Network Cap, while all the terms of the Business Master Agreement remain unchanged.
The actual transaction amounts for the transactions contemplated under the Business Master Agreement, including the provision of VOCC services by OOIL Group to COSCO SHIPPING Group and the provision of Network services by COSCO SHIPPING Group to OOIL Group, from 1st January 2022 up to the date of this announcement did not exceed the relevant annual caps, including the Existing VOCC Cap and the Existing Network Cap, for the financial year ending 31st December 2022.
HISTORICAL TRANSACTION AMOUNTS, REVISED VOCC CAP AND REVISED NETWORK CAP FOR THE FINANCIAL YEAR ENDING 31ST DECEMBER 2022
The table below sets out the historical transaction amounts and the annual caps for the provision of VOCC services by OOIL Group to COSCO SHIPPING Group and the provision of Network services by COSCO SHIPPING Group to OOIL Group contemplated under the Business Master Agreement:
Business Master Agreement
The Revised VOCC Cap and the Revised Network Cap are determined by reference to (i) the existing scale and operations of OOIL Group’s business and its business plan; (ii) the anticipated business growth and development of OOIL Group; (iii) the anticipated deepening of synergies and better operational efficiency growth between OOIL Group and COSCO SHIPPING Group; and (iv) the anticipated increase in costs and the global environment in the shipping industry; against the historical transaction amounts of the relevant transactions for the period from 1st January 2020 to 31st July 2022.
REASONS FOR AND BENEFITS OF THE REVISED VOCC CAP AND THE REVISED NETWORK CAP
The continuing connected transactions contemplated under the Business Master Agreement, including the provision of VOCC services by OOIL Group to COSCO SHIPPING Group and the provision of Network services by COSCO SHIPPING Group to OOIL Group, are in line with the business and commercial objectives of the Group and would enable the Group to leverage on COSCO SHIPPING Group’s global shipping network to drive for future growth, synergies and operational efficiency.
The epidemic has complicated the situation in the global market. The different pace of recovery of major economies and the closure of certain cities and major container ports have created continuous challenges in the supply chain. High vessel charter hire cost and bunker cost, owing to the spread of the epidemic and geographical conflict, caused slot rates to surge. In the coming months, there is no certainty about what will happen to the level of demand for container transportation, and it seems prudent to assume that epidemic-related supply chain congestion may take some time to be resolved. Therefore, it is certainly possible, though not guaranteed, that the demand for VOCC services and Network services could potentially remain at or around current levels for the remainder of 2022, and as such, this credible scenario must be provided for in the relevant annual caps.
With the in-depth development of dual brand synergy effect, the trading scope between OOIL Group and COSCO SHIPPING Group is gradually expanding in terms of routes and cargo volume. It is anticipated the Existing VOCC Cap and the Existing Network Cap will not be sufficient to meet the demand for the financial year ending 31st December 2022.
The Board considers that the continuing connected transactions contemplated under the Business Master Agreement are on normal commercial terms and in the ordinary and usual course of business of the Group, and that the terms of the Business Master Agreement (including the Revised VOCC Cap and the Revised Network Cap) are fair and reasonable and in the interests of the Company and the Shareholders as a whole.
On the date of Board Meeting, Mr. Wan Min, Mr. Huang Xiaowen and Mr. Yang Zhijian, the Executive Directors of the Company, were holding directorships and/or senior management positions in COSCO SHIPPING Group; Mr. Tung Lieh Cheung Andrew, a Non-Executive Director of the Company, had interests in the shares of COSCO SHIPPING Holdings Co., Ltd.; Mr. Ip Sing Chi, a Non-Executive Director of the Company, was a non-executive director of COSCO SHIPPING Development Co., Ltd.; Mr. Yang Liang Yee Philip, an Independent Non-Executive Director of the Company, was an independent non-executive director of COSCO SHIPPING Ports Limited; and Ms. Chen Ying, an Independent Non-Executive Director of the Company, was an external director of COSCO SHIPPING (Guangzhou) Co., Ltd. and COSCO SHIPPING Lines Co., Ltd. Accordingly, each of them was considered to have a material interest in the transactions (including the Revised VOCC Cap and the Revised Network Cap) contemplated under the Business Master Agreement, and had abstained from voting on the resolutions approving the Revised VOCC Cap and the Revised Network Cap at the Board Meeting.
At the Board Meeting, other than Mr. Wan Min, Mr. Huang Xiaowen, Mr. Yang Zhijian, Mr. Tung Lieh Cheung Andrew, Mr. Ip Shing Chi, Mr. Yang Liang Yee Philip and Ms. Chen Ying, none of the other Directors had a material interest in the transactions (including the Revised VOCC Cap and the Revised Network Cap) contemplated under the Business Master Agreement, and none of them had abstained from voting on the relevant resolutions.
LISTING RULES IMPLICATIONS
COSCO SHIPPING indirectly controls more than 50% of the issued share capital of the Company. Accordingly, members of COSCO SHIPPING Group are connected persons of the Company under Chapter 14A of the Listing Rules. The transactions contemplated under the Business Master Agreement constitute the continuing connected transactions of the Company.
Pursuant to Rule 14A.54 of the Listing Rules, the Company shall re-comply with the requirements under Chapter 14A of the Listing Rules applicable to the respective annual caps for the continuing connected transactions under the Business Master Agreement before such annual caps are exceeded.
As the highest of the applicable percentage ratios of each of the Revised VOCC Cap and the Revised Network Cap exceeds 0.1% but is less than 5%, the Revised VOCC Cap and the Revised Network Cap are subject to the reporting, announcement and annual review requirements under Chapter 14A of the Listing Rules and are exempt from the circular (including independent financial advice) and independent shareholders’ approval requirements pursuant to Rule 14A.76(2) of the Listing Rules.
INTERNAL CONTROL PROCEDURES
Annual review by the auditors and Independent Non-Executive Directors, as part of the Group’s internal controls systems, are in place to ensure that the transactions between the Group and its connected persons are conducted in accordance with the pricing policy. Apart from this, the Company would:-
identify and register the connected transactions in a system designed to track the connected transactions;
carry out regular checking and reconciliation to ensure the completeness and accuracy of the connected transactions recorded in the system;
report the transaction amounts monthly, so that the Group’s management is informed of the status of the connected transactions timely and assess if the transactions are conducted within the relevant annual caps;
examine the pricing of the transactions regularly to ensure that the connected transactions are conducted in accordance with the pricing terms thereof, including reviewing the transaction records of OOIL Group, for the purchase or provision of similar goods or services from or to independent third parties; and
in relation to each annual cap for the transactions under the Business Master Agreement, set appropriate internal monitoring limits, such that the Company will be alerted at appropriate times prior to reaching the relevant annual caps.
BUSINESS OF THE GROUP AND COSCO SHIPPING GROUP
The Group is principally engaged in the provision of container transport and logistics services.
According to the information provided by COSCO SHIPPING Group, and to the best of the Directors’ knowledge, information and belief, the scope of business of COSCO SHIPPING Group includes international shipping, ancillary business in international maritime transportation, import and export of goods and technologies, international freight agency business, leasing of self-owned vessels, sale of vessels, containers and steel, and maritime engineering.
Source: Orient Overseas (International) Limited
