Stock Code: 6837
Joint Sponsors
Joint Global Coordinators and Joint Bookrunners
Joint Bookrunners
For identification purpose only
IMPORTANT
If you are in any doubt about any of the contents of this prospectus, you should obtain independent professional advice.
(A joint stock limited company incorporated in the People’s Republic of China with limited liability)
GLOBAL OFFERING
Number of Offer Shares under : 1,229,400,000 H Shares (subject to the
the Global Offering Over-allotment Option)
Number of Hong Kong Offer Shares : 61,470,000 H Shares (subject to
adjustment)
Number of International Offer Shares : 1,167,930,000 H Shares (subject to
adjustment and the Over-allotment
Option)
Maximum Offer Price : HK$11.18 per H Share (payable in full on
application in Hong Kong dollars and
subject to refund on final pricing), plus
brokerage of 1%, SFC transaction levy of
0.003% and Hong Kong Stock Exchange
trading fee of 0.005%
Nominal value : RMB1.00 per H Share
Stock code : 6837
Joint Sponsors
Joint Global Coordinators and Joint Bookrunners
Joint Bookrunners
Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this
prospectus, 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 prospectus.
A copy of this prospectus, having attached thereto the documents specified in “Documents Delivered to the Registrar of Companies in Hong Kong and Available for Inspection” in Appendix VII
to this prospectus, has been registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Hong Kong Companies Ordinance, Chapter 32 of the Laws of Hong Kong.
The SFC and the Registrar of Companies in Hong Kong take no responsibility as to the contents of this prospectus or any other documents referred to above.
The Offer Price is expected to be determined by agreement between our Company and the Joint Global Coordinators (on behalf of the Underwriters) on the Price Determination Date or
such later date as may be agreed by our Company and the Joint Global Coordinators (on behalf of the Underwriters) but in any event no later than Tuesday, April 24, 2012. The Offer
Price will be not more than HK$11.18 per Offer Share and is expected to be not less than HK$10.48 per Offer Share. Applicants for Hong Kong Offer Shares are required to pay, on
application, the maximum Offer Price of HK$11.18 for each Hong Kong Offer Share together with brokerage of 1%, SFC transaction levy of 0.003% and Hong Kong Stock Exchange trading
fee of 0.005%, subject to refund if the Offer Price should be lower than HK$11.18. The Joint Global Coordinators (on behalf of the Underwriters) with our Company’s consent may reduce
the number of Hong Kong Offer Shares being offered under the Global Offering and/or the indicative Offer Price range stated in this prospectus at any time prior to the morning of the
last day for lodging applications under the Hong Kong Public Offering. In such a case, a notice of the reduction of the number of Hong Kong Offer Shares and/or the indicative Offer Price
range will be published in the South China Morning Post (in English) and the Hong Kong Economic Times (in Chinese) not later than the morning of the last day for lodging applications
under the Hong Kong Public Offering. Such notices will also be available at the website of the Hong Kong Stock Exchange at www.hkexnews.hk and our Company’s website at
www.htsec.com. If applications for Hong Kong Offer Shares have been submitted prior to the day which is the last day for lodging applications under the Hong Kong Public Offering, in
the event that the number of Offer Shares and/or the indicative Offer Price range is so reduced, such applications can subsequently be withdrawn. Details of the arrangement will then
be announced by our Company as soon as practicable. Further details are set out in the sections headed “Structure of the Global Offering” and “How to Apply for the Hong Kong Offer
Shares” in this prospectus.
If, for any reason, the Offer Price is not agreed between our Company and the Joint Global Coordinators (on behalf of the Underwriters) on or before Tuesday, April 24, 2012, the Global Offering
(including the Hong Kong Public Offering) will not proceed and will lapse.
We are incorporated, and substantially all of our businesses are located, in the PRC. Potential investors should be aware of the differences in legal, economic and financial systems between the PRC
and Hong Kong and that there are different risk factors relating to investments in PRC-incorporated companies. Potential investors should also be aware that the regulatory framework in the PRC
is different from the regulatory framework in Hong Kong and should take into consideration the different market nature of our Shares. Such differences and risk factors are set out in the section
headed “Risk Factors” and in “Appendix IV – Summary of Principal PRC and Hong Kong Legal and Regulatory Provisions” and “Appendix V – Summary of the Articles of Association” in this
prospectus. Prior to making an investment decision, potential investors should consider carefully all of the information set out in this prospectus, including the risk factors set out in the section headed
“Risk Factors.”
Pursuant to the Underwriting Agreements, the Joint Global Coordinators (on behalf of the Underwriters) have the right in certain circumstances to terminate the obligations of the
Underwriters pursuant to the Underwriting Agreements at any time prior to 8:00 a.m. (Hong Kong time) on the Listing Date. Further details of such circumstances are set out in the section
headed “Underwriting – Underwriting Arrangements and Expenses – Hong Kong Public Offering – Hong Kong Underwriting Agreement – Grounds for Termination” in this prospectus.
The Offer Shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended, and may not be offered, sold, pledged or transferred within the United States
except that Offer Shares may be offered, sold or delivered in the United States to qualified institutional buyers in reliance on Rule 144A or another exemption from registration under the
U.S. Securities Act of 1933, as amended, and outside the United States in offshore transactions in reliance on Regulation S.
* For identification purpose only
April 17, 2012
EXPECTED TIMETABLE
Date (1)
Latest time to complete electronic applications
under White Form eIPO service through
the designated website www.eipo.com.hk(2) . . . . . . . . .11:30 a.m., Friday, April 20, 2012
Application lists open (3) . . . . . . . . . . . . . . . . . . . . . . . . . .11:45 a.m., Friday, April 20, 2012
Latest time for lodging WHITE and
YELLOW Application Forms. . . . . . . . . . . . . . . . . . . .12:00 noon, Friday, April 20, 2012
Latest time to give electronic application
instructions to HKSCC (3 and 4) . . . . . . . . . . . . . . . . . . .12:00 noon, Friday, April 20, 2012
Latest time to complete payment for
White Form eIPO applications by
effecting internet banking transfer(s) or
PPS payment transfer(s) . . . . . . . . . . . . . . . . . . . . . . .12:00 noon, Friday, April 20, 2012
Application lists close . . . . . . . . . . . . . . . . . . . . . . . . . . .12:00 noon, Friday, April 20, 2012
Expected Price Determination Date (5) . . . . . . . . . . . . . . . . . . . . . . . . .Friday, April 20, 2012
(1) Announcement of:
the Offer Price;
the level of applications in the Hong Kong Public Offering;
the level of indications of interest in the International Offering; and
the basis of allotment of the Hong Kong Offer Shares
will be published in the South China Morning Post
(in English) and the Hong Kong Economic Times
(in Chinese) on or before . . . . . . . . . . . . . . . . . . . . . . . . . . . .Thursday, April 26, 2012
(2) Results of allocations in the Hong Kong Public Offering
(with successful applicants’ identification
document numbers, where appropriate) will be
available through a variety of channels as described
in the section headed “How to Apply for
the Hong Kong Offer Shares – Publication of Results”
in this prospectus from . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Thursday, April 26, 2012
(3) A full announcement of the Hong Kong Public Offering
containing (1) and (2) above will be published on
the website of the Hong Kong Stock Exchange
at www.hkexnews.hk(6) and our Company’s website
at www.htsec.com(7) from . . . . . . . . . . . . . . . . . . . . . . . . . . . .Thursday, April 26, 2012
–i–
EXPECTED TIMETABLE
Results of allocations in the Hong Kong Public Offering
will be available at www.iporesults.com.hk with
a “search by ID” function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Thursday, April 26, 2012
H Share certificates in respect of wholly or partially successful
applications will be dispatched or deposited into
CCASS on or before (8 and 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Thursday, April 26, 2012
Refund checks (if applicable) will be dispatched
on or before (9 and 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Thursday, April 26, 2012
White Form e-Refund Payment Instructions will be
dispatched on or before (10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Thursday, April 26, 2012
Dealings in H Shares on the Hong Kong Stock Exchange
will commence on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Friday, April 27, 2012
Notes:
(1) All dates and times refer to Hong Kong local time and dates unless otherwise stated.
(2) You will not be permitted to submit your application to the White Form eIPO Service Provider through the
designated website at www.eipo.com.hk after 11:30 a.m. on the last day for submitting applications. If you
have already submitted your application and obtained an application reference number from the designated
website at or before 11:30 a.m., you will be permitted to continue the application process (by completing
payment of application monies) until 12:00 noon on the last day for submitting applications when the
application lists will close.
(3) If there is a “black” rainstorm warning or a tropical cyclone warning signal number eight or above in force
in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Friday, April 20, 2012, the application lists
will not open on that day. Further information is set out in the section headed “How to Apply for the Hong
Kong Offer Shares – Effects of Bad Weather on the Opening of the Application Lists” in this prospectus. If
the application lists do not open on Friday, April 20, 2012, the dates mentioned above may be affected. Our
Company will make a press announcement in such event.
(4) Applicants who apply for the Hong Kong Offer Shares by giving electronic application instructions to
HKSCC should refer to “How to Apply for the Hong Kong Offer Shares – Applying by Giving Electronic
Application Instructions to HKSCC via CCASS” in this prospectus.
(5) The Price Determination Date, being the date on which the Offer Price is to be determined, is expected to be
on or about Friday, April 20, 2012, and in any event no later than Tuesday, April 24, 2012. If, for any reason,
the Offer Price is not agreed on or before Tuesday, April 24, 2012, the Global Offering (including the Hong
Kong Public Offering) will not proceed and will lapse.
(6) The announcement will be available for viewing on the “Main Board – Results of Allotment” page on the Hong
Kong Stock Exchange’s website at www.hkexnews.hk.
(7) Neither our Company’s website nor any of the information contained on our Company’s website forms part of
this prospectus.
(8) Our Company will not issue any temporary documents of title in respect of the Offer Shares. H Share
certificates will only become valid certificates of title at 8:00 a.m. on Friday, April 27, 2012, provided that (i)
the Global Offering has become unconditional in all respects and (ii) the Underwriting Agreements have not
been terminated in accordance with their respective terms. Investors who trade H Shares on the basis of
publicly available allocation details prior to the receipt of share certificates or prior to the share certificates
becoming valid certificates of title do so entirely at their own risk. If the Global Offering does not become
unconditional or the Underwriting Agreements are terminated in accordance with their terms, the Global
Offering will not proceed. In such a case, our Company will make an announcement as soon as possible
thereafter.
– ii –
EXPECTED TIMETABLE
(9) Applicants who apply on WHITE Application Forms for 1,000,000 H Shares or more under the Hong Kong
Public Offering and have indicated in their Application Forms that they wish to collect any refund checks
(where applicable) and H Share certificates in person may do so from our Company’s H Share Registrar,
Computershare Hong Kong Investor Services Limited at Shop 1712-1716, 17th Floor, Hopewell Centre, 183
Queen’s Road East, Wanchai, Hong Kong from 9:00 a.m. to 1:00 p.m. on Thursday, April 26, 2012.
Identification and (where applicable) authorization documents acceptable to Computershare Hong Kong
Investor Services Limited must be produced at the time of collection.
Applicants who apply on YELLOW Application Forms for 1,000,000 H Shares or more under the Hong Kong
Public Offering and have indicated in their Application Forms that they wish to collect refund checks in person
may collect their refund checks (if any) but may not elect to collect their H Share certificates, which will be
deposited into CCASS for credit to their designated CCASS Participants’ stock accounts or CCASS Investor
Participant stock accounts, as appropriate. The procedures for collection of refund checks for applicants who
apply for H Shares on YELLOW Application Forms is the same as those for WHITE Application Form
applicants.
Applicants who apply for Hong Kong Offer Shares by giving electronic application instructions to HKSCC
should refer to “How to Apply for the Hong Kong Offer Shares – Applying by Giving Electronic Application
Instructions to HKSCC via CCASS” in this prospectus.
Applicants who apply for 1,000,000 Hong Kong Offer Shares or more through the White Form eIPO service
by submitting an electronic application to the White Form eIPO Service Provider through the designated
website at www.eipo.com.hk and whose applications are wholly or partially successful, may collect their H
Share certificates in person from Computershare Hong Kong Investor Services Limited, at Shop 1712-1716,
17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong from 9:00 a.m. to 1:00 p.m. on
Thursday, April 26, 2012. For applicants who apply for less than 1,000,000 Hong Kong Offer Shares, H Share
certificates will be sent to the address specified in their application instructions to the White Form eIPO
Service Provider through the designated website at www.eipo.com.hk on Thursday, April 26, 2012 by ordinary
post and at their own risk.
Applicants being individuals who opt for personal collection must not authorize any person to make collection
on their behalf. Applicants being corporations which opt for personal collection must attend by their authorized
representatives with letters of authorization of their corporations stamped with the corporation’s chops
(bearing the name of the corporations). Both individuals and authorized representatives of corporations (as
applicable) must produce, at the time of collection, evidence of identity and authority (as applicable)
acceptable to our Company’s H Share Registrar.
Uncollected H Share certificates and refund checks will be despatched by ordinary post (at the applicants’ own
risk) to the addresses specified in the relevant Application Forms. Further information is set out in the section
headed “How to Apply for the Hong Kong Offer Shares – Despatch/Collection of H Share Certificates and
Refund Monies” in this prospectus.
(10) e-Refund payment instructions or refund checks will be issued in respect of wholly or partially unsuccessful
applications and in respect of successful applications if the final Offer Price is less than the price payable on
application. Applicants who paid the application monies from a single bank account may have e-Refund
payment instructions, if any, dispatched to the application payment account on Thursday, April 26, 2012.
Applicants who used multi-bank accounts to pay the application monies may have refund checks (if any)
dispatched to them on Thursday, April 26, 2012. Part of your Hong Kong Identity Card number/passport
number, or, if you are joint applicants, part of the Hong Kong Identity Card number/passport number of the
first-named applicant, provided by you may be printed on your refund checks, if any. Such data would also be
transferred to a third party for refund purpose. Your banker may require verification of your Hong Kong
Identity Card number/passport number before cashing of your refund checks. Inaccurate completion of your
Hong Kong Identity Card number/passport number may lead to delay in encashment of or may invalidate your
refund checks.
For details of the structure of the Global Offering, including the conditions of the Hong
Kong Public Offering, and the procedures for application for the Hong Kong Offer Shares, you
should read the sections headed “Structure of the Global Offering” and “How to Apply for the
Hong Kong Offer Shares” in this prospectus.
– iii –
CONTENTS
This prospectus is issued by Haitong Securities Co., Ltd. solely in connection with
the Hong Kong Public Offering and the Hong Kong Offer Shares and does not
constitute an offer to sell or a solicitation of an offer to buy any security other than the
Hong Kong Offer Shares. This prospectus may not be used for the purpose of, and does
not constitute, an offer to sell or a solicitation of an offer to buy in any other
jurisdiction or in any other circumstances. No action has been taken to permit a public
offering of the Offer Shares or the distribution of this prospectus in any jurisdiction
other than Hong Kong. The distribution of this prospectus and the offering and sale of
the Offer Shares in other jurisdictions are subject to restrictions and may not be made
except as permitted under the applicable securities laws of such jurisdictions pursuant
to registration with or authorization by the relevant securities regulatory authorities or
an exemption therefrom. You should rely only on the information contained in this
prospectus and the Application Forms to make your investment decision. We have not
authorized anyone to provide you with information that is different from what is
contained in this prospectus. Any information or representation not included in this
prospectus must not be relied on by you as having been authorized by us, the Joint
Global Coordinators, the Joint Sponsors, the Joint Bookrunners, the Joint Lead
Managers, the Underwriters, any of our or their respective directors or advisors, or any
other person or party involved in the Global Offering. Information contained in our
website, located at www.htsec.com, does not form part of this prospectus.
Page
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Glossary of Technical Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Waivers and Exemption from Compliance with the Hong Kong
Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information about this Prospectus and the Global Offering . . . . . . . . . . . . . . . . .
Directors, Supervisors and Parties Involved in the Global Offering . . . . . . . . . . .
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
– iv –
CONTENTS
Page
Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulatory Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
History and Corporate Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors, Supervisors and Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . .
Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302
Cornerstone Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Future Plans and Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374
Structure of the Global Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How to Apply for the Hong Kong Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . .
Further Terms and Conditions of the Hong Kong Public Offering . . . . . . . . . . . .
Appendix I – Accountants’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
Appendix II – Unaudited Pro Forma Financial Information . . . . . . . . . . II-1
Appendix III – Taxation and Foreign Exchange . . . . . . . . . . . . . . . . . . . . . III-1
Appendix IV – Summary of Principal PRC and Hong Kong Legal and
Regulatory Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1
Appendix V – Summary of the Articles of Association . . . . . . . . . . . . . . . V-1
Appendix VI – Statutory and General Information. . . . . . . . . . . . . . . . . . . VI-1
Appendix VII – Documents Delivered to the Registrar of Companies in
Hong Kong and Available for Inspection. . . . . . . . . . . . . VII-1
–v–
SUMMARY
This summary aims to give you an overview of the information contained in this
prospectus. As this is a summary, it does not contain all the information that may be
important to you and is qualified in its entirety by, and should be read in conjunction
with, the full text of this prospectus. You should read the whole document including the
appendices hereto before you decide to invest in our Offer Shares.
There are risks associated with any investment. Some of the particular risks in
investing in our Offer Shares are set out in the section headed “Risk Factors” in this
prospectus. You should read that section carefully before you decide to invest in our
Offer Shares.
OVERVIEW
We are a leading full-service securities firm in the PRC with an integrated business
platform, extensive branch network and substantial customer base. According to the SAC,
among all securities firms in the PRC, we ranked second in terms of total assets and net assets
as of December 31, 2011 and second in terms of total revenue in 2011(1). We have established
prudent operating strategies and are the only major PRC securities firm founded in the 1980s
that remains in operation under the same brand without receiving government-backed capital
injections or being the target of a successful acquisition. Our A Shares, which have been listed
on the Shanghai Stock Exchange since July 2007, were admitted to the CSI 300 Index, the SSE
180 Index and the SSE 50 Index in July 2007, December 2007 and December 2008,
respectively.
Our integrated business platform comprises a full-service PRC platform and a well-
established overseas platform. As of December 31, 2011, we had 216 securities and futures
brokerage branches located across 27 provinces and 125 cities in the PRC, the fourth largest
branch network among all PRC securities firms, according to data from the Shanghai Stock
Exchange and the China Futures Association. With this strategically located branch network,
we focus on five principal business lines in the PRC, which comprise securities and futures
brokerage (including margin financing and securities lending), investment banking, asset
management, proprietary trading and direct investment. The following table sets forth the main
financial products and services we offer in the PRC:
Business Lines Main Financial Products and Services
Securities and futures Securities brokerage
brokerage Futures brokerage
Margin financing and securities lending
Investment advisory
(1) The 2011 data from the SAC was based on the preliminary results of PRC securities firms.
–1–
SUMMARY
Business Lines Main Financial Products and Services
Investment banking Equity underwriting
Debt underwriting
Financial advisory
Asset management Traditional asset management
Private equity asset management
Proprietary trading Trading of equities, bonds, funds, derivatives and
other financial products for our own account
Direct investment Direct equity investments in private companies
Investing in private equity funds
For a detailed description of our business operations in the PRC, please see “Business –
Our Business and Operations” beginning on page 201 of this prospectus.
In addition to our PRC business operations, we are also actively developing our business
overseas. We conduct our overseas business primarily through our Hong Kong-based
subsidiary, Haitong International Holdings. As of December 31, 2011, we operated 13 branches
in Hong Kong and Macau and provided a comprehensive range of financial products and
services to a broad range of retail customers and institutional clients in Hong Kong and
overseas. In January 2012, the CSRC granted RQFII status to Haitong International Holdings,
which allows it to raise RMB funds in Hong Kong and invest in the domestic securities market.
For a detailed description of our overseas business operations, please see “Business – Our
Business and Operations – Overseas Business” beginning on page 224 of this prospectus.
In addition, our sizeable and stable customer base provides a solid foundation for our
sustainable development and future expansion. As of December 31, 2011, we had over 4.0
million retail customers (including approximately 2.1 million active customers) and over
12,000 institutional and high net worth customers in the PRC. As of the same date,
approximately 76% of our brokerage customers had opened accounts with us for over three
years and approximately 38% had a business relationship of over ten years with us. For our
overseas business, we had over 145,000 brokerage customers as of December 31, 2011.
Market Positions
In recent years, we have received numerous awards and honors in recognition of our
outstanding performance and management capabilities, including, among others, “2011 Best
PRC Securities Firm” and “2011 Best PRC Investment Bank” by Moneyweek.
–2–
SUMMARY
We have gained leading market positions in securities and futures brokerage, investment
banking and other traditional businesses in the PRC. According to data from the SAC, the
Shanghai Stock Exchange, the Shenzhen Stock Exchange and the CSRC, among all PRC
securities firms, we ranked:
second in terms of total assets and net assets as of December 31, 2009, 2010 and
2011 (1);
among the top five in terms of securities brokerage trading volume in 2009, 2010
and 2011;
third in terms of the number of equity securities underwritten in 2011; and
in the top two in terms of the number of major asset restructuring transactions of
domestic listed PRC companies we advised in 2009, 2010 and 2011.
We have also established leading positions in developing new businesses, such as margin
financing and securities lending, stock index futures brokerage and direct investment
businesses. We are frequently designated by the PRC regulatory authorities as one of the first
PRC securities firms to participate in pilot programs for new securities products and services.
According to data from the Shanghai Stock Exchange, the Shenzhen Stock Exchange and the
China Financial Futures Exchange, we ranked:
first among PRC securities firms in terms of margin trading volume in 2011, and in
terms of margin loan balance and market value of securities lent as of December 31,
2011;
first among PRC futures companies in terms of stock index futures brokerage
trading volume in 2011; and
second among PRC securities firms in terms of registered capital of direct
investment subsidiaries as of December 31, 2011.
For a comparison of the market position between us and our major competitors in the PRC
as of December 31, 2010, please see “Industry Overview – The Competitive Landscape in the
PRC Securities Market” beginning on page 126 of this prospectus.
(1) The 2011 data from the SAC was based on the preliminary results of PRC securities firms.
–3–
SUMMARY
Internal Control and Risk Management
Established in 1988, we have navigated through various market and business cycles,
regulatory reforms and industry developments over our 23 years of operating history, including
the Asian financial crisis in 1997 and the global financial crisis in 2008. We have established
prudent corporate governance and effective risk management and internal control systems to
reduce our exposure to various risks in the securities markets. In recognition of our strong
capital position, effective risk management and internal control systems, as well as our proven
track record, we received an “AA” regulatory rating from the CSRC for the past four
consecutive years, the highest rating given to a PRC securities firm to date. In addition, in June
2008, our A Shares became one of the constituent stocks of the SSE Corporate Governance
Index.
For a detailed description of our internal control and risk management, please see
“Business – Internal Control and Risk Management” beginning on page 233 of this prospectus.
Competitive Strengths
We believe the following competitive strengths contribute to our success and distinguish
us from our competitors:
Full-service securities firm in the PRC with leading market positions across multiple
business lines;
Strategically located branch network across the PRC with a substantial and stable
customer base;
A pioneer in the PRC securities industry for offering new businesses;
Well-established international platform to capture growing cross-border business
opportunities;
Prudent corporate governance and effective risk management and internal control
systems; and
Experienced and stable management team with a highly proficient professional
workforce.
–4–
SUMMARY
Business Strategies
We aim to become a domestic top-tier and globally renowned financial group with a
distinct focus on the securities business. Through continuous innovation and leveraging our
international platform, we plan to focus on the PRC market and stay committed to core
financial intermediary services, including our securities and futures brokerage, investment
banking and asset management businesses. Further, we intend to expand and promote our
proprietary trading and direct investment businesses to supplement our core financial
intermediary businesses while generating competitive risk-adjusted returns. In addition, we
plan to strengthen our business infrastructure, including risk management, research
capabilities, IT and human resources, to support our business growth. Our specific strategies
include the following:
Further enhance our leading market position and profitability in the securities and
futures brokerage business;
Maintain the growth momentum of our investment banking business and further
integrate our business platform;
Strategically expand our asset management business to provide comprehensive
product offerings to meet increasing and diversifying customer demands;
Continue to expand and promote new businesses and products with high growth
potential;
Actively pursue our internationalization strategy to capture cross-border
opportunities; and
Strengthen our risk management systems, internal controls, IT capabilities, research
capabilities and human resource management to support our business operations.
SUMMARY FINANCIAL AND OPERATING INFORMATION
The following tables set forth our summary consolidated financial information for the
years ended December 31, 2009, 2010 and 2011, and as of December 31, 2009, 2010 and 2011.
We have derived the summary from our consolidated financial information set forth in the
Accountants’ Report in Appendix I to this prospectus. The following summary should be read
together with, and is qualified in its entirety by reference to, the consolidated financial
information in Appendix I to this prospectus, including the accompanying notes, and the
information set forth in “Financial Information” beginning on page 315 of this prospectus.
–5–
SUMMARY
Summary Consolidated Income Statements
Year ended December 31,
2009 2010
(RMB in millions)
Revenue
Commission and fee income . . . . . . . . . . . . . . . . 8,753.4 8,384.1 6,566.8
Interest income . . . . . . . . . . . . . . . . . . . . . . . . 1,407.0 1,647.0 2,553.2
Net investment gains . . . . . . . . . . . . . . . . . . . . . 888.1 1,077.8 1,506.9
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,048.5 11,108.9 10,626.9
Other income and gains . . . . . . . . . . . . . . . . . . . . 267.3 196.0 233.5
Total revenue and other income . . . . . . . . . . . . . . 11,315.8 11,304.9 10,860.4
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . (5,400.0) (6,393.4) (6,633.1)
Share of results of associates . . . . . . . . . . . . . . . . . 66.0 78.2 72.9
Profit before income tax . . . . . . . . . . . . . . . . . . . 5,981.8 4,989.7 4,300.2
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . (1,320.1) (1,121.5) (1,018.2)
Profit for the year . . . . . . . . . . . . . . . . . . . . . . . 4,661.7 3,868.2 3,282.0
Attributable to:
Owners of the Company . . . . . . . . . . . . . . . . . . . 4,548.2 3,686.3 3,103.0
Non-controlling interests . . . . . . . . . . . . . . . . . . 113.5 181.9 179.0
Summary Consolidated Statements of Financial Position
As of December 31,
2009 2010
(RMB in millions)
Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . 3,613.5 5,116.6 6,163.0
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 117,116.7 110,296.5 92,814.0
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,730.2 115,413.1 98,977.0
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 75,739.8 69,600.2 52,294.3
Non-current liabilities. . . . . . . . . . . . . . . . . . . . . . 471.8 196.1 72.0
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 76,211.6 69,796.3 52,366.3
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,518.6 45,616.8 46,610.7
Equity attributable to owners of the Company . . . . . 43,414.0 44,467.4 45,042.4
Non-controlling interests . . . . . . . . . . . . . . . . . . 1,104.6 1,149.4 1,568.3
–6–
SUMMARY
The following table sets forth the key measurements of our profitability for the periods
indicated:
Year ended December 31,
2009 2010
(RMB in millions, except percentages)
(1)
Operating profit . . . . . . . . . . . . . . . . . . . . 5,648.5 4,715.5 3,993.8
(2)
Operating margin . . . . . . . . . . . . . . . . . . 51.1% 42.4% 37.6%
Adjusted operating margin (3) . . . . . . . . . . . . 57.6% 48.9% 43.8%
Net profit . . . . . . . . . . . . . . . . . . . . . . . . . 4,661.7 3,868.2 3,282.0
(4)
Net margin . . . . . . . . . . . . . . . . . . . . . 42.2% 34.8% 30.9%
Adjusted net margin (5) . . . . . . . . . . . . . . . . 47.5% 40.1% 36.0%
(1) Operating profit = total revenue – total expenses
(2) Operating margin = (total revenue – total expenses)/total revenue
(3) Adjusted operating margin = (total revenue – total expenses)/(total revenue – commission to account
executives – brokerage transaction fees and other services expenses – interest expenses).
Adjusted operating margin is not a standard measurement under IFRS, but we present it here because we
believe that, after excluding (i) commission to account executives, (ii) brokerage transaction fees and other
services expenses and (iii) interest expenses, such measurement provides a meaningful indicator of our results
of operations. Prospective investors should be aware that adjusted operating margin presented in this
prospectus may not be comparable to other similarly titled measures reported by other comparable companies,
due to different calculation methods or assumptions.
(4) Net margin = profit for the year/total revenue
(5) Adjusted net margin = (net profit for the year)/(total revenue – commission to account executives – brokerage
transaction fees and other services expenses – interest expenses). Adjusted net margin is not a standard
measurement under IFRS, but we present it here because we believe that, after excluding (i) commission to
account executives, (ii) brokerage transaction fees and other services expenses and (iii) interest expenses, such
measurement provides a meaningful indicator of our results of operations. Prospective investors should be
aware that adjusted net margin presented in this prospectus may not be comparable to other similarly titled
measures reported by other comparable companies, due to different calculation methods or assumptions.
–7–
SUMMARY
The following table sets forth the breakdown of our total revenue and other income by
business segments and segment revenue and other income expressed as a percentage of our
total revenue and other income for the periods indicated:
Year ended December 31,
2009 2010
(RMB in (RMB in (RMB in
millions) % millions) % millions) %
PRC business
Securities and futures brokerage 7,284.0 64.4 5,774.8 51.1 4,163.1 38.3
Investment banking . . . . . . . 496.8 4.4 1,091.7 9.7 1,068.6 9.8
Asset management . . . . . . . 878.9 7.8 868.5 7.7 1,092.1 10.1
Proprietary trading . . . . . . . 804.8 7.1 779.8 6.9 1,144.8 10.5
Direct investment . . . . . . . . 52.1 0.5 106.0 0.9 55.0 0.5
Headquarters and others(1) . . . . 1,602.0 14.1 1,779.1 15.7 2,382.3 22.0
Overseas business . . . . . . . . . 197.2 1.7 905.0 8.0 954.5 8.8
Total . . . . . . . . . . . . . . . . 11,315.8 100.0 11,304.9 100.0 10,860.4 100.0
(1) Revenue and other income in headquarters and others mainly includes: (i) interest income from our own bank
deposits and deposits we hold on behalf of our customers; and (ii) dividends and other investment gains as well
as government grants. For more details, please see “Financial Information – Summary Segment Results”
beginning on page 342 and “Appendix I – Accountants’ Report” in this prospectus.
The following table sets forth the key operating data of our PRC business for the periods
indicated:
Year ended December 31,
2009 2010
Trading volume of securities brokerage
(RMB in billions) (1) . . . . . . . . . . . . . . . . . 5,411.5 5,398.7 5,620.4
Trading volume of futures brokerage
(RMB in billions) (2) . . . . . . . . . . . . . . . . . 1,866.8 10,517.5 12,094.8
Amount of equity securities underwritten
(RMB in millions) . . . . . . . . . . . . . . . . . . 7,530.4 49,657.7 15,091.0
Amount of debt securities underwritten
(RMB in millions) . . . . . . . . . . . . . . . . . . 10,640.0 12,320.0 19,158.0
AUM(3) (RMB in millions) . . . . . . . . . . . . . . 61,788.8 74,726.5 67,546.8
(1) The trading volume of our securities brokerage business includes trading volumes of other businesses, such as
proprietary trading and asset management. For a discussion of the trading volume of transaction made on
behalf of customers, please see “Business – Our Business and Operations – Securities and Futures Brokerage
– Brokerage commission and fee income” beginning on page 209 of this prospectus.
(2) The trading volume of the PRC futures market before 2011 included both sides of the trades. Since 2011, the
trading volume of the PRC futures market has only included one side of the trades.
(3) Our AUM represents the total value of assets that are managed by our Company and our subsidiaries including
HFT Investment Management, Haitong-Fortis PE Management, Haitong Jihe Management and Haitong
Chuangxin Management as of the last date of the periods indicated.
–8–
SUMMARY
USE OF PROCEEDS
Assuming an Offer Price of HK$10.83 per H Share (being the mid-point of the stated
range of the Offer Price of between HK$10.48 and HK$11.18 per H Share), we estimate that
we will receive net proceeds of approximately HK$12,776.1 million from the Global Offering
after deducting the underwriting commissions and other estimated expenses if the Over-
allotment Option is not exercised. We intend to use the net proceeds from the Global Offering
for the following purposes:
approximately 35.0%, or HK$4,471.7 million, will be used for strategic acquisitions
of overseas securities firms and/or further expansion of our overseas securities
business. As of the Latest Practicable Date, the Directors confirmed that we have not
identified any overseas acquisition targets;
approximately 20.0%, or HK$2,555.2 million, will be used to expand our margin
financing and securities lending business in order to capture future business
opportunities arising from its rapid growth in the PRC and to strengthen our market
leading position;
approximately 20.0%, or HK$2,555.2 million, will be used to develop our
alternative financial products investment business and other new businesses as
permitted by the PRC regulatory authorities;
approximately 15.0%, or HK$1,916.4 million, will be used for capital contributions
to Haitong Capital Investment and the expansion of our direct investment and
private equity funds management businesses; and
approximately 10.0%, or HK$1,277.6 million, will be used for working capital and
general corporate purposes.
To the extent our net proceeds are either more or less than HK$12,776.1 million, we will
adjust our allocation of the net proceeds for the above purposes on a pro rata basis. In addition,
the possible use of proceeds outlined above may change in light of our evolving business needs
and conditions and management requirements. For further details, please see “Future Plans and
Use of Proceeds – Use of Proceeds” beginning on page 372 of this prospectus.
CAPITAL ADEQUACY AND RISK CONTROL INDICATOR
According to the Risk Control Indicator Measures, we have established a dynamic Net
Capital monitoring mechanism to comply with statutory Net Capital requirements and other
regulatory standards for capital adequacy. In addition, we also need to maintain a minimum
amount of Net Capital to conduct our margin financing and securities lending, asset
management and underwriting businesses. As of December 31, 2009, 2010 and 2011, we were
in compliance with all of our capital adequacy and risk control indicator requirements.
According to the SAC, as of December 31, 2011, our Net Capital amounted to RMB31.3
billion, the second highest among the PRC securities firms (1).
(1) The 2011 data from the SAC was based on the preliminary results of the PRC securities firms.
–9–
SUMMARY
The Risk Control Indicator Measures also require us to comply with requirements in
addition to the risk control indicators mentioned above when we engage in proprietary trading
and margin financing and securities lending businesses. We closely monitor all risk control
indicators when conducting our proprietary trading and margin financing and securities lending
businesses. During the Track Record Period, we did not have any non-compliance with such
risk control indicators nor have we received any warning or penalty from the CSRC.
For further details, please see “Financial Information – Capital Adequacy and Risk
Control Indicator” beginning on page 361 of this prospectus.
REGULATORY NON-COMPLIANCES
We are subject to a number of regulatory requirements and guidelines issued by the
regulatory authorities in the PRC, Hong Kong and Macau (including but not limited to the
CSRC, the Shanghai Stock Exchange, the Hong Kong Stock Exchange, the SFC and their
respective local branches and offices (if applicable)). We or our employees have, from time to
time, been involved in incidents of regulatory non-compliance and received related notices or
warnings from the relevant regulatory authorities.
Our Directors and our PRC legal advisors confirm that the regulatory non-compliance
incidents disclosed in this prospectus are not significant to our business operations and did not
have any material adverse effect on our business, financial condition and results of operations.
Our Directors also confirm that none of our existing Directors nor members of our senior
management were involved in any regulatory non-compliance incidents.
For details of the regulatory non-compliance incidents committed by us and our
employees during the Track Record Period and up to the Latest Practicable Date, and the
primary remedial measures we adopted, please see “Business – Legal and Regulatory –
Regulatory non-compliances” beginning on page 253 of this prospectus.
OFFERING STATISTICS
All statistics in this table are based on the assumptions that the Over-allotment Option is
not exercised.
Based on an Offer Based on an Offer
Price of HK$10.48 Price of HK$11.18
Market capitalization of the H Shares (1) . . . . . . . . . . HK$14,172.5 million HK$15,119.2 million
Historical price/earnings multiple
(a) pro forma basis (2) . . . . . . . . . . . . . . . . . . . . 25.9 times 27.7 times
(b) weighted average basis (3) . . . . . . . . . . . . . . . 24.8 times 26.5 times
Unaudited pro forma adjusted net tangible asset value
per Share (4). . . . . . . . . . . . . . . . . . . . . . . . . . . HK$7.06 HK$7.15
(1) The calculation of market capitalization is based on 1,352,340,000 H Shares (including 1,229,400,000 H
Shares to be issued in the Global Offering and 122,940,000 H Shares to be converted from A Shares and
transferred to the NSSF) that are expected to be outstanding immediately following the completion of the
Global Offering.
– 10 –
SUMMARY
(2) The calculation of historical price/earnings multiple is based on the earnings per Share for the year ending
December 31, 2011, on a pro forma basis at the respective Offer Prices of HK$10.48 and HK$11.18 per H
Share, assuming a weighted average of 9,457,221,180 Shares issued and outstanding during the year ending
December 31, 2012. The weighted average of 9,457,221,180 Shares is calculated based on the 8,227,821,180
Shares issued and outstanding as of December 31, 2011 and the 1,229,400,000 H Shares to be issued pursuant
to the Global Offering on the assumption that the Global Offering had been completed on December 31, 2011.
(3) The calculation of historical price/earnings multiple is based on the earnings per Share for the year ending
December 31, 2011, on a weighted average basis at the respective Offer Prices of HK$10.48 and HK$11.18
per H Share, assuming a weighted average of 9,064,216,262 Shares issued and outstanding during the year
ending December 31, 2012. The weighted average of 9,064,216,262 Shares is calculated based on the
8,227,821,180 Shares issued and outstanding as of December 31, 2011, and the 1,229,400,000 H Shares to be
issued pursuant to the Global Offering on the assumption that the Global Offering is completed on April 27,
2012.
(4) The unaudited pro forma adjusted net tangible asset value per Share is calculated after making the adjustments
referred to in Appendix II to this prospectus and based on the 9,457,221,180 Shares expected to be in issue
immediately following the completion of the Global Offering. In particular, our unaudited pro forma adjusted
consolidated net tangible assets has not taken into account the dividend of RMB0.15 per share to our existing
Shareholders as at December 31, 2011, equivalent to approximately RMB1,234.2 million, proposed by our
directors on March 14, 2012. Had the effect been given to the distribution of dividend, our unaudited pro forma
adjusted consolidated net tangible assets attributable to the owners of the Company per share would have been
HK$6.90 or RMB5.60 based on the offer price of HK$10.48 per share and HK$6.99 or RMB5.67 based on the
offer price of HK$11.18 per share.
DIVIDEND POLICY
After the Global Offering, we may distribute dividends in the form of cash or by other
means that we consider appropriate. Our Articles of Association stipulates that we shall
distribute not less than 30% of our average annual distributable profits as cash dividends in any
three consecutive fiscal years.
In 2009 and 2010, we declared cash dividends of RMB1,645.6 million and RMB1,234.2
million, respectively, representing a dividend of RMB0.20 and RMB0.15 per share,
respectively. With respect to cash dividends for 2011, our Board has proposed, pending
Shareholders’ approval at the forthcoming annual general meeting, that a cash dividend of
RMB0.15 per share, or a total of RMB1,234.2 million based on the number of our A Shares in
issue as of December 31, 2011, be distributed to holders of our A Shares, but not to the holders
of our H Shares. Any unpaid 2011 distributable profits shall be accrued as part of our
distributable profits to be considered for the next distribution to our Shareholders. For further
details, please see “Financial Information – Dividend Policy” beginning on page 369 of this
prospectus.
IMPACT FROM CURRENT MARKET CONDITIONS
Our financial performance is dependent on a number of factors, including the general
economic and market conditions associated with PRC and overseas securities markets, such as
market volatility and fluctuations in the trading volume of securities. These factors impact
several of our businesses, including our securities and futures brokerage business, which
heavily depends on trading volume, and our proprietary trading business, which involves
investing and trading positions that are mark-to-market. For example, during the second half
of 2011, due to the tightening monetary policy and high inflation in the PRC, global economic
– 11 –
SUMMARY
uncertainties and the euro zone sovereign debt crisis, the CSI 300 Index decreased from
3,044.1 as of June 30, 2011 to 2,345.7 as of December 31, 2011, and average daily stocks
trading volume in the PRC declined from RMB182.6 billion for the second quarter of 2011 to
RMB156.1 billion for the third quarter of 2011, and further to RMB122.0 billion for the fourth
quarter of 2011. As a result, (i) our stocks and funds brokerage trading volume declined by
21.8% in 2011 compared to 2010, which, in turn, reduced our brokerage commission and fee
income; (ii) we recorded a lower investment gain in our proprietary trading business during the
second half of 2011 compared with the first half of 2011; and (iii) we recognized an impairment
loss of RMB540.4 million on our available-for-sale investments in 2011.
As the general economic and market conditions improved during the first quarter of 2012,
the CSI 300 Index reached 2,454.9 as of March 31, 2012 and the average daily stocks trading
volume in the PRC reached RMB153.3 billion for the first quarter of 2012. Although the
recovery of the market conditions in the first quarter of 2012 had a positive impact on the
financial performance of our securities brokerage and proprietary trading businesses as
compared to the last quarter of 2011, market conditions have led to a substantial decline in the
financial performance of our securities brokerage and proprietary trading businesses for the
first quarter of 2012 as compared to the first quarter of 2011 where the CSI 300 Index was
3,223.3 as of March 31, 2011 and average daily stocks trading volume in the PRC was
RMB233.7 billion for the first quarter of 2011. We cannot assure you that the market conditions
will continue to improve for the remainder of 2012 or beyond.
The Directors confirm that, up to the date of this prospectus, there has been no material
adverse change in our financial or trading position since December 31, 2011, being the date of
our latest audited consolidated financial results.
SUMMARY RISK FACTORS
Our business is subject to numerous risks described in the section entitled “Risk Factors”
beginning on page 34 of this prospectus. As different investors may have different
interpretations and standards for determining materiality of a risk, you are cautioned
that you should read the whole section entitled “Risk Factors” of this prospectus carefully
before you decide to invest in the Offer Shares. Some of the major risks we face include:
General economic and market conditions could materially and adversely affect our
business;
We face intense competition and our business could be materially and adversely
affected if we are unable to compete effectively;
Our securities and futures brokerage business is subject to various risks and we
cannot assure you that our brokerage commission and fee income can be sustained;
Our investment banking business is subject to various risks in the underwriting and
sponsorship of securities and we cannot assure you that our underwriting and
sponsors fees can be sustained;
A significant decline in the size of our AUM or poor management performance may
materially and adversely affect our asset management business;
– 12 –
SUMMARY
Our proprietary trading business is subject to market volatility and our investment
decisions;
Our direct investment business is subject to our investment decisions and market
volatility;
Any significant disruption in the operations of Haitong International Securities in
Hong Kong or our other overseas operations could have a material adverse effect on
our overseas business; and
We are subject to extensive regulatory requirements, the non-compliance with which
could cause us to incur penalties.
– 13 –
DEFINITIONS
In this prospectus, unless the context otherwise requires, the following terms and
expressions have the meanings set forth below.
“21st Century Business Herald” the 21st Century Business Herald (21N } } X1\ )
“A Share(s)” domestic shares of our Company, with a nominal value of
RMB1.00 each, which are subscribed for or credited as
paid up in Renminbi and are listed for trading on the
Shanghai Stock Exchange
“Application Form(s)” WHITE Application Form(s), YELLOW Application
Form(s) and GREEN Application Form(s), or where the
context so requires, any of them, relating to the Hong
Kong Public Offering
“Articles of Association” the articles of association of our Company, as amended,
or “Articles” which shall become effective on the Listing Date, a
summary of which is set out in Appendix V to this
prospectus
“associate(s)” has the meaning ascribed to it under the Listing Rules
“BNP BE Group” BNPP IP BE Holding and its associates
“BNPP IP BE Holding” BNP Paribas Investment Partners BE Holding SA, a
Connected Person of our Company
“Board” or “Board of Directors” the board of Directors of the Company
“Bohai Rim” the region comprising Beijing, Tianjin, and Hebei,
Liaoning and Shandong provinces
“Business Day” a day on which banks in Hong Kong are generally open
for normal business to the public and which is not a
Saturday, Sunday or public holiday in Hong Kong
“CCASS” the Central Clearing and Settlement System established
and operated by HKSCC
“CCASS Clearing Participant” a person admitted to participate in CCASS as a direct
clearing participant or general clearing participant
– 14 –
DEFINITIONS
“CCASS Custodian Participant” a person admitted to participate in CCASS as a custodian
participant
“CCASS Investor Participant” a person admitted to participate in CCASS as an investor
participant who may be an individual or joint individuals
or a corporation
“CCASS Participant” a CCASS Clearing Participant, a CCASS Custodian
Participant or a CCASS Investor Participant
“central and western region” the region comprising the following provinces, namely
Gansu, Shaanxi, Shanxi, Jiangxi, Anhui, Hubei, Yunnan,
Henan, Guizhou, Sichuan, Hunan, Chongqing, Guangxi
and Xinjiang
“China” or “PRC” the People’s Republic of China excluding, for the purpose
of this prospectus, Hong Kong, Macau and Taiwan
“China Financial Futures the China Financial Futures Exchange (N-W ‘ ¤
Exchange” f b@ )
“China Futures Association” the China Futures Association (N-W g mSTg )
“China-Belgium Fund” China-Belgium Direct Equity Investment Fund (N-W
kR)fBvck bWú‘ ) for which Haitong-Fortis PE
Management acts as the manager
“Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws of
Hong Kong) as amended, supplemented or otherwise
modified from time to time
“Company,” “our Company” Haitong Securities Co., Ltd. (mw R8Ng – QlS ), a
or “Haitong Securities” company incorporated as an enterprise owned by the
whole people on August 30, 1988 and converted into a
joint-stock limited company under the laws of the PRC
on January 28, 2002, the A Shares of which are listed on
the Shanghai Stock Exchange in the PRC, the H Shares of
which are being applied for listing on the Main Board of
the Hong Kong Stock Exchange
“Company Law” the Company Law of the People’s Republic of China (N-
N”l QqTW QlSl )
“Connected Person(s)” has the meaning ascribed to it under the Listing Rules
– 15 –
DEFINITIONS
“CSDCC” China Securities Depositary and Clearing Corporation
Limited (N-W 8v{ } { – QlS )
“CSRC” the China Securities Regulatory Commission (N-W 8
vwc{t YTág )
“Director(s)” director(s) of our Company
“EIT” enterprise income tax of the PRC
“EIT Law” Enterprise Income Tax Law of the PRC (N-N”l QqTW
O imb@z l )
“Exchange Participant” a person: (a) who, in accordance with the Rules of the
Exchange, may trade on or through the Hong Kong Stock
Exchange; and (b) whose name is entered in a list,
register or roll kept by the Hong Kong Stock Exchange as
a person who may trade on or through the Hong Kong
Stock Exchange
“Fullgoal Fund Management” Fullgoal Fund Management Co., Ltd. ([W Wú‘t g –
QlS ), a limited liability company incorporated in the
PRC, in which we owned an equity interest of 27.775% as
of the Latest Practicable Date
“GDP” gross domestic product
“GEM” the Growth Enterprise Market of the Hong Kong Stock
Exchange
“Global Offering” the Hong Kong Public Offering and the International
Offering
“Green Application Form(s)” the application form(s) to be completed by the White
Form eIPO Service Provider, Computershare Hong
Kong Investor Services Limited
“Group,” “our Group,” our Company and our subsidiaries (or our Company and
“we” or “us” any one or more of our subsidiaries, as the context may
require)
“H Share Registrar” Computershare Hong Kong Investor Services Limited
– 16 –
DEFINITIONS
“H Share(s)” ordinary shares in the share capital of our Company with
nominal value of RMB1.00 each, which are to be
subscribed for and traded in HK dollars and are to be
listed on the Hong Kong Stock Exchange
“Haitong Capital Investment” Haitong Capital Investment Co., Ltd. (mw Cbg –
QlS ), a limited liability company incorporated in the
PRC, a wholly-owned subsidiary of our Company
“Haitong Chuangxin Haitong Chuangxin Capital Management Company
Management” Limited (mw Rue°g,{t g – QlS ), a limited liability
company incorporated in the PRC, in which we owned a
51.00% equity interest through our wholly-owned
subsidiary, Haitong Capital Investment as of the Latest
Practicable Date
“Haitong Futures” Haitong Futures Co., Ltd. (mw g – QlS ), a limited
liability company incorporated in the PRC, in which we
owned a 66.67% equity interest as of the Latest
Practicable Date
“Haitong International Holdings” Haitong International Holdings Limited (mw W – §
– QlS ), our wholly-owned subsidiary incorporated in
Hong Kong
“Haitong International Securities” Haitong International Securities Group Limited (mw W
– R8–W g – QlS ), previously known as Taifook
Securities, a company listed on the Hong Kong Stock
Exchange under stock code 00665, in which we owned a
69.74% equity interest through our wholly-owned
subsidiary, Haitong International Holdings as of the
Latest Practicable Date
“Haitong Jihe Management” Haitong Jihe Private Equity Investment Fund
Management Company Limited (mw T yk bWú‘
{ g – QlS ), a limited liability company
incorporated in the PRC, in which we owned a 51.00%
equity interest through our wholly-owned subsidiary,
Haitong Capital Investment as of the Latest Practicable
Date
– 17 –
DEFINITIONS
“Haitong-Fortis PE Management” Haitong-Fortis Private Equity Fund Management Co.,
Ltd. (mw[u\"imbWú‘t g – QlS ), a limited
liability company incorporated in the PRC, in which we
owned a 67.00% equity interest as of the Latest
Practicable Date
“HFT Investment Management” HFT Investment Management Co., Ltd. (mw[ Wú‘t
g – QlS ), a limited liability company incorporated in
the PRC, in which we owned a 51.00% equity interest as
of the Latest Practicable Date
“HK$” or “HK dollars” Hong Kong dollars, the lawful currency of Hong Kong
“HKFRS” Hong Kong Financial Reporting Standards
“HKSCC” Hong Kong Securities Clearing Company Limited
“HKSCC Nominees” HKSCC Nominees Limited, a wholly-owned subsidiary
of HKSCC, which is a wholly-owned subsidiary of Hong
Kong Exchanges and Clearing Limited
“HKSE Corporate Governance Code on Corporate Governance Practices as set out in
Code” Appendix 14 to the Hong Kong Listing Rules
“Hong Kong” or “HK” the Hong Kong Special Administrative Region of the
PRC
“Hong Kong Offer Shares” the H Shares offered by us for subscription pursuant to
the Hong Kong Public Offering
“Hong Kong Public Offering” the offering by our Company of initially 61,470,000 H
Shares for subscription by the public in Hong Kong
(subject to adjustment as described in the section headed
“Structure of the Global Offering” in this prospectus) for
cash at the Offer Price (plus brokerage, SFC transaction
levies and Hong Kong Stock Exchange trading fees), on
and subject to the terms and conditions described in this
prospectus and the Application Forms as further
described in the section headed “Structure of the Global
Offering – The Hong Kong Public Offering” in this
prospectus
– 18 –
DEFINITIONS
“Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited, a wholly-
owned subsidiary of Hong Kong Exchanges and Clearing
Limited
“Hong Kong Underwriters” the underwriters listed in the paragraph headed “Hong
Kong Underwriters” under the section headed
“Underwriting” of this prospectus, being the underwriters
of the Hong Kong Public Offering
“Hong Kong Underwriting the underwriting agreement dated April 16, 2012 relating
Agreement” to the Hong Kong Public Offering and entered into by the
Hong Kong Underwriters and our Company, as further
described in the paragraph headed “Underwriting
arrangements and expenses” under the section headed
“Underwriting” of this prospectus
“IFRS” the International Financial Reporting Standards, which
include standards, amendments and interpretations
promulgated by the International Accounting Standards
Board (IASB) and the International Accounting
Standards (IAS) and interpretation issued by the
International Accounting Standards Committee (IASC)
“independent third party(ies)” party(ies) not connected with our Company and our
connected persons (as defined in the Listing Rules)
“International Offer Shares” the H Shares offered pursuant to the International
Offering
“International Offering” the offer for subscription of initially 1,167,930,000 H
Shares to institutional professional, corporate and other
investors, subject to adjustment and the Over-allotment
Option, as further described in the section headed
“Structure of the Global Offering” in this prospectus
“International Underwriters” the group of international underwriters who are expected
to enter into the International Underwriting Agreement to
underwrite the International Offering
– 19 –
DEFINITIONS
“International Underwriting the underwriting agreement relating to the International
Agreement” Offering to be entered into on or about April 20, 2012 by
the International Underwriters and our Company, as
further described in the paragraph headed “International
Offering” under the section headed “Underwriting” in
this prospectus
“Joint Bookrunners” in respect of the Hong Kong Public Offering, Haitong
International Securities Company Limited, J.P. Morgan
Securities (Asia Pacific) Limited, Credit Suisse (Hong
Kong) Limited, Deutsche Bank AG, Hong Kong Branch,
Citigroup Global Markets Asia Limited, UBS AG, Hong
Kong Branch, The Hongkong and Shanghai Banking
Corporation Limited, Nomura International (Hong Kong)
Limited, Standard Chartered Securities (Hong Kong)
Limited and BOCOM International Securities Limited
and, in respect of the International Offering, Haitong
International Securities Company Limited, J.P. Morgan
Securities Ltd., Credit Suisse (Hong Kong) Limited,
Deutsche Bank AG, Hong Kong Branch, Citigroup
Global Markets Limited, UBS AG, Hong Kong Branch,
The Hongkong and Shanghai Banking Corporation
Limited, Nomura International (Hong Kong) Limited,
Standard Chartered Securities (Hong Kong) Limited and
BOCOM International Securities Limited
“Joint Global Coordinators” Haitong International Securities Company Limited, J.P.
Morgan Securities (Asia Pacific) Limited, Credit Suisse
(Hong Kong) Limited, Deutsche Bank AG, Hong Kong
Branch, Citigroup Global Markets Asia Limited and UBS
AG, Hong Kong Branch
– 20 –
DEFINITIONS
“Joint Lead Managers” in respect of the Hong Kong Public Offering, Haitong
International Securities Company Limited, J.P. Morgan
Securities (Asia Pacific) Limited, Credit Suisse (Hong
Kong) Limited, Deutsche Bank AG, Hong Kong Branch,
Citigroup Global Markets Asia Limited, UBS AG, Hong
Kong Branch, The Hongkong and Shanghai Banking
Corporation Limited, Nomura International (Hong Kong)
Limited, Standard Chartered Securities (Hong Kong)
Limited, BOCOM International Securities Limited, BNP
Paribas Capital (Asia Pacific) Limited, BOCI Asia
Limited, CCB International Capital Limited, China
Everbright Securities (HK) Limited and Samsung
Securities (Asia) Limited and, in respect of the
International Offering, Haitong International Securities
Company Limited, J.P. Morgan Securities Ltd., Credit
Suisse (Hong Kong) Limited, Deutsche Bank AG, Hong
Kong Branch, Citigroup Global Markets Limited, UBS
AG, Hong Kong Branch, The Hongkong and Shanghai
Banking Corporation Limited, Nomura International
(Hong Kong) Limited, Standard Chartered Securities
(Hong Kong) Limited, BOCOM International Securities
Limited, BNP Paribas Capital (Asia Pacific) Limited,
BOCI Asia Limited, CCB International Capital Limited,
China Everbright Securities (HK) Limited and Samsung
Securities (Asia) Limited
“Joint Sponsors” Haitong International Capital Limited and J.P. Morgan
Securities (Asia Pacific) Limited
“Latest Practicable Date” April 9, 2012, being the latest practicable date for the
purpose of ascertaining certain information contained in
this prospectus prior to its publication
“Listing” listing of the H Shares on the Main Board of the Hong
Kong Stock Exchange
“Listing Date” the date, expected to be on or about Friday, April 27,
2012, on which our H Shares are listed and from which
dealings therein are permitted to take place on the Hong
Kong Stock Exchange
“Listing Rules” or “Hong Kong the Rules Governing the Listing of Securities on the
Listing Rules” Hong Kong Stock Exchange (as amended from time to
time)
– 21 –
DEFINITIONS
“Macau” the Macau Special Administrative Region of the PRC
“Main Board” the stock exchange (excluding the option market)
operated by the Hong Kong Stock Exchange which is
independent from and operated in parallel with GEM
“Mandatory Provisions” the “Mandatory Provisions for Articles of Association of
Companies to be Listed Overseas” (R0XY N ^ QlSzàz
_ Phk ), as amended, supplemented or otherwise
modified from time to time, for inclusion in the articles of
association of companies incorporated in the PRC to be
listed overseas (including Hong Kong), which were
promulgated by the former Securities Commission of the
State Council and the former State Commission for
Restructuring the Economic Systems on September 29,
“Ministry of Finance” the Ministry of Finance of the PRC (N-N”l QqTW ?
)
“Moneyweek” Moneyweek magazine (t X )
“NBSC” National Bureau of Statistics of China (N-W W [ \ )
“NDRC” National Development and Reform Commission of the
PRC (N-N”l QqTW W [ | Te9—iYTág )
“New Fortune” the New Fortune magazine (e° )
“northeastern region” the region comprising Heilongjiang and Jilin provinces
“NSSF” the National Council for Social Security Fund of the PRC
(N-N”l QqTW QhW y>g O–Wú‘t Ng )
“OECD” Organization for Economic Co-operation and
Development
“Offer Price” the final offer price per H Share (exclusive of brokerage
fee of 1%, SFC transaction levy of 0.003% and Hong
Kong Stock Exchange trading fee of 0.005%) at which
the Offer Shares are to be subscribed for and issued, or
purchased and sold pursuant to the Global Offering as
described in the section headed “Structure of the Global
Offering – Pricing and Allocation” of this prospectus
– 22 –
DEFINITIONS
“Offer Shares” the Hong Kong Offer Shares and the International Offer
Shares, with any additional H Shares to be issued
pursuant to the exercise of the Over-allotment Option
“Over-allotment Option” the option granted by us to the International
Underwriters, exercisable by the Joint Global
Coordinators (on behalf of the International
Underwriters) pursuant to the International Underwriting
Agreement, to require our Company to issue up to an
aggregate of 184,410,000 additional H Shares at the Offer
Price, representing 15% of the offer shares initially
available under the Global Offering, to cover, among
others, over-allocations in the International Offering, if
any, exercisable at any time from the date of the
International Underwriting Agreement up to (and
including) the date which is the 30th day from the last
day for lodging of applications under the Hong Kong
Public Offering
“PBOC” the People’s Bank of China (N-W N”l ’ ), the central
bank of the PRC
“Pearl River Delta” the region comprising Guangzhou, Shenzhen, Zhuhai,
Foshan, Dongguan, Zhongshan, Huizhou, Jiangmen,
Zhaoqing, Shaoguan and Shantou, all located in
Guangdong province
“PRC GAAP” generally accepted accounting principles in the PRC
“Price Determination Date” the date, expected to be on or around Friday, April 20,
2012 (Hong Kong time) on which the Offer Price is
determined, or such later time as our Company and the
Joint Global Coordinators (on behalf of the Underwriters)
may agree, but in any event not later than Tuesday, April
24, 2012
“prospectus” this prospectus being issued in connection with the Hong
Kong Public Offering
“province” each being a province or, where the context requires, a
provincial level autonomous region or municipality under
the direct supervision of the central government of the
PRC
“QIBs” qualified institutional buyers within the meaning of Rule
144A under the U.S. Securities Act
– 23 –
DEFINITIONS
“Regulation S” Regulation S under the U.S. Securities Act
“Risk Control Indicator Administrative Measures for the Risk Control Indicators
Measures” of Securities Companies in the PRC (IR8QlS“c§R6
cj{ )
“RMB” or “Renminbi” Renminbi, the lawful currency of the PRC
“Rule 144A” Rule 144A under the U.S. Securities Act
“SAC” the Securities Association of China (N-W R8imSTg )
“SAFE” State Administration of Foreign Exchange of the PRC (N-
N”l QqTW W [ S/{t \ )
“SASAC” State-owned Assets Supervision and Administration
Commission of the State Council (W R–bW g u\"vwc
{ YTág )
“SAT” State Administration of Taxation of the PRC (W [ R~
\ )
“Securities and Futures the Securities and Futures Ordinance (Chapter 571 of the
Ordinance” or “SFO” Laws of Hong Kong) as amended, supplemented or
otherwise modified from time to time
“Securities Finance Company” China Securities Finance Co., Ltd. (N-W R8‘Ng
– QlS ), a non-profit joint stock company established
under the direction of the State Council to provide,
among other functions, funding and securities
refinancing services to support the margin financing and
securities lending businesses of PRC securities firms
“Securities Law” the Securities Law of the People’s Republic of China (N-
N”l QqTW R8l )
“Securities Times” Securities Times Newspaper (R8fBX1 )
“SFC” the Securities and Futures Commission of Hong Kong
“Shanghai Listing Rules” the rules governing the listing of securities on the
Shanghai Stock Exchange
– 24 –
DEFINITIONS
“Shanghai Shangshi” SIIC Shanghai (Holding) Co., Ltd. (N mwN [ (–W )g –
QlS ), one of the shareholders of our Company having
2.94% shareholding in our Company as of the Latest
Practicable Date
“Shanghai Stock Exchange” the Shanghai Stock Exchange (N mwIR8N¤f b@ )
“Shareholder(s)” holder(s) of the Share(s)
“Share(s)” collectively, A Share(s) and H Share(s), or where the
context requires, either of them
“Shenzhen Stock Exchange” the Shenzhen Stock Exchange (mW3IR8N¤f b@ )
“SIIC” Shanghai Industrial Investment (Holdings) Co., Ltd. (N
mw[im (–W )g – QlS ), which is the de facto controlling
shareholder of Shanghai Shangshi
“Sino-foreign joint venture (i) securities firm(s) established jointly by foreign
securities firm(s)” shareholders and PRC shareholders through equity
contributions in accordance with applicable PRC law;
and (ii) securities firm(s) formed as a result of foreign
investors being assigned with, or subscribing for, equity
interests in PRC security firm in accordance with
applicable PRC law. In each case, foreign shareholders
shall not in the aggregate hold, directly or indirectly,
more than one-third of the shares or equity interests in
such securities firm
“SMEs” small and medium enterprises
“SOE(s)” state-owned enterprise(s)
“Special Regulations” the Special Regulations of the State Council on the
Overseas Offering and Listing of Shares by Joint Stock
Limited Companies (W R–beNg – QlSXY R–
SN ^ vryR%‰ ), promulgated by the State
Council on August 4, 1994, as amended
“Stabilizing Manager” Haitong International Securities Company Limited
“State Council” State Council of the PRC (N-N”l QqTW W R–b )
– 25 –
DEFINITIONS
“SUABC” Shanghai Urban Agro-Business Co., Ltd. (N mw^ ^
UFy>Ng – QlS ), through the reverse takeover of
which our Company became listed on the Shanghai Stock
Exchange in July 2007 with the stock code of 600837
“subsidiary(ies)” has the meaning ascribed to it in section 2 of the
Companies Ordinance
“Supervisor(s)” member(s) of the Supervisory Committee
“Supervisory Committee” the supervisory committee of our Company
“Taifook Securities” Taifook Securities Group Limited (Y’yIR8–W g – Ql
S ), renamed as Haitong International Securities Group
Limited in November 2010
“Takeovers Code” the Codes on Takeovers and Mergers and Share
Repurchases issued by the SFC, as amended,
supplemented or otherwise modified from time to time
“Track Record Period” the three years ended December 31, 2009, 2010 and 2011
“Twelfth Five-Year Plan” The Twelfth Five-Year Plan Guidelines for National
Economic and Social Development of the PRC (0 N-N”
l QqTW W l } Tyg v|U,SANP N”tR–0 )
“Underwriters” the Hong Kong Underwriters and the International
Underwriters
“Underwriting Agreements” the Hong Kong Underwriting Agreement and the
International Underwriting Agreement
“U.S.” or “United States” the United States of America, its territories, its
possessions and all areas subject to its jurisdiction
“U.S. Securities Act” the United States Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder
“US$” or “U.S. dollars” United States dollars, the lawful currency of the United
or “USD” States
– 26 –
DEFINITIONS
“WFE” World Federation of Exchanges, a trade association of
over 50 publicly regulated stock, futures and options
exchanges, which not only provides references for the
securities industry and member exchanges, but also
dedicates in promoting regulated exchanges and
providing guidance on business strategies and corporate
governance for member exchanges
“White Form eIPO” the application for Hong Kong Offer Shares to be issued
in the applicant’s own name by submitting applications
online through the designated website of White Form
eIPO www.eipo.com.hk
“White Form eIPO Service Computershare Hong Kong Investor Services Limited
Provider”
“Wind Info” Wind Information Co., Ltd., a company with limited
liability incorporated in the PRC in 1994 and an
integrated service provider of financial data, information
and software
“Yangtze River Delta” the region comprising Shanghai, Jiangsu and Zhejiang
provinces
In this prospectus, the terms “associate,” “connected person,” “connected transaction,”
“controlling shareholder,” “subsidiary” and “substantial shareholder” shall have the
meanings given to such terms in the Listing Rules, unless the context otherwise requires.
For ease of reference, the names of the PRC established companies or entities, laws or
regulations have been included in the prospectus in both the Chinese and English languages
and in the event of any inconsistency, the Chinese versions shall prevail. The provision of
English translation of company names in Chinese language which are marked with “*” is for
identification purposes only.
– 27 –
GLOSSARY OF TECHNICAL TERMS
This glossary of technical terms contains explanations of certain technical terms
used in this prospectus in connection with our Group and our business. These terms
and their meanings may not correspond to standard industry meanings or usage of
these terms.
“A shares” the shares that are traded on the Shanghai Stock
Exchange or the Shenzhen Stock Exchange in Renminbi
“active customer(s)” our customer(s) who conducted at least one trade with us
in the last 36 months
“AUM” assets under management
“average securities brokerage equals the commission income from our trading of stocks
commission rate” and funds on behalf of clients as divided by our
brokerage trading volume for stocks and funds
“B shares” shares denominated in Renminbi, subscribed for and
traded in foreign currency on the Shanghai Stock
Exchange or the Shenzhen Stock Exchange
“CAGR” compound annual growth rate
“ChiNext Board” the growth enterprise board launched by the Shenzhen
Stock Exchange
“collective asset management a type of mutual fund managed by PRC securities firms in
scheme(s)” the PRC for retail customers
“CSI 300 Index” a capitalization-weighted stock market index designed to
replicate the performance of 300 stocks traded on the
Shanghai Stock Exchange and the Shenzhen Stock
Exchange, which is compiled by the China Securities
Index Company, Ltd. (N-Ic exg – QlS )
“dim sum bonds” RMB-denominated bonds issued in Hong Kong
“enterprise annuity” the supplementary pension insurance scheme established
voluntarily by enterprises and their employees in addition
to the basic pension insurance in which they participate
in accordance with the law
– 28 –
GLOSSARY OF TECHNICAL TERMS
“first-tier cities” the metropolises which play a significant role in national
politics, economics and other social activities, including
Beijing, Shanghai, Guangzhou and Shenzhen
“FOF” Fund of Funds
“futures IB business” the business activities in which securities firms, as
commissioned by futures companies, introduce customers
to futures companies to provide futures brokerage and
other related services
“high net worth customer(s)” our individual customer(s) whose account(s) with us have
a minimum balance of RMB10.0 million in investment
assets
“high net worth individual(s)” individual(s) having total investable assets of at least
RMB10.0 million
“International Board” a board to be established on the Shanghai Stock
Exchange where foreign companies can list their shares
“IPO” initial public offering
“M&A” mergers and acquisitions
“margin and securities a business in which securities firms can act as
refinancing” intermediaries to borrow funds or securities from the
Securities Finance Company and other financial
institutions, including banks, fund management
companies and insurance companies and lend such funds
and securities to their customers
“Net Capital” equals net assets minus risk-adjusted financial assets
minus other risk-adjusted assets and contingent liability
plus/minus other adjustments recognized or approved by
the CSRC
“New OTC Board” an OTC board to be established for high-growth
enterprises in the PRC
“OTC” over-the-counter
– 29 –
GLOSSARY OF TECHNICAL TERMS
“OTCBB” OTC Bulletin Board, which is an inter-dealer electronic
quotation system in the U.S. that displays real-time
quotes, last-sale prices and volume information for many
OTC equity securities that are not listed on a national
securities exchange in the U.S.
“Pink Sheets” formally known as the OTC Markets Group, Inc., which
is a private company that provides services to the U.S.
OTC securities market, including electronic quotations,
trading, messaging and information platforms
“QDII” Qualified Domestic Institutional Investor (T h
“QFII” Qualified Foreign Institutional Investor (T h
“RQFII” Renminbi Qualified Foreign Institutional Investor (N”l
^ T h
companies and fund houses to facilitate investments of
offshore Renminbi into domestic securities market
“second and third-tier cities” cities and municipalities in fast growing provinces in the
PRC that are not first-tier cities
“Shibor” Shanghai Interbank Offered Rate
“SIFMA” Securities Industry and Financial Markets Association in
the U.S.
“SME Board” the Small and Medium Enterprises Board of the Shenzhen
Stock Exchange
“sponsor representative” professional representative qualified in the PRC to
sponsor and execute the offerings and listings of
securities pursuant to the Measures for the
Administration of the Sponsorship of the Offering and
Listing of Securities of the PRC
“SSE 50 Index” an index of 50 representative stocks that are traded on the
Shanghai Stock Exchange
– 30 –
GLOSSARY OF TECHNICAL TERMS
“SSE Corporate Governance an index comprising all the stocks from the SSE
Index” Corporate Governance Board, which is intended to
encourage other listed companies on the Shanghai Stock
Exchange to strengthen their corporate governance and
internal controls
“stock index futures” cash-settled standardized futures contracts on the value
of a particular stock market index
“SZSE Component Index” an index of 40 representative stocks that are traded on the
Shenzhen Stock Exchange
“targeted asset management a type of special vehicle managed by PRC securities
scheme(s)” firms for annuity plans, other institutional investors and
individual investors with large amount of investment
assets
– 31 –
FORWARD LOOKING STATEMENTS
This prospectus includes forward-looking statements. All statements other than
statements of historical facts contained in this prospectus, including, without limitation, those
regarding our future financial position, our strategies, plans, objectives, goals, targets and
future developments in the markets where we participate or are seeking to participate, and any
statements preceded by, followed by or that include the words “believe,” “expect,” “estimate,”
“predict,” “aim,” “intend,” “will,” “may,” “plan,” “consider,” “anticipate,” “seek,” “should,”
“could,” “would,” “continue,” or similar expressions or the negative thereof, are forward-
looking statements. These forward-looking statements involve known and unknown risks,
uncertainties and other factors, some of which are beyond our control, which may cause our
actual results, performance or achievements, or industry results, to be materially different from
any future results, performance or achievements expressed or implied by the forward-looking
statements. These forward-looking statements are based on numerous assumptions regarding
our present and future business strategies and the environment in which we will operate in the
future. Important factors that could cause our actual performance or achievements to differ
materially from those in the forward-looking statements include, among other things, the
following:
our ability to successfully implement our business plans and strategies;
future developments, trends and conditions in the industry and markets in which we
operate;
our business prospects;
our capital expenditure plans;
the actions and developments of our competitors;
our financial condition and performance;
capital market developments;
our dividend policy;
any changes in the laws, rules and regulations of the central and local governments
in the PRC and other relevant jurisdictions and the rules, regulations and policies of
the relevant governmental authorities relating to all aspects of our business;
general political and economic conditions, including those related to the PRC;
changes or volatility in interest rates, foreign exchange rates, equity prices or other
rates or prices, including those pertaining to the PRC and the industry and markets
in which we operate;
various business opportunities that we may pursue; and
– 32 –
FORWARD LOOKING STATEMENTS
macroeconomic measures taken by the PRC government to manage economic
growth.
Additional factors that could cause actual performance or achievements to differ
materially include, but are not limited to, those discussed under the section headed “Risk
Factors” and elsewhere in this prospectus. We caution you not to place undue reliance on these
forward-looking statements, which reflect our management’s view only as of the date of this
prospectus. We undertake no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this prospectus might
not occur. All forward-looking statements contained in this prospectus are qualified by
reference to the cautionary statements set out in this section.
– 33 –
RISK FACTORS
You should carefully consider all of the information in this prospectus, including
the risks and uncertainties described below, before making an investment in our H
Shares. These risks could materially and adversely affect our business, financial
condition and results of operations. The trading price of our H Shares could
significantly decrease due to any of these risks, and you may lose all or part of your
investment. You should pay particular attention to the fact that we are a company
incorporated in the PRC and most of our operations are conducted in the PRC which
is governed by a legal and regulatory environment that may differ significantly from
that of other countries. For more information concerning the PRC and certain related
matters discussed below, please see “Regulatory Environment,” “Appendix IV –
Summary of Principal PRC and Hong Kong Legal and Regulatory Provisions” and
“Appendix V – Summary of the Articles of Association.”
RISKS RELATING TO OUR BUSINESS AND INDUSTRY
General economic and market conditions could materially and adversely affect our business.
Substantially all of our revenue is derived from the securities markets. Like other
businesses operating in the same industry, our business is directly affected by the inherent risks
associated with the securities markets, such as market volatility, fluctuations in the trading
volume and the credit capacity or perceived credit worthiness of the securities industry in the
marketplace. Our business is also subject to general economic and political conditions, such as
macroeconomic and monetary policies, legislation and regulations affecting the financial and
securities industries, upward and downward trends in the business and financial sectors,
inflation, currency fluctuations, availability of short-term and long-term market funding
sources, cost of funding and the level and volatility of interest rates. For example, due largely
to the global financial crisis in 2008, securities markets in the PRC and overseas (including
Hong Kong) experienced substantial losses and the overall business environment was
extremely adverse, which had a material adverse effect on our principal business lines in 2008.
In 2010 and 2011, the PRC securities industry and our financial condition and results of
operations were adversely affected by the tightening of monetary policies and high inflation in
the PRC and the volatility in the PRC A share markets, as well as the financial instability in
the U.S. and euro zone economies. During the second half of 2011, the tightening monetary
policies and high inflation in the PRC, global economic uncertainties and the euro zone
sovereign debt crisis have resulted in adverse market conditions and increased volatility in the
PRC and overseas securities markets. For example, the CSI 300 Index and the Hang Seng Index
decreased from 3,044.1 and 22,398.1 as of June 30, 2011, respectively, to 2,345.7 and 18,434.4
as of December 31, 2011, respectively, representing a decline of approximately 22.9% and
17.7%, respectively. As a result, (i) our stocks and funds brokerage trading volume declined by
21.8% in 2011 compared to 2010, which, in turn, has reduced our brokerage commission and
fee income; (ii) we recorded a net investment gain of RMB342.1 million in our proprietary
trading business in the PRC during the second half of 2011 compared to a net investment gain
of RMB802.7 million during the first half of 2011; and (iii) we recognized an impairment loss
of RMB540.4 million on our available-for-sale investments in 2011. In addition, while the CSI
300 Index and the average daily stocks trading volume in the PRC recovered during the first
quarter of 2012 compared to the fourth quarter of 2011, which had a positive impact on our
securities and futures brokerage and proprietary trading businesses, they still represented
– 34 –
RISK FACTORS
substantial declines from the CSI 300 Index of 3,223.3 as of March 31, 2011 and the average
daily stocks trading volume in the PRC of RMB233.7 billion for the first quarter of 2011. We
cannot assure you that the market conditions will continue to improve for the remainder of
2012 or beyond.
Turmoil in the financial markets, a downturn in general economic conditions or other
risks associated with our business and the securities industry in general could reduce securities
trading and corporate finance activities and affect the value of certain financial assets, which
may consequently have a material adverse effect on our commission and fees from brokerage,
investment banking and asset management businesses, as well as our returns on financial assets
and investments. A reduction in our income or a loss resulting from our underwriting,
investments or trading activities could have a material adverse effect on our business, results
of operations and financial condition. As a result of these risks, our income and operating
results may be subject to significant fluctuations.
We face intense competition and our business could be materially and adversely affected if
we are unable to compete effectively.
The PRC securities industry is highly competitive and we face intense competition in
most of our business lines:
For our securities brokerage business, we compete primarily with other PRC
securities firms in terms of pricing and the range of products and services offered.
Currently, there are more than 100 registered securities firms in the PRC and intense
price competition in recent years has lowered commission rates for our securities
brokerage business. For the years ended December 31, 2009, 2010 and 2011, our
average securities brokerage commission rate was 0.147%, 0.118% and 0.100%,
respectively, which adversely affected our brokerage commission and fee income.
Please see “– Our securities and futures brokerage business is subject to various
risks and we cannot assure you that our brokerage commission and fee income can
be sustained.”
For our investment banking business, we compete primarily with other PRC and
Sino-foreign joint venture securities firms as well as PRC commercial banks in
terms of brand recognition, marketing and distribution capability, service quality,
financial strength and pricing. Intense competition may result in lower underwriting
and advisory fees for our investment banking business. Please see “– Our investment
banking business is subject to various risks in the underwriting and sponsorship of
securities and we cannot assure you that our underwriting and sponsors fees can be
sustained.”
For our asset management business, we compete primarily with fund management
companies, banks, insurance companies and other financial institutions in the PRC
in terms of the range of products and services offered, pricing and quality of
customer service.
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RISK FACTORS
For our direct investment business, we compete primarily with other PRC securities
firms that are qualified to conduct direct investment business and private equity
firms in the PRC.
Some of our competitors may have certain competitive advantages over us, including
greater financial resources, stronger brand recognition, broader product and service offerings,
more advanced IT systems and a branch network with wider geographic coverage. They may
also have more experience with a broader range of services and more complex financial
products than we do.
In addition, with regulatory changes and other factors that contribute to the gradual
relaxation of the PRC securities regulations, more competitors are seeking to enter or expand
in our industry. We believe that the PRC securities industry is becoming increasingly
competitive. Our failure to remain competitive will have a material and adverse effect on our
business, financial condition, results of operations and prospects.
Our securities and futures brokerage business is subject to various risks and we cannot
assure you that our brokerage commission and fee income can be sustained.
Brokerage commission and fee income represent a significant portion of our revenue. For
the years ended December 31, 2009, 2010 and 2011, segment revenue and other income from
our securities and futures brokerage business in the PRC amounted to RMB7,284.0 million,
RMB5,774.8 million and RMB4,163.1 million, respectively, representing 64.4%, 51.1% and
38.3% of our total revenue and other income, respectively.
Our securities and futures brokerage business is affected by external factors such as
general economic conditions, macroeconomic and monetary policies, market conditions and
fluctuations in interest rates, all of which are beyond our control. For example, the CSI 300
Index decreased by 26.5% in 2011 as a result of increased inflation, tightened monetary
policies and rising concerns over the PRC domestic economy. Such unfavorable market
conditions caused our stocks and funds brokerage trading volume decline by 21.8% in 2011
compared to 2010, which, in turn, has reduced our brokerage commission and fee income.
While the CSI 300 Index and the average daily stocks trading volume in the PRC recovered
during the first quarter of 2012 compared to the fourth quarter of 2011, which had a positive
impact on our securities and futures brokerage business, they still represented substantial
declines from the CSI 300 Index of 3,223.3 as of March 31, 2011 and the average daily stocks
trading volume in the PRC of RMB233.7 billion for the first quarter of 2011.
In addition, market competition is another key factor affecting our securities and futures
brokerage business. We monitor our product pricing in relation to competitors and adjust
commission rates and other fee structures to enhance our competitiveness. For the years ended
December 31, 2009, 2010 and 2011, our average securities brokerage commission rate was
0.147%, 0.118% and 0.100%, respectively. Our commission and fee income on securities
brokerage decreased by 18.2% in 2010 compared to 2009 mainly due to a decline in our
average securities brokerage commission rate in 2010. In addition, our commission and fee
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RISK FACTORS
income on securities brokerage further decreased by 33.8% in 2011 compared to 2010 due
primarily to a decrease in our stocks and funds brokerage trading volume and a further decline
in our average securities brokerage commission rate in 2011.
With the gradual relaxation of the PRC securities regulations, we believe that the PRC
securities industry will become increasingly competitive. If the PRC regulatory authorities
further relax the restrictions on the opening of brokerage branches, competition may increase
and we cannot assure you that we would not further lower our brokerage commission rates in
order to stay competitive. As a result, we cannot assure you that our brokerage commission and
fee income can be sustained at current levels.
Our investment banking business is subject to various risks in the underwriting and
sponsorship of securities and we cannot assure you that our underwriting and sponsors fees
can be sustained.
For the years ended December 31, 2009, 2010 and 2011, segment revenue and other
income from our investment banking business in the PRC amounted to RMB496.8 million,
RMB1,091.7 million and RMB1,068.6 million, respectively, representing 4.4%, 9.7% and 9.8%
of our total revenue and other income, respectively. Although our investment banking business
has had a rapid growth in revenue and profit in recent years, we cannot assure you that such
growth rate will be sustained due to the risks associated with our investment banking business
as discussed below.
Our investment banking business is subject to certain risks that are primarily related to
the underwriting of securities. The primary offering of securities in the PRC, especially an IPO,
is subject to a merit-based review and approval process conducted by various regulatory
authorities. The result and timing of these reviews are beyond our control and may cause
substantial delays to or the termination of securities offerings underwritten and sponsored by
us. We cannot assure you that such approvals will be granted in a timely manner or at all in
the future. A significant decline in the approval rate of the securities offerings we sponsor could
harm our reputation, erode client confidence and reduce our underwriting and sponsors fee
income, because we receive most of our fees only after the successful completion of a
securities offering. In addition, the performance of our investment banking business also
depends on market conditions. Adverse market conditions and capital market volatility may
also cause delays to or the termination of securities offerings underwritten and sponsored by
us.
In addition, substantial capital market volatility may cause the securities underwritten by
us to be undersubscribed. Since we may underwrite securities offerings on a firm commitment
basis, we would then be required to purchase some or all of the unsubscribed portion for our
own account, which would materially and adversely affect our liquidity. After trading begins,
if we sell the securities on our account to investors below the offer price at which we were
committed to purchase, we would incur losses on the sales of those securities.
Intensifying price competition in investment banking business from other PRC or
Sino-foreign joint venture securities firms may force us to charge a lower underwriting fee rate
to stay competitive. This could cause our underwriting and sponsors fees to be reduced, which
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RISK FACTORS
could adversely affect our business, financial condition and results of operations. As a result,
we cannot assure you that our underwriting and sponsors fees can be sustained at current levels.
Furthermore, when acting as a sponsor in the underwriting of securities, we may be
subject to regulatory sanctions, fines, penalties or other disciplinary actions in the PRC for
conducting inadequate due diligence in connection with an offering, fraud or misconduct
committed by issuers, their agents, other sponsors or ourselves, misstatements and omissions
in disclosure documents, or other illegal or improper activities that occur during the course of
the underwriting process.
A significant decline in the size of our AUM or poor management performance may
materially and adversely affect our asset management business.
For the years ended December 31, 2009, 2010 and 2011, segment revenue and other
income from our asset management business in the PRC amounted to RMB878.9 million,
RMB868.5 million and RMB1,092.1 million, respectively, representing 7.8%, 7.7% and 10.1%
of our total revenue and other income, respectively.
We receive asset management fees based on the value of our customer portfolios or
investment in funds managed by us. In addition, we also provide private equity fund
management, collective asset management and targeted asset management schemes in which
we may also earn performance fees. Market volatility, adverse economic conditions or the
failure to outperform our competitors or the market may reduce our AUM or affect the
performance of the assets or funds we manage, which could adversely affect the amount of
management fees or performance fees we receive.
Our proprietary trading business is subject to market volatility and our investment decisions.
For the years ended December 31, 2009, 2010 and 2011, segment revenue and other
income from our proprietary trading business in the PRC amounted to RMB804.8 million,
RMB779.8 million and RMB1,144.8 million, respectively, representing 7.1%, 6.9% and 10.5%
of our total revenue and other income, respectively.
We trade equity and fixed income securities as well as derivative products for our own
account. Our equity and fixed income securities are subject to market volatility and, therefore,
the results of our securities trading activities generally correlate with the performance of the
PRC securities markets. We also engage in derivative transactions involving ETFs and stock
index futures. We use derivative instruments to reduce the impact of price volatility on our
investment portfolio. However, the PRC derivatives market currently does not provide
sufficient means for us to hedge against volatile trading markets, which may make it difficult
for us to reduce our exposure to fluctuations in price volatility on our investment portfolio, and
the derivatives we use may not be as effective as we expect. In addition, derivatives contracts
we enter into expose us to the risks associated with these instruments and their underlying
assets, which could result in substantial losses. The secondary market for derivatives is volatile
and we may be inexperienced in managing new products or trading derivative products. As a
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RISK FACTORS
result of the volatility in the PRC securities market, we recorded a net investment gain of
RMB342.1 million in our proprietary trading business in the PRC during the second half of
2011 compared to a net investment gain of RMB802.7 million during the first half of 2011.
While the CSI 300 Index recovered during the first quarter of 2012 compared to the fourth
quarter of 2011, which had a positive impact on our proprietary trading business, it still
represented a substantial decline from the CSI 300 Index of 3,223.3 as of March 31, 2011.
The performance of our proprietary trading business is determined by our investment
decisions and judgments based on our assessment of existing and future market conditions. We
closely monitor the market value and financial performance of our proprietary trading
portfolio, and actively adjust such portfolio and allocate assets based on market conditions and
internal risk management guidelines. However, our investment decisions are a matter of
judgment, which involves management discretion and assumptions. If our decision-making
process fails to effectively minimize losses while capturing gains, or our forecasts do not
conform to actual changes in market conditions, our proprietary trading business may not
achieve the investment returns we anticipate, and we could even suffer material losses, any of
which would materially and adversely affect our business, financial condition and results of
operations.
In addition, certain classes of our assets, such as our available-for-sale securities, are
marked to market. A decline in the value of our available-for-sale securities can result in the
recognition of impairment losses if management determines that such a decline in value is not
temporary. This evaluation is a matter of judgment, which includes the assessment of several
factors. Please see “Financial Information – Significant Accounting Policies and Estimates.” If
our management determines that an asset is impaired, the book value of the asset is adjusted
and a corresponding loss is recognized in current earnings. A deterioration in the market value
of available-for-sale securities could result in the recognition of impairment loss. For the year
ended December 31, 2011, we recognized an impairment loss of RMB540.4 million on our
available-for-sale investments.
Our direct investment business is subject to our investment decisions and market volatility.
For the years ended December 31, 2009, 2010 and 2011, segment revenue and other
income from our direct investment business in the PRC amounted to RMB52.1 million,
RMB106.0 million and RMB55.0 million, respectively, representing 0.5%, 0.9% and 0.5% of
our total revenue and other income, respectively. Although we had one private equity
investment exit in 2010, we cannot assure you that we will be able to continue to exit from
private equity investments in each year thereafter and the timing for such exits is subject to our
investment decisions and market volatility.
Our direct investment business generally involves direct equity investments in private
companies and investment in private equity funds with our own capital. We earn investment
returns from dividends paid by our portfolio companies and generate capital gains from exits
through an IPO or share sale by our portfolio company. To make a sound investment decision,
we need to carefully identify and select a target business based on its business model and the
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RISK FACTORS
industry in which it operates. In general, this selection process involves a systematic analysis
and forecast of the target’s profitability and sustainability. However, we may make unsound
investment decisions, and our portfolio companies may take longer than expected to mature to
a stage suitable for IPOs. As such, our investment period would be longer than we anticipated
which could reduce our returns on investment. In addition, our ability to exit a private equity
investment is also subject to market conditions in the PRC. Due to volatile equity capital
markets, we may be forced to sell our investments at undesirable prices or defer sales for a
considerable period of time or may not be able to sell at all. If we cannot sell our private equity
investments during the planned disposition period, our investment returns will continue to be
exposed to markets risks. Furthermore, if the target company does not reach the profitability
we anticipated, our ability to exit from, or receive dividends on, such investments could be
severely constrained. As a result, our business, financial condition and results of operations
could be materially and adversely affected.
Any significant disruption in the operations of Haitong International Securities in Hong
Kong or our other overseas operations could have a material adverse effect on our overseas
business.
For the years ended December 31, 2009, 2010 and 2011, segment revenue and other
income from our overseas business amounted to RMB197.2 million, RMB905.0 million and
RMB954.5 million, representing 1.7%, 8.0% and 8.8% of our total revenue and other income,
respectively.
As we generate most of the revenue and other income in our overseas business from our
operations in Hong Kong, our overseas business depends on, to a large extent, the results of
operations of Haitong International Securities and our other subsidiaries incorporated in Hong
Kong. However, we cannot assure you that Haitong International Securities and our other Hong
Kong operations may continue to experience the same level of growth or profitability. A variety
of external factors that could significantly affect our operations in Hong Kong include, but are
not limited to, changes in the general economic and market conditions in Hong Kong and
compliance with various regulatory and legal requirements in Hong Kong. For example, the
Hong Kong economy has experienced significant downturns in the past, including in
connection with the outbreak of SARS in 2003, the global financial crisis in 2008 and the
market volatility in the second half of 2011. These economic downturns resulted in substantial
losses in the securities markets, significant deterioration in customers’ asset quality and
increases in the cost of funding in the overseas markets. Any significant disruption in the
operations of Haitong International Securities or our other overseas operations could have a
material adverse effect on our business, financial condition, results of operations and
prospects.
Our business is subject to concentration risks due to significant holdings of financial assets
or significant capital commitments.
Certain of our business lines are capital-intensive, such as our investment banking,
proprietary trading, direct investment and margin financing and securities lending businesses,
and may result in us having significant holdings of selected asset classes. Such capital
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RISK FACTORS
commitments expose us to concentration risks, including market risk, in the case of our
holdings of concentrated or illiquid positions in a particular asset class as part of our
proprietary trading and direct investment activities, as well as credit risk, in the case of our
margin financing and securities lending business. Any decline in the value of our asset holdings
may reduce our income or result in losses.
A significant decrease in our liquidity could negatively affect our business and reduce
customer confidence in us.
Maintaining adequate liquidity is crucial to our business operations as we continue to
expand our margin financing and securities lending, investment banking, proprietary trading,
and other business activities with substantial cash requirements. We meet our liquidity needs
primarily through cash generated by operating activities and, to a lesser extent, cash provided
by external financing. A reduction in our liquidity could reduce the confidence of our
customers or counterparties in us, which may result in the loss of business and customer
accounts. In addition, according to the CSRC’s requirements, the ratio between our Net Capital
and net assets cannot fall below 40%, the ratio between our Net Capital and total liabilities
cannot fall below 8% and the ratio between our net assets and total liabilities cannot fall below
20%. If we fail to meet regulatory capital requirements in the PRC, regulatory authorities may
impose penalties on us or limit the scope of our business, which could, in turn, have a material
and adverse effect on our financial condition and results of operations.
Factors that may adversely affect our liquidity position include a significant increase in
our margin financing activities, increased regulatory capital requirements, substantial
investments, other regulatory changes or a loss of market or customer confidence. When cash
generated from our operating activities is not sufficient to meet our liquidity or regulatory
capital needs, we must seek external financing. During periods of disruptions in the credit and
capital markets, potential sources of external financing could be limited and our borrowing
costs could increase. Although our management believes that we maintain sufficient credit
lines and banking facilities, external financing may not be available on acceptable terms or at
all due to unfavorable market conditions and disruptions in the credit and capital markets.
We are subject to extensive regulatory requirements, the non-compliance with which could
cause us to incur penalties.
As a participant in the securities and financial services industries, we are subject to
extensive PRC and overseas (including Hong Kong) regulatory requirements, which are
designed to ensure the integrity of the financial markets, the soundness of securities firms and
other financial institutions and the protection of investors. These regulations often serve to
limit our activities by, among other things, imposing capital requirements, limiting the types
of products and services we may offer, restricting the types of securities in which we may
invest and limiting the number and location of branches we may establish. Please see
“Regulatory Environment.” The PRC and overseas (including Hong Kong) regulatory
authorities conduct periodic or ad hoc inspections, examinations and inquiries in respect of our
compliance with such requirements. For example, the CSRC assigns a regulatory rating to each
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RISK FACTORS
securities firm according to the sufficiency of its internal control policies, risk management
capabilities, compliance with regulatory requirements and overall market position. For the past
four consecutive years, we received an “AA” regulatory rating from the CSRC.
Despite our efforts to comply with applicable regulations, there are a number of
associated risks, particularly in areas where applicable regulations may be unclear or where
regulators subsequently revise their previous guidance. On occasion, we have failed to meet
certain requirements and guidelines set by the PRC regulatory authorities. From time to time,
we or our employees have been involved in incidents of regulatory non-compliance and
received related notices or warnings from the relevant regulatory authorities. Based on the
nature of the cases, we classify the incidents of regulatory non-compliance committed by us
and our employees into the following three categories: (i) non-compliance incidents that led to
administrative penalties; (ii) non-compliance incidents that led to regulatory measures and the
deduction of regulatory points; and (iii) employee non-compliance incidents. These incidents
of non-compliance include, among other things, the liquidation of customers’ securities
without their prior consent and the failure of our sponsor representatives to perform adequate
due diligence on the issuer’s financial and accounting matters. Please see “Business – Legal
and Regulatory – Regulatory non-compliances.” Material incidents of non-compliance may
subject us to penalties or restrictions on our business activities, which could have a material
adverse effect on our business, results of operations or financial conditions.
We cannot assure you that we will be able to meet all the applicable regulatory
requirements, or comply with all the applicable regulations and guidelines at all times. Failure
to do so could result in sanctions, fines, penalties or other disciplinary actions, including,
among other things, a downgrade of our regulatory rating and limitations or prohibitions on our
future business activities, which may limit our ability to conduct pilot programs and launch
new businesses and harm our reputation, and consequently materially and adversely affect our
financial condition and results of operations.
New legislation or changes in the PRC regulatory requirements may affect our business
operations and prospects.
The PRC securities industry is a highly regulated industry and relevant rules and
regulations could be changed from time to time based on the development of the securities
markets. New rules and regulations, changes in the interpretation or enforcement of currently
existing rules and regulations may directly impact our business strategies and prospects. In
addition, changes in the rules and regulations could result in limitations on the business lines
we may conduct, modifications to our business practices or additional costs.
In particular, we have been selected by PRC regulators as one of the first securities firms
to develop new businesses in the PRC securities industry, such as stock index futures and
margin financing and securities lending businesses. However, as the PRC securities industry is
still evolving, most of the newly introduced businesses require further development and
improvement and there are some uncertainties regarding the enforcement of existing rules and
regulations in relation to these new businesses. Changes in the interpretation or enforcement
of rules and regulations for these new businesses may result in changes in, or the suspension
of, certain of our new businesses, which could have a material adverse effect on our business
and prospects.
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RISK FACTORS
Our risk management policies and procedures and internal controls, as well as the risk
management tools available to us, may not fully protect us against various risks inherent in
our business.
Currently, we follow our internal risk management framework and procedures to manage
our risk exposures, primarily including market risk, credit risk, liquidity risk and operational
risk. Our risk management policies, procedures and internal controls may not be adequate or
effective in mitigating our risk exposures or protecting us against unidentified or unanticipated
risks. In particular, some methods of managing risks are based upon observed historical market
behavior and our experience in the securities industry. These methods may fail to predict future
risk exposures, which could be significantly greater than those indicated by our historical
measures. Other risk management methods depend upon an evaluation of available information
regarding operating and market conditions and other matters, which may not be accurate,
complete, up-to-date or properly evaluated. In addition, in markets that are rapidly developing,
the information and experience data that we rely on for our risk management methods may
become quickly outdated as markets and regulations continue to evolve.
Management of operational, legal and regulatory risks requires, among other things,
policies and procedures to properly record and verify a large number of transactions and
business activities, as well as appropriate and consistent application of internal control
systems. These policies, procedures and internal controls may not be adequate or effective and
our business, financial condition and results of operations could be materially and adversely
affected by the corresponding increase in our risk exposures and actual losses as a result of
failures of our risk management policies, procedures and internal controls. The risk mitigation
strategies and techniques that we adopt may not be fully effective and may leave us exposed
to unidentified and unanticipated risks.
Furthermore, our risk management procedures and asset allocation decisions govern our
proprietary trading and investment portfolio. We may not have adequate risk management
tools, policies and procedures, and may not have sufficient access to resources and trading
counterparties to effectively implement our trading and investment risk mitigation strategies
and techniques related to our proprietary trading and investment portfolio. If our decision-
making process fails to effectively minimize losses while capturing gains, we may experience
significant financial losses that could materially and adversely affect our business, financial
condition and results of operations.
We may suffer significant losses from our credit exposures.
Our businesses are subject to risks that a customer or counterparty may fail to perform its
contractual obligations or that the value of collateral held to secure the obligations might be
inadequate. While we have internal policies and procedures designed to manage such risks,
these policies and procedures may not be fully effective. Please see “– Our risk management
policies and procedures and internal controls, as well as the risk management tools available
to us, may not fully protect us against various risks inherent in our business.” Our credit
exposure mainly results from our margin financing and securities lending business and our role
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RISK FACTORS
as a counterparty in financial and derivative contracts. Any material non-payment or
non-performance by a customer or counterparty could adversely affect our financial position,
results of operations and cash flows.
In addition, we have exposure to credit risk associated with our available-for-sale
investments and held-to-maturity financial assets. These investments may also be subject to
price fluctuations as a result of changes in the financial market’s assessment of the issuer’s
credit worthiness, delinquency and default rates and other factors, which could adversely affect
our financial condition and results of operations.
We face additional risks as we expand our product and service offerings.
We are committed to providing new products and services in order to strengthen our
leading market position in the PRC securities industry. We have recently expanded our business
to include, among others, margin financing and securities lending, stock index futures
brokerage and direct investment. These new businesses expose us to additional risks. For
example, although we have established a margin call risk control mechanism through which we
monitor the value of our customers’ collateral on a real-time basis, we may be subject to
substantial risks if borrowers of margin loans default on payments or if the value of the
collateral for the loans is insufficient to cover the margin loans due to significant market
volatility. We may also suffer losses on stock index futures contracts we enter into if stock
indices move unfavorably.
We will continue to expand our product and service offerings as permitted by the PRC
regulatory authorities, transact with new customers not in our traditional customer base and
enter into new markets. These activities expose us to new and potentially increasingly
challenging risks, including, but not limited to:
we may have insufficient experience or expertise in offering new products and
services and dealing with new counterparties and customers;
we may be subject to greater regulatory scrutiny, increased credit risks, market risks
and operational risks;
we may suffer from reputational concerns arising from dealing with less
sophisticated counterparties and customers;
we may be unable to provide customers with adequate levels of service for our new
products and services;
we may be unable to hire additional qualified personnel to support the offering of
a broader range of products and services;
our new products and services may not be accepted by our customers or meet our
profitability expectations;
we may be unable to obtain sufficient financing from internal and external sources
to support our business expansion; and
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RISK FACTORS
we may not be successful in enhancing our risk management capabilities and IT
systems to identify and mitigate all the risks associated with these new products and
services, new customers and new markets.
If we are unable to achieve the intended commercial results with respect to our offering
of new products and services, our business, financial condition, results of operations and
prospects could be materially and adversely affected.
Significant interest rate fluctuations could affect our financial condition and results of
operations.
Our exposure to interest rate risk is primarily associated with our interest income, interest
expenses and fixed income securities.
We earn interest income from bank deposits (including our own deposits and customer
deposits), margin financing and securities lending business and financial assets held under
resale agreements. Interest income from these sources are directly linked to the prevailing
market interest rates. During periods of declining interest rates, our interest income would
generally decrease.
We also make interest payments on deposits we hold on behalf of our customers, our
short-term borrowings and repurchase transactions. These interest expenses are directly linked
to the prevailing market interest rates. During periods of rising interest rates, our interest
expenses and financing costs would generally increase.
In addition, we hold fixed income securities. During periods of rising interest rates,
market prices and our investment returns on fixed income securities will generally decrease.
Significant interest rate fluctuations could reduce our interest income or returns on fixed
income investments, or increase our interest expenses, any of which could adversely affect our
financial condition and results of operations.
Our operations depend on key management and professional staff and our business may
suffer if we are unable to retain or replace them.
The success of our business is dependent to a large extent on our ability to attract and
retain key personnel who possess in-depth knowledge and understanding of the securities and
financial markets. These key personnel include members of our senior management, licensed
sponsor representatives, experienced investment managers and industry analysts, IT
specialists, sales staff and other personnel. Therefore, we devote considerable resources to
recruiting and retaining these personnel. However, the market for quality professionals is
highly competitive and we face increasing competition in recruiting and retaining these
individuals as other securities firms and financial institutions are competing for the same pool
of talent. Intense competition may require us to offer higher compensation and other benefits
in order to attract and retain qualified professionals, which could materially and adversely
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RISK FACTORS
affect our financial condition and results of operations. As a result, we may be unable to attract
or retain these personnel to achieve our business objectives and the failure to do so could
severely disrupt our business and prospects.
Some of our key employees are subject to non-compete arrangements. However, we
cannot assure you that such arrangements can be fully and legally enforced. If any of our senior
management or other key personnel joins or establishes a competing business, we may lose
some of our customers, which may have a material adverse effect on our business.
Future acquisitions and overseas expansions may not be successful.
In addition to organic growth, our current strategy involves growth through acquisitions
of complementary businesses and entry into strategic alliances. This strategy entails potential
risks that could have a material adverse effect on our business, financial condition, results of
operations and prospects, including:
unidentified or unanticipated liabilities or risks in the assets or businesses which we
may acquire;
inability to successfully integrate the products, services and personnel of the
businesses which we may acquire into our operations or to realize any expected cost
savings or other synergies from the acquisitions;
the need to incur additional indebtedness, which may reduce our cash available for
operations and other uses due to increased debt repayment obligations;
inability to retain employees and customer relationships;
customer overlap or loss of customers; and
diversion of management attention and other resources.
We may not be able to identify attractive acquisition opportunities, or make acquisitions
on attractive terms or obtain financing necessary to complete and support such acquisitions. In
addition, the anticipated future expansion of our operations through acquisitions will place a
significant strain on our management, internal controls and IT systems and resources, and
could also result in additional expenditure. In addition to training, managing and integrating
our workforce, we will need to continue to develop and improve our management and financial
controls. We cannot assure you that any of such acquisitions will result in long-term benefits
to us or that we will be able to effectively manage the integration and growth of our operations.
Failure to do so may materially and adversely affect our business, financial condition, results
of operations and prospects.
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RISK FACTORS
In addition, our overseas acquisitions (including acquisitions in Hong Kong) may expose
us to additional risks, including, among others:
difficulties with managing overseas (including Hong Kong) operations, including
complying with the various regulatory and legal requirements of different
jurisdictions;
different approval or license requirements;
challenges in providing products, services and support in these overseas (including
Hong Kong) markets;
challenges in managing our sales channels and overseas (including Hong Kong)
distribution network effectively;
differences in accounting treatment in different jurisdictions;
potential adverse tax consequences;
foreign exchange losses;
limited protection for intellectual property rights;
inability to effectively enforce contractual or legal rights;
changes in local government laws, regulations and policies; and
local political and economic instability or civil unrest.
If we are unable to effectively avoid or mitigate these risks, our ability to expand our
business overseas (including Hong Kong) will be impaired, which could have a material and
adverse effect on our business, financial condition, results of operations and prospects.
We or our landlords do not possess the relevant land use rights certificates or building
ownership certificates for some of the properties owned or leased by us.
Properties owned or leased by us primarily consist of offices, residential and ancillary
buildings. For some of the properties we occupy in the PRC, we or our landlords have not yet
obtained land use rights certificates and/or building ownership certificates that allow us to use,
transfer or mortgage the properties freely. As of December 31, 2011, among the 92 properties
in the PRC and two properties in Hong Kong that we owned, (i) nine properties had the relevant
building ownership certificates and administrative allocated land use rights certificates, with a
gross floor area of approximately 7,221 square meters, representing 5.3% of the aggregate
gross floor area of the properties we owned; (ii) 16 properties had building ownership
certificates but not the relevant land use rights certificates, with a gross floor area of
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RISK FACTORS
approximately 18,642 square meters, representing 13.7% of the aggregate gross floor area of
the properties we owned; and (iii) four properties were without proper building ownership
certificates and land use rights certificates, with a gross floor area of approximately 6,942
square meters, representing 5.1% of the aggregate gross floor area of the properties we owned.
As of December 31, 2011, for our leased properties, our landlords had not obtained proper title
certificates for 34 buildings with a gross floor area of approximately 33,509 square meters,
accounting for approximately 13.3% of the total gross floor area of the buildings we occupy.
Of these 34 buildings, our landlords of 11 buildings, accounting for approximately 3.0% of the
total gross floor area of the buildings we occupy, had not agreed to indemnify us for any
potential liabilities we would incur as a result of the title defects. Please see “Business –
Properties.”
We are in the process of applying for the remaining building ownership certificates and/or
the land use rights certificates for our owned properties and working with our landlords to cure
title defects, but the timing for obtaining such relevant certificates is beyond our control.
Before we or our landlords obtain the proper building ownership certificates and/or the land
use rights certificates for such properties, our rights in relation to such properties might not be
entirely protected. Any dispute or claim related to the title of the properties owned or leased
by us may result in us relocating our offices.
We cannot assure you that our use and occupation of the relevant land and buildings will
not be challenged, and there is no assurance that we will be able to secure alternative properties
for our business if we are required to relocate. If we or our landlords cannot obtain the relevant
certificates in a timely manner and our legal right to use or occupy the relevant properties is
challenged, we may incur additional relocation costs, have to pay government fines, or our
business operations may be disrupted, any of which may have a material adverse effect on our
business, financial condition, results of operations and prospects.
We may not be able to detect and prevent fraud or other misconduct committed by our
employees, representatives, agents, customers or other third parties.
We may be exposed to fraud or other misconduct committed by our employees,
representatives, agents, customers or other third parties that could subject us to financial losses
and sanctions imposed by governmental authorities, as well as adversely affect our reputation.
Our internal control procedures are designed to monitor our operations and ensure overall
compliance. During the Track Record Period, we did not experience any unauthorized trades
or serious trade errors committed by our employees or other misconduct committed by our
representatives, agents and customers that had a material adverse effect on our business,
financial condition and results of operations. However, our internal control procedures may be
unable to identify all incidents of non-compliance or suspicious transactions in a timely manner
or at all. Furthermore, it is not always possible to detect and prevent fraud and other
misconduct, and the precautions we take to prevent and detect such activities may not be
effective. We cannot assure you 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. Our
failure to detect and prevent fraud and other misconduct may have a material adverse effect on
our business reputation, financial condition and results of operations.
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RISK FACTORS
We may not be able to fully detect money laundering and other illegal or improper activities
in our business operations on a timely basis.
We are required to comply with applicable anti-money laundering, anti-terrorism laws and
other regulations in the PRC and overseas (including Hong Kong). The PRC Anti-money
Laundering Law (N-N”l QqTW Sm “ l ) requires financial institutions to establish sound
internal control policies and procedures with respect to anti-money laundering monitoring and
reporting activities. Such policies and procedures require us to, among other things, establish
or designate an independent anti-money laundering department, establish a customer
identification system in accordance with relevant rules, record the details of customer activities
and report suspicious transactions to relevant authorities. Please see “Regulatory Environment
– Regulation on Anti-money Laundering” and “Regulatory Environment – Hong Kong
Regulatory Overview – Anti-Money Laundering and Terrorist Financing.”
While we have adopted policies and procedures aimed at detecting and preventing the use
of our business platforms to facilitate money laundering activities and terrorist acts, such
policies and procedures in some cases have only been recently adopted and may not completely
eliminate instances in which we may be used by other parties to engage in money laundering
and other illegal or improper activities. In the event that we fail to fully comply with applicable
laws and regulations, the relevant government agencies may freeze our assets or impose fines
or other penalties on us. We cannot assure you that there will not be failures in detecting money
laundering or other illegal or improper activities which may adversely affect our business
reputation, financial condition and results of operations.
We rely heavily on IT systems to process and record our transactions and offer online
products and services.
Our operations rely heavily on the ability of our IT systems to accurately process a large
number of transactions across numerous and diverse markets and our broad range of products
in a timely manner. Our system for processing securities transactions is highly automated. A
prolonged disruption to or failure of our information processing or communications systems
would limit our ability to process transactions. This would impair our ability to service our
customers and execute trades on behalf of customers and for our own account, which could
materially and adversely affect our competitiveness, financial condition and results of
operations.
The proper functioning of our financial control, risk management, accounting, customer
service and other data processing systems, together with the communication networks between
our headquarters and branches, are critical to our business and our ability to compete
effectively. We have established back-up centers in Shanghai and Shenzhen to carry on
principal functions in the event of a catastrophe or failure of our systems, including those
caused by human error. However, we cannot assure you that our operations will not be
materially disrupted if any of our systems fail.
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RISK FACTORS
In addition, the securities industry is characterized by rapidly changing technology.
Online securities trading platforms and other new channels such as mobile devices are
becoming increasingly popular among our customers due to their convenience and user-
friendliness. We rely heavily on technology, particularly the Internet, to provide high quality
online services. However, our technology operations are vulnerable to disruptions from human
error, natural disasters, power failure, computer viruses, spam attacks, unauthorized access and
other similar events. Disruptions to or instability of our technology or external technology that
allows our customers to use our online products and services could harm our business and our
reputation.
Our business is susceptible to the operational failure of third parties.
We face the risk of operational failure or termination of any of the exchanges,
depositaries, clearing agents or other financial intermediaries we use to facilitate our securities
transactions. We were not subject to any material operational failure of third parties during the
Track Record Period. However, any future operational failure or termination of the particular
financial intermediaries that we use could adversely affect our ability to execute transactions,
service our customers and manage our exposure to various risks.
In addition, as our interconnectivity with our customers grows, our business also relies
heavily on our customers’ use of their own systems, such as personal computers, mobile
devices and the Internet, and we will increasingly face the risk of operational failure in
connection with our customers’ systems.
We may be subject to litigation and regulatory investigations and proceedings and may not
always be successful in defending ourselves against such claims or proceedings.
The securities industry faces substantial litigation and regulatory risks, including the risk
of lawsuits and other legal actions relating to information disclosure, sales or underwriting
practices, product design, fraud and misconduct, as well as protection of personal and
confidential information of our customers. We may be subject to arbitration claims and lawsuits
in the ordinary course of our business. We may also be subject to inquiries, investigations, and
proceedings by regulatory and other governmental agencies. Actions brought against us may
result in settlements, injunctions, fines, penalties or other results adverse to us that could harm
our reputation. Even if we are successful in defending ourselves against these actions, the costs
of such defense may be significant to us. In market downturns, the number of legal claims and
amount of damages sought in litigation and regulatory proceedings may increase. A significant
judgment or regulatory action against us or a disruption in our business arising from adverse
adjudications in proceedings against our directors, officers or employees would have a material
adverse effect on our liquidity, business, financial condition, results of operations and
prospects.
A failure to appropriately identify and address conflicts of interests could adversely affect
our business.
As we expand the scope of our business and our client base, it is critical for us to be able
to address potential conflicts of interest, including situations where two or more interests
within our business legitimately exist but are in competition or conflict. Please see “Business
– Risk Management and Internal Control Policies and Procedures – Conflicts of Interest.”
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RISK FACTORS
We have extensive internal control and risk management procedures that are designed to
identify and address conflicts of interest. However, appropriately identifying and dealing with
potential conflicts of interest is complex and difficult. Our failure to manage conflicts of
interest could harm our reputation and erode client confidence in us. In addition, potential or
perceived conflicts of interest may also give rise to litigation or regulatory actions. Any of the
foregoing could adversely affect our business, financial condition and results of operations.
We may be subject to liability and regulatory action if we are unable to protect personal and
other confidential information of our customers.
Various laws, regulations and rules require us to protect the personal data and confidential
information of our customers. The relevant authorities may issue sanctions or orders against us
if we fail to protect the personal information of our customers, and we may have to provide
compensation for economic loss arising from our failure to protect the personal information of
our customers in accordance with relevant laws and regulations. During the Track Record
Period, we did not experience any material failure to protect confidential information of our
customers. Incidents of mishandling personal information or failure to protect confidential
information of our customers could create a negative public or customer perception of our
operations or our brand name, which may materially and adversely affect our reputation and
prospects.
RISKS RELATING TO THE PRC
Economic, political and social conditions in the PRC and government policies could affect
our business and prospects.
A substantial majority of our assets are located in the PRC, and a substantial majority of
our revenue is derived from our businesses in the PRC. Accordingly, our financial condition,
results of operations and prospects are, to a material extent, subject to economic, political and
legal developments in the PRC. The PRC economy differs from the economies of developed
countries in many respects, including, among other things, government involvement, level of
economic development, growth rate, foreign exchange controls and resources allocation.
Although the PRC economy has been transitioning from a planned economy to a more
market-oriented economy for more than three decades, a substantial portion of productive
assets in the PRC are still owned by the PRC government. The PRC government also exercises
significant control over the economic growth of the PRC through allocating resources,
controlling payments of foreign currency-denominated obligations, setting monetary policy
and providing preferential treatment to particular industries or companies. In recent years, the
PRC government has implemented measures emphasizing the utilization of market forces in
economic reform, the reduction of state ownership of productive assets and the establishment
of sound corporate governance practices in business enterprises. These economic reform
measures may be adjusted or modified, or applied inconsistently from industry to industry or
across different regions of the country. As a result, we may not benefit from some of these
measures.
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RISK FACTORS
The PRC government has the power to implement macroeconomic measures affecting the
PRC economy. For example, to mitigate the negative impact from the global financial crisis
and economic downturn in 2008, the PRC government implemented a series of macroeconomic
measures and a moderately loose monetary policy between September 2008 to the end of 2009,
which included announcing an RMB4.0 trillion economic stimulus package and reducing
benchmark interest rates. In 2010 and 2011, the PRC government introduced a number of
monetary tightening measures to curb the overheated real estate markets and increasing
inflation in the PRC. The PBOC announced several increases in benchmark interest rates for
general lending and the deposit reserve ratio for commercial banks in the PRC.
In recent years, the PRC has been one of the world’s fastest growing economies as
measured by GDP growth. However, the PRC may not be able to sustain historical growth
rates. For example, the sub-prime mortgage crisis that broke out in the U.S. in 2008 affected
global financial markets and caused significant turmoil in the global financial and credit
markets. From the second half of 2008 to mid-2009, the world’s largest economies, including
the U.S., Europe and Japan fell into severe economic recessions, and economic growth in the
PRC, India and other emerging economies also experienced a slowdown. The GDP growth in
the PRC declined from 14.2% in 2007 to 9.2% in 2009. Future uncertainties in the PRC and
global economy may adversely affect our financial condition and results of operations.
The PRC legal system has inherent uncertainties that could limit the legal protection
available to you.
We are incorporated under the laws of the PRC. The PRC legal system is based on written
statutes. While prior court decisions may be cited for reference, they have limited precedential
value. Since 1979, the PRC government has promulgated laws, rules and regulations dealing
with economic matters, such as foreign investment, corporate organization and governance,
commerce, taxation and trade. However, because these laws, rules and regulations are
relatively new, and because of the relatively limited volume of published cases and their
non-binding nature, interpretation and enforcement of these laws, rules and regulations involve
significant uncertainties.
Our Articles of Association provide that disputes between holders of H Shares and us, our
Directors, Supervisors or senior officers or holders of A Shares, arising out of our Articles of
Association or any rights or obligations conferred or imposed upon us by the Company Law
and related rules and regulations concerning our affairs, are to be resolved through arbitration
rather than by a court of law. A claimant may elect to submit a dispute to either the China
International Economic and Trade Arbitration Commission or the Hong Kong International
Arbitration Center in accordance with its applicable rules. Awards that are made by the PRC
arbitral authorities are recognized under the Arbitration Ordinance of Hong Kong and can be
enforced in Hong Kong. Hong Kong arbitration awards may be recognized and enforced by
PRC courts, subject to the satisfaction of certain PRC legal requirements. However, to our
knowledge, no action has been brought in the PRC by any holder of H shares to enforce an
arbitral award and no assurance can be given as to the outcome of any action brought in the
PRC by any holder of H shares to enforce a Hong Kong arbitral award made in favor of holders
– 52 –
RISK FACTORS
of H shares. Moreover, to our knowledge, there has not been any published report of judicial
enforcement in the PRC by holders of H shares of their rights under the articles of association
of any PRC issuer or the Company Law.
In addition, PRC laws, rules and regulations applicable to companies listed overseas do
not distinguish among minority and controlling shareholders in terms of their rights and
protections and our minority shareholders may not have the same protections afforded to them
by companies incorporated under the laws of the United States and certain other jurisdictions.
You may experience difficulties in effecting service of legal process and enforcing judgments
against us and our management.
We are a company incorporated under the laws of the PRC and a substantial portion of
our assets and our subsidiaries are located in the PRC. In addition, most of our Directors,
Supervisors and executive officers reside within the PRC and the assets of our Directors and
officers may be located within the PRC. As a result, it may not be possible to effect service of
process within the United States or elsewhere outside the PRC upon most of our Directors,
Supervisors and executive officers, including with respect to matters arising under the U.S.
federal securities laws or applicable state securities laws. Moreover, the PRC does not have
treaties providing for the reciprocal enforcement of judgments of courts with the United States,
the United Kingdom, Japan or most other Western countries. In addition, Hong Kong has no
arrangement for the reciprocal enforcement of judgments with the United States. As a result,
recognition and enforcement in the PRC or Hong Kong of judgments of a court in the United
States and any of the other jurisdictions mentioned above in relation to any matter that is not
subject to a binding arbitration provision may be difficult or impossible. In addition, although
we will be subject to the Hong Kong Listing Rules and the Takeovers Code upon the listing
of our H Shares on the Hong Kong Stock Exchange, the holders of H Shares will not be able
to bring actions on the basis of violations of the Hong Kong Listing Rules and must rely on
the Hong Kong Stock Exchange to enforce its rules.
Investments in PRC securities firms are subject to ownership restrictions that may adversely
affect the value of your investment.
Investments in PRC securities firms are subject to ownership restrictions. Prior approval
from the CSRC is required for any person or entity to hold 5% or more of the registered capital
or total issued shares of a PRC securities firm. If a shareholder of a PRC securities firm
increases its shareholding above the 5% threshold without obtaining prior approval from the
CSRC, such shareholder’s voting right is invalid to the extent that it exceeds the 5% threshold
and it could be subject to CSRC sanctions, such as the correction of such misconduct, fines and
confiscation of any related gains. Current ownership restrictions and future changes in
ownership restrictions as imposed by the PRC government may materially and adversely affect
the value of your investment.
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RISK FACTORS
You may be subject to PRC taxation.
Under the applicable PRC tax laws, the dividends we pay to non-PRC resident individual
holders of H shares (“non-resident individual holders”), and gains realized through the sale or
transfer by other means of H shares by such shareholders, are both subject to PRC individual
income tax at a rate of 20%, unless reduced by the applicable tax treaties or arrangements.
Under applicable PRC tax laws, the dividends we pay to, and gains realized through the sale
or transfer by other means of H shares by, non-PRC resident enterprise holders of H shares are
both subject to PRC enterprise income tax at a rate of 10%, unless reduced by applicable tax
treaties or arrangements.
Pursuant to the Circular on Questions Concerning Tax on the Profits Earned by
Foreign Invested Enterprises, Foreign Enterprises and Individual Foreigners from the
Transfer of Shares (Equity Interests) and on Dividend Income (Guo Shui Fa [1993] No.045)
(eY UFbO im0 Y W O imTY | P N”S_yh (k )Ie6vTob@z e6UOLv
w(W z v| [1993]045 )) issued by the SAT, non-resident individual holders were temporarily
exempted from PRC individual income tax for the dividends or bonuses paid by issuers of H
shares. However, such circular was repealed by the Announcement on the List of Fully or
Partially Invalid and Repealed Tax Regulatory Documents (eQlOHQheY1eH^kb0 R hk
Y1eH^kbvz e6‰’eNv“ vQlTJ ) dated January 4, 2011.
Pursuant to the Circular on Questions Concerning the Collection of Individual Income
Tax following the Repeal of Guo Shui Fa [1993] No. 045 (eW z v| [1993]045eN^kb_
g P N”b@z _ OLv w ) dated June 28, 2011 issued by the SAT, dividends paid by H
share companies in the PRC to a non-resident individual holder are subject to PRC individual
income tax at the rates determined in accordance with applicable tax treaties or arrangements
between the PRC and the shareholder’s resident jurisdiction which range from 5% to 20%. The
Circular states that the tax rate which is generally applicable to dividend income as stipulated
in relevant tax treaties or arrangements is 10%. Therefore, we can withhold 10% of the
dividend without seeking prior consent from the PRC tax authorities. Any non-resident
individual holder residing in a jurisdiction where the applicable tax rate for such dividends, as
stipulated in the relevant tax treaties or arrangements, is lower than 10% shall be entitled to
a refund of the excess tax withheld by us. However, such refund shall be subject to the approval
of the PRC tax authority. For a non-resident individual holder residing in a jurisdiction where
the applicable tax rate for such dividends, as stipulated in the relevant tax treaties or
arrangements, is more than 10% but less than 20%, we will withhold the individual income tax
at the applicable tax rate without seeking prior consent from the PRC tax authorities. For a
non-resident individual holder residing in a jurisdiction where the applicable tax rate for such
dividends, as stipulated in the relevant tax treaties or arrangements, is 20% or where there is
no relevant tax treaty or arrangement with the PRC, we can withhold the individual income tax
at the rate of 20%.
Despite the arrangements mentioned above, there are significant uncertainties as to the
interpretation and application of applicable PRC tax laws and rules due to several factors,
including whether the relevant preferential tax treatment will be revoked in the future such that
all non-resident individual holders will be subject to PRC individual income tax at a flat rate
of 20%.
– 54 –
RISK FACTORS
In addition, it is also unclear whether and how the PRC individual income tax and
enterprise income tax on gains realized by non-resident holders of H shares through the sale,
or transfer by other means, of H shares will be collected by the PRC tax authorities in the
future, although such tax has not been collected by the PRC tax authorities in practice.
Considering these uncertainties, non-resident holders of our H Shares should be aware that they
may be obligated to pay PRC income tax on the dividends and gains realized through sale or
transfers of the H Shares. For additional information, please see “Appendix III – Taxation and
Foreign Exchange” to this prospectus.
Government control of currency conversion may adversely affect the value of your
investments.
Most of our revenue is denominated in Renminbi, which is also our reporting currency.
Renminbi is not a freely convertible currency. A portion of our cash may be required to be
converted into other currencies in order to meet our foreign currency needs, including cash
payments on declared dividends, if any, on our H Shares. Under China’s existing foreign
exchange regulations, following the completion of this Global Offering, we will be able to pay
dividends in foreign currencies without prior approval from the SAFE by complying with
various procedural requirements.
However, the PRC government may restrict future access to foreign currencies for current
account transactions at its discretion. If this were to occur, we might not be able to pay
dividends to the holders of our H Shares in foreign currencies. On the other hand, foreign
exchange transactions under capital account in the PRC continue to be not freely convertible
and require the approval of the SAFE. These limitations could affect our ability to obtain
foreign currencies through equity financing, or to obtain foreign currencies for capital
expenditures.
Future fluctuations in the value of the Renminbi could have a material adverse effect on our
financial condition and results of operations.
While we generate most of our revenue in the PRC, we also offer securities products and
services in Hong Kong and Macau to overseas customers. A portion of our revenue, expenses
and bank borrowings are denominated in Hong Kong dollars, U.S. dollars and other foreign
currencies, although our functional currency is the Renminbi. As a result, fluctuations in
exchange rates, particularly between the Renminbi, Hong Kong dollar or U.S. dollar, could
affect our profitability and may result in foreign currency exchange losses of our foreign
currency-denominated assets and liabilities.
The exchange rate of the Renminbi against the U.S. dollar and other currencies fluctuates
and is affected by, among other things, changes in the PRC’s and international political and
economic conditions and the PRC government’s fiscal and currency policies. Since 1994, the
conversion of the Renminbi into foreign currencies, including the Hong Kong dollar and U.S.
dollar, has been based on rates set daily by the PBOC based on the previous business day’s
inter-bank foreign exchange market rates and exchange rates in global financial markets. From
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RISK FACTORS
1994 to July 20, 2005, the official exchange rate for the conversion of the Renminbi to U.S.
dollars was generally stable. On July 21, 2005, the PRC government adopted a more flexible
managed floating exchange rate system to allow the value of the Renminbi to fluctuate within
a regulated band that is based on market supply and demand with reference to a basket of
currencies. From July 21, 2005 to September 30, 2011, the value of the Renminbi appreciated
by approximately 30.2% against the U.S. dollar. On June 19, 2010, the PBOC announced that
the PRC government would reform the Renminbi exchange rate regime and increase the
flexibility of the exchange rate. There remains significant international pressure on the PRC
government to adopt a more flexible currency policy, which could result in further and more
significant appreciation of the Renminbi against the U.S. dollar. We cannot assure you that the
Renminbi will not experience significant appreciation against the U.S. dollar in the future.
Currently, we have not entered into any hedging transactions to mitigate our exposure to
foreign exchange risk. As a result, any significant increase in the value of the Renminbi against
foreign currencies could reduce the value of our foreign currency denominated revenue and
assets. Following the Global Offering, our exposure to risks associated with foreign currency
fluctuations will further increase as the net proceeds from the Global Offering are expected to
be deposited in currencies other than the Renminbi until we obtain the necessary approvals
from relevant PRC regulatory authorities to convert the same into Renminbi.
Any future occurrence of force majeure events, natural disasters or outbreaks of contagious
diseases in the PRC may have a material adverse effect on our business operations, financial
condition and results of operations.
Any future occurrence of force majeure events, natural disasters or outbreaks of
epidemics and contagious diseases, including avian influenza, severe acute respiratory
syndrome, swine influenza caused by the H1N1 virus or H1N1 influenza, may materially and
adversely affect our business and results of operations. In 2009, there were reports of the
occurrence of H1N1 influenza in certain regions of the world, including the PRC and Hong
Kong, where we operate our business. An outbreak of an epidemic or contagious disease could
result in a widespread health crisis and restrict the level of business activities in affected areas,
which may, in turn, adversely affect our business. Moreover, the PRC has experienced natural
disasters like earthquakes, floods and droughts in the past few years. Any future occurrence of
severe natural disasters in the PRC may materially and adversely affect its economy and
therefore our business. We cannot assure you that any future occurrence of natural disasters or
outbreaks of epidemics and contagious diseases, including avian influenza, severe acute
respiratory syndrome, H1N1 influenza or other epidemics, or the measures taken by the PRC
government or other countries in response to such contagious diseases, will not seriously
disrupt our operations or those of our customers, which may have a material and adverse effect
on our business and results of operations.
– 56 –
RISK FACTORS
RISKS RELATING TO THE GLOBAL OFFERING
Our A Shares were listed in China in 2007 and the characteristics of the A share and H share
markets may differ.
Our A Shares were listed on the Shanghai Stock Exchange on July 31, 2007. Following
the Global Offering, our A Shares will continue to be traded on the Shanghai Stock Exchange
and our H Shares will be traded on the Hong Kong Stock Exchange. Under current PRC laws
and regulations, without approval from the relevant regulatory authorities, our H Shares and A
Shares are neither interchangeable nor fungible, and there is no trading or settlement between
the H share and A share markets. With different trading characteristics, the H share and A share
markets have divergent trading volumes, liquidity and investor bases, as well as different levels
of retail and institutional investor participation. As a result, the trading performance of our H
Shares and A Shares may not be comparable. Nonetheless, fluctuations in the price of our A
Shares may adversely affect the price of our H Shares, and vice versa. Due to the different
characteristics of the H share and A share markets, the historical prices of our A Shares may
not be indicative of the performance of our H Shares. You should therefore not place undue
reliance on the prior trading history of our A Shares when evaluating an investment in our H
Shares.
There has been no prior public market for our H Shares and the liquidity and market price
of our H Shares may be volatile.
Prior to the Global Offering, there has been no public market for our H Shares. The initial
issue price range for our H Shares was the result of negotiations between us and the Joint
Global Coordinators on behalf of the Underwriters, and the Offer Price may differ significantly
from the market price for our H Shares following the Global Offering. We have applied for
listing of, and permission to deal in, our H Shares on the Hong Kong Stock Exchange. A listing
on the Hong Kong Stock Exchange, however, does not guarantee that an active and liquid
trading market for our H Shares will develop, or if it does develop, will be sustained following
the Global Offering or that the market price of our H Shares will not decline following the
Global Offering. Furthermore, the price and trading volume of our H Shares may be volatile.
The following factors may affect the volume and price at which our H Shares will trade:
actual or anticipated fluctuations in our revenue and results of operations;
news regarding recruitment or loss of key personnel by us or our competitors;
announcements of competitive developments, acquisitions or strategic alliances in
our industry;
changes in earnings estimates or recommendations by financial analysts;
potential litigation or regulatory investigations;
general market conditions or other developments affecting us or our industry;
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RISK FACTORS
the operating and stock price performance of other companies, other industries and
other events or factors beyond our control; and
the release of lock-up or other transfer restrictions on our outstanding H Shares or
sales or perceived sales of additional H Shares by us or other shareholders.
Moreover, the securities market has from time to time experienced significant price and
volume fluctuations that were unrelated or not directly related to the operating performance of
the underlying companies. These broad market and industry fluctuations may have a material
and adverse effect on the market price and trading volume of our H Shares.
Future sales or perceived sales of substantial amounts of our H Shares in the public market
or the conversion of our A Shares into H Shares could have a material adverse effect on the
prevailing market price of our H Shares and our ability to raise additional capital in the
future.
The market price of our H Shares could decline as a result of substantial future sales of
our H Shares or other securities relating to Shares in the public market. Such a decline could
also occur with the issuance of new Shares or other securities relating to our Shares, or the
perception that such sales or issuances may occur. Future sales, or perceived sales, of
substantial amounts of our Shares could materially and adversely affect the prevailing market
price of our H Shares and our ability to raise future capital at a favorable time and price. Our
shareholders would experience a dilution in their holdings upon the issuance or sale of
additional securities for any purpose.
In addition, according to stipulations made by the CSRC, our A Shares may be transferred
to overseas investors and such transferred shares may be listed or traded on an overseas stock
exchange, provided certain conditions are fulfilled and specific procedures are carried out.
Please see “Share Capital – Share Capital – Transfer of Our Company’s A Shares for Listing
and Trading on the Hong Kong Stock Exchange as H Shares.” Conversion of a substantial
number of our A Shares into H Shares, or the perception that such conversion may occur, could
materially and adversely affect the price of our H Shares. In addition, assuming the
Over-allotment Option is not exercised, 122,940,000 A Shares will be converted into H Shares
and transferred to the NSSF in connection with the Global Offering. The NSSF has not entered
into any lock-up agreement with us or the Underwriters and would be free to sell its H Shares
any time after the Global Offering. This may also materially and adversely affect the prevailing
market price of our H Shares and our ability to raise capital in the future at a time and price
favorable to us.
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RISK FACTORS
As the Offer Price of our H Shares is higher than our net tangible book value per share,
purchasers of our H Shares in the Global Offering may experience immediate dilution upon
such purchases.
As the Offer Price of our H Shares is higher than the net tangible assets per share
immediately prior to the Global Offering, purchasers of our H Shares in the Global Offering
will experience an immediate dilution in pro forma adjusted net tangible assets of HK$3.73 per
H Share (assuming an Offer Price of HK$10.83 per H Share, being the mid-point of the stated
Offer Price range, and assuming the Over-allotment Option for the Global Offering is not
exercised). Our existing Shareholders will receive an increase in the pro forma adjusted
consolidated net tangible asset value per share of their shares. In addition, holders of our H
Shares may experience further dilution of their interest if the Underwriters exercise the
Over-allotment Option or if we issue additional shares in the future to raise additional capital.
Dividends declared in the past may not be indicative of our dividend policy in the future.
In 2009 and 2010, we declared cash dividends of RMB1,645.6 million and RMB1,234.2
million, respectively. With respect to cash dividends for 2011, our Board has proposed, pending
Shareholders’ approval at the forthcoming annual general meeting, that a cash dividend of
RMB0.15 per share, or a total of RMB1,234.2 million based on the number of our A Shares in
issue as of December 31, 2011, be distributed to holders of our A Shares, but not to the holders
of our H Shares. Under the applicable PRC laws, dividends may be paid only out of
distributable profits. Distributable profits means, as determined under PRC GAAP or IFRS,
whichever is lower, the net profits for a period, plus the distributable profits or net of the
accumulated losses, if any, at the beginning of such period, less appropriations to statutory
surplus reserve (determined under PRC GAAP) and discretionary surplus reserve (as approved
by our shareholders’ meeting). As a result, we may not have sufficient profit to enable us to
make future dividend distributions to our shareholders, even if one of our financial statements
prepared in accordance with PRC GAAP or IFRS indicates that our operations have been
profitable.
Certain facts and statistics derived from government and third-party sources contained in
this prospectus may not be reliable.
We have derived certain facts and other statistics in this prospectus, particularly those
relating to the PRC, the PRC economy and the industry in which we operate, from information
provided by the PRC and other government agencies, industry associations, independent
research institutes or other third-party sources. While we have taken reasonable care in the
reproduction of the information, it has not been prepared or independently verified by us, the
underwriters or any of our or their respective affiliates or advisors and, therefore, we cannot
assure you as to the accuracy and reliability of such facts and statistics, which may not be
consistent with other information compiled inside or outside the PRC. The facts and other
statistics include the facts and statistics included in the sections entitled “Risk Factors,”
“Industry Overview” and “Business.” Due to possibly flawed or ineffective collection methods
or discrepancies between published information and market practice and other problems, the
statistics herein may be inaccurate or may not be comparable to statistics produced for other
economies and you should not place undue reliance on them. Furthermore, we cannot assure
you that they are stated or compiled on the same basis, or with the same degree of accuracy,
as similar statistics presented elsewhere. In all cases, you should consider carefully how much
weight or importance you should attach to or place on such facts or statistics.
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RISK FACTORS
You should not place any reliance on any information released by us in connection with the
listing of our A Shares on the Shanghai Stock Exchange or with the listing of the shares of
our subsidiary, Haitong International Securities, on the Hong Kong Stock Exchange or
other media outlets.
Following the listing of our A Shares on the Shanghai Stock Exchange, we have been
subject to periodic reporting and other information disclosure requirements in the PRC. In
addition, shares of our subsidiary, Haitong International Securities, are listed on the Hong
Kong Stock Exchange, which means Haitong International Securities is subject to periodic
reporting and other information disclosure requirements in Hong Kong. As a result, from time
to time we publicly release information relating to (i) us on the Shanghai Stock Exchange or
other media outlets designated by the Shanghai Stock Exchange; and (ii) Haitong International
Securities on the Hong Kong Stock Exchange or other media outlets designated by the Hong
Kong Stock Exchange. However, the information announced by us in connection with our A
Shares or by Haitong International Securities in connection with its shares is based on
regulatory requirements of the securities authorities and market practices in the PRC and Hong
Kong, as applicable, which are different from those applicable to the Global Offering. Such
information does not and will not form a part of this prospectus. As a result, prospective
investors in our H Shares are reminded that, in making their investment decisions as to whether
to purchase our H Shares, they should rely only on the financial, operating and other
information included in this prospectus and the Application Forms. By applying to purchase
our H Shares in the Global Offering, you will be deemed to have agreed that you will not rely
on any information other than that contained in this prospectus, the Application Forms and any
formal announcements made by us in Hong Kong with respect to the Global Offering.
You should read the entire prospectus carefully and we strongly caution you not to place any
reliance on any information contained in press articles or other media regarding us and the
Global Offering.
Prior to the publication of this prospectus, there had been press and media coverage
regarding us and the Global Offering, which contained, among other things, certain financial
information, projections, valuations and other forward-looking information about us and the
Global Offering. We have not authorized the disclosure of any such information in the press
or media and do not accept responsibility for the accuracy or completeness of such press
articles or other media coverage. We make no representation as to the appropriateness,
accuracy, completeness or reliability of any of the projections, valuations or other forward-
looking information about us. To the extent such statements are inconsistent with, or conflict
with, the information contained in this prospectus, we disclaim responsibility for them.
Accordingly, prospective investors are cautioned to make their investment decisions on the
basis of the information contained in this prospectus only and should not rely on any other
information.
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WAIVERS AND EXEMPTION FROM COMPLIANCE
WITH THE HONG KONG LISTING RULES
PUBLIC FLOAT REQUIREMENTS
Rules 8.08(1)(a) and (b) of the Hong Kong Listing Rules require that there must be an
open market in the securities for which listing is sought and for a sufficient public float of an
issuer’s listed securities to be maintained. This normally means that (i) at least 25% of the
issuer’s total issued share capital must at all times be held by the public; and (ii) where an
issuer has more than one class of securities apart from the class of securities for which listing
is sought, the total securities of the issuer held by the public (on all regulated market(s),
including the Hong Kong Stock Exchange) at the time of listing must be at least 25% of the
issuer’s total issued share capital. However, the class of securities for which listing is sought
must not be less than 15% of the issuer’s total issued share capital and must have an expected
market capitalization at the time of listing of not less than HK$50 million.
We have applied to the Hong Kong Stock Exchange for, and the Hong Kong Stock
Exchange has granted us, a waiver from strict compliance with the requirements under Rule
8.08(1) of the Hong Kong Listing Rules to allow a minimum public float for the H shares to
be the higher of (i) 10% of the total issued Shares or (ii) such a percentage of H Shares held
by the public immediately after completion of the Global Offering, as increased by the H
Shares which may be issued upon the exercise of the Over-allotment Option and the transfer
and conversion of the relevant state-owned shares into H Shares pursuant to the PRC
regulations on reduction of state-owned shares.
The above waiver is subject to the condition that we will make appropriate disclosure of
the lower prescribed percentage of public float of H Shares and confirm sufficiency of public
float of H Shares in successive annual reports after Listing. In the event that the public float
percentage falls below the minimum percentage prescribed by the Hong Kong Stock Exchange,
we will take appropriate steps to ensure that the minimum percentage of public float prescribed
by the Hong Kong Stock Exchange is complied with.
MANAGEMENT PRESENCE
According to Rule 8.12 and Rule 19A.15 of the Hong Kong Listing Rules, our Company
must have sufficient management presence in Hong Kong. This usually means that at least two
of our executive Directors must be ordinarily residing in Hong Kong. Our head office and
substantially all of our business operations are based, managed and conducted in the PRC. As
the executive Directors play very important roles in our Company’s business operations, it is
in our best interests for them to be based in or near the places where our Group has significant
operations. As such, our Company does not, and in the foreseeable future, will not, have
executive Directors ordinarily resident in Hong Kong. Currently, both of our executive
Directors, Mr. Wang Kaiguo and Mr. Li Mingshan, are ordinarily resident in the PRC.
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WAIVERS AND EXEMPTION FROM COMPLIANCE
WITH THE HONG KONG LISTING RULES
Accordingly, we have applied to the Hong Kong Stock Exchange for, and the Hong Kong
Stock Exchange has granted us, a waiver from strict compliance with Rule 8.12 and Rule
19A.15 of the Hong Kong Listing Rules. We have made arrangements to maintain effective
communication between the Hong Kong Stock Exchange and us as follows:
we have designated Mr. Jin Xiaobin, one of our joint company secretaries, and Mr.
Wang Kaiguo, one of our Company’s executive Directors, as our authorized
representatives and they will act as our Company’s principal channel of
communication with the Hong Kong Stock Exchange and would be readily
contactable by the Hong Kong Stock Exchange;
both of the authorized representatives of our Company have means of contacting all
Directors (including independent non-executive Directors) promptly at all times and
when the Hong Kong Stock Exchange wishes to contact a Director for any reason;
we have provided the authorized representatives and the Hong Kong Stock
Exchange with the contact details of each Director, including mobile phone
numbers, office phone numbers, e-mail addresses and fax numbers;
each Director who is not ordinarily resident in Hong Kong possesses or can apply
for valid travel documents to visit Hong Kong to meet with the Hong Kong Stock
Exchange within a reasonable period of time pursuant to requests of the Hong Kong
Stock Exchange; and
we have appointed Haitong International Capital Limited and BOCOM International
(Asia) Limited as our joint compliance advisors who will serve as an additional
channel of communication of the Company with the Hong Kong Stock Exchange
from the Listing Date to the date when the Company mails its annual reports to its
shareholders for the first full financial year immediately after the listing of our H
Shares.
APPOINTMENT OF JOINT COMPANY SECRETARIES
Rule 3.28
Pursuant to Rule 3.28 of the Hong Kong Listing Rules, an issuer must appoint as its
company secretary an individual who, by virtue of his academic or professional qualifications
or relevant experience, is, in the opinion of the Hong Kong Stock Exchange, capable of
discharging the functions of company secretary.
Note 1 to Rule 3.28 of the Hong Kong Listing Rules sets out academic or professional
qualifications to be considered acceptable by the Hong Kong Stock Exchange:
(a) a Member of The Hong Kong Institute of Chartered Secretaries;
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WAIVERS AND EXEMPTION FROM COMPLIANCE
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(b) a solicitor or barrister (as defined in the Legal Practitioners Ordinance); and
(c) a certified public accountant (as defined in the Professional Accountants
Ordinance).
Note 2 to Rule 3.28 of the Hong Kong Listing Rules sets out factors the Hong Kong Stock
Exchange considers in assessing an individual’s “relevant experience”:
(a) length of employment with the issuer and other issuers and the roles he played;
(b) familiarity with the Listing Rules and other relevant law and regulations including
the Securities and Futures Ordinance, Companies Ordinance, and the Takeovers
Code;
(c) relevant training taken and/or to be taken in addition to the minimum requirement
under Rule 3.29 of the Hong Kong Listing Rules; and
(d) professional qualifications in other jurisdictions.
Pursuant to Rule 8.17 (as amended effective on January 1, 2012) of the Hong Kong
Listing Rules, an issuer must appoint a company secretary who satisfies Rule 3.28 of the Hong
Kong Listing Rules.
Mr. Jin Xiaobin joined our Company in August 1998, and has 13 years of management
experience in securities industry and profound understanding of our operation. Mr. Jin does not
possess the specified qualifications required by Rule 3.28 of the Hong Kong Listing Rules.
Given the important role of the company secretary in the corporate governance of a listed
issuer, particularly in assisting the listed issuer as well as its directors in complying with the
Hong Kong Listing Rules and other relevant laws and regulations, we have made the following
arrangements:
Mr. Jin will endeavor to attend relevant training courses, including briefing on the
latest changes to the applicable Hong Kong laws and regulations and the Hong Kong
Listing Rules organized by the Company’s Hong Kong legal advisors on an
invitation basis and seminars organized by the Hong Kong Stock Exchange for PRC
issuers from time to time, in addition to the minimum requirement under Rule 3.29
of the Hong Kong Listing Rules;
we have appointed Ms. Mok Mingwai who meets the requirements under Note 1 to
Rule 3.28 of the Hong Kong Listing Rules, as a joint company secretary to work
closely with and provide assistance to Mr. Jin in the discharge of his duties as
company secretary for an initial period of three years commencing from the Listing
Date so as to enable Mr. Jin to acquire the relevant experience (as required under
Note 2 to Rule 3.28 of the Hong Kong Listing Rules) to discharge the duties and
responsibilities as company secretary; and
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WAIVERS AND EXEMPTION FROM COMPLIANCE
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upon expiry of the three-year period, the qualifications and experience of Mr. Jin
will be evaluated. Mr. Jin is expected to demonstrate to the Hong Kong Stock
Exchange’s satisfaction that he, having had the benefit of Ms. Mok’s assistance for
three years, would then have acquired the “relevant experience” within the meaning
of Note 2 to Rule 3.28 of the Hong Kong Listing Rules.
We have applied to the Hong Kong Stock Exchange for, and the Hong Kong Stock
Exchange has granted us, a waiver from strict compliance with the requirements of Rule 3.28
and Rule 8.17 of the Hong Kong Listing Rules. Upon the expiry of the initial three-year period,
the qualifications of Mr. Jin will be re-evaluated to determine whether the requirements as
stipulated in Note 2 to Rule 3.28 of the Hong Kong Listing Rules can be satisfied. In the event
that Mr. Jin has obtained relevant experience under Note 2 to Rule 3.28 of the Hong Kong
Listing Rules at the end of the said initial three-year period, the above joint company
secretaries arrangement would no longer be necessary.
SUBMISSION SEEKING CONSENT FROM THE HONG KONG STOCK EXCHANGE
REGARDING THE REQUIREMENTS UNDER RULE 10.04 AND PARAGRAPH 5(2) OF
APPENDIX 6 OF THE HONG KONG LISTING RULES
Rule 10.04 of the Hong Kong Listing Rules provides that a person who is an existing
shareholder of the issuer may only subscribe for or purchase any securities for which listing
is sought which are being marketed by or on behalf of a new applicant either in his or its own
name or through nominees if the conditions in Rules 10.03(1) and (2) of the Hong Kong Listing
Rules are fulfilled. The conditions in Rules 10.03(1) and (2) of the Hong Kong Listing Rules
are as follows: (i) no securities are offered to the existing shareholders on a preferential basis
and no preferential treatment is given to them in the allocation of the securities; and (ii) the
minimum prescribed percentage of public shareholders required by Rule 8.08(1) of the Hong
Kong Listing Rules is achieved.
Paragraph 5(2) of Appendix 6 to the Hong Kong Listing Rules provides that, unless with
the prior consent of the Hong Kong Stock Exchange, no allocations will be permitted to
directors or existing shareholders of the applicant or their associates, whether in their own
names or through nominees unless the conditions set out in Rules 10.03 and 10.04 of the Hong
Kong Listing Rules are fulfilled.
We have applied to the Hong Kong Stock Exchange for, and the Hong Kong Stock
Exchange has granted us, its consent under Rule 10.04 and Paragraph 5(2) of Appendix 6 of
the Hong Kong Listing Rules so that the Company could allocate H Shares under the placing
tranche of the Global Offering to its existing public holders of A Shares on the grounds that:
1. the Global Offering comprises the Hong Kong Public Offer and the International
Offering, and the International Underwriters will solicit indications of interest from
prospective investors in the book-building phase of the International Offering;
2. we have a wide spread of shareholder base and do not have any controlling
shareholder as defined under the Hong Kong Listing Rules; and
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WAIVERS AND EXEMPTION FROM COMPLIANCE
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3. it is not intended that any Connected Persons of us or any of their associates would
participate in the International Offering, or otherwise subscribe for or purchase any
H Shares of us under the Global Offering.
The Hong Kong Stock Exchange has granted such consent on the condition that:
1. such holders of A Shares would be shareholders who each holds less than 2% of our
issued share capital immediately prior to the Global Offering and has no board
representation in our Company and therefore would not be in a position to exert any
influence over the allocation process in the International Offering;
2. such holders of A Shares are not, and would not be, our Connected Persons or any
of their associates immediately prior to or after the Global Offering;
3. the proposed placing of shares would be at the same price offered in the initial
public offering;
4. such holders of A Shares would be subject to the same book building and allocation
process as other investors in the International Offering, and no preferential treatment
would be given to them in the allocation of H Shares in the International Offering;
5. allocation to these holders of A Shares would not affect our ability to satisfy the
public float requirement under Rule 8.08 of the Hong Kong Listing Rules; and
6. all relevant information in respect of the allocation to the holders of A Shares would
be disclosed in both this prospectus and the allotment results announcement.
CLAWBACK MECHANISM UNDER PARAGRAPH 4.2 OF PRACTICE NOTE 18 OF
THE HONG KONG LISTING RULES
Paragraph 4.2 of Practice Note 18 of the Hong Kong Listing Rules requires a clawback
mechanism to be put in place, which would have the effect of increasing the number of Hong
Kong Offer Shares to certain percentages of the total number of Offer Shares offered in the
Global Offering if certain prescribed total demand levels are reached. We have applied to the
Hong Kong Stock Exchange for, and the Hong Kong Stock Exchange has granted to us, a
waiver from strict compliance with paragraph 4.2 of Practice Note 18 of the Hong Kong Listing
Rules such that, provided the initial allocation of H Shares under the Hong Kong Public
Offering shall not be less than 5% of the Global Offering, in the event of over-subscription, the
Joint Global Coordinators, after consultation with us, shall apply a clawback mechanism
following the closing of the application lists on the following basis:
1. if the number of the H Shares validly applied for under the Hong Kong Public
Offering represents 15 times or more but less than 50 times the number of the Offer
Shares initially available for subscription under the Hong Kong Public Offering,
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WAIVERS AND EXEMPTION FROM COMPLIANCE
WITH THE HONG KONG LISTING RULES
then Offer Shares will be reallocated to the Hong Kong Public Offering from the
International Offering, so that the total number of Offer Shares available under the
Hong Kong Public Offering will be 92,205,000 H Shares, representing
approximately 7.5% of the Offer Shares initially available under the Global
Offering;
2. if the number of the Offer Shares validly applied for under the Hong Kong Public
Offering represents 50 times or more but less than 100 times the number of the Offer
Shares initially available for subscription under the Hong Kong Public Offering,
then the number of Offer Shares to be reallocated to the Hong Kong Public Offering
from the International Offering will be increased so that the total number of the
Offer Shares available under the Hong Kong Public Offering will be 122,940,000 H
Shares, representing 10% of the Offer Shares initially available under the Global
Offering; and
3. if the number of the Offer Shares validly applied for under the Hong Kong Public
Offering represents 100 times or more the number of the Offer Shares initially
available for subscription under the Hong Kong Public Offering, then the number of
Offer Shares to be reallocated to the Hong Kong Public Offering from the
International Offering will be increased, so that the total number of the Offer Shares
available under the Hong Kong Public Offering will be 245,880,000 H Shares,
representing 20% of the Offer Shares initially available under the Global Offering.
In each such case, the number of the Offer Shares allocated to the International
Offering will be correspondingly reduced.
In each case, the additional Offer Shares reallocated to the Hong Kong Public Offering
will be allocated between pool A and pool B and the number of Offer Shares allocated to the
International Offering will be correspondingly reduced in such manner as the Joint Global
Coordinators deem appropriate. In addition, the Joint Global Coordinators may allocate Offer
Shares from the International Offering to the Hong Kong Public Offering to satisfy valid
applications under the Hong Kong Public Offering.
If the Hong Kong Public Offering is not fully subscribed, the Joint Global Coordinators
have the authority to reallocate all or any unsubscribed Hong Kong Offer Shares to the
International Offering, in such proportions as the Joint Global Coordinators deem appropriate.
Please also see “Structure of the Global Offering – The Hong Kong Public Offering –
Reallocation” of this prospectus.
WAIVER FROM THE HONG KONG STOCK EXCHANGE REGARDING THE
REQUIREMENTS UNDER RULE 13.46(2) OF THE HONG KONG LISTING RULES
Pursuant to Rule 13.46(2) of the Listing Rules, an issuer is required to send a copy of its
annual report and accounts or summary financial report to its shareholders within four months
after its financial year-end.
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WAIVERS AND EXEMPTION FROM COMPLIANCE
WITH THE HONG KONG LISTING RULES
As the financial year end of our Company falls on December 31 and the Listing is
expected to commence on April 27, 2012, we would be required to publish our annual report
for the year ended December 31, 2011 by April 30, 2012 pursuant to Rule 13.46(2) of the
Listing Rules. Given that our financial information in respect of the financial year ended
December 31, 2011 and the detailed management discussion on the changes of the financials
in 2011 have been included in the Prospectus and taking into consideration the short time
between the date of this prospectus and the deadline for the issue of the annual report, our
Directors consider that strict compliance with the requirements of Rule 13.46(2) of the Listing
Rules to publish an annual report will not provide our Shareholders with further material
information of our Company that is required to be disclosed in an annual report and would
incur unnecessary administrative cost and be unduly burdensome for us. Our Directors, having
made all reasonable enquiries and taken into account the advice of the legal advisors to our
Company as to PRC law, confirmed that the departure from strict compliance with Rule
13.46(2) of the Listing Rules will not be in breach of the constitutional documents of our
Company or laws and regulations of the PRC or other PRC regulatory requirements regarding
our obligation to distribute annual reports and accounts. A short statement as to whether we
will otherwise comply with the HKSE Corporate Governance Code after the Listing has been
set out in the paragraph headed “Corporate Governance” under the section headed “Directors,
Supervisors and Senior Management” in this prospectus.
On the above basis, we have applied to the Stock Exchange for, and the Stock Exchange
has granted, a waiver from strict compliance with the requirements of Rule 13.46(2) of the
Listing Rules in respect of the issue of an annual report for the financial year ended December
31, 2011.
EXPLANATION REGARDING POTENTIAL DEVIATION FROM CODE PROVISION
A.1.8 OF THE HKSE CORPORATE GOVERNANCE CODE
Our Directors are aware that, effective from April 1, 2012, the recommended best practice
of arranging appropriate insurance cover in respect of legal actions against directors has been
upgraded to a code provision in the HKSE Corporate Governance Code. Our Directors are also
aware that, upon Listing, we are expected to comply with, but may choose to deviate from such
code provision, However, such deviation shall be carefully considered and reasons for such
deviation shall be given in the interim report and the annual report of the relevant period. While
we are committed to achieving high standards of corporate governance and to complying with
the code provisions as set out in the HKSE Corporate Governance Code, we are advised by our
PRC legal advisors, Grandall Law Firm (Shanghai), that insurance cover in respect of legal
actions against directors shall be approved at general meeting under the SSE Corporate
Governance Index. Upon careful consideration, our Directors decided to delay the compliance
with such code provision and submit the relevant insurance plans for our Shareholders’
approval at our next annual general meeting, which is expected to be held by June 2012 for the
following reasons: (i) the deviation from such code provision will be for a short period of time
of less than three months, taking into consideration that our Listing Date is expected to be on
April 27, 2012 and our annual general meeting is expected to be held by June 2012; and (ii)
to convene an extraordinary general meeting approximately two months before our annual
general meeting solely to approve such insurance plans would incur undue administrative cost
on the part of our Company and be unduly burdensome for the Company.
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INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS IN THIS PROSPECTUS
This prospectus, for which the Directors collectively and individually accept full
responsibility, includes particulars given in compliance with the Listing Rules for the purpose
of giving information with regard to our Company. The Directors, having made all reasonable
enquiries, confirm that to the best of their knowledge and belief the information contained in
this prospectus is accurate and complete in all material respects and not misleading or
deceptive, and there are no other matters the omission of which would make any statement
herein or this prospectus misleading.
CSRC APPROVAL
The CSRC issued its approval for the Global Offering and our application to list the H
Shares on the Hong Kong Stock Exchange on November 17, 2011. In granting such approval,
the CSRC accepts no responsibility for our financial soundness nor the accuracy of any of the
statements made or opinions expressed in this prospectus or the Application Forms. No other
approvals are required to be obtained for the listing of the H Shares on the Hong Kong Stock
Exchange.
THE HONG KONG PUBLIC OFFERING AND THIS PROSPECTUS
This prospectus is published solely in connection with the Hong Kong Public Offering,
which forms part of the Global Offering. Neither the delivery of this prospectus nor any
subscription or acquisition made under it shall, under any circumstances, create any
implication that there has been no change in our affairs since the date of this prospectus or that
the information in it is correct as of any subsequent time.
UNDERWRITING
For applicants under the Hong Kong Public Offering, this prospectus and the related
Application Forms contain the terms and conditions of the Hong Kong Public Offering. The
Global Offering comprises the International Offering of initially 1,167,930,000 Offer Shares
and the Hong Kong Public Offering of initially 61,470,000 Offer Shares, each subject to the
re-allocation on the basis as described in the section headed “Structure of the Global Offering”
in this prospectus.
The Listing is sponsored by the Joint Sponsors and the Global Offering is managed by the
Joint Global Coordinators. The Hong Kong Offer Shares are fully underwritten by the Hong
Kong Underwriters pursuant to the Hong Kong Underwriting Agreement. The International
Offer Shares are intended to be fully underwritten by the International Underwriters pursuant
to the International Underwriting Agreement, which is expected to be entered into on or around
April 20, 2012. Further information regarding the Underwriters and the underwriting
arrangements are set out in the section headed “Underwriting” in this prospectus.
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INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
INFORMATION ON THE GLOBAL OFFERING
The Hong Kong Offer Shares are offered solely on the basis of the information contained
and representations made in this prospectus and the related Application Forms and on the terms
and subject to the conditions set out herein and therein. No person is authorized in connection
with the Global Offering to give any information or to make any representation not contained
in this prospectus and the related Application Forms, and any information or representation not
contained herein and therein must not be relied upon as having been authorized by the
Company, the Underwriters and any of their respective directors, officers, employees, agents
or representatives or any other persons involved in the Global Offering.
RESTRICTIONS ON OFFER AND SALE OF THE OFFER SHARES
Each person acquiring the Hong Kong Offer Shares will be required to, or be deemed by
his/her acquisition of the Hong Kong Offer Shares to, confirm that he/she is aware of the
restrictions on offers of the Hong Kong Offer Shares described in this prospectus and the
related Application Forms.
No action has been taken to permit a Hong Kong Public Offering of the Offer Shares or
the general distribution of this prospectus and/or the related Application Forms in any
jurisdiction other than Hong Kong. Accordingly, this prospectus may not be used for the
purpose of, and does not constitute, an offer or invitation in any jurisdiction or in any
circumstances in which such an offer or invitation is not authorized or to any person to whom
it is unlawful to make such an offer or invitation. The distribution of this prospectus and the
offering and sales of the Offer Shares in other jurisdictions are subject to restrictions and may
not be made except as permitted under the applicable securities laws of such jurisdictions
pursuant to registration with or authorization by the relevant securities regulatory authorities
or an exemption therefrom. Each person acquiring the Hong Kong Offer Shares under the Hong
Kong Public Offering will be required to confirm, or be deemed by his acquisition of Hong
Kong Offer Shares to confirm, that he is aware of the restrictions on offers and sales of the
Offer Shares described in this prospectus.
The Offer Shares are offered for subscription solely on the basis of the information
contained and representations made in this prospectus and related Application Forms, and on
the terms and subject to the conditions set out herein and therein. No person is authorized in
connection with the Global Offering to give any information, or to make any representation,
not contained in this prospectus, and any information or representation not contained in this
prospectus must not be relied upon as having been authorized by our Company, the Joint
Sponsors, the Joint Global Coordinators, the Joint Bookrunners, the Joint Lead Managers, the
Underwriters, any of their respective directors or any other persons or parties involved in the
Global Offering. For further details of the structure of the Global Offering, including its
conditions, and the procedures for applying for Hong Kong Offer Shares, please see “Structure
of the Global Offering” and “How to Apply for the Hong Kong Offer Shares” in this prospectus
and the relevant Application Forms.
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INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
APPLICATION FOR LISTING ON THE HONG KONG STOCK EXCHANGE
We have applied to the Listing Committee for the listing of, and permission to deal in, the
H Shares in issue and to be issued pursuant to (i) the Global Offering (including the additional
H Shares which may be issued pursuant to the exercise of the Over-allotment Option); and (ii)
the H Shares which will be converted from A Shares and transferred to NSSF pursuant to the
relevant PRC regulations relating to reduction of state-owned shares.
Dealings in the H Shares on the Hong Kong Stock Exchange are expected to commence
on Friday, April 27, 2012. Except for the A Shares of the Company that have been listed on the
Shanghai Stock Exchange and our pending application to the Hong Kong Stock Exchange for
the listing of, and permission to deal in the H Shares, no part of the Company’s share capital
is listed or dealt in on the Hong Kong Stock Exchange or any other stock exchange and no such
listing or permission to list is being or is proposed to be sought in the near future. All the Offer
Shares will be registered on the H Share Registrar of our Company in order to enable them to
be traded on the Hong Kong Stock Exchange.
PROFESSIONAL TAX ADVICE RECOMMENDED
Potential investors in the Global Offering are recommended to consult their professional
advisors if they are in any doubt as to the taxation implications of subscribing for, purchasing,
holding or disposal of, and/or dealing in the Offer Shares or exercising any rights attached to
them. Our Company, the Joint Sponsors, the Joint Global Coordinators, the Joint Bookrunners,
the Joint Lead Managers, the Underwriters, any of their respective directors, officers,
employees, agents or representatives or any other person or party involved in the Global
Offering do not accept responsibility for any tax effects on, or liabilities of, any person
resulting from the subscription, purchase, holding, disposition of, or dealing in, the Offer
Shares or exercising any rights attached to them.
OVER-ALLOTMENT AND STABILIZATION
Details of the arrangement relating to the Over-allotment Option and stabilization are set
out under the section headed “Structure of the Global Offering” in this prospectus.
PROCEDURE FOR APPLICATION FOR HONG KONG OFFER SHARES
The procedures for applying for the Hong Kong Offer Shares are set out in the section
headed “How to Apply for Hong Kong Offer Shares” of this prospectus and on the related
Application Forms.
STRUCTURE AND CONDITIONS OF THE GLOBAL OFFERING
Particulars of the structure of the Global Offering, including its conditions, are set out in
the section of this prospectus headed “Structure of the Global Offering.”
– 70 –
INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
H SHARE REGISTER OF MEMBERS AND HONG KONG STAMP DUTY
All of the H Shares issued pursuant to the Global Offering will be registered on the
Company’s H Share register of members to be maintained in Hong Kong by our H Share
Registrar, Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th
Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. Our register of
members will also be maintained by us at our legal address in the PRC. Dealings in the H
Shares registered in our Company’s H Share register of members will be subject to Hong Kong
stamp duty.
REGISTRATION OF SUBSCRIPTION, PURCHASE AND TRANSFER OF H SHARES
We have instructed Computershare Hong Kong Investor Services Limited, our H Share
Registrar, and it has agreed, not to register the subscription, purchase or transfer of any H
Shares in the name of any particular holder unless and until the holder delivers a signed form
to our H Share Registrar in respect of those H Shares bearing statements to the effect that the
holder:
(i) agrees with us and each of our Shareholders, and we agree with each Shareholder,
to observe and comply with the Company Law, the Special Regulations, and the
Articles of Association;
(ii) agrees with us, each of our Shareholders, Directors, Supervisors, managers and
officers, and each of us acting for ourselves and for each of our Directors,
Supervisors, managers and officers agrees with each of our Shareholders to refer all
differences and claims arising from the Articles of Association or any rights or
obligations conferred or imposed by the Company Law or other relevant laws and
administrative regulations concerning our affairs to arbitration in accordance with
the Articles of Association, and any reference to arbitration shall be deemed to
authorize the arbitration tribunal to conduct hearings in open session and to publish
its award, which arbitration shall be final and conclusive;
(iii) agrees with us and each of our Shareholders that the H Shares are freely transferable
by the holders thereof; and
(iv) authorizes us to enter into a contract on his behalf with each of our Directors,
Supervisors and officers whereby such Directors, Supervisors and officers undertake
to observe and comply with their obligations to our Shareholders as stipulated in the
Articles of Association.
H SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS
Subject to the granting of listing of, and permission to deal in, the H Shares on the Hong
Kong Stock Exchange and our compliance with the stock admission requirements of HKSCC,
the H Shares will be accepted as eligible securities by HKSCC for deposit, clearance and
– 71 –
INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
settlement in CCASS with effect from the date of commencement of dealings in the H Shares
on the Hong Kong Stock Exchange or any other date as determined by HKSCC. Settlement of
transactions between participants of the Hong Kong Stock Exchange is required to take place
in CCASS on the second Business Day after any trading day. All activities under CCASS are
subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time
to time. All necessary arrangements have been made for the H Shares to be admitted into
CCASS.
COMMENCEMENT OF DEALINGS IN THE H SHARES
Dealings in the H Shares on the Hong Kong Stock Exchange are expected to commence
on Friday, April 27, 2012. H Shares will be traded in board lots of 400 H Shares each.
EXCHANGE RATE CONVERSION
For exchange rate translations throughout this prospectus, unless otherwise specified,
amounts denominated in HK$, US$, RMB have been converted, for the purpose of this
prospectus, based on the rates set out below (for the purpose of illustration only):
US$1.00: HK$7.7659 (the exchange rate set forth in the H.10 weekly statistical release
of the Federal Reserve Board of the United States on April 6, 2012)
RMB1.00: HK$1.2323 (set by the PBOC for foreign exchange transactions prevailing on
April 9, 2012)
We make no representations and none should be construed as being made, that any of the
RMB, HK dollar or U.S. dollar amounts contained in this prospectus could have been or could
be converted into amounts of any other currencies at any particular rate or at all on such date
or any other date.
LANGUAGE
The English names of PRC nationals, entities, departments, facilities, certificates, titles,
laws and regulations and the like are translations of their Chinese names and are included for
identification purposes only. If there is any inconsistency, the Chinese name prevails.
ROUNDING
Any discrepancies in any table between totals and sums of amounts listed thereon are due
to rounding. Certain amounts and percentage figures included in this prospectus have also been
subject to rounding adjustments, or have been rounded to one or two decimal places.
INTER-SEGMENT REVENUE
All discussion of our segment revenue and other income in this prospectus exclude
inter-segment revenue, except for the section entitled “Financial Information – Summary
Segment Results” where we specifically include our inter-segment revenue and inter-segment
expenses in our segment revenue and other income, segment expenses and segment results.
– 72 –
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
DIRECTORS
Name Address Nationality
Executive Directors
Mr. Wang Kaiguo (sW ) Room 601, No. 18, Lane 11 Honggu Chinese
Road, Shanghai, PRC
Mr. Li Mingshan (gNf \ ) Room 201, No. 2, Lane 6 Wanping Chinese
Road, Xuhui District, Shanghai, PRC
Non-executive Directors
Mr. Qian Shizheng (“\"N e? ) Flat C, 30/F, Li Chit Garden, Chinese
1 Li Chit Street, Wanchai, Hong Kong
Mr. Zhuang Guowei (W … ) Room 801, No. 4, Lane 377 Tiandong Chinese
Road, Shanghai, PRC
Mr. Zhou Donghui (Thgq ) Room 1001, No. 74, Lane 789 Yingkou Chinese
Road, Shanghai, PRC
Mr. He Jianyong (OUPeR No. 25, Liuzhou Street, Heping District, Chinese
Shenyang, Liaoning, PRC
Mr. Zhang Jianwei (_5úPI ) Room 1703, Building 2, No. 5 Panyu Chinese
Road, Shanghai, PRC
Mr. Xu Chao (_on ) No. 149, No. 1111 Jinglian Road, Chinese
Minhang District, Shanghai, PRC
Mr. Wang Hongxiang (s;ye ) Room 401, No. 108, Lane 511 Wuzhong Chinese
Road, Minhang District, Shanghai, PRC
Mr. Li Gewei (gN ) No. 402, Gate 6, Building 1, Chinese
Xinyuancun, Tianjin University,
Nankai District, Tianjin, PRC
Mr. Feng Huang (qL ) Room 302, No 106, Lane 421 Siping Chinese
Road, Hongkou District, Shanghai, PRC
– 73 –
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
Name Address Nationality
Independent Non-executive Directors
Mr. Xia Bin (Y e ) No. 201, Gate 3, Building 17, Chinese
Guoyingyuan District, Xicheng District,
Beijing, PRC
Mr. Chen Qiwei (–st&PI ) Room 1801, No. 2, Lane 1310 Dingxi Chinese
Road, Shanghai, PRC
Mr. Zhang Huiquan (_5àl ) No. 23 Dongxiazhuangshu, Shijingshan Chinese
District, Beijing, PRC
Mr. Zhang Ming (_5 ) Room 502, No. 8, Lane 221 Longcao Chinese
Road, Shanghai, PRC
Mr. Dai Genyou (b4h9g ) Room 602, Gate No. 4, Community Chinese
No.3, Shao Jiu Hu Tong,
Chaoyangmennei North Alley,
Beijing, PRC
Mr. Liu Chee Ming (R‰×eO ) Room A5, No. 10 Bluff Path, The Peak, Singaporean
Hong Kong
Supervisors
Mr. Wang Yimin (svl ) Room 901, No. 4, Lane 1028 Chinese
Changshou Road, Putuo District,
Shanghai, PRC
Mr. Yang Qingzhong (iJav_à ) Room 802, No. 4, Lane 333 Hanzhong Chinese
Road, Shanghai, PRC
Mr. Yuan Lingcai ( bM ) Room 401, No. 20, Lane 118 Quyang Chinese
Road, Shanghai, PRC
Mr. Dong Xiaochun (c f% ) Room 701, No. 2, Lane 163 Puhuitang Chinese
Road, Shanghai, PRC
Mr. Wu Zhilin (T3 ) Room 301, Building E, No. 343 Chinese
Huaihaixi Road, Shanghai, PRC
Ms. Jin Yanping (‘q ) Room 506, No. 6, Lane 20 Fahuazhen Chinese
Road, Shanghai, PRC
– 74 –
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
Name Address Nationality
Mr. Xu Qi (1YG) Room 1301, No. 10, Lane 77 Anshun Chinese
Road, Shanghai, PRC
Mr. Xing Jianhua (ú ) Room 201, No. 1, Lane 235 Xijiangwan Chinese
Road, Shanghai, PRC
Mr. Wang Yugui (ss ) Room 705, Building 3, No. 123 Chinese
Zhongguancun East Road, Beijing, PRC
Ms. Qiu Xiaping (NY ) Room 1504, No. 3, Lane 60 Linpingbei Chinese
Road, Shanghai, PRC
Mr. Du Hongbo (g\ml ) Room 502, No. 2, Lane 200 Boshan Chinese
Road, Pudong New Area,
Shanghai, PRC
– 75 –
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
PARTIES INVOLVED
Joint Sponsors Haitong International Capital Limited
25th Floor, New World Tower
16-18 Queen’s Road Central
Central
Hong Kong
J.P. Morgan Securities
(Asia Pacific) Limited
28th Floor, Chater House
8 Connaught Road Central
Central
Hong Kong
Joint Global Coordinators Haitong International Securities
Company Limited
25th Floor, New World Tower
16-18 Queen’s Road Central
Central
Hong Kong
J.P. Morgan Securities
(Asia Pacific) Limited
28th Floor, Chater House
8 Connaught Road Central
Central
Hong Kong
Credit Suisse (Hong Kong) Limited
Level 88, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
Deutsche Bank AG, Hong Kong Branch
Level 52, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
Citigroup Global Markets Asia Limited
50th Floor, Citibank Tower, Citibank Plaza
3 Garden Road
Central
Hong Kong
– 76 –
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
UBS AG, Hong Kong Branch
52/F Two International Finance Centre
8 Finance Street
Central
Hong Kong
Joint Bookrunners Hong Kong Public Offering
Haitong International Securities
Company Limited
25th Floor, New World Tower
16-18 Queen’s Road Central
Central
Hong Kong
J.P. Morgan Securities
(Asia Pacific) Limited
28th Floor, Chater House
8 Connaught Road Central
Central
Hong Kong
Credit Suisse (Hong Kong) Limited
Level 88, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
Deutsche Bank AG, Hong Kong Branch
Level 52, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
Citigroup Global Markets Asia Limited
50th Floor, Citibank Tower, Citibank Plaza
3 Garden Road
Central
Hong Kong
UBS AG, Hong Kong Branch
52/F Two International Finance Centre
8 Finance Street
Central
Hong Kong
– 77 –
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
The Hongkong and Shanghai Banking
Corporation Limited
1 Queen’s Road Central
Hong Kong
Nomura International
(Hong Kong) Limited
30/F Two International Finance Centre
8 Finance Street
Central
Hong Kong
Standard Chartered Securities
(Hong Kong) Limited
15/F, Two International Finance Centre
8 Finance Street
Central
Hong Kong
BOCOM International Securities Limited
9/F, Man Yee Building
68 Des Voeux Road Central
Hong Kong
International Offering
Haitong International Securities
Company Limited
25th Floor, New World Tower
16-18 Queen’s Road Central
Central
Hong Kong
J.P. Morgan Securities Ltd.
125 London Wall
London EC2Y 5AJ
United Kingdom
– 78 –
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
Credit Suisse (Hong Kong) Limited
Level 88, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
Deutsche Bank AG, Hong Kong Branch
Level 52, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
Citigroup Global Markets Limited
33 Canada Square
Canary Wharf
London E14 5LB
United Kingdom
UBS AG, Hong Kong Branch
52/F Two International Finance Centre
8 Finance Street
Central
Hong Kong
The Hongkong and Shanghai Banking
Corporation Limited
1 Queen’s Road Central
Hong Kong
Nomura International
(Hong Kong) Limited
30/F Two International Finance Centre
8 Finance Street
Central
Hong Kong
– 79 –
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
Standard Chartered Securities
(Hong Kong) Limited
15/F, Two International Finance Centre
8 Finance Street
Central
Hong Kong
BOCOM International Securities Limited
9/F, Man Yee Building
68 Des Voeux Road Central
Hong Kong
Joint Lead Managers Hong Kong Public Offering
Haitong International Securities
Company Limited
25th Floor, New World Tower
16-18 Queen’s Road Central
Central
Hong Kong
J.P. Morgan Securities
(Asia Pacific) Limited
28th Floor, Chater House
8 Connaught Road Central
Central
Hong Kong
Credit Suisse (Hong Kong) Limited
Level 88, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
Deutsche Bank AG, Hong Kong Branch
Level 52, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
Citigroup Global Markets Asia Limited
50th Floor, Citibank Tower, Citibank Plaza
3 Garden Road
Central
Hong Kong
– 80 –
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
UBS AG, Hong Kong Branch
52/F Two International Finance Centre
8 Finance Street
Central
Hong Kong
The Hongkong and Shanghai Banking
Corporation Limited
1 Queen’s Road Central
Hong Kong
Nomura International
(Hong Kong) Limited
30/F Two International Finance Centre
8 Finance Street
Central
Hong Kong
Standard Chartered Securities
(Hong Kong) Limited
15/F, Two International Finance Centre
8 Finance Street
Central
Hong Kong
BOCOM International Securities Limited
9/F, Man Yee Building
68 Des Voeux Road Central
Hong Kong
BNP Paribas Capital (Asia Pacific) Limited
59th-63rd Floor
Two International Finance Centre
8 Finance Street
Central
Hong Kong
– 81 –
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
BOCI Asia Limited
26th Floor, Bank of China Tower
1 Garden Road
Hong Kong
CCB International Capital Limited
34th Floor, Two Pacific Place
88 Queensway
Admiralty
Hong Kong
China Everbright Securities (HK) Limited
17/F, Far East Finance Centre
16 Harcourt Road
Hong Kong
Samsung Securities (Asia) Limited
Suite 4511 Two International Finance Centre
8 Finance Street
Central
Hong Kong
International Offering
Haitong International Securities
Company Limited
25th Floor, New World Tower
16-18 Queen’s Road Central
Central
Hong Kong
J.P. Morgan Securities Ltd.
125 London Wall
London EC2Y 5AJ
United Kingdom
Credit Suisse (Hong Kong) Limited
Level 88, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
Deutsche Bank AG, Hong Kong Branch
Level 52, International Commerce Centre
1 Austin Road West
Kowloon
Hong Kong
– 82 –
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
Citigroup Global Markets Limited
33 Canada Square
Canary Wharf
London E14 5LB
United Kingdom
UBS AG, Hong Kong Branch
52/F Two International Finance Centre
8 Finance Street
Central
Hong Kong
The Hongkong and Shanghai Banking
Corporation Limited
1 Queen’s Road Central
Hong Kong
Nomura International
(Hong Kong) Limited
30/F Two International Finance Centre
8 Finance Street
Central
Hong Kong
Standard Chartered Securities
(Hong Kong) Limited
15/F, Two International Finance Centre
8 Finance Street
Central
Hong Kong
BOCOM International Securities Limited
9/F, Man Yee Building
68 Des Voeux Road Central
Hong Kong
BNP Paribas Capital
(Asia Pacific) Limited
59th-63rd Floor
Two International Finance Centre
8 Finance Street
Central
Hong Kong
– 83 –
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
BOCI Asia Limited
26th Floor, Bank of China Tower
1 Garden Road
Hong Kong
CCB International Capital Limited
34th Floor, Two Pacific Place
88 Queensway
Admiralty
Hong Kong
China Everbright Securities (HK) Limited
17/F, Far East Finance Centre
16 Harcourt Road
Hong Kong
Samsung Securities (Asia) Limited
Suite 4511 Two International Finance Centre
8 Finance Street
Central
Hong Kong
Reporting accountants Deloitte Touche Tohmatsu
35/F, One Pacific Place
88 Queensway
Hong Kong
Legal advisors to the Company as to Hong Kong and United States law
Clifford Chance
28/F, Jardine House
One Connaught Place
Central
Hong Kong
as to PRC law
Grandall Law Firm (Shanghai)
45-46/F, Nan Zheng Building
580 West Nanjing Road
Shanghai 200041
PRC
– 84 –
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
Legal advisors to the Underwriters as to Hong Kong and United States law
Paul Hastings
21-22/F, Bank of China Tower
1 Garden Road
Hong Kong
as to PRC law
Commerce & Finance Law Offices
12 Jianguomenwai Avenue
Chaoyang District
Beijing 100022
PRC
Receiving bankers The Hongkong and Shanghai Banking
Corporation Limited
1 Queen’s Road Central
Hong Kong
Standard Chartered Bank (Hong Kong)
Limited
15/F, Standard Chartered Tower
388 Kwun Tong Road
Kwun Tong
Hong Kong
Bank of China (Hong Kong) Limited
1 Garden Road
Hong Kong
China Construction Bank (Asia)
Corporation Limited
Suite 2101, 21/F Devon House
979 King’s Road
Quarry Bay
Hong Kong
Bank of Communications Co., Ltd.
Hong Kong Branch
20 Pedder Street
Central
Hong Kong
The Bank of East Asia, Limited
10 Des Voeux Road Central
Hong Kong
– 85 –
CORPORATE INFORMATION
Registered office No. 98 Central Huaihai Road
Shanghai
PRC
Head office in the PRC Haitong Securities Building
No. 689 Guangdong Road
Shanghai
PRC
Principal place of business in Hong Kong 21st Floor, Li Po Chun Chambers
189 Des Voeux Road Central
Central
Hong Kong
Company’s website www.htsec.com
(information on the website does not form
part of this prospectus)
Joint Company Secretaries Mr. Jin Xiaobin (‘fe )
Ms. Mok Mingwai (f ag )
(fellow member of the Hong Kong Institute
of Chartered Secretaries
fellow member of the Institute of Chartered
Secretaries and Administrators in the United
Kingdom)
Authorized representatives Mr. Wang Kaiguo (sW )
Room 601, No. 18
Lane 11 Honggu Road
Shanghai
PRC
Mr. Jin Xiaobin (‘fe )
Room 1702, Building 6
No. 888, East Daming Road
Hongkou District
Shanghai
PRC
– 86 –
CORPORATE INFORMATION
Audit committee Mr. Zhang Ming (_5 ) (Chairman)
Mr. Zhou Donghui (Thgq )
Mr. Xu Chao (_on )
Mr. Wang Hongxiang (sye )
Mr. Zhang Huiquan (_5àl )
Mr. Dai Genyou (b4h9g )
Mr. Chen Qiwei (–st&PI )
Nomination, remuneration and Mr. Xia Bin (Y e ) (Chairman)
assessment committee Mr. Qian Shizheng (“\"N e? )
Mr. He Jianyong (OUPeR
Mr. Li Gewei (gN )
Mr. Zhang Ming (_5 )
Mr. Liu Chee Ming (R‰×eO )
Mr. Dai Genyou (b4h9g )
Development strategy and investment Mr. Wang Kaiguo (sW ) (Chairman)
management committee Mr. Qian Shizheng (“\"N e? )
Mr. Zhuang Guowei (W … )
Mr. Zhang Jianwei (_5úPI )
Mr. Chen Qiwei (–st&PI )
Compliance and risk control committee Mr. Zhang Huiquan (_5àl ) (Chairman)
Mr. Li Mingshan (gNf \ )
Mr. Zhou Donghui (Thgq )
Mr. Feng Huang (qL )
Mr. Dai Genyou (b4h9g )
Joint compliance advisors Haitong International Capital Limited
BOCOM International (Asia) Limited
H Share Registrar Computershare Hong Kong Investor
Services Limited
Shops 1712-1716, 17th Floor
Hopewell Centre
183 Queen’s Road East
Wanchai
Hong Kong
Principal bankers Bank of Communication
China Construction Bank
China Minsheng Banking Corp., Ltd.
China Guangfa Bank
Industrial and Commercial Bank of China
Industrial Bank Co., Ltd.
– 87 –
INDUSTRY OVERVIEW
This section contains information and statistics on the industry in which we
operate. We have extracted and derived such information and statistics, in part, from
various official or publicly available sources. We believe that the sources of this
information are appropriate sources and have taken reasonable care in extracting and
reproducing such information. We have no reason to believe that such information is
false or misleading or that any fact has been omitted that would render such
information false or misleading. The information has not been independently verified
by us, the Joint Sponsors, the Joint Global Coordinators, the Joint Bookrunners or any
other party involved in the Global Offering and no representation is given as to its
accuracy. Such information may not be consistent with, and may not have been
compiled with the same degree of accuracy or completeness as, other information
complied within or outside the PRC. Accordingly, the official government and other
third party sources contained herein may not be accurate and should not be unduly
relied upon.
OVERVIEW OF THE PRC ECONOMY
The PRC economy has grown significantly over the past three decades and will continue
to grow rapidly and steadily in the foreseeable future
The PRC economy has grown rapidly since 1978 when the PRC began its economic
reform. From 2001 to 2010, the average annual growth rate of real GDP in the PRC reached
10.5%, compared to the average growth rate of 3.6% for the world during the same period. The
nominal GDP of the PRC in 2010 amounted to RMB39.8 trillion, and the PRC economy has
become the world’s second largest economy since the fourth quarter of 2010. The following
table sets out the real GDP growth rates of the PRC and the world for the periods indicated:
Real GDP
growth rate 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E
PRC . . . . . . . . . 8.3% 9.1% 10.0% 10.1% 11.3% 12.7% 14.2% 9.6% 9.2% 10.4% 9.5% 9.0%
World Average . . . . 2.3% 2.9% 3.6% 4.9% 4.6% 5.3% 5.4% 2.8% -0.7% 5.1% 4.0% 4.0%
Sources: International Monetary Fund and NBSC. The 2011 and 2012 estimates were announced by the
International Monetary Fund in September 2011
– 88 –
INDUSTRY OVERVIEW
We believe the PRC economy will continue to experience rapid and steady growth in the
foreseeable future and that such growth will be driven by the following four major factors:
The less developed central, western and northeastern regions of the PRC have significant
potential for future growth
Certain regions in central, western and northeastern PRC have experienced faster
economic development than the southeastern coastal regions in recent years due to rapid
industrialization in those regions. According to the NBSC, from 2006 to 2010, the GDP of the
central, western and northeastern regions of the PRC grew at a CAGR of 18.3%, while the GDP
of the southeastern coastal regions grew at a CAGR of 15.7% during the same period. The
uneven development of different regions in the PRC and the government’s continued focus on
the development of the central, western and northeastern regions will drive strong economic
growth in these regions in the foreseeable future. We believe growth in these regions will
contribute to the rapid growth of the PRC economy in the long-term.
Industrial structure transformation stimulates further economic growth
The PRC economy has maintained its rapid growth in recent years while undergoing a
structural transformation of its economy. According to the Twelfth Five-Year Plan, improving
the structure of economic sectors will be the primary focus of the economic development of the
PRC in these five years. The government will focus on transforming lower-value and
labor-intensive industries to higher value-added and technology-focused industries. Another
goal set out in the Twelfth Five-Year Plan is to transform the PRC economy from being
export-oriented to being consumption-driven and service-oriented. Among the measures
outlined in the Twelfth Five-Year Plan, the expansion of the financial services industry and the
orderly introduction of new businesses are the key drivers for future economic development
and industrial transformation in the PRC. We believe transforming the structure of the
industrial sector will drive economic growth in the PRC in the foreseeable future and provide
new business opportunities for the various industries that undergo transformation and
transitions pursuant to the Twelfth Five-Year Plan.
The growth of SMEs drives steady and rapid economic development
SMEs have also experienced a period of rapid development in recent years. On January
1, 2003, Law of the People’s Republic of China on the Promotion of Small and Medium-sized
Enterprises (N-N”l QqTW N-\ O imO2l ) was promulgated, providing government
legislative support and creating a favorable policy environment for the development of SMEs.
According to the PRC Ministry of Industry and Information Technology, there were over ten
million SMEs as of December 31, 2010. SMEs accounted for approximately 60% of the
country’s GDP, 65% of the total number of patents and over 80% of the total number of product
innovations. In recent years, the increase in the number and scale of SMEs has significantly
contributed to the growth of the PRC economy. This has led to SMEs playing a more balanced
role relative to large enterprises in the economic development of the PRC.
Further urbanization drives the continuous growth of the PRC economy
Since the economic reform of the PRC in 1978, the PRC government has promoted
urbanization, which created strong momentum for economic development. According to Wind
– 89 –
INDUSTRY OVERVIEW
Info, the urbanization rate in the PRC increased by 33.4% from 1978 to 2011. The pace of
urbanization further accelerated from 2001 to 2011, with the urbanization rate increasing by
12.2%. As a result, the PRC urban population increased from 502 million to 690 million (an
average increase of 19 million per year) during the same period.
Despite the large-scale, rapid urbanization over the past 30 years, the overall urbanization
rate in the PRC is lower than that of several developed countries. The following table sets forth
the urbanization rates of the PRC, Japan, the U.K. and the U.S. in 2010:
PRC Japan U.K. U.S.
(1)
2010 Urbanization Rate . . . . . . . . . . . . . . . . . . 47.0% 67.0% 80.0% 82.0%
(1) Urbanization rate represents the ratio of urban population to total population.
Source: CIA – The World Factbook
As outlined in the Twelfth Five-Year Plan, the urbanization rate of the PRC is set to
exceed 50% by 2015. Based on the estimated urbanization rate for the PRC and its population
of approximately 1.3 billion, we believe the urban population in the PRC is expected to grow
by approximately ten million per year until 2015.
OVERVIEW OF THE PRC CAPITAL MARKET
The PRC capital market is among the largest and the fastest-growing in the world
The PRC capital market has grown substantially over the past 20 years, largely driven by
the significant economic development of the PRC, rapid growth in corporate earnings and
steady increase in financing demand and per capita income.
The total market capitalization of companies listed on the Shanghai Stock Exchange and
the Shenzhen Stock Exchange reached US$3.4 trillion as of December 31, 2011, and their total
trading volume was US$6.5 trillion in 2011. The total market capitalization of listed companies
in the PRC ranked third in the world behind the U.S. and Japan and total trading volume of
such companies ranked second in the world behind the U.S. The following table sets forth the
total market capitalization as of December 31, 2011, and the total trading volume of listed
companies in the U.S., the PRC, Japan and the U.K. in 2011:
U.S. PRC Japan U.K.
(US$ in trillions)
Total trading volume . . . . . . . . . . . . . . . . . . . . 30.8 6.5 4.2 2.8
Total market capitalization . . . . . . . . . . . . . . . . . 15.6 3.4 3.5 3.3
Source: WFE
– 90 –
INDUSTRY OVERVIEW
Over the past several years, the PRC stock market has experienced significant growth in
terms of market capitalization and trading volume. According to WFE, the respective rankings
of the Shanghai Stock Exchange and the Shenzhen Stock Exchange have improved rapidly
among the world’s major stock exchanges, as measured by total market capitalization, trading
volume and total proceeds raised from IPOs. In particular, in 2011, total proceeds raised from
IPOs on the Shanghai Stock Exchange and the Shenzhen Stock Exchange reached US$123.3
billion, representing 19.2% of total IPO proceeds (US$641.8 billion) raised in global capital
markets in the same year and making the PRC the largest IPO market in the world. The
following table sets forth the respective global rankings of the Shanghai Stock Exchange and
the Shenzhen Stock Exchange as of December 31, 2005 and 2011:
2005-2011 2005 Global 2011 Global
2005 2011 CAGR Ranking(1) Ranking(1)
(RMB in billions)
Market capitalization
Shanghai Stock Exchange . . . . . . . . . . . . . . . . . . 2,309.6 14,837.6 36.3% 21
Shenzhen Stock Exchange . . . . . . . . . . . . . . . . . . 933.4 6,638.2 38.7% 32
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,243.0 21,475.8 37.0%
Trading volume
Shanghai Stock Exchange . . . . . . . . . . . . . . . . . . 1,951.6 23,668.1 51.6% 18
Shenzhen Stock Exchange . . . . . . . . . . . . . . . . . . 1,262.1 18,337.9 56.2% 25
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,213.7 42,006.0 53.5%
Total proceeds raised from equity offerings
The Shanghai Stock Exchange . . . . . . . . . . . . . . . . 30.0 320.0 48.4% 24
The Shenzhen Stock Exchange. . . . . . . . . . . . . . . . 3.0 476.9 132.8% 43
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.0 796.9 70.0%
(1) The global ranking encompasses all stock exchanges in the world.
Source: WFE
There has been an increased in the number of PRC companies that are listed on the
Shanghai Stock Exchange and Shenzhen Stock Exchange. The following table sets forth the
number of listed companies in the PRC from 2006 to 2011, which increased from 1,434 in 2006
to 2,342 in 2011, representing a CAGR of 10.3%:
2006-2011
2006 2007 2008 2009 2010 2011 CAGR
Number of listed companies in the PRC . . 1,434 1,550 1,625 1,718 2,063 2,342 10.3%
Sources: CSRC, Shanghai Stock Exchange, Shenzhen Stock Exchange
– 91 –
INDUSTRY OVERVIEW
In addition to the PRC stock market, the PRC bonds, funds and futures markets have also
developed rapidly. According to Wind Info, between 2006 and 2011, the total amount of funds
raised through bond offerings (excluding treasury bonds, municipal bonds and central bank
instruments) in the PRC increased from RMB1.4 trillion to RMB4.7 trillion, representing a
CAGR of 27.5%. The net asset value of PRC mutual funds increased from RMB856.5 billion
in 2006 to RMB2,167.6 billion in 2010, representing a CAGR of 20.4%. Furthermore, the PRC
futures market is one of the largest in the world in terms of total trading volume, which,
according to the CSRC, increased from RMB21 trillion in 2006 to RMB138 trillion in 2011,
representing a CAGR of 45.7%.
Despite the rise in its global ranking, the PRC capital market is still in its early stage of
development and has enormous growth potential
Despite the rapid growth over the past two decades and the rise in its global ranking, the
following aspects of the capital market in the PRC are still in an early stage of development
compared with other mature capital markets in the following aspects:
The ratio of stock market capitalization relative to nominal GDP is relatively low
The ratio of the total market capitalization of the PRC stock market to its nominal GDP
is much lower than the ratios of major developed countries. As of December 31, 2010, the total
market capitalization of the PRC stock market accounted for 66.7% of the nation’s nominal
GDP, which was lower than that of major developed countries, including the U.S. This suggests
that the PRC stock market has further growth potential. The following table sets forth the stock
market capitalization of the U.S., Japan, the U.K. and the PRC relative to their nominal GDP
as of December 31, 2010:
U.S. Japan U.K. PRC
Ratio of stock market capitalization relative to nominal
GDP (%) . . . . . . . . . . . . . . . . . . . . . . . . . 119.0% 69.4% 158.6% 66.7%
Sources: WFE, International Monetary Fund, CSRC, NBSC
– 92 –
INDUSTRY OVERVIEW
The development of the corporate finance market is unbalanced
Currently, indirect financing such as bank lending remains a major source of external
financing for PRC companies. According to the CSRC and the PBOC, bank lending amounted
to approximately 67.5% of the total external financing of PRC companies by way of equity
offerings, bond offerings and bank lending during 2010. Direct financing, such as the issuance
of equity and debt securities, is not as prevalent in the PRC as in certain developed countries
such as the U.S. The following table sets forth the total value of equity offerings, bond
offerings and bank lending in the PRC and the U.S. in 2010:
Equity offerings Bond offerings(1) Bank lending(2)
(US$ in billions)
PRC . . . . . . . . . . . . . . . . . . . . . . . . 136 475 1,269
U.S. . . . . . . . . . . . . . . . . . . . . . . . . 201 1,788
(1) In the above table, bond offerings refer to those related to corporate financing, which include corporate bonds,
enterprise bonds, financial bonds, short-term commercial papers, medium-term notes, asset-backed securities,
convertible bonds and bonds with warrants but exclude treasury bonds, municipal bonds and central bank
instruments. The exchange rate of U.S. dollar and RMB used in the above table are the exchange rates as of
December 31, 2010.
(2) Difference in commercial bank lending outstandings between 2009 and 2010.
Sources: CSRC, PBOC, Bloomberg, China Banking Regulatory Commission, U.S. Federal Reserve Board
The PRC multi-tiered capital market is still developing
The PRC stock market has quickly developed over the past 20 years. In 2011, the PRC
stock market became the world’s second largest stock market in terms of annual trading
volume. However, there are significant structural differences between the PRC stock market
and the stock markets of developed countries such as the U.S. For example, the U.S. stock
market, comprised of the New York Stock Exchange and NASDAQ, is more mature and
diversified in terms of market capitalization, which are supplemented by other stock exchanges
and OTC markets, such as OTCBB and Pink Sheets. The number of companies that trade their
shares on the OTCBB and Pink Sheets is greater than the number of companies that are listed
on the New York Stock Exchange and NASDAQ. Conversely, the number of listed companies
on the main boards of the Shanghai Stock Exchange and the Shenzhen Stock Exchange still
– 93 –
INDUSTRY OVERVIEW
accounts for the majority of the PRC stock markets. In comparison to the stock markets in the
U.S., the SME Board, ChiNext Board and OTC market in the PRC are still developing. The
following table sets forth the structure of the stock markets of the U.S. and the PRC:
Difference in structure between the U.S. stock market (1) and the PRC stock market
(Number of listed companies as of December 31, 2010)
U.S. PRC
NYSE 2,317 Main board 1,379
NASDAQ 2,778 SME Board
OTCBB 3,136 ChiNext 153
Pink Sheet 5,954 OTC 130
(1) The data of OTCBB is the average number for 2010.
Sources: Shanghai Stock Exchange, Shenzhen Stock Exchange, CSRC, Wind Info, WFE, OTC Bulletin Board, OTC
Markets
We believe that as the PRC stock market continues to develop, the size of the SME Board
and the ChiNext Board will continue to expand. Given the expected expansion of the OTC
market, particularly the New OTC Board, the structure of the PRC stock market will become
increasingly more mature across multiple capital raising platforms.
The establishment of the SME Board and the ChiNext Board in 2005 and 2009,
respectively, has transformed the PRC stock market into a multi-tiered market, increasing the
market’s ability to accommodate the various financing needs of companies and diverse risk
profiles of investors. As shown in the table below, there has been significant growth from 2009
to 2011 in terms of the number of listed companies on the SME Board and the ChiNext Board,
total market capitalization, total proceeds raised in equity offerings and total trading value.
CAGR of
2009 2010 2011 2009 to 2011
Number of listed companies
SME Board . . . . . . . . . . . . . . . . . . . . . . . . . 327 531 646 40.6%
ChiNext Board. . . . . . . . . . . . . . . . . . . . . . . . 36 153 281 179.4%
Market capitalization (RMB in billions)
SME Board . . . . . . . . . . . . . . . . . . . . . . . . . 1,687 3,536 2,743 27.5%
ChiNext Board. . . . . . . . . . . . . . . . . . . . . . . . 161 737 743 114.8%
Funds raised in equity offerings (RMB in billions)
SME Board . . . . . . . . . . . . . . . . . . . . . . . . . 58 235 102 32.6%
ChiNext Board. . . . . . . . . . . . . . . . . . . . . . . . 20 96 79 98.7%
Value of share trading (RMB in billions)
SME Board . . . . . . . . . . . . . . . . . . . . . . . . . 4,827 8,583 16,903 87.1%
ChiNext Board. . . . . . . . . . . . . . . . . . . . . . . . 183 1,572 5,940 469.7%
Source: Shenzhen Stock Exchange
– 94 –
INDUSTRY OVERVIEW
In addition, the PRC has announced plans to introduce the International Board and the
New OTC Board. Recognizing the potential investment power of PRC investors, a number of
overseas companies have expressed interest in participating in the fast-growing PRC capital
market. Consequently, the CSRC and the Shanghai Stock Exchange have commenced plans to
introduce an International Board that will target listings of large global enterprises on the
Shanghai Stock Exchange. In addition, the PRC government also intends to establish and
expand a New OTC Board, which will create a highly regulated OTC market in the PRC and
offer a trading platform for the pre-IPO financing of selected SMEs. The OTC market will
focus on SMEs that have been established in science and technology parks in various regions
of the PRC, particularly those engaged in high-growth businesses involving new and advanced
technologies. Furthermore, the New OTC Board will offer a trading platform for companies
that have been delisted from the main board, the SME Board and the ChiNext Board.
The availability of financial products and services in the PRC capital market is limited
With the growth of the PRC economy, the investment needs of increasingly sophisticated
investors and the financing demands of companies in various sectors evolved towards more
sophisticated financial products and services. However, currently, there are limited types of
financial products and services in the PRC capital market. A number of prevalent financial
services and products in the capital markets of the U.S. and other developed countries, such as
margin and securities refinancing, market maker services for shares or share-linked products
and certain other derivatives and structured products, are either restricted or not popular among
retail and professional institutional investors in the PRC.
In addition, there are substantial differences between the product mix of the stock
exchanges in the PRC and the U.S. The PRC equity spot market is still dominated by stocks.
ETFs comprise only 0.9% of the PRC equity spot market compared with 20.5% in the U.S.
With respect to the derivatives market, most of the derivatives in the PRC capital market are
limited to commodity derivatives. Products such as equity derivatives and fixed-income
derivatives are less developed than those in certain mature markets. The range of financial
products has limited the investment options, strategies and investment portfolios of PRC
investors. The following tables set forth the composition of the equity spot market in terms of
turnover (for the six months ended June 30, 2011) and the derivatives market in terms of the
number of transactions (for the year ended December 31, 2010) in the PRC and the U.S.:
Equity spot market (turnover for the six months ended June 30, 2011)
PRC U.S.
(US$ in billions) (%) (US$ in billions) (%)
Stocks . . . . . . . . . . . . . . . . . . 3,770.1 98.6 14,738.5 79.1
Funds . . . . . . . . . . . . . . . . . . 18.1 0.5 70.8 0.4
ETFs. . . . . . . . . . . . . . . . . . . 33.3 0.9 3,807.7 20.5
Total . . . . . . . . . . . . . . . . . . . 3,821.5 100.0 18,616.9 100.0
Source: WFE
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INDUSTRY OVERVIEW
Derivatives market (the number of transactions for the year ended December 31, 2010)
PRC U.S.
(Number of (Number of
transactions in billions) (%) transactions in billions) (%)
Equity derivatives . . . . . . . . . . . . 0.1 3.2% 2.2 46.9%
Fixed-income derivatives . . . . . . . . – – 1.6 34.1%
Commodity derivatives . . . . . . . . . 3.0 96.8% 0.9 19.0%
Total . . . . . . . . . . . . . . . . . . 3.1 100.0% 4.7 100.0%
Sources: WFE, CSRC
In recent years, the PRC regulatory authorities have relaxed restrictions and introduced,
on a trial basis, certain new businesses, such as stock index futures trading and margin
financing and securities lending businesses. On October 26, 2011, the CSRC converted margin
financing and securities lending from a pilot program conducted by CSRC-designated PRC
securities firms to a regular business operation available to all the PRC securities firms that
meet certain requirements. In addition, on the same day, the CSRC promulgated the Trial
Supervision and Management Measures on Margin and Securities Refinancing Business (I
imRvwc{t ) pursuant to which we expect a pilot program for the margin and
securities refinancing to be launched in the PRC. On December 5, 2011, the Shanghai Stock
Exchange and the Shenzhen Stock Exchange further expanded the scope of securities eligible
for the margin financing and securities lending business from 90 stocks to 278 stocks and 7
ETFs. We believe these initiatives will further support the development of margin financing
and securities lending business activities. We expect this trend will continue, and the
introduction of additional new businesses in the near future will stimulate further growth of the
PRC capital market.
A majority of investors in the PRC stock market are individuals
According to the Shanghai Stock Exchange, the average percentage of trading volume
attributed to natural person investors was 84.8% from 2007 to 2010. The following table sets
forth the trading volume of the Shanghai Stock Exchange by investor type between 2007 and
2010:
2007 2008 2009 2010 Average
Natural person investors . . . . . . . . . . . . . . 86.0% 83.2% 85.4% 84.6% 84.8%
General legal persons(1) . . . . . . . . . . . . . . 3.6% 4.0% 3.8% 2.4% 3.5%
Professional institutions . . . . . . . . . . . . . . 10.4% 12.8% 10.8% 13.0% 11.8%
– Investment funds . . . . . . . . . . . . . . . 8.3% 9.9% 8.0% 7.7% 8.5%
(1) General legal persons refer to legal persons other than professional institutions.
Sources: Shanghai Stock Exchange
– 96 –
INDUSTRY OVERVIEW
In terms of the number of investors, according to the CSDCC, as of December 31, 2011,
there were 162.9 million A share accounts in the PRC, of which approximately 162.3 million
were held by individuals, representing 99.63% of all accounts. The following table sets forth
the total number of A share accounts held by individuals in the PRC at the end of the periods
indicated:
2006-2011
As of year end 2006 2007 2008 2009 2010 2011 CAGR
(in millions, except percentages)
A share accounts . . . . . . . 72.8 110.1 120.8 137.3 151.5 162.3 17.4%
Source: CSDCC
We believe the PRC stock market has significant opportunities for optimization and
growth in the future. In addition, the robust economic growth and the substantial increase in
assets available for investment continue to drive the growth of the PRC capital market.
Personal wealth accumulated rapidly and assets available for investment increased
Per capita disposable income has been increasing rapidly in the PRC and has further growth
potential
The rapid economic development in the PRC has accelerated the accumulation of personal
wealth of its residents. According to the NBSC, the per capita disposable income of urban
residents in the PRC nearly doubled during the period between 2006 and 2010 with a CAGR
of 18.5%, which is significantly higher than the growth rate in Japan and the U.S. during the
same period. However, the PRC per capita disposable income of US$1,810 in 2010 is still much
lower than US$36,697 in the U.S. The following table sets forth per capita disposable income
growth rate in the PRC, Japan and the U.S. for the period between 2006 and 2010:
PRC Japan U.S.
18.5% -0.7% 2.6%
Sources: NBSC, Japan Statistics Bureau, U.S. Census Bureau
– 97 –
INDUSTRY OVERVIEW
Financial assets held by PRC residents grew rapidly
Apart from the growth in personal disposable income levels, the total amount of financial
assets held by PRC residents also grew at a fast pace. These assets are held mainly in the forms
of cash, bank savings, securities, securities investment funds, personal guarantee deposits and
insurance policies. The growth rate of the total amount of financial assets held by PRC
residents exceeded the nation’s GDP growth rate in nine of the ten years from 1999 to 2009.
The following chart illustrates the growth rates of the financial assets held by PRC residents
relative to the GDP of the PRC for the periods indicated:
40%
33.3%
30%
23.6%
20.3%
20% 15.9%
17.0% 17.7% 15.9%
14.2% 13.9% 14.2%
11.8%
9.6%
10% 10.1% 11.3% 12.7%
8.4% 9.1% 10.0% 9.2%
7.6% 8.3%
2.2%
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Growth Rate of Residents’ Financial Assets
GDP Growth Rate
Sources: International Monetary Fund and National Bureau of Statistics of China, Annual Report of Chinese
Residents’ Income Distribution of the National Development and Reform Commission of the PRC
As of December 31, 2004, and December 31, 2009, the total cash and bank savings of
PRC residents increased from RMB1.8 trillion and RMB13.0 trillion to RMB3.2 trillion and
RMB26.9 trillion, respectively, representing a CAGR of 12.4% and 15.7%, respectively. The
amount of equity assets held by PRC residents grew at a fast pace from RMB0.8 trillion as of
December 31, 2004 to RMB4.8 trillion as of December 31, 2009, representing a CAGR of
– 98 –
INDUSTRY OVERVIEW
39.9%. The following table sets forth the breakdown of the types of financial assets held by
PRC residents from 2004 to 2009:
2004-
2004 2005 2006 2007 2008 2009 CAGR
(RMB in 100 millions, except percentages)
Cash (local currencies) . . . . . . . . . . . . . . . . . 17,820 19,945 22,469 25,210 28,622 31,982 12.4%
Bank deposits . . . . . . . . . . . . . . . . . . . . . . 129,575 150,551 171,737 181,876 228,478 268,650 15.7%
Listed securities . . . . . . . . . . . . . . . . . . . . . 15,190 14,399 23,945 58,311 25,139 50,371 27.1%
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . 6,293 6,534 6,944 6,707 4,981 2,623 (16.1%)
Equity . . . . . . . . . . . . . . . . . . . . . . . . . 8,897 7,865 17,001 71,604 20,157 47,748 39.9%
Securities investment funds . . . . . . . . . . . . . . . 1,905 2,449 5,618 29,716 17,011 21,052 61.7%
Personal guarantee deposits . . . . . . . . . . . . . . . 1,339 1,566 3,128 9,904 4,760 5,666 33.4%
Insurance policy benefits . . . . . . . . . . . . . . . . 14,113 18,315 22,680 27,000 37,831 46,226 26.8%
Settlement funds . . . . . . . . . . . . . . . . . . . . . (77) 23 17 – – – –
Other financial assets (net) . . . . . . . . . . . . . . . 504 1,835 2,005 97 1,030 (64) –
Total financial assets . . . . . . . . . . . . . . . . . . 180,369 209,083 251,600 332,114 342,870 423,883 18.6%
Source: Annual Report of Chinese Residents’ Income Distribution of the National Development and Reform
Commission of the PRC
Participation by PRC residents in the PRC capital market is limited
Unlike investors in developed markets, a substantial proportion of the financial assets
held by PRC residents is in the form of cash and bank savings. The proportion of other types
of financial assets, especially securities, is much lower than that of developed markets such as
the U.S. The following charts illustrate the breakdown of financial assets held by PRC
residents and U.S. residents by asset type as of December 31, 2009:
Structure of PRC Residents’ Structure of U.S. Residents’
Financial Assets (2009) Financial Assets (2009)
Insurance Other Cash and
11% Financial Deposit Bonds
Assets 17% 9%
Funds, Other
Stocks and 0%
Financial
Equities Assets
18% 3%
Funds,
Bonds Cash and Insurance Stocks and
1% Deposit 30% Equities
70% 41%
Sources: Annual Report of Chinese Residents’ Income Distribution of the National Development and Reform
Commission of the PRC, Account for the Balance of Capital of the PBOC. To be comparable, the PRC
stocks include securities investment funds and margins paid by securities customers while U.S. stocks
include mutual investment funds.
The uneven holding structure of financial assets provides the opportunity for PRC
residents to improve their allocation of financial assets by participating more actively in the
capital market.
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INDUSTRY OVERVIEW
Rapid growth in the number of high net worth individuals will drive the development and
innovation of financial products and services in the PRC capital market
In recent years, there has been a rapid increase in the number of PRC high net worth
individuals. According to the “2011 China Private Wealth Report” (2011N-W yN”X1TJ )
jointly published by China Merchants Bank and Bain & Company in 2010, assets available for
investment held by PRC high net worth individuals amounted to RMB15.0 trillion in the
aggregate, while assets available for investment held by all PRC individuals amounted to
RMB62.0 trillion in the aggregate. In 2010, there were over 503,000 high net worth individuals
in the PRC, an increase of 92,000 compared to 2009, or 22%.
With the growth in the number of high net worth individuals in the PRC and their
increasing participation in capital markets, the demand for customized financial services will
continue to grow, and new businesses in the PRC capital market are expected to develop.
Enterprise annuities and other institutional investors have great potential to participate
in the PRC capital market in the future
PRC enterprises have experienced rapid growth in corporate earnings and enterprise wealth
With the continued development of the PRC economy, PRC enterprises have experienced
substantial growth in corporate earnings and enterprise wealth. The following table sets forth
the increase in both earnings and wealth for selected PRC enterprises for the periods indicated:
2001-
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 CAGR
(RMB in 100 millions, except percentages)
Total profits before tax
of PRC enterprises(1) 4,733 5,784 8,337 11,342 14,803 19,504 27,155 30,562 34,542 53,050 30.8%
Enterprise savings
(RMB only) . . . . . 51,547 60,029 72,487 84,671 96,144 113,216 138,674 157,632 217,110 244,496 18.9%
(1) PRC enterprises are limited to those with annual revenues of RMB5.0 million or more.
Sources: NBSC, PBOC
– 100 –
INDUSTRY OVERVIEW
Enterprise annuities have high growth potential
Despite the rapid development and expansion of the PRC capital market over the past
decade, the overall participation by institutional investors, which mainly comprises mutual
funds, remains insignificant compared with the participation by individual investors. As
enterprise wealth has accumulated rapidly in recent years and the PRC government continues
to promulgate policies to encourage the participation of institutional investors, enterprise
annuities are expected to play a more important role in the PRC capital market. This is
expected to stimulate the long-term development of the PRC capital market. The following
table sets forth the size of enterprise annuities relative to GDP for the PRC and other developed
countries as indicated in 2010:
Average in
OECD
PRC U.S. Australia Switzerland countries
Percentage of the size of enterprise annuities to
GDP (%) . . . . . . . . . . . . . . . . . . . . 1% 68% 82% 101% 68%
Source: Wind Info
OVERVIEW OF THE PRC SECURITIES INDUSTRY
Development history of the securities industry
Period of Exploration and Development (Before 1999): The PRC stock market developed
quickly as PRC stock exchanges were established and securities firms emerged. The structure
was segregated and the operation and regulation of different financial sectors emerged.
Following its introduction, the expanded joint stock ownership pilot program involving
PRC state-owned enterprises resulted in (i) a rapid increase in the number of stock issuances;
(ii) the emergence of a liquid nationwide secondary stock market; and (iii) an increase in stock
trading activities. These results contributed to the establishment of the Shanghai Stock
Exchange and the Shenzhen Stock Exchange. Subsequently, the number of listed companies,
total market capitalization, the amount of proceeds raised from stock equity issuances, the
number of investor accounts and securities trading volume all experienced substantial growth.
Early forms of securities firms emerged along with the establishment of primary and
secondary securities market in the PRC. In the late 1980s and early 1990s, securities firms,
such as Haitong Securities, former Shenzhen Special Economic Zone Securities, former
Wanguo Securities Co., Ltd., former Junan Securities Limited Liability Company, former
China Southern Securities Co., Ltd. and former China Securities Co., Ltd., were established.
In 1996, the number of PRC securities firms reached a record of 553.
In 1997, the PRC adopted a segregated operating structure under which securities,
banking, trust and insurance businesses began to operate independently from each other. In
1998, the CSRC became the sole regulatory authority of the PRC securities and futures
markets, resulting in the effective segregation of the operation and regulation of the PRC
securities industry from other financial sectors.
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INDUSTRY OVERVIEW
Period of Regulated Development (1999 to 2004): As the regulatory regime of the PRC
securities market gradually evolved, many regulatory non-compliance incidents and
deficiencies in internal controls among securities firms were exposed.
The promulgation of the Securities Law in 1999 and the amendments of the Securities
Law and the Company Law in 2005 marked important steps towards the “rule of law” by the
PRC securities market. The CSRC implemented a series of measures to reform the procedures
governing securities issuances in the PRC. It replaced the “examination and approval system”
with the “verification system” in 2001 and subsequently with the “sponsorship system” in
2004. These reforms focused on the quality of the issuers and laid a solid foundation for a
stable capital market. In addition, in 2002, the CSRC introduced a floating-rate commission
mechanism, resulting in a more market and customer oriented business model for PRC
securities firms. All these developments indicated the gradual evolution of the PRC securities
industry.
For the period between 1999 to 2001, earnings of PRC securities firms soared during the
market boom. However, the subsequent decline of the stock market in 2001 unveiled the
inherent risks of the industry as a whole, such as operational non-compliances and
misappropriation of customers’ funds by securities firms.
Period of Rectification and Regulation (2004 to 2008): Industry-wide rectification and
increased regulatory measures were introduced in the PRC securities industry. The lifting of
restrictions on the trading of certain state-owned and non-tradable shares allowed a large
number of non-tradable shares to be gradually converted into freely tradable shares, which
resulted in the expansion of the size of the PRC stock market.
In August 2004, the CSRC launched comprehensive legislative and enforcement measures
governing the operations of PRC securities firms, pursuant to which securities firms that
violated relevant regulations and had high-risk exposure were restructured or nationalized
through capital injections. During this period, the CSRC implemented a risk management and
compliance system that used Net Capital as the key metric to assess the risk exposure of the
securities firms. It also promulgated ratings-based regulations to govern PRC securities firms
and encouraged those with effective risk management to expand their businesses. As a result
of the implementation of risk control measures and the stringent regulation of securities firms,
the PRC securities industry successfully navigated through the global financial crisis in 2008.
In April 2005, the CSRC promulgated the Notice on Issues Regarding the Pilot Reform
of Non-tradable Shares of Listed Companies (eN ^ QlSk R e9—ifg UOLv
w) and implemented the Measures for the Administration of the Reform of Non-tradable
Shares of Listed Companies (N ^ QlSk R e9—it ) in September, which officially
launched the reform of non-tradable shares. Such reform enabled holders of non-tradable
shares to realize the value of their shares in an open market.
Period of Innovation (2009 and beyond): Encouraging a “market-oriented” regulatory
concept and product innovation.
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INDUSTRY OVERVIEW
In 2009, the CSRC began to shift its stringent regulatory approach to a market-oriented
approach. Certain securities firms were designated to participate in pilot programs to develop
new businesses, resulting in the gradual expansion of the business scope of the PRC securities
industry:
in 2009, the CSRC introduced new guidelines for securities firms to engage in direct
investment;
in March 2010, the CSRC issued guidelines on a pilot program for margin financing
and securities lending and stipulated the qualification requirements for securities
firms to participate in the pilot program. The pilot program was officially converted
to a regular business available to all PRC securities firms that meet certain
requirements in October 2011. Please see “Regulatory Environment – Regulation on
the PRC Securities Industry – Regulation on Operations” for details on such
requirements;
in April 2010, the China Financial Futures Exchange launched the first stock index
futures and the CSRC issued guidelines for trading in these futures by securities
firms;
in April 2011, the CSRC introduced the Regulations on Investment Scopes of the
Proprietary Trading Business of Securities Companies and the Relevant Matters (
eIR8QlSIR8êqimRbW Sg N v ) to further expand the
investment scope of the proprietary trading business of securities firms. These
measures granted the proprietary trading divisions of PRC securities firms access to
the OTC market and allowed securities firms to invest in more financial products
through subsidiaries specifically established to conduct such business;
in July 2011, the CSRC promulgated the Guidelines on the Direct Investment
Business of Securities Companies (IR8QlSvcbimRv{c _ ). Pursuant to
such guidelines, subsidiaries of securities firms that engage in direct investment
business may raise funds by way of private placements and utilize such proceeds,
together with their proprietary funds, to make direct investments;
in October 2011, the CSRC promulgated the Trial Supervision and Management
Measures on Margin and Securities Refinancing Business (I imRvwc{t
) pursuant to which the Securities Finance Company will be responsible for,
among others, providing funding and securities refinancing services to support the
margin financing and securities lending business of PRC securities firms,
supervising the margin financing and securities lending activities, monitoring and
analyzing margin financing and securities lending activities in the PRC securities
market, and utilizing market tools to prevent and control risks;
in October 2011, the CSRC promulgated the Guidelines on the Development of New
Business of Securities Companies (IR8QlSimRRue°O\c _ ) in which the CSRC
set out the requirements for securities companies to launch and develop new
business and also introduced a regulatory regime that encourages the launching of
innovative products by PRC securities firms; and
in December 2011, the Shanghai Stock Exchange and the Shenzhen Stock Exchange
further expanded the scope of securities eligible for margin financing and securities
lending business from 90 stocks to 278 stocks and 7 ETFs.
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INDUSTRY OVERVIEW
Major business activities conducted by the PRC securities firms
The PRC securities firms engage in one or more of the following businesses:
Securities and futures brokerage – Securities and futures brokerage business mainly
refers to the execution of trades of stocks, bonds, funds, warrants, futures and other
securities on behalf of customers;
Investment banking – Investment banking services primarily include equity and debt
underwriting, M&A and financial advisory services;
Asset management – Asset management services primarily include mutual fund
management, collective and targeted asset management schemes, alternative asset
management (in particular, private equity asset management) and investment
advisory services;
Direct investment – Direct investment business involves the use of proprietary funds
by securities firms to make direct equity investments in private companies either
directly or through private equity funds;
Proprietary trading – Proprietary trading business relates to the investments in, and
trading of, authorized financial products by securities firms using their own funds
in accordance with the guidelines issued by the CSRC. These authorized financial
products can be divided into three major categories, namely, securities listed on the
domestic stock exchanges, securities traded in the domestic inter-bank market
(including government bonds, RMB-denominated bonds issued by international
development agencies, instruments of central banks, financial bonds, short-term
financing bonds, corporate bonds, medium-term notes and enterprise bonds) and the
securities approved by or filed with the CSRC that are traded over the counter at
domestic financial institutions. In addition, securities firms can also set up
subsidiaries to engage in a broader range of investment activities. The investment
scope of these subsidiaries includes the three major investment categories
mentioned above, as well as other types of investment products, such as financial
products including derivative investment products, trust products and inter-bank
wealth management products;
Overseas and cross-border business – Overseas and cross-border business primarily
includes QFII asset management, QFII brokerage, domestic and overseas
acquisitions, as well as other businesses that may arise in the future such as RQFII
and listings on the International Board.
REGULATORY REGIME AND TRENDS
Segregated operations and regulations of various PRC financial industries
The operations of various PRC financial industries, such as securities, banking, insurance
and trust industries, are segregated from one another, and are regulated by different regulatory
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INDUSTRY OVERVIEW
authorities. The restrictions imposed on the business scope of the financial services industry
create a favorable and independent environment for the development of the PRC securities
industry, and limited financial institutions to engage in cross-industry business activities. We
believe that this segregated structure will continue in the future.
Major regulatory characteristics of the PRC securities industry
The PRC securities industry has experienced a significant transformation over the past 20
years as the industry evolved from being operated in a disorderly manner to being
well-regulated. The main regulatory characteristics of the PRC securities industry are:
A strict market entry system has been established. The PRC securities industry is an
industry subject to stringent license control and many business activities are subject
to the approval and filing requirements of the relevant regulatory authorities (Please
see “Regulatory Environment – Regulation on the PRC Securities Industry – Entry
Requirements”);
The PRC securities industry is subject to a risk management and compliance
regulatory regime that uses Net Capital as the key metric to assess risk. As required
by the PRC regulatory authority, many business activities and the scale of such
activities are subject to specified Net Capital requirements; and
The CSRC imposes different regulatory measures on securities firms based on their
regulatory rating, which is determined according to their respective risk
management capabilities, competitiveness and compliance record. The CSRC gives
securities firms with higher ratings priority to participate in pilot programs of new
financial products. The following chart illustrates the number of PRC securities
firms under each rating category as determined by the CSRC as of September 30,
2011:
CC C AA
CCC 3 2
5
B
A
BB
16 BBB
Source: CSRC, as of September 30, 2011
Please see “Industry Overview – The Competitive Landscape in the PRC Securities
Market” for an explanation of the rating categories.
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INDUSTRY OVERVIEW
Regulatory trends in the PRC securities industry
Currently, the regulatory focus of the PRC securities industry is moving towards a more
market-oriented regime. We believe that this trend will foster the development of the PRC
securities industry, promote industry consolidation and strengthen the overall competitiveness
of securities firms. We believe the regulatory outlook will include: (i) the relaxation of
restrictions on the business scope of securities firms; (ii) the encouragement of product
innovation and diversification of product mix; and (iii) the introduction of leverage to increase
the capital efficiency of securities firms. This trend has also allowed PRC securities firms to
gradually transform from a traditional business model to a capital-based and value-added
business model.
We believe large securities firms will benefit more from these regulatory developments
as they enjoy economies of scale, have effective corporate governance and possess the skills
and resources to develop new businesses.
THE EMERGING SECURITIES INDUSTRY IN THE PRC
The PRC securities industry has experienced rapid growth in terms of asset size, revenue
and net profit and has maintained a relatively high profit margin. The following table sets forth
the total assets, net assets, revenue, net profit and net profit margin of the PRC securities firms
for the periods indicated:
2006-2011
(1)
2006 2007 2008 2009 2010 2011 CAGR
(RMB in 100 million, except percentages)
Total assets . . . . . . . . . . 6,187 17,337 11,909 20,287 19,686 15,728 20.5%
Net assets . . . . . . . . . . . 1,060 3,443 3,594 4,840 5,674 6,303 42.8%
Revenue . . . . . . . . . . . . 626 2,836 1,231 2,053 1,927 1,360 16.8%
Net profit . . . . . . . . . . . 256 1,307 494 934 784 394 9.0%
Net profit margin of the
industry (%) . . . . . . . . . 40.9% 46.1% 40.2% 45.5% 40.7% 29.0% –
(1) The 2011 data from the SAC was based on the preliminary results of PRC securities firms.
Source: SAC
Asset size: Between 2006 and 2010, total assets of the PRC securities firms
increased from RMB618.7 billion to RMB1,968.6 billion, representing a CAGR of
33.6%, and net assets of the PRC securities firms increased from RMB106.0 billion
to RMB567.4 billion, representing a CAGR of 52.1%. Total assets of the PRC
securities firms decreased to RMB1,572.8 billion as of December 31, 2011 due
primarily to decrease in the value of customer deposits as a result of unfavorable
market conditions in the securities market in 2011.
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INDUSTRY OVERVIEW
Revenue: Total revenue of PRC securities firms increased from RMB62.6 billion in
2006 to RMB192.7 billion in 2010, representing a CAGR of 32.5%, which is
substantially higher than the CAGR of -12.6% for U.S. securities firms during the
same period, according to SIFMA. In addition, total net profit increased from
RMB25.6 billion in 2006 to RMB78.4 billion in 2010, representing a CAGR of
32.3%, which was also higher than the CAGR of -2.3% for U.S. securities firms
during the same period, according to SIFMA. Total revenue of PRC securities firms
decreased from RMB192.7 billion in 2010 to RMB136.0 billion in 2011 due
primarily to unfavorable market conditions in the securities market in 2011 and
intense industry competition which further drove down securities brokerage
commission rates.
Profitability: According to the SAC, the net profit margins of PRC securities firms
were maintained at over 40% from 2006 to 2010. In 2010, the return on assets of
PRC securities firms was 3.98%, which was higher than the 0.53% return on assets
of U.S. securities firms during the same period. The net profit margins of PRC
securities firms were decreased from 40.7% in 2010 to 29.0% in 2011 due primarily
to unfavorable market conditions in the securities market in 2011 and intense
industry competition which further drove down securities brokerage commission
rates.
Additionally, the primary business segments in the PRC securities industry experienced
high growth, which has driven the PRC securities industry’s rapid growth.
Brokerage business
As the PRC securities market is still in its early stages of development, brokerage
business remains the core business of PRC securities firms. Driven by economic development,
urbanization and wealth accumulation, the total trading volume of securities brokerage
businesses of securities firms increased substantially. According to the CSRC, the stock trading
volume in the PRC securities market increased from RMB9,046.9 billion in 2006 to
RMB42,164.7 billion in 2011, representing a CAGR of 36.0%. According to the CSDCC, the
number of stock brokerage accounts, including A shares and B shares, in the PRC increased
from approximately 78.5 million at the end of 2006 to approximately 173.2 million at the end
of 2011, representing a CAGR of 17.1%. The following table sets forth the stock trading
volume and the number of stock brokerage accounts in the PRC from 2006 to 2011:
2006-2011
2006 2007 2008 2009 2010 2011 CAGR
Stock trading volume (RMB in
100 million) . . . . . . . . 90,469 460,556 267,113 535,987 545,634 421,647(1) 36.0%
Number of stock brokerage
accounts (in ten thousand) . . 7,854 11,287 12,364 14,028 15,454 17,316 17.1%
Sources: CSRC, SAC, CSDCC
(1) Due to the unfavorable market conditions in the PRC securities market in 2011, stock trading volume decreased
significantly from RMB54,563.4 million in 2010 to RMB42,164.7 million in 2011.
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INDUSTRY OVERVIEW
Investment banking business
The total proceeds raised from equity offerings on the Shanghai Stock Exchange and
Shenzhen Stock Exchange increased from RMB269.7 billion in 2006 to RMB701.7 billion in
2011, representing a CAGR of 21.1%.
2006-2011
2006 2007 2008 2009 2010 2011 CAGR
(RMB in 100 million, except percentages)
Proceeds raised from equity
offerings . . . . . . . . . . 2,697 8,043 3,464 5,150 10,121 7,017 21.1%
Source: Wind Info
According to Wind Info, non-government bond and note offerings in the PRC increased
from RMB1,381.6 billion in 2006 to RMB4,658.5 billion in 2011, representing a CAGR of
27.5%.
The following table shows the information on bonds and notes issued from 2006 to 2011:
2006-2011
2006 2007 2008 2009 2010 2011 CAGR
(RMB in 100 million, except percentages)
Proceeds raised from bond and
note offerings(1) . . . . . . . 13,816 17,562 21,528 30,347 31,293 46,585 27.5%
(1) Issuances of bonds and notes refer to those related to corporate financing, including corporate bonds, financial
bonds, short-term commercial papers, medium-term notes, asset-backed securities, convertible bonds and
warrant bonds but exclude treasury bonds, municipal bonds and central bank instruments.
Source: Wind Info
Corporate M&A activities increased between 2006 and 2011. According to Dealogic Ltd.,
the total value of domestic and overseas M&A transactions involving PRC enterprises
increased from US$124.2 billion in 2006 to US$242.6 billion in 2011, representing a CAGR
of 14.3%.
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INDUSTRY OVERVIEW
The rapid growth of investment banking business contributed to the revenue growth of
PRC securities firms. According to the SAC, net revenue of securities firms from securities
underwriting increased from RMB10.1 billion in 2007 to RMB27.2 billion in 2010,
representing a CAGR of 39.1%. During the same period, revenue from the investment banking
business as a proportion of the total revenue of the securities industry increased from 3.6% to
14.1%. The following table sets forth the net revenue of securities firms from securities
underwriting for the periods indicated:
2007-2010
2007 2008 2009 2010 CAGR
(RMB in 100 million, except percentages)
Net revenue from securities underwriting and
sponsors business . . . . . . . . . . . . . . . . 101 77 152 272 39.1%
Source: SAC
Asset management business
According to the SAC, the asset management industry achieved tremendous growth
between 2006 and 2011 as total AUM managed by mutual fund management companies and
securities firms increased from RMB857.1 billion in 2006 to RMB2,188.0 billion in 2011
(including securities investment funds), representing a CAGR of 20.6%.
As of December 31, 2006-2011
2006 2007 2008 2009 2010 2011 CAGR
(RMB in 100 million, except percentages)
Net AUM managed by mutual fund
management companies and
securities firms . . . . . . . . . 8,571 32,766 19,381 26,761 24,844 21,880 20.6%
Source: 2006-2009 China Securities Investment Fund Annual Report; SAC
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INDUSTRY OVERVIEW
The PRC securities industry is still in its early stages of development and we believe there
is significant potential for further development
Despite its high growth rate, the PRC securities industry is still in its early stages of
development compared to the securities industries in developed overseas markets. The
following table sets forth a comparison of certain information about the PRC and U.S.
securities industries as of December 31, 2010:
Total assets of Total revenue of
securities firms as a non-brokerage
percentage of the business as a
total assets of percentage of total
Total assets of the financial Total revenue of revenue of
securities firms industry securities firms securities firms
(RMB in (RMB in
100 million) (%) 100 million) (%)
PRC . . . . . . . . . . . . . . . . . . . . . 19,686 1.9% 1,927 44.0%
U.S. . . . . . . . . . . . . . . . . . . . . . 305,640 20.0% 16,787 82.0%
Sources: CSDCC, NBSC, CSRC, SAC, SIFMA, U.S. Census Bureau
As of December 31, 2010, the assets of PRC securities firms accounted for 1.9% of the
total assets of the PRC financial industry compared with 20.0% for U.S. securities firms. As
of December 31, 2010, the total assets and total revenue of the PRC securities firms were
RMB1,968.6 billion and RMB192.7 billion, respectively, compared to RMB30,564 billion and
RMB1,678.7 billion, respectively, for the U.S. securities firms.
Currently, the brokerage business constitutes a major part of the PRC securities industry,
with revenue from non-brokerage businesses accounting for 44% of the total revenue,
compared with 82% for the U.S. The structural disparity between the PRC securities market
and developed securities markets suggests that there is great potential for growth in various
businesses in the PRC securities industry.
The PRC securities industry has a lower penetration rate and a higher return on assets than
other financial sectors
The penetration rate of the PRC securities industry is substantially lower than that of
banking and insurance industries. According to the 2010 China Payment System Development
Report published by the PBOC in June 2011, as of December 31, 2010, the PRC banking
industry had approximately 3.38 billion settlement accounts in the PRC whereas the PRC
securities industry had only approximately 155 million accounts (including A-share and
B-share accounts), which was approximately 4.6% of that of the banking industry. This
indicates that many potential clients are yet to be tapped by the securities firms. With further
urbanization and wealth accumulation, the PRC securities industry is likely to have greater
growth potential than other financial sectors as a result of its currently lower penetration rate.
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INDUSTRY OVERVIEW
In addition, the PRC securities industry has higher returns on assets than other financial
industries. In 2010, a return on assets was approximately 4.0%, compared with approximately
1.0% and approximately 1.3% for the PRC banking and insurance industries, respectively.
Significant growth potential in various business segments
Brokerage business: Significant development potential
Despite its substantial development in recent years, the PRC brokerage business still has
significant potential and will likely maintain its rapid growth. For example, we believe:
Urbanization in the PRC and the growth of the PRC economy are expected to lead
to the increase in the number of brokerage accounts opened. Furthermore, the
personal disposable income level in the PRC and the amount of tradable financial
assets are expected to stimulate investment needs and increase the trading volume
of PRC securities firms;
The brokerage branches of PRC securities firms are concentrated in more developed
coastal areas of the PRC. According to the Shanghai Stock Exchange, as of June 30,
2011, 61.5% of the brokerage branches of PRC securities firms were located in the
Pearl River Delta, the Yangtze River Delta and the Bohai Rim, which accounted for
only 39.3% of the PRC population. Conversely, as of June 30, 2011, 38.5% of the
brokerage branches of PRC securities firms were located in less developed central,
western and northeastern regions of the PRC, which accounted for 60.7% of the
nation’s population. With the continued economic growth of the underdeveloped
regions in the PRC, it is expected that there will be further growth of the PRC
brokerage business;
There is high growth potential due to the age and geographic distribution of
brokerage customers. According to CSDCC, as of December 31, 2010, accounts held
by individuals aged between 20 and 40 years totaled 65.7 million, accounting for
50.2% of brokerage accounts. This age group represents a major portion of the
working population in the PRC, the growth of which, we believe, will continue to
propel the increase in brokerage trading volume. In addition, the geographic
distribution of accounts among PRC securities firms is highly uneven. As of
December 31, 2010, the number of securities accounts in economically developed
areas such as Beijing and Shanghai exceeded their population. In contrast, in the less
developed areas such as central, western China, the number of securities accounts
per capita was 0.08 and 0.07, respectively. With the faster economic growth in less
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INDUSTRY OVERVIEW
developed regions in the PRC, the number of individual investors is likely to
increase. The following table sets forth the number of accounts per capita in various
regions of the PRC as of December 31, 2010:
Eastern Central Western Entire
Beijing Shanghai China(1) China(1) China(1) PRC
(2)
Number of accounts opened per capita as of
December 31, 2010 . . . . . . . . . . . . . . 1.37 1.34 0.23 0.08 0.07 0.15
(1) Central China covers provinces that include Anhui, Henan, Heilongjiang, Hubei, Hunan, Jilin,
Jiangxi, Inner Mongolia and Shanxi; Western China covers provinces that include Gansu,
Guizhou, Ningxia, Qinghai, Shaanxi, Sichuan, Tibet, Xinjiang, Yunnan and Chongqing; Eastern
China covers provinces that include Beijing, Fujian, Guangdong, Guangxi, Hainan, Hebei,
Jiangsu, Liaoning, Shandong, Tianjin and Zhejiang.
(2) Including accounts opened by institutions.
Sources: CSDCC, NBSC
As a result of the continuing economic development of the PRC and the expansion
of financial services targeting institutions and high net worth individuals,
institutions and high net worth individuals are expected to boost the trading volume
of securities; and
In the foreseeable future, margin financing and securities lending, margin and
securities refinancing, stock index futures trading and futures IB brokerage, among
other things, will stimulate interest in brokerage services and will create momentum
for the development of the securities industry.
We expect that commission rates for stocks and funds will stabilize in the future. Since
2002, commission rates for stocks and funds have been driven by market demand. In particular,
the CSRC allowed service outlets to offer securities brokerage services when the number of
securities branches surged rapidly, which led to intense price competition. According to the
China Securities Sector Report published by BOCOM International Securities Limited dated
July 14, 2011, the intense market competition caused industry average commission rates for
stocks and funds to fall from 0.160% in 2007 to 0.099% in 2010. However, we believe that
commission rates for stocks and funds are gradually stabilizing for the following reasons:
the commission rate level is close to that in developed markets, such as the U.S.
securities market. According to data from SIFMA, the commission rate for stocks
and funds in the U.S. was 0.08% in 2009. This suggests that the commission rates
for stocks and funds in the PRC brokerage business do not have much room for
further reduction;
a number of PRC securities firms, in particular large securities firms, have offered
a variety of specialized products and services, such as investment advisory services,
personalized wealth management and margin financing and securities lending. By
providing differentiated services, these securities firms aim to distinguish their
brokerage businesses from those of other securities firms that continue to offer
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INDUSTRY OVERVIEW
standard brokerage products and services. We believe such differentiation in
products and services can help stabilize or even raise commission rates for stocks
and funds in the foreseeable future;
the establishment of new securities branches will still be subject to stringent
regulation with respect to the number of securities branches that can be opened and
the areas where they may operate. The CSRC’s previous policy that allowed service
outlets to be upgraded to securities branches has resulted in intensified price
competition and significant reductions in commission rates for stocks and funds over
the last several years. The CSRC has subsequently instituted strict controls over the
opening of new securities brokerage branches, especially in certain major
economically developed regions of the PRC where the brokerage market is deemed
saturated and the opening of the new securities branches is basically prohibited.
Therefore, this restriction is favorable to large securities firms that have already
established their nationwide branch network in economically developed areas; and
to curb price competition and to prevent further declines in commission rates for
stocks and funds, the CSRC has published its updated opinion stipulating that
commission rates for stocks and funds must not be lower than the cost of the
brokerage operations of PRC securities firms. In addition, a number of CSRC local
representative offices in various provinces have successively announced minimum
commission rates for stocks and funds in these regions.
Investment banking business: Numerous potential growth drivers
Equity financing:
In 2010, the ratio of stock market capitalization in the PRC to its GDP was 67%,
significantly less than the ratio of 119% for the U.S. We believe a lower ratio implies
greater growth potential for equity financing. In addition, the ratios of the number of
listed companies to the total number of large and medium-sized PRC enterprises and to
the total number of enterprises with annual revenue of RMB5 million or more are still
relatively low, which implies a large number of companies still have the potential to seek
a listing in the future. The following tables set forth the ratio of the number of listed
companies to the total number of large and medium-sized PRC enterprises and to the total
number of enterprises with annual revenue of RMB5 million or more for the periods
indicated:
2006 2007 2008 2009
Ratio of listed companies to the total number of large and
medium-sized enterprises . . . . . . . . . . . . . . . . . . . 4.97% 4.82% 4.59% 4.47%
Sources: NBSC, Shanghai Stock Exchange, Shenzhen Stock Exchange. Classification of enterprises into
large, medium or small ones is made according to the criteria stipulated in the “Measures of
Classifying Large, Medium and Small-Sized Companies for Statistical Purpose (Provisional)”
announced by the NBSC in 2003. Data in the above table are figures as of December 31 of each
relevant year.
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INDUSTRY OVERVIEW
2006 2007 2008 2009
Ratio of listed companies to the total number of
enterprises with revenue of RMB5 million or
more. . . . . . . . . . . . . . . . . . . . . . . . 0.47% 0.46% 0.38% 0.40%
Sources: NBSC, Shanghai Stock Exchange, Shenzhen Stock Exchange
Bond offerings:
While bond offerings have experienced rapid growth in the PRC in the past, the
penetration rate is still substantially lower than that of developed countries and there is
still enormous potential for development.
According to Wind Info, SIFMA and Bloomberg, total corporate debt outstanding in the
PRC accounted for 7.3% of its GDP in 2010 compared to a 51.6% in the U.S. This implies
that the PRC bond market still has enormous growth potential. Driven by the
transformation towards direct financing channels, the amount of debt financing will
further expand and we believe its penetration will eventually reach a level comparable to
that of developed markets.
Mergers and acquisitions/restructuring:
We believe that domestic and cross-border M&A activities will grow significantly.
Economic transformation in the PRC is prompting various industries to consolidate,
which is likely drive domestic M&A transaction volume. In addition, as liquidity has
increased remarkably as a result of the launch of several rounds of quantitative easing by
a number of developed countries to deal with the recent financial crisis, we believe that
many large multinational enterprises with significant cash reserves are eager to conduct
M&A activities in the PRC. Furthermore, encouraged by PRC government policy, a
number of PRC enterprises have expedited their accumulation of capital reserves and
increased their pace of internationalization. As a result, the number of overseas M&A
transactions entered into by PRC enterprises has risen considerably during the past
several years.
In August 2011, the CSRC promulgated the “Decision to Revise Relevant Regulations on
the Restructuring of Major Assets and Obtaining of Related Financing by Listed
Companies” (eOe9N ^ QlS‘Y’u\"‘D ‘ YWvvlz[ ) to support
PRC enterprises to conduct M&A by taking advantage of the resources in PRC capital
market, which further promotes industrial consolidation and upgrading. We expect that
under a favorable business and regulatory environment, M&A activities will generate
more revenue particularly for leading securities firms with strong research capabilities
and a strong international network.
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INDUSTRY OVERVIEW
Asset management: Strong demand, expanding product types and low penetration rate to
drive strong growth
As of December 31, 2010, the ratio of AUM of mutual funds to GDP in the PRC was
6.3%, far below the ratio of 79.9% for the U.S. We believe that the following factors will
become the main drivers of the PRC asset management business:
Strong increase in demand:
The accumulation in per capita wealth in the PRC drives the demand for wealth
management products: The rapid accumulation of family wealth in the PRC has laid
a solid foundation for the development of asset management services. According to
the PBOC, savings deposits in the PRC increased from RMB16,159 billion in 2006
to RMB34,364 billion in 2011, representing a CAGR of 16.3%. We believe future
growth in family wealth will continue to foster the development of the asset
management industry in the PRC;
The increase in high net worth population: The growth of high net worth individuals
will likely boost the demand for high-end financial products; and
Demand of institutional or corporate clients for asset management services: The
demand for asset management services will boost the innovation of products and
services, including enterprise annuities and QFII asset management products.
Comparatively small scale basis:
Currently, banks in the PRC manage far more assets than securities firms. According
to the PBOC, as of June 30, 2011, the outstanding balance of wealth management
products of the PRC banks totaled RMB3.57 trillion. As of the same date, according to
the SAC, the AUM of PRC securities firms totaled RMB248.7 billion. As securities firms
have a competitive advantage in product design and innovation, there is great potential for
further development of the asset management business of PRC securities firms.
Expanding product types:
Expanded asset types, including real estate funds and alternative investment funds,
will likely propel the expansion of the asset management market.
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INDUSTRY OVERVIEW
Proprietary trading: More mature business model to drive growth, increased revenue
contribution to the industry and numerous advantages for large securities firms
In an emerging stock market that offers few choices of investment products, proprietary
trading business is limited to stocks, bonds and derivatives. In the past, as there were limited
financial instruments (including risk management and trading instruments), regulation was
more stringent. We believe that the proprietary trading business will likely account for a higher
percentage of the revenue generated by the industry because:
Business models and risk management systems continue to improve. As the industry
continues to develop, and risk management models, trading strategies and hedging
methods continue to improve, proprietary trading risks can be effectively monitored
and controlled. With the proprietary trading business model taking shape, securities
firms can use their capital more efficiently to improve their profitability; and
Regulation has gradually eased. While the CSRC imposed relatively more stringent
regulations on proprietary trading in the past, with the increase and improvement of
financial instruments, regulatory authorities have gradually eased the restrictions on
proprietary investments. Pursuant to the new requirements for permitted proprietary
trading business of securities firms promulgated in April 2011, permitted proprietary
investment products can be divided into three major categories, which include
securities listed on the domestic stock exchanges, securities traded in the domestic
inter-bank market (including government bonds, RMB-denominated bonds issued by
international development agencies, central bank notes, financial bonds, short-term
financing bonds, corporate bonds, medium-term notes and enterprise bonds), and
securities approved by or filed with the CSRC that are traded over the counter at
domestic financial institutions. In addition, PRC securities firms can also set up
subsidiaries to engage in a broader range of investment activities. The investment
scope of these subsidiaries includes the three major investment categories
mentioned above, as well as other types of investment products, such as financial
products including derivative investment products, trust products and inter-bank
wealth management products. Such subsidiaries can invest in a wide range of
financial products with more flexible investment strategies. The regulations impose
certain limitations on the proprietary trading business of securities firms, including,
among other things: (i) the total value of equity securities and security derivatives
held for proprietary trading shall not exceed 100% of the Net Capital of the
securities firms; (ii) the total value of fixed income securities held for proprietary
trading shall not exceed 500% of the Net Capital of the securities firms; (iii) the cost
of one kind of equity securities held by the securities firms shall not exceed 30% of
their Net Capital; and (iv) the market value of one kind of equity securities held by
the securities firms shall not exceed 5% of such securities’ market value, except
circumstances that result from full commitment securities underwriting and
otherwise required by the CSRC. Currently, the proprietary trading regulations do
not have any specific requirements with respect to the investment scale of securities
firms’ investment subsidiaries. According to the latest regulatory requirements,
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securities firms cannot provide financing or guarantees to their respective
investment subsidiaries and therefore, the risk exposure of securities firms in respect
of their investment subsidiaries is limited to the capital contributed to the latter. By
establishing investment subsidiaries, securities firms can expand the scope and
range of their proprietary trading business. With the gradual easing of regulation and
the inclusion of more tradable financial products, the sources of proprietary trading
revenue will become increasingly diversified.
With respect to the proprietary trading business, large securities firms have advantages
over smaller ones. The major advantages include:
Possession of abundant capital helps to fully capture business opportunities. As
funds used in proprietary trading businesses often come from the securities firms’
own capital, securities firms with strong capital bases can usually allocate more
funds to their proprietary trading business and, therefore, can better capture market
opportunities. In addition, a large securities firm with greater capital can expand the
revenue model for its proprietary trading business by setting up and making use of
special purpose subsidiaries dedicated to investments in alternative financial
products; and
Proprietary trading and other securities businesses provide strong support for one
another. For example, a large securities firm with a strong proprietary trading
business often has a large stock portfolio that can be used to support its securities
lending business. A large securities firm also possesses strong research capabilities
to assist the development of its proprietary trading business. A securities firm in
possession of sufficient assets can utilize its financial strength to develop various
products and services.
Direct investment: Fast growth, significant potential and unique advantages enjoyed by PRC
securities firms
Since the launch of pilot programs for direct investment by the CSRC in 2007, registered
capital of direct investment subsidiaries of the PRC securities firms increased from RMB3.1
billion in 2007 to RMB17.6 billion in 2010, representing a CAGR of 78.2%.
As of December 31, 2010, the ratio of stock market capitalization to GDP in the PRC was
only 67% and most of the PRC enterprises are not able to raise funds from the public market.
In addition, the increased use of direct financing for enterprises also encouraged the growth of
the direct investment business of securities firms. As such, the market for direct investment has
significant growth potential.
When competing with domestic and foreign private equity funds, PRC securities firms
have certain advantages over their competitors, which are mainly reflected in:
Extensive domestic knowledge on valuation, industry dynamics, due diligence
practice and exit mechanisms; and
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Early access to direct investment opportunities through a branch network across the
PRC.
In addition, securities firms with strong capital position generally can have a larger scale
of investment. According to the existing regulatory requirements, registered capital of the
direct investment subsidiary of a PRC securities firm cannot exceed 15% of the Net Capital of
such securities firm.
THE TRANSFORMATION OF THE PRC SECURITIES INDUSTRY
Momentum of transformation
After over 20 years of development, the PRC securities industry has established a
considerable scale. However, we believe various factors are driving the transformation of the
industry:
Driver of customer demand. With economic development and wealth accumulation
in the PRC, the demand of individual and institutional investors for financial
products and services has continued to evolve. Clients have generally looked beyond
standard services and demanded customized and value-added services. At the same
time, as a result of the economic reform and development of the PRC over the past
three decades, RMB has gradually become internationalized. With growing
capabilities and globalization, PRC enterprises have increasing desire to expand
overseas. We believe that such aspirations have led PRC securities firms to
strengthen their international business and overseas financial services.
Diversification of revenue composition. Historically, the PRC securities industry has
relied extensively on traditional channel-based brokerage services. According to the
SAC, in 2010, brokerage commissions generated approximately 56% of total
revenue of the PRC securities firms. PRC securities firms are inherently required to
diversify their businesses and to gradually reduce their reliance on the traditional
channel-based brokerage business to achieve sustainable growth.
Trend of regulation. The gradual relaxation of regulatory restrictions and increasing
emphasis on innovation, such as the introduction of margin financing and securities
lending (including margin and securities refinancing), stock index futures trading
and direct investment in the industry.
Through this transformation, the PRC securities industry will have a more diversified
revenue composition, reducing its reliance on the traditional channel-based brokerage business
and allowing it to meet evolving customer demands.
Key areas of transformation
The PRC securities industry is adopting a business model that features integrated and
value-added products and services and an optimized customer base.
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Customer service and product offering approach: From homogenous, channel-based
brokerage services to comprehensive and diversified product suite
The traditional channel-based brokerage business has been the backbone of the PRC
securities industry. However, as intense competition arises from homogenous brokerage
services, securities regulations gradually move towards a market-oriented regulatory regime
with an emphasis on innovation, and customer demands for differentiated products and services
increase, securities firms with a large capital base and strong operating capabilities have begun
to offer more integrated and comprehensive products and services. We believe this
transformation will enhance the competitiveness of these securities firms and help attract and
retain their customers, leading to more stable and diversified revenue streams. Currently, many
large PRC securities firms provide customers with integrated services, including investment
banking, asset management and private equity, to reduce their reliance on the traditional
channel-based brokerage business and aim to achieve a more diversified revenue composition.
Furthermore, in order to satisfy the demands of their customers and to maintain steady growth
of the revenue, many securities firms are expected to design and offer more diversified
products, such as private equity fund management, collective and targeted asset management
schemes, margin financing and securities lending (including margin and securities
refinancing), investment advisory services, stock index futures trading and futures IB
brokerage.
Customer base: From a predominantly retail customer base to a balanced client base with
higher proportion of institutional and high net worth customers
In the past, the PRC securities industry was primarily comprised of retail customers who
provided a steady stream of revenue. With the rapid growth of the PRC economy and the
resulting increase in corporate wealth, the total number and assets of institutional clients
increased. A broader array of products and services that securities firms could offer also serve
to meet the diverse needs of institutional clients. We expect that institutional clients will
contribute a greater portion of revenue to the PRC securities industry. In comparison to
individual investors, institutional investors have a higher demand for value-added securities
services, such as research, prime brokerage and market-making services. They are also less
price sensitive and are more likely to choose new businesses. As such, leading full-service
securities firms can leverage their first-mover advantage to capture business opportunities by
providing those value-added securities products and services, which generally command higher
margin.
In addition, with the rapid growth of individual wealth, we expect the demands of high
net worth individuals in the PRC for asset management services and value-added services to
increase. According to the “2011 China Private Wealth Report” jointly published by China
Merchants Bank and Bain & Company, in 2011, total assets available for investment held by
PRC high net worth individuals are expected to be RMB17.7 trillion in aggregate, representing
an increase of approximately 18% compared to 2010. In addition, the number of high net worth
individuals in the PRC is expected to reach 585,000, representing an increase of 16% compared
to 2010. In the future, demands from institutional and high net worth individual customers and
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their contribution to the PRC securities industry are likely to increase. As a result of the
accumulation of personal wealth and urbanization in the PRC, we also expect the number of
retail customers to increase, leading to a more balanced industry customer base.
Business model: From a capital-light business model to a capital based and value-added
business model
The PRC securities industry is transforming from a capital-light and low-leverage
operating model into a more capital-based and value-added model. Many new businesses, such
as margin financing and securities lending and direct investment, may require large amounts
of proprietary capital. This creates a competitive advantage for securities firms with larger
capital bases to differentiate themselves from their competitors and attract new and retain
existing clients. For example:
Brokerage business – Large capital base can strengthen a securities firm’s ability to
engage in the margin financing and securities lending business and to optimize its
product mix;
Underwriting business – Capital can be used to strengthen a securities firm’s
commitment in underwriting and securities offerings to enhance the competitiveness
of securities firms and in obtaining higher commissions and fees;
M&A financial advisory services – A higher capital base can assist a securities firm
in receiving higher financial advisory fees, interest income and investment returns
through M&A financing, bridge financing and partnership investment;
Asset management and direct investment businesses – Seed Capital can be deployed
to establish funds with other limited partners to obtain higher management fees and
investment returns from more AUM while achieving risk sharing; and
Proprietary trading business – As the PRC regulatory authorities began to permit
securities firms to establish subsidiaries specifically for making alternative
investments, large securities firms with strong capital base will be in a better
position to capture market opportunities, to expand product mix, to enhance the
scale of investments, to optimize the revenue model of the proprietary trading
business and to eventually improve their ability to realize investment returns.
With the gradual transformation of the business model in the PRC securities firms to a
capital-based and value-added model, we believe that the financial and operating leverage
ratios will be enhanced accordingly, thus increasing the profitability of the industry.
Scope of operations: Expansion into international businesses
As the RMB is gradually internationalized and foreign investments continue to flow into
the PRC, cross-border business is expected to become a fast-growing area of the PRC securities
industry. Overseas business, cross-border M&A, cross-border financing and cross-border asset
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management are expected to become catalysts for future growth and the PRC securities
industry will become more internationalized:
Overseas business: An increasing number of PRC securities firms, including
Haitong Securities, have established overseas branch networks to satisfy the
cross-border investment needs of their domestic clients. At the same time, these
firms have benefited from the growth in overseas securities markets;
Cross-border M&A: With the growth of PRC enterprises and the increasing demands
for cross-border M&A transactions, according to Dealogic Ltd., the transaction
value of cross-border M&A conducted by the PRC enterprises increased from
US$13.0 billion in 2000 to US$100.7 billion in 2010;
Cross-border financing: An increasing number of PRC enterprises are seeking
overseas listing of their shares. According to Dealogic Ltd., 63 Chinese enterprises
raised an aggregate amount of US$38.1 billion (including full deal value for
dual-listed deals) through their IPOs on the Hong Kong Stock Exchange in 2010,
accounting for 60.1% of the total amount of proceeds raised through IPOs in Hong
Kong in that year; and
Cross-border asset management: The establishment of the QFII system in 2002
marked an important step for the PRC capital markets to open up and to attract
foreign investment. On January 20, 2012, the amount of the QFII quota was US$22.2
billion. With the relaxation of stringent regulatory policies, QFII business is
expected to further expand. Meanwhile, the CSRC is discussing with the SFC in
connection with certain policies on RQFII, which will provide a mechanism for the
return of overseas RMB to the PRC through PRC securities firms and fund
management companies in Hong Kong.
Business transformation by segments
Transformation of the brokerage business: The growth of margin transactions, diversified
and customized products and a balanced customer base
As a result of the industry transformation and the development of margin financing and
securities lending business, the contribution of margin transactions in the brokerage business
has gradually increased, but it is significantly lower than that in the U.S. As of June 30, 2011,
the margin financing balance of the PRC accounted for 0.1% of its domestic market
capitalization, compared to 1.7% for the U.S. for the same period. The PRC securities lending
balance accounted for 0.001% of its domestic market capitalization, compared to 0.82% for the
U.S. for the same period. The PRC margin transactions have substantial development potential,
and are expected to be growth drivers of the brokerage business.
In addition to traditional channel-based brokerage services, the brokerage business will
offer diversified and value-added services such as investment advisory, stock index futures
trading, margin financing and securities lending (including margin and securities refinancing),
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equity market research, QFII brokerage and futures IB brokerage, which will enable the
stabilization of or increase in brokerage commission rates for stocks and funds. For example,
currently, the commission charged by discount brokers in the U.S., which do not provide
value-added services is between US$4.99 and US$9.99 per transaction, while that of
full-service securities firms is between US$16.00 and $20.00 per transaction. We believe
diversified, customized and value-added services will further increase the revenue of the
industry.
With the rapid increase in the number of institutions and high net worth individuals and
their growing importance in the PRC economy, we believe that they will form a substantial
customer base of the PRC brokerage business in the future. Therefore, the development of
customized products and the provision of better services to these customers will be a key
strategy for the PRC brokerage business in the future.
Transformation of the investment banking business: The development of bonds and other
financing channels, increase in the M&A business and the rise of small and medium-sized
clients
The investment banking business is expected to experience rapid growth with the
transformation from indirect financing to direct financing. According to Wind Info, SIFMA and
Bloomberg, total corporate debt outstanding in the PRC accounted for 7.3% of its GDP in 2010
compared to 51.6% in the U.S. In addition, the emergence of new listing venues, such as the
SME Board, the ChiNext Board and the upcoming International Board and the New OTC Board
will continue to contribute to the development of the investment banking business.
In terms of M&A transactions, the economic transformation in the PRC has led to a trend
of consolidation in a variety of industries. With increasing corporate restructuring, mergers and
overseas expansion, M&A activities are expected to grow rapidly. It is expected that leading
securities firms with strong research capabilities and international branch networks will benefit
from this trend.
In terms of customer base, investment banks have begun to switch their focus to SME
clients whose participation in capital markets are growing rapidly. In 2010 and 2011, according
to Wind Info, the total amount of the funds raised from IPOs on the SME Board and the
ChiNext Board were US$45 billion and US$29 billion, respectively, compared to US$28
billion and US$16.8 billion, respectively, on the main board.
Transformation of the asset management business: Transformation to diversified asset
management structure and optimization of customer base
Of the AUM in the PRC securities industry, 95.7% is in traditional mutual funds and 4.3%
is in collective asset management schemes. Transformation to a more mature asset management
structure in the PRC offers an opportunity for the PRC asset management business, especially
in the area of hedge funds, private equity funds and collective asset management schemes.
With the accumulation of wealth in the PRC and the increase in the number of high net
worth individuals, we believe high net worth customers will become increasingly important,
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and asset management services for high net worth individuals will experience strong growth.
The increase in the number of high net worth customers will further optimize the customer base
of asset management business.
As additional investment products appear in the PRC capital market, including real estate
funds, hedge funds, commodity funds, the PRC asset management business will attract more
individual and institutional investors.
New businesses are driving growth for PRC securities firms
We believe new businesses are key for PRC securities firms to achieve:
Customer-oriented, differentiated product offerings. Pursuant to the traditional channel-
based brokerage business model where customer demand analysis is limited, PRC securities
firms primarily provide homogeneous products and services despite differences in customer
characteristics. Securities firms will continue to enhance customer demand analysis with the
development of new businesses such as investment advisory and wealth management services.
PRC securities firms are expected to eventually transform into a customer-oriented model and
promote differentiated solutions through a combination of traditional and new products and
services.
Diversification in revenue composition. New businesses will serve as new growth areas
for PRC securities firms and lessen their reliance on traditional channel-based brokerage
business and homogeneous products and services. We believe the revenue composition of PRC
securities firms will become more diversified through the development of new businesses.
Optimization of customer base. New businesses are key to attracting and retaining high
net worth individual and institutional clients. Increasing the revenue contribution from such
customers is an important element of customer base optimization.
Capital-based and value-added business model. As sufficient capital base is necessary for
conducting value-added new businesses, such as margin financing and securities lending and
direct investment, as well as new businesses to be introduced, such as alternative financial
products investments. New businesses will reinforce the transformation of PRC securities firms
into a capital-based and value-added business model.
The following are some examples of the impact of new businesses on the transformation:
Margin financing and securities lending
The CSRC launched the pilot program for margin financing and securities lending
in March 2010, which was converted to a regular business available to all PRC securities
firms that meet certain requirements in October 2011. Margin financing refers to the
services by which securities firms lend money to investors to buy securities. Securities
lending refers to the services by which securities firms lend securities to their clients to
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enable them to short sell the underlying securities. According to relevant guidelines
issued by the CSRC, the interest rate for margin financing is generally 3% higher than the
PBOC benchmark interest rate for six-month RMB loan to financial institutions. The
interest rate for securities lending is set at the same level or even higher. Margin financing
and securities lending not only enable securities firms to charge interest income and
facilitate more transactions to generate additional commission, but also earn more
commission fees through stimulating of trading activities. Margin financing and securities
lending business can facilitate the securities firms to improve revenue composition and
transform their business models to capital-based and value-added models. In addition,
margin financing and securities lending as an additional value-added service allows
customers to broaden their investment and trading strategies, which in turn improve
customer loyalty of PRC securities firms.
While margin financing and securities lending business is highly regulated in the
PRC, the PRC authorities recently adopted initiatives to encourage the development of
this new business by the PRC securities firms. For instance, prior to December 2011,
there were only 90 stocks eligible for margin financing and securities lending and a
securities firm can only use its own securities for securities lending. On December 5,
2011, Shanghai Stock Exchange and the Shenzhen Stock Exchange expanded the scope of
securities eligible for margin financing and securities lending to 278 stocks and 7 ETFs.
In addition, in October 2011, the Trial Supervision and Management Measures on Margin
and Securities Refinancing Business (I imRvwc{t ) was promulgated by
the CSRC and the Securities Finance Company was established, which will be responsible
for, among others, providing funding and securities refinancing services to support the
margin financing and securities lending business of PRC securities firms. We believe the
above initiatives will enhance the development of the margin financing and securities
lending business and increase the leverage ratio of PRC securities firms.
Stock index futures
Stock index futures were launched in April 2010. They are standard futures contracts
based on a specific stock price index (such as CSI 300 Index). Investors can trade stock
index futures contracts on the futures exchange and use stock index futures for hedging,
arbitrage, calendar spread arbitrage and other activities. Their trading volume of stock
index futures is close to the stock trading volume since its introduction. In 2011, the
trading volume of stock index futures was RMB43,765.9 billion, which was equivalent to
65.7% of stock trading volume during the same year. We expect the participation of more
institutional investors in the trading of stock index futures will create further business
opportunities and diversify revenue streams for the PRC securities firms. In addition,
securities firms can leverage stock index futures to lower the risks associated with
proprietary trading and increase the types of assets under management.
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Private equity investment
PRC private equity investments have experienced rapid growth in recent years. We
believe there are synergies between PRC private equity investment and IPO underwriting
businesses. A successful IPO will provide an effective exit opportunity for private equity
investors. In the PRC, leading securities firms with integrated platforms for private equity
investment and IPO underwriting businesses will gain more competitive advantages.
Private equity business will not only help diversify revenue stream for securities firms,
but also enhance the utilization of capital.
Large securities firms have more advantages in securities industry transformations
Large securities firms possess the following advantages in the transformation of the PRC
securities industry:
Advantage of business innovation. Large securities firms are generally rated higher
by the CSRC and have larger capital bases. These advantages also meet the key
criteria for the grant of regulatory approvals for conducting new businesses on a trial
basis. In addition, with large customer bases, solid traditional businesses, large
capital bases and strong brand, large securities firms are better positioned to develop
new businesses;
Economy of scale and low commission rate sensitivity. Fierce competition and
declining in commission rates for stocks and funds creates substantial market
pressure on the brokerage business. However, with the benefits of economies of
scale and diversified income sources, large securities firms are more resilient to
declines in commission rates for stocks and funds and thus, maintaining steady
levels of total income;
Large customer base and cross-selling ability. Large customer base and established
business platforms will enable large securities firms to take advantage of cross-
selling opportunities, provide customers with a one-stop solution and allow them to
attract new customers and improve customer relationships;
Superior nationwide network. Large securities firms generally have well-established
nationwide networks, which are crucial for their effective product distribution and
provision of localized services to retail and institutional clients;
Branding and human resources. Large securities firms generally have better brand
recognition, which not only gives them an advantage in attracting new customers,
but also helps them attract and retain highly proficient professionals to ensure
long-term business development; and
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High and stable profitability. For example, the weighted average profit margin in
2010 of the top 20 PRC securities firms was 44.7% compared to 21.8% for the
bottom 20 PRC securities firms. From 2008 to 2010, weighted average profit margin
of the top 20 PRC securities firms in terms of revenue was consistently above 40%,
whereas that of the bottom 20 PRC securities firms was very volatile ranging from
-4.4% to 41.4%. The table below sets forth the change of average profit margin of
the top 20 securities firms and the bottom 20 securities firms from 2008 to 2010:
2008-2010
Weighted
2008 2009 2010 average
Weighted average profit margin of the top 20 PRC
securities firms in terms of business revenue . . . . . 44.9% 48.2% 44.7% 45.9%
Weighted average profit margin of the bottom 20 PRC
securities firms in terms of business revenue . . . . . -4.4% 41.4% 21.8% 19.6%
Source: SAC
THE COMPETITIVE LANDSCAPE IN THE PRC SECURITIES MARKET
According to the SAC, as of June 30, 2011, there were 109 registered securities firms in
the PRC securities industry.
The current market landscape reflects the PRC government’s effort to regulate the
securities industry. Between 2004 and 2005, a significant number of companies dissolved,
merged or restructured during the rectification process. In 2007, the CSRC introduced a rating
mechanism, pursuant to which securities firms were rated based on their risk controls,
corporate governance, capital base, profitability and market position.
The rectification and the rating mechanism accelerated the consolidation of the securities
industry, which benefited large securities firms. During the past five years, there has been a
significant increase in market concentration, in terms of net assets, among the large securities
firms. According to the SAC, as of December 31, 2010, the top ten securities firms (based on
net assets) accounted for 47.6% of net assets, 39.5% of the total assets, 44.6% of Net Capital
and 48.7% of net profit of the PRC securities industry.
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The following table sets forth the key information relating to net assets, total assets, Net
Capital, net profit, brokerage market share and underwriting market share of the top ten PRC
securities firms (based on net assets) as of December 31, 2010:
Top 10 Brokerage
Securities Firms Market Underwriting
(Based on Net Net Total Net Net Share Market
Assets) Assets % Assets % Capital % Profit % %(1) Share %(2)
(RMB in million, except percentages)
CITIC . . . . . 61,523 10.8% 109,371 5.6% 41,050 9.5% 11,814 15.1% 2.5% 11.1%
Haitong . . . . . 43,852 7.7% 100,718 5.1% 32,460 7.5% 3,417 4.4% 4.4% 5.7%
Huatai . . . . . 29,998 5.3% 86,479 4.4% 21,658 5.0% 2,369 3.0% 4.2% 3.2%
Guotai Junan . . 23,711 4.2% 93,572 4.8% 17,347 4.0% 3,738 4.8% 5.1% 5.5%
CMS . . . . . . 23,443 4.1% 89,584 4.6% 14,063 3.3% 3,012 3.8% 4.4% 3.2%
Everbright . . . 22,344 3.9% 56,418 2.9% 17,646 4.1% 2,102 2.7% 2.7% 1.2%
Guangfa . . . . 19,006 3.3% 91,036 4.6% 11,963 2.8% 4,887 6.2% 5.3% 2.4%
Guosen . . . . . 17,306 3.1% 63,726 3.2% 12,490 2.9% 3,115 4.0% 3.2% 4.6%
Guoyuan . . . . 14,867 2.6% 23,902 1.2% 11,771 2.7% 875 1.1% 0.7% 0.7%
Shenyin
Wanguo. . . . 14,806 2.6% 60,215 3.1% 12,084 2.8% 2,835 3.6% 3.5% 1.2%
Total . . . . . . 270,856 47.6% 775,021 39.5% 192,532 44.6% 38,164 48.7% 36.0% 38.8%
(1) Based on the total value of customers’ brokerage transaction.
(2) Based on the value of securities underwritten by a securities firm acting as the lead underwriter.
Source: SAC
The CSRC rates every securities firm in the PRC annually. The CSRC rating is divided
into 11 categories, the highest of which is an “AAA” rating, and the lowest of which is a “E”
rating. Highly rated securities firms generally become the designated securities firms for new
pilot products and services approved by the CSRC and will then benefit from first-mover
advantages. As of September 30, 2011, only 16 securities firms (representing 16.7% of the total
number of securities firms) were “AA” rated by the CSRC. To date, no securities firms has
obtained an “AAA” rating from the CSRC.
The PRC securities industry also faces fierce competition from international investment
banks. In recent years, foreign securities firms have been actively looking for chances to access
the PRC securities market through joint ventures. However, the business scope of Sino-foreign
joint venture securities firms is relatively limited and primarily focuses on equity and debt
financing and M&A advisory services. Most of the Sino-foreign joint venture securities firms
were not permitted to operate retail brokerage businesses. We believe, currently, the
competition posed by Sino-foreign joint venture securities firms against PRC securities firms
is insignificant.
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In addition to competition from domestic and foreign securities firms, the PRC securities
industry also faces competition in certain businesses, including but not limited to, asset
management, direct investment and bond underwriting, from domestic financial institutions,
such as banks, asset management firms, trust companies and private equity firms. For example,
banks are the largest bond underwriter in the PRC. We believe that PRC securities firms still
have some competitive advantages over other financial institutions in terms of personnel,
product mix and customer service.
HONG KONG SECURITIES MARKET
History of the stock market in Hong Kong
The Stock Exchange of Hong Kong Limited, previously named the Stockbrokers’
Association of Hong Kong at the time of its establishment in the late 19th century, was the first
formal securities trading market established in Hong Kong and has been the main exchange in
Hong Kong. In 1986, The Stock Exchange of Hong Kong Limited merged with the other
exchanges in Hong Kong and retained its name. It also established GEM in 1999 to provide a
fund-raising platform for growth companies from different industries and to promote the
development of the technology industry in the region. In 2000, The Stock Exchange of Hong
Kong Limited, Hong Kong Futures Exchange Limited and Hong Kong Securities Clearing
Company Limited merged into the Hong Kong Stock Exchange and Clearing Limited, which
was subsequently listed on the Main Board by way of introduction.
Overview of the stock market in Hong Kong
International financial center
After years of continuous efforts, the Hong Kong Stock Exchange has become a key
capital market in Asia for overseas investors. The rapid development of the PRC economy and
expansion of PRC enterprises overseas have steadily strengthened the importance of Hong
Kong in global financial markets over the years. According to WFE, in 2011, the Hong Kong
Stock Exchange ranked 11th in terms of annual and daily average trading value and ranked
third in terms of the amount of proceeds raised from equity offerings (including primary market
and secondary market). In addition, as of December 31, 2011, total market capitalization of the
listed companies on the Main Board and GEM ranked third in Asia and seventh in the global
market.
From 2001 to 2011, the total market capitalization of listed companies on the Hong Kong
Stock Exchange (including Main Board and GEM) increased from approximately HK$3.95
trillion to approximately HK$17.54 trillion at a CAGR of 16.1%. The annual trading volume
increased from approximately HK$1.99 trillion to approximately HK$17.15 trillion at a CAGR
of 24.0%. The number of listed companies on the Main Board increased from 756 to 1,326
while the number of companies listed on the GEM has increased from 111 to 170.
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INDUSTRY OVERVIEW
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Market Capitalization
(HK$ in billions) . . . 3,946 3,611 5,548 6,696 8,180 13,338 20,698 10,299 17,874 21,077 17,537
Number of Main Board
listed companies. . . . 756 812 852 892 934 975 1,048 1,087 1,145 1,244 1,326
Number of GEM listed
companies. . . . . . . 111 166 185 204 201 198 193 174 174 169 170
Annual trading volume
(HK$ in billions) . . . 1,990 1,643 2,584 3,974 4,520 8,376 21,666 17,653 15,515 17,210 17,154
Daily trading volume
(HK$ in billions) . . . 8.19 6.65 10.42 15.96 18.3 33.91 88.07 72.05 62.31 69.12 69.73
Source: Hong Kong Stock Exchange
Diversified and well-organized Hong Kong Stock Exchange participants
The Hong Kong stock market is characterized by (i) its globalization; (ii) high level of
participation of institutional investors; and (iii) increasing participation by PRC investors.
According to the Cash Market Transaction Survey 2010/2011 issued by the Hong Kong Stock
Exchange, from October 2010 to September 2011, the stock trading volume by overseas
investors and institutional investors accounted for approximately 46.1% and 61.6% of the total
trading volume, respectively. In addition, the proportion of PRC retail investors in the stock
trading volume also increased from 3.0% for the period from October 2000 to September 2001,
to 9.9% during October 2010 to September 2011, reflecting increasing participation by PRC
investors.
To deal in listed securities through the Hong Kong Stock Exchange, a person must be an
Exchange Participant holding an Exchange Trading Right. An Exchange Participant must be a
permanent resident of Hong Kong or a limited liability company incorporated in Hong Kong
and registered with the SFC as a licensed corporation authorized to conduct Type 1 (dealing
in securities) regulated activity under the SFO. An Exchange Participant must maintain sound
financial condition and comply with the Securities and Futures (Financial Resources) Rules
and the rules of the Hong Kong Stock Exchange. As of December 31, 2011, there were a total
of 555 of Exchange Participants, including 498 trading participants, 36 non-trading
participants and 21 non-Exchange Participants. Exchange Participants are classified into three
categories:
Group A – top 14 largest firms in terms of trading volume, which mainly comprise
large international institutional investors;
Group B – firms ranked 15-65 in terms of trading volume, who are engaged in a
mixture of overseas and local institutional trading and retail trading; and
Group C – other Exchange Participants.
In December 2011, the market share of Exchange Participants (based on the total trading
volume) from Group A, Group B, and Group C accounted for approximately 58.8%, 31.5%, and
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INDUSTRY OVERVIEW
9.7%, respectively. The market share of Exchange Participants from Group C decreased from
36.8% in 1999, representing the most significant change among the three. This decline in
market share during recent years is primarily attributed to the absence of economies of scale
and the inability to provide a comprehensive and sophisticated platform.
Attractive listing venue
As an international financial hub, Hong Kong has become one of the preferred listing
venues for overseas and domestic companies. One of the core strategies in the Strategic Plan
2010-2012 of Hong Kong Stock Exchange is to attract different types of companies to list in
Hong Kong, including companies in the Greater China area, companies engaged in PRC-related
business and companies from other strategically important international markets. Since 2007,
to help more foreign companies getting listed in Hong Kong, Hong Kong Stock Exchange
actively increased the number of admitted jurisdictions in which the issuer may be incorporated
from three in 2007 to 21 as of December 31, 2011. In addition, Hong Kong Stock Exchange
also launched a variety of facilities for foreign companies to become listed such as IPOs,
secondary listings and Hong Kong depositary receipts. As a result, a number of world
renowned companies, including AIA Group Limited, Glencore International plc, L’Occitane
International S.A., Samsonite International S.A., Prada S.p.A. and United Company Rusal
Limited, have listed in Hong Kong, making Hong Kong a popular listing venue for
international companies. In 2011, Hong Kong ranked first globally in terms of IPOs fund
raising.
In the past 11 years, the amount of funds raised in Hong Kong (including primary and
secondary market) increased significantly from approximately HK$64.4 billion to HK$488.3
billion. Due to the weak performance of the stock market in 2011, the total funds raised
dropped significantly from approximately HK$858.7 billion in 2010 to HK$488.3 billion. The
funds raised from IPO market also dropped from approximately HK$449.5 billion to HK$258.9
billion during the same period. However, Hong Kong still strived to continue to be the world’s
largest IPO market for three consecutive years.
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
(HK$ in billions)
Amount of funds raised
Primary market . . . . 25.71 51.98 59.14 97.16 165.65 333.85 292.44 65.98 248.23 449.48 258.91
Secondary market . . . 38.71 58.53 154.62 184.64 136.06 190.69 298.41 361.27 393.89 409.24 229.36
Total funds raised . . . . 64.42 110.51 213.76 281.8 301.71 524.54 590.85 427.25 642.12 858.72 488.27
Source: Hong Kong Stock Exchange
The interaction between Hong Kong and the PRC capital markets
Cross-border activities between Hong Kong and the PRC has increased rapidly due to
their close economic ties and frequent capital flows. In addition, the influence of PRC
companies in the Hong Kong stock market gradually increased and PRC companies has become
a vital part of Hong Kong capital market.
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INDUSTRY OVERVIEW
Cross-border activities driven by the internationalization of RMB
The internationalization of RMB is a highlight of Hong Kong capital market and is a
catalyst to further enhance the business interaction between Hong Kong and PRC capital
markets. This has enabled Hong Kong to become a key overseas platform for the development
of RMB financial products. RMB derived from trade settlement is the main source of Hong
Kong’s offshore RMB settlement center. In the second half of 2011, the total amount of RMB
trade settlement by Hong Kong banks amounted to approximately RMB1,100 billion. This
figure almost tripled compared to 2010 when the total amount of RMB trade settlement was
RMB370 billion. In addition, RMB trade settlement by Hong Kong banks as a percentage of
that of the PRC increased from 73% in 2010 to 80% in the first half of 2011, demonstrating
that Hong Kong remained the most important platform for RMB cross-border trade settlement.
According to Hong Kong Monetary Authority, RMB deposits in Hong Kong increased
substantially from RMB12.1 billion as of December 31, 2004 to RMB588.5 billion as of
December 31, 2011, representing a CAGR of 74.1%. Hong Kong as an offshore RMB center
soon develops. We believe that, with the on-going internationalization of RMB and its
increasing demand, an increasing amount of offshore RMB trade settlement will be carried out
in Hong Kong.
As of December 31,
2004-2011
2004 2005 2006 2007 2008 2009 2010 2011 CAGR
(RMB in millions)
Balance of RMB deposits
in Hong Kong . . . . . 12,127 22,586 23,403 33,400 56,060 62,718 314,938 588,529 74.1%
Source: Hong Kong Monetary Authority
As the RMB liquidity pool in Hong Kong continues to expand, RMB financial
intermediary activities have become more active, especially the development of RMB dim sum
bonds. In the first eight months of 2011, RMB bonds issued amounting to RMB70.8 billion in
Hong Kong, already breaking the record of RMB35.8 billion of RMB bonds issued for the
entire year of 2010. In addition, the internationalization of RMB also offers significant RMB
business opportunities in Hong Kong. It is expected that more RMB-linked products and
services will be launched in Hong Kong, such as RMB funds, RMB denominated IPOs and
QFII, which will support the sustained growth of the RMB business in Hong Kong.
Strengthening Hong Kong’s capital market under favorable policies
In August 2011, in order to strengthen Hong Kong as an international financial hub and
facilitate its growth as the offshore RMB center, the PRC government promulgated six policies
to promote further development of Hong Kong and deepen the cooperation between the PRC
and Hong Kong in trade and financial sectors. These policies include the launch of Hong Kong
Stock ETFs in the PRC, the continued encouragement of PRC enterprises to list in Hong Kong
and the involvement of PRC licensed Hong Kong banks in the distribution of mutual funds. The
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INDUSTRY OVERVIEW
PRC government will also give full support to the development of the RMB market in Hong
Kong, encourage direct investments in RMB by Hong Kong investors in the PRC and allocate
an initial aggregate amount of RMB20 billion to RQFIIs to invest in the domestic securities
market. In addition, the PRC government will permit more PRC financial institutions and
enterprises to issue dim sum bonds in Hong Kong and increase the approved size of dim sum
bond issuances. The PRC government intends to institutionalize RMB sovereign bonds and
gradually increase their size. In light of Hong Kong’s favorable environment and policies,
Hong Kong is set to further expand its capital market activities by leveraging its relationship
with the PRC.
Active participation of PRC companies in the Hong Kong stock market
Since the first H share company listed in Hong Kong in 1993, more PRC companies
(H-share and red-chip listed companies) followed and the frequency of fund-raising activities
has also increased. In the past 11 years, the number of PRC companies listed on the Main Board
and GEM increased from 128 to 275 and the aggregate amount of proceeds raised by PRC
companies by equity offerings increased from HK$25.9 billion to HK$150.1 billion,
representing 31% of the total amount of proceeds raised in Hong Kong in 2011. As of
December 31, 2011, there were 168 H-share listed companies, 107 red-chip listed companies
and 365 non-H-share PRC private enterprises listed on the Hong Kong Stock Exchange, with
a total market capitalization of HK$9.73 trillion, representing 55.5% of the total market
capitalization. After the recent announcement by the PRC government of its continued support
for the listing of PRC enterprises in Hong Kong, it is expected that more PRC enterprises will
seek listings in Hong Kong. The continued entry of PRC companies and the related
fund-raising activities will further stimulate growth of the Hong Kong stock market. This will
in turn be one of the driving forces for shaping the competitive landscape of the Hong Kong
securities industry and the growth in the investment banking business.
The following table sets forth the changes of the total market capitalization of listed
companies and PRC companies and their respective numbers on the Hong Kong Stock
Exchange (including Main Board and GEM) for the periods indicated:
As of December 31,
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Total Market
Capitalization (HK$
in billions)
All listed companies . . . 3,946 3,611 5,548 6,696 8,180 13,338 20,698 10,299 17,874 21,077 17,537
PRC companies . . . . . 1,012 939 1,606 1,872 2,998 6,331 10,604 5,608 8,582 9,616 8,104
Number of listed
companies
All listed companies . . . 867 978 1,037 1,096 1,135 1,173 1,241 1,261 1,319 1,413 1,496
PRC companies . . . . . 128 143 164 184 200 222 238 245 253 265 275
Source: Hong Kong Stock Exchange
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INDUSTRY OVERVIEW
In light of the above developments, investment banking businesses in Hong Kong have
also changed in the past ten years, from a market dominated by international investment banks
to a market shared by international investment banks and investment banks with Chinese
background. Revenues generated from the investment banking business is becoming the main
source of income of PRC securities firms in Hong Kong. In 2011, investment banks with
Chinese background had participated as sponsors (or one of the sponsors) in 30 Main Board
IPOs, the fund raising amount of which represented approximately 30% of the total fund raised.
This percentage has increased from approximately 16% in 2001. Accordingly, the proceeds
from the equity offerings sponsored by such investment banks on the main board of the Hong
Kong Stock Exchange increased from approximately HK$16.8 billion in 2001 to approximately
HK$76.9 billion in 2011, representing a CAGR of 16.4%. These factors demonstrate the rising
prominence of investment banks with Chinese background in the Hong Kong stock market.
SOURCE OF INFORMATION
In addition to statistics, market share information and industry data from publicly
available government sources, some information and data contained in this section are derived
from Wind Info. As a leading integrated service provider of financial data, information and
software in the PRC domestic market. Wind Info serves financial enterprises, including
securities firms, fund management firms, insurance companies, banks and investment
companies. The financial database of Wind Info contains comprehensive information on stocks,
bonds, futures, foreign exchange, insurance, derivatives and the macro-economy. Historic data
and market estimates provided by Wind Info are collected by Wind Info independently from
various public information sources, including the SAC, the Shanghai Stock Exchange and the
Shenzhen Stock Exchange.
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REGULATORY ENVIRONMENT
REGULATION ON THE PRC SECURITIES INDUSTRY
Overview
The Company currently conducts its business activities mainly in securities industry,
futures industry and fund industry. All businesses conducted by securities companies, fund
management companies and futures companies are regulated by the CSRC. The current
applicable laws and regulations for the Company mainly include the Company Law, the
Securities Law, the Regulations on Supervision and Management of Securities Companies (I
R8QlSvwc{t hO ) (which was effective on June 1, 2008), the Securities Investment Funds
Law of the PRC (N-N”l QqTW R8bWú‘l ) (which was effective on June 1, 2004), the
Management Rules on Securities Investment Funds Management Companies (IR8bWú‘
t QlS{t ) (which was effective on October 1, 2004), the Regulations on Risk Handling
of Securities Companies (IR8QlS“UnhO ) (which was effective on April 23, 2008), the
Futures Trading Management Regulations (g ¤ { hO ) (which was effective on April
15, 2007), the Administrative Measures for Futures Companies (g lS{t ) (which
was effective on April 15, 2007) and so forth. At the same time, the securities industry is also
regulated and restricted by the policies, laws, regulations, rules and other regulatory documents
in relation to taxation, foreign exchange and so forth.
Major Regulatory Authorities
CSRC
According to the regulations of the Securities Law and Futures Trading Regulations (g
¤ { hO ), the CSRC is responsible for supervision and management of the securities
and future market of the PRC and for maintaining the order thereof, and to secure their lawful
operations in accordance with the laws, regulations and the authorities of the State Council.
The main duties of the CSRC include:
To enact regulations and rules in relation to the supervision and management of the
securities and futures market, and to exercise the right of examination, approval or
verification according to law;
To supervise and manage the issuance, listing, trading, registration, deposit and
settlement of securities and the listing, trading, settlement, delivery of futures and
related activities according to law;
To supervise and manage the securities activities of the securities issuers, listing
companies, securities companies, securities investment funds management
companies, securities services organizations, stock exchanges and securities
registration and settlement organizations according to law; and to supervise and
manage futures business activities of market-related participants, including the
futures exchanges, futures companies, other futures business institutions, non-
futures companies clearing member, futures margin security depository regulating
institutions, futures margin depository bank, delivery warehouse and so forth;
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REGULATORY ENVIRONMENT
To enact qualification standards and practice codes for securities business personnel
and futures practitioners according to law, and to supervise the implementation;
To supervise and inspect the disclosure of information in issuance, listing and
trading of securities and information of futures trading according to law; and
To investigate and punish for activities in violation of laws and administrative
regulations in relation to supervision and management of securities market and
futures market according to law.
The Securities Association of China (SAC)
The SAC is a self-regulatory organization established under the relevant regulations of
the Securities Law and the Society Groups Registration and Management Regulations (y>g W
v{ { hO ) (which was effective on October 25,1998), and it is a non-profit society
group legal entity, it is subject to the guidance and supervision of the CSRC and the Ministry
of Civil Affairs of the PRC, and it regulates the securities industry by its members meeting,
which is formed by members such as securities companies.
Stock Exchange
Under the Securities Law, a stock exchange is a self-regulatory legal entity which
provides venues and facilities for centralized trading of securities and organizes and supervises
trading of securities. According to the Measures for the Administration of Stock Exchange (I
R8N¤f b@t ) (which was effective on December 12, 2001), the main duties of a stock
exchange include:
To provide venues and facilities for trading of securities;
To enact operating rules for the stock exchange;
To accept listing applications and to arrange listing of securities;
To organize and supervise trading of securities;
To supervise its members;
To supervise the listed companies;
To manage and announce market information;
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REGULATORY ENVIRONMENT
To handle listing suspension of stocks and company securities, resume or
termination of listing;
To adopt measures of technical suspension or to decide for temporary suspension in
unexpected incidents; and
Other duties as assigned by the securities regulatory authorities.
Futures Exchange
Under the Futures Trading Management Regulations (g ¤ { hO ), a futures
exchange is a self-regulatory legal entity which provides venues and facilities for centralized
trading of futures and organizes and supervises trading of futures. The main duties of a futures
exchange include:
To provide venues and facilities for trading;
To design contracts and to arrange listing of contracts;
To organize and supervise trading, clearing and settlement;
To ensure fulfillment of contracts;
To supervise and manage its members in accordance with its articles and trading
rules; and
Other duties as specified by the futures supervision and management authorities of
the State Council.
According to the Measures for the Administration of Futures Exchange (g ¤ b@t
) (which was effective on April 15, 2007), the main duties of a futures exchange include:
To enact and implement the trading rules and implementing regulations of the
futures exchange;
To announce market information;
To regulate members and its clients, specified delivery warehouse, futures margin
depository bank and futures business of other participants in the futures market; and
To investigate and punish irregularities.
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REGULATORY ENVIRONMENT
Entry Requirements
Entry Requirements for Securities Companies
Establishment requirements
The Securities Law and the Regulations on Supervision and Management of Securities
Companies (IR8QlSvwc{t hO ) stipulate the authorized business scope of securities
companies, establish entry standards and other requirements. Establishment of securities
companies must be approved by the CSRC and business license must be obtained. The relevant
conditions include:
The articles of association of the proposed securities company must comply with the
laws and administrative regulations;
The major shareholders of the proposed securities company must have sustained
profitability, good reputation and no record of serious violation of law or regulation
during the latest three years, and have net assets of not less than RMB200 million;
If the proposed securities company is to operate the business of securities brokerage,
securities investment consultation and financial advisory business in relation to
securities trading and securities investment activities, the minimum registered
capital shall be RMB50 million; the minimum registered capital for companies
operating one of the securities underwriting and sponsorship, securities proprietary,
securities assets management and other securities businesses shall be RMB100
million; the minimum registered capital for companies operating two or more of the
securities underwriting and sponsorship, securities proprietary, securities assets
management and other securities businesses shall be RMB500 million;
The directors, supervisors, senior management of the proposed securities company
must be qualified, the practitioners must have securities practice qualification and
no less than three of them shall be senior management officers with each with at
least two years of experience in senior management in securities industry;
The proposed securities company must have good risk management system and
internal control system; and
The proposed securities company must have suitable premises and facilities for
operation.
The Rules for Establishment of Foreign-invested Securities Companies (Y SIR8Ql
S-z‰RG ) (which was effective on July 1, 2002 and amended on December 28, 2007) clearly
sets out the conditions and procedures for establishment of Foreign-invested Securities
Companies. The accumulated (including direct holding and indirect control) shareholdings of
foreign shareholders or their interest proportions in a foreign-invested securities company shall
not exceed 1/3; among the domestic securities companies which are domestic shareholders, at
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REGULATORY ENVIRONMENT
least one of them shall have a shareholding or an interest proportion in a foreign-invested
securities company of not less than 1/3; and after the domestic securities company has been
converted into a foreign-invested securities company, the shareholding proportion of at least
one domestic shareholder shall be no less than 1/3. For foreign investors who lawfully hold 5%
or more of the shares in a listed domestic securities company acquired by buying securities on
a security exchange or who jointly hold with others by agreement and other arrangement more
than 5% of the shares of a listed domestic securities company, approval from the CSRC must
be obtained, and the shareholdings held (including direct holding and indirect control) by a
single foreign-investor in a listed domestic securities company shall not exceed 20%.
Shareholdings held (including direct holding and indirect control) by all foreign investors in
a listed domestic securities company shall not exceed 25%. Establishment of a foreign-invested
securities company must be approved by the CSRC and business license must be obtained. The
relevant conditions include:
The registered capital must meet the requirements of the Securities Law;
The shareholders must have the qualifications as prescribed in the Rules, their
proportions of capital and contribution patterns must comply with the Rules;
As required by the CSRC, the number of staff with securities practice qualification
shall not be less than 30, and it shall have necessary accountants, legal and computer
professionals;
It shall have good internal management and risk control systems and a system that
separately manages the businesses of underwriting, brokerage and self-operation in
terms of various aspects, such as organization, personnel, information, business
implementation, etc., and it shall have a proper internal control technology system;
It must have premises that meet the requirements and qualified business facilities;
and
Other prudential requirements as prescribed by the CSRC.
In addition, according to the requirements of the Working Guidelines for the Examination
and Approval in Connection with the Administrative Permission of Securities Companies No.
10: Share Increase and Changes in Equity Interests of Securities Companies (IR8QlSLe?1
S[éh8]O\c _ { 10 – R8QlSXdTk ) promulgated on June 17, 2011, in the
case of an enterprise with direct or indirect equity participation from a foreign investor taking
an equity interest in a securities company, the percentage of the equity interest in the securities
company owned indirectly by the foreign investor, as calculated based on equity penetration,
may not reach 5%. A foreign investor may be exempted from such restriction if they satisfy all
of the following circumstances:
(1) The foreign investor indirectly holds the securities company’s equity interest by
taking an equity interest in a listed company;
(2) The largest shareholder, controlling shareholder or de facto controller of the listed
company is a Chinese investor;
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REGULATORY ENVIRONMENT
(3) If there is a change in the equity structure of the listed company in the future and
the foreign investor indirectly controls the equity interest of the securities company
by taking control of the listed company, thereby violating China’s open door policy,
the matter shall be rectified within a time limit, and the relevant equity interest may
not carry any voting rights if the matter is not rectified before the deadline; and
(4) The overseas investor may not establish any equity securities joint venture with a
domestic securities company or make a strategic investment in a listed securities
company during the period in which the overseas investor indirectly owns at least
5% of the equity interest of one or more domestic securities company(ies).
Business scopes
According to the Securities Law, upon approval of the CSRC, a securities company can
engage in some or all of the following business:
Securities brokerage;
Securities investment advisory;
Financial consultations in relation to securities trading and securities investment
activities;
Securities underwriting and sponsorship;
Securities proprietary;
Securities assets management; and
Other securities businesses.
According to Tentative Provisions for the Examination and Approval of the Scope of
Business of Securities Companies (IR8QlSimR{W [ébyfL[ ) which was effective from
December 1, 2008, securities companies which are under common control of the same entity
or individual or mutual control relationship exists between them shall not operate in the same
business, unless the relevant companies adopt effective measures to obviously distinguish the
operating regions or the target clients and there is no competition between the companies;
unless otherwise provided for by the CSRC, when the securities company is established, the
CSRC approves its business scope according to the statutory provisions and grants approval to
not more than four types of business to the newly established company; the securities company
shall obtain approval from the CSRC for any change of the business scope while the number
of additional types of business to apply for shall not exceed two; subject to the approval by the
CSRC, securities company may operate the business not clearly stated in the Securities Law,
the Regulations on Supervision and Management of Securities Companies (IR8QlSvwc{t
hO ) and the rules and regulations of the CSRC.
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REGULATORY ENVIRONMENT
According to the Rules for Establishment of Foreign-invested Securities Companies (Y
SIR8QlS-z‰RG ), foreign-invested securities companies may carry the following
business:
(1) underwriting and sponsorship of shares (including RMB ordinary shares and
foreign-invested shares) and bonds (including government bonds and corporate
bonds);
(2) brokerage of foreign-invested shares;
(3) brokerage and proprietary trading of bonds (including government bonds and
corporate bonds); and
(4) any other business approved by the CSRC.
Material changes
According to the rules of Securities Law and the Regulations on Supervision and
Management of Securities Companies (IR8QlSvwc{t hO ), approval from the CSRC must
be obtained before a securities company can establish, acquire or de-register a branch, or
change of the business scope or registered capital, or change of any shareholder holding more
than 5% of the shares, change of de facto controller, change of important provisions of the
articles of association of the company, or any merger, division, change of incorporation,
cessation, dissolution and bankruptcy.
According to Administrative License in Relation to the First Eleven Local Branch Offices
Exam and Approve Some of the Securities Institutes (CSRC Notice [2011] No. 15) (ebyc
k 11[mQúj_i[éh8èR R8j_iLe?1SN vlz[ ) (N-W vg QlTJ [2011]15 ) (which
was effective on July 1, 2011) promulgated by the CSRC on June 29, 2011, the local branch
offices of the CSRC in 11 provinces such as Shanghai have the examination and approval
authority in the following five types of administratively approved matters:
(1) change of important provisions of the articles of association of the company;
(2) establish, acquire or de-register a branch;
(3) change of the registered capital, with the exception of the following: a listed
securities company changes its registered capital; the existing shareholders of an
unlisted securities company increase the registered capital without creation of
shareholder(s) with more than 5% of the shareholdings and there is no change to the
de facto controller, controlling shareholder(s) and the largest shareholder of the
securities company;
(4) a change of shareholder(s) with more than 5% of shareholdings and de facto
controller, with the exception of a change of shareholder(s) with more than 5% of
shareholdings and de facto controller of a listed securities company;
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REGULATORY ENVIRONMENT
(5) increase or decrease business of securities brokerage, securities investment
consultation and financial advisory business in relation to securities trading and
securities investment activities, proprietary trading of securities, management of
securities assets and underwriting of securities.
On September 2, 2011 and December 9, 2011, CSRC authorized local branch offices of
the CSRC in another 25 provinces and counties to accept the above matters, and make
decisions on the relevant administrative license.
Establishment of subsidiaries and branches
According to The Provisional Regulatory Requirements on Establishment of Subsidiaries
of Securities Companies (IR8QlS-z[PQlSfL ) which was effective from January 1,
2008, subject to the approval of the CSRC, securities companies may establish wholly-owned
subsidiaries, and also invest jointly in the establishment of subsidiaries with other investors
who meet the required conditions for shareholders of securities companies stipulated in the
Securities Law. However, operation of similar businesses that face conflicts of interest or
competition, is not permitted for a securities company and its subsidiaries, or for subsidiaries
that are under common control of the same securities company. The Regulatory Requirements
on Branches of Securities Companies (Provisional) (IR8QlSR QlSv{ (fL )) that was
effective from May 13, 2008 and Rules for Further Regulation of Securities Operating Outlets
(e2N ke‰IR8qim}v ) which was effective from November 1, 2009 provide
that securities companies in compliance with the regulatory requirements can establish new
branches and operating outlets upon approval of the CSRC. The Securities Law and the
Regulations on Supervision and Management of Securities Companies (IR8QlSvwc{t h
O ) regulate that, approval from the securities regulatory authorities of the State Council must
be obtained before a securities company can establish, acquire or de-register a branch or before
merger or division; approval from the CSRC must be obtained before a securities company
establish, acquire or purchase shares of any securities operating institutions outside the PRC.
Entry requirements for fund management companies
Establishment requirements
The Securities Investment Funds Law of the PRC (N-N”l QqTW R8bWú‘l ) and
the Management Rules for Securities Investment Fund Management Companies (IR8bWú
‘ { QlS{t ) establish entry standards and other requirements for fund management
companies. Establishment of a foreign-invested securities company must be approved by the
CSRC and business license must be obtained. The relevant conditions include:
The articles of association of the proposed fund management company must comply
with the Securities Investment Funds Law of the PRC (N-N”l QqTW R8bWú
‘ l ) and the Companies Law;
The registered capital of the proposed fund management company must not be less
than RMB100 million, and it must be paid-in capital by cash, foreign shareholders
shall be able to freely convert currencies for contribution;
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REGULATORY ENVIRONMENT
The major shareholders of the proposed fund management company shall have good
operation performance and good social reputation in securities business, securities
investment advisory, trust assets management or other financial assets management,
there was no record for violation of law during the last three years, and that the
registered capital shall not be less than RMB300 million;
The proposed fund management company shall have senior management who are in
compliance with laws, administrative regulations and rules of the CSRC and staff
engage in research, investment, valuation and marketing business, the number of the
proposed senior management and operating staff shall not be less than 15, and they
shall obtain funds practice qualification;
The proposed fund management company must have good internal control systems
that are in compliance with the requirements of the CSRC for supervision, auditing
and risk control; and
The proposed fund management company must have operating premises, security
facilities and other facilities in relation to fund management business in compliance
with the requirements;
The Management Rules on Securities Investment Funds Management Companies (IR8b
Wú‘t QlS{t ) stipulates a series of regulatory conditions for foreign shareholders
of Sino-foreign joint venture fund management companies, including:
Foreign shareholders shall meet the following conditions:
(1) It is a financial institution established and lawfully existing under the laws of
its home country or region with financial asset management experience, is in
sound financial conditions and on good credit standing,and has not been
subject to penalty by the regulatory or judicial authority in the most recent
three years;
(2) Its home country or region has sound systems for securities laws and
regulation, and the securities regulatory authority has signed a memorandum of
understanding on securities regulatory cooperation,and is maintaining effective
regulatory cooperation, with the CSRC or another authority recognized by the
CSRC;
(3) Its paid-up capital is not less than RMB300 million or equivalent in a freely
convertible currency; and
(4) Other conditions stipulated by the CSRC that are approved by the State
Council.
– 142 –
REGULATORY ENVIRONMENT
The Capital Contribution Ratio or the equity interests may not, in aggregate
(including direct and indirect holdings), exceed the commitment to open up the
securities industry to foreign investors made by the State.
In respect of an overseas shareholder of a Sino-foreign equity joint venture Fund
Management Company, in the event that there are requirements on record filing of
overseas investment by the competent authority at the place in which such overseas
shareholder is registered or in which its principal business is conducted, if such
overseas shareholder submits the relevant record filing materials to the competent
authority after it has obtained the approval document from the CSRC in accordance
with the law, it shall at the same time provide a copy of the materials to the CSRC.
In addition, Management Rules on Securities Investment Fund Management Companies
impose restriction on the number of fund management companies a shareholder may invest,
that is, the number of fund management companies that an institution or institutions under the
control of the same de facto controller may invest must not exceed two, of which the number
of fund management companies in which such institution or institutions hold controlling
interests must not exceed one.
Material changes
According to Management Rules on Securities Investment Fund Management Companies,
the following material changes of fund management companies must be reported to the CSRC
for approval:
Any change of shareholders, registered capital or proportion of shareholders’
contribution;
Any change of name, address;
Any amendment to the articles of association; and
Any change of other material matters as stipulated by the CSRC.
Entry requirements for futures companies
Establishment requirements
The Futures Trading Management Regulations (g ¤ { hO ) and the
Administrative Measures for Futures Companies (g lS{t ) provide for the entry
standards and other requirements. Establishment of futures companies must be approved by the
CSRC. The relevant conditions include:
The minimum registered capital of the proposed futures company is RMB30 million.
The registered capital shall be paid-in capital. Shareholders shall contribute by cash
or non-monetary assets which are necessary for the operations of the futures
company, the proportion of monetary contribution shall not be lower than 85%;
– 143 –
REGULATORY ENVIRONMENT
The directors, supervisors and senior management of the proposed futures company
shall be qualified for their positions; practitioners shall have futures practice
qualifications; the number of staff with futures practice qualifications shall not be
less than 15; and the number of senior management staff with practice qualifications
shall not be less than three;
The articles of association of the proposed futures company must comply with the
requirements of laws and regulations;
The major shareholders and de facto controller of the proposed futures company
shall have sustained profitability, good reputation, and no record of serious violation
of law or regulation during the last three years;
The proposed futures company must have qualified premises and facilities for
operation;
The proposed futures company shall have sound risk management and internal
control systems; and
According to the Provisions on Issues Relating to the Regulation of Controlling
Interests and Equity Interests in Futures Companies (e‰c§0 Sg lS
g UOLv ) (which was effective on June 1, 2008) promulgated by CSRC on
May 22, 2008, the number of futures companies that an institution may take a
controlling stake and invest must not exceed two, of which the number of futures
companies in which such institution holds controlling interests must not exceed one.
Material changes
According to the Administrative Measures for Futures Companies (g lS{t ),
approval of the CSRC shall be obtained for change of shareholdings in any one of the situations
below:
Shareholding of one single shareholder to be increased up to 5% or above, or the
accumulated shareholding of the associated shareholders is to be increased up to 5%
or above; and
Shares are to be transferred to shareholders holding 5% or above of the shares, or
to associated shareholders accumulatively holding 5% or above of the shares.
Any change of registered capital of a futures company shall be examined and approved
by the CSRC. If a futures company changes its legal representative, the futures company shall
submit application material to its local branch office of the CSRC. If a futures company
changes its address, it shall submit application material to the branch office of the CSRC at the
place where it is to be moved to. If a futures company closes its business, it shall submit
application material to the CSRC. For any establishment, change, dissolution, bankruptcy,
– 144 –
REGULATORY ENVIRONMENT
revocation of futures business license of a futures company or the establishment, change or
termination of its operation branches, the futures company shall announce the same on the
press or media as designated by the CSRC.
Establishment of branches
A futures company can establish operation branches; if a futures company applies to
establish an operation branch, it shall submit application to the branch office of the CSRC at
the place where the proposed operation branch is to be established.
Regulation on Operations
Securities
Securities and related business we currently engage in include, but not limited to,
securities brokerage, securities proprietary trading, securities underwriting and sponsorship,
securities investment consulting, financial advisory relating to securities trade and securities
investment activities, securities assets management, direct investment business, securities
investment fund distribution, provision of intermediary business for futures companies, margin
financing and securities lending, and QDII-related business. Securities companies that engage
in securities business in the PRC are subject to various laws and regulations. Laws and
regulations and policy documents including the Securities Law (N-N”l QqTW R8l ), the
Regulations on Supervision and Management of Securities Companies (IR8QlSvwc{t h
O ), Tentative Provisions for the Examination and Approval of the Scope of Business of
Securities Companies (IR8QlSimR{W [ byfL ), the Provisional Measures on
Management of Investment Consultations on Securities and Futures (IR80 g {
fLl ) (which was effective on April 1, 1998), the Management Measures on Securities
Issuing and Underwriting (IR8v|L bt ) (which was effective on September 19,
2006 amended on October 11, 2010), Measures for the Administration of the Sponsorship of
the Offering and Listing of Securities (IR8v|LN ^ O…imR{t ) (which was effective
on December 1, 2008 amended on May 13, 2009), the Regulations on Investment Scopes of
Proprietary Trading Business of Securities Companies and the Relevant Matters (eIR8Ql
SIR8êqimRbW Sg N v ) (which was effective on June 1, 2011), the
Provisional Measures on Client Assets Management of Securities Companies (IR8QlS[b6
u\"{t imRfLl ) (which was effective on February 1, 2004), the Management Measures
on Margin Financing and Securities Lending (IR8QlSR8imR{t ) (which was
effective on August 1, 2006 amended on October 26, 2011), the Guidelines of Supervision and
Administration for Direct Investment Business of Securities Companies (IR8QlSvcbim
Rv{c _ ) (which was effective on July 8, 2011), the Management Measures on Sales of
Securities Investment Funds (IR8bWú‘U.{t ) (which was effective on July 1,
2004 amended on October 1, 2011), the Provisional Measures on Provision of Futures IB
Business (IR8QlSp”g lScON-N}9imRfLl ) (which was effective on April 20,
2007), the Provisional Measures on Management of Investing in Overseas Securities by
Qualified Domestic Institutional Investors (T h
– 145 –
REGULATORY ENVIRONMENT
Securities by RMB Qualified Foreign Institutional Investors of Funds Management Companies
and Securities Companies (Wú‘t QlS0 R8QlSN”l ^ T h
companies.
Securities brokerage
The Securities Law of the PRC and the Regulations on Supervision and Management of
Securities Companies provide (i) that securities companies that engage in securities brokerage
shall examine the sufficiency of the funds and securities of a client’s account; (ii) a securities
company may appoint a person other than those of the securities company as a securities
broker; and (iii) for a securities company that engages in the business of securities brokerage,
the trading settlement funds of its client shall be deposited in a designated commercial bank,
and a separate account shall be opened and managed for each of the clients. A securities
company is not allowed to categorize the transaction settlement funds of the clients as its own
property. Access of the trading settlement funds of the clients shall be handled by the
designated commercial banks. The securities company cannot accept authorizations to engage
in discretionary securities trading on its customer’s account, including, for example, deciding
the type, quantity and price of securities to buy or sell for its customers.
On March 13, 2009, the CSRC promulgated the Provisional Measures on Management of
Securities Brokers (IR8} N”{t fL ) to further strengthen the supervisions on the
securities brokers and to regulate the activities of securities brokers. Pursuant to these
measures, securities brokers are required to pass the qualifying exam, complete professional
training and register their qualification status with the SAC.
Securities investment consulting
According to the Provisional Measures on Management of Investment Consultations on
Securities and Futures (IR80 g { fLl ), a business license approval must
be obtained from the CSRC in accordance with the regulations of the Provisional Measures so
as to engage in securities investment consulting business. Institutions engage in securities
investment consulting business and its investment consulting personnel provide direct or
indirect paid consulting services activities (securities investment analysis, prediction or
recommendation, etc.) to securities investors or clients in the following manner:
accept the delegation of investors or clients to provide securities investment
consulting services;
organize securities investment consultation seminar, public lecture, analytical
meeting, etc.;
publish securities investment consultation articles, discussions, reports, and provide
securities and futures investment consultation services through public media (radio,
television, etc.); and
– 146 –
REGULATORY ENVIRONMENT
provide securities investment consultation services through telecommunication
equipment systems including telephone, facsimile, computer network, etc.
Institutes proposed to engage in qualified securities investment consulting shall meet the
necessary conditions and obtain a business license from the CSRC; personnel proposed to
engage in investment consulting business of securities and futures must obtain qualification for
investment consulting in securities and join a qualified institute of securities investment
consulting before engaging in the business of securities investment consulting.
Securities proprietary trading
The Securities Law (N-N”l QqTW R8l ) and the Regulations on Supervision and
Management of Securities Companies (IR8QlSvwc{t hO ) stipulate the categories of
securities that a securities company can sell and purchase in its securities proprietary business;
a securities company that engages in securities proprietary business shall use real name
securities proprietary account, and shall report to the stock exchange for records within three
trading days from the date when the proprietary account is opened; the scope of activities of
a securities company which engages in securities proprietary business; risk control indicators
such as the proportion of proprietary securities in the Net Capital of the company, the
proportion of the value of one single security in the Net Capital of the company, the proportion
of the amount of one single security in the total amount of issued securities, shall be in
accordance with the requirements of the CSRC. The securities company must conduct its
proprietary trading business in its own name and use their own funds or funds lawfully raised.
In order to urge the securities companies to reform the securities proprietary systems and
to guard against the risks of securities proprietary business, the CSRC promulgated the CSRC
Notice on Forwarding the “Guidelines on Proprietary Business of Securities Companies” and
Strengthening the Regulation on Proprietary Business of Securities Companies (N-W R8vwc
{ Y Tág eIv|
November 11, 2005, which stipulates that securities companies must establish comprehensive
securities management system for securities proprietary business, investment decision-making
mechanism, operating procedures and risk control system, and shall conduct proprietary
business with risks that can be measured, controlled and affordable.
On April 29, 2011, the CSRC promulgated the Regulations on Investment Scopes of
Proprietary Trading Business of Securities Companies and the Relevant Matters (eIR8Ql
SIR8êqimRbW Sg N v ), which became effective from June 1, 2011, and
further clarified the investment scopes of the securities proprietary business of securities
companies. Accordingly, the following securities are allowed for the proprietary trading
business of securities companies:
securities which have been or may be legally listed and traded on a domestic stock
exchange.
– 147 –
REGULATORY ENVIRONMENT
securities which have been or may be legally listed and traded on the domestic
inter-bank market, including:
(1) Government bonds;
(2) RMB bonds issued by international development institutions;
(3) Central bank bills;
(4) Financial bonds;
(5) Short-term financing bonds;
(6) Corporate bonds;
(7) Medium-term notes; and
(8) Enterprise bonds.
securities issued with the approval of the CSRC or after filing with the CSRC and
traded over the counters of domestic financial institutions.
A securities company may form subsidiary companies to invest in financial products other
than those listed above. To form such a subsidiary company, a securities company shall be
qualified for the proprietary trading business. A securities company shall not provide financing
or guarantee for a subsidiary company as mentioned above.
Securities underwriting and sponsoring
According to the Measures for the Administration of the Sponsorship of the Offering and
Listing of Securities (IR8v|LN ^ O…imR{t ), securities companies must apply for
the sponsoring institution qualification from the CSRC in accordance with the regulations, so
as to engage in securities issuance, listing and sponsoring business. Sponsoring institutions
should designate an individual, who has obtained sponsor representative qualification, to be
responsible for sponsorship duties, so as to discharge sponsorship responsibilities. Issuers
should employ securities companies which have obtained sponsoring institution qualification
to perform the sponsorship duties for the following matters:
Initial public offering and listing;
Issuance of new shares and convertible corporate bonds by listing companies; and
Other conditions identified by the CSRC.
– 148 –
REGULATORY ENVIRONMENT
To apply for sponsoring institution qualification, securities companies shall meet the
following conditions:
Registered capital of not less than RMB100 million, and the Net Capital of not less
than RMB50 million;
With comprehensive corporate governance and internal control systems, and the risk
control indicators shall be in compliance with the relevant provisions;
The sponsoring business department shall have comprehensive business procedures,
internal risk assessment and control systems and reasonable internal structuring, and
shall have appropriate back-office supports such as research capabilities and
marketing capabilities;
With good sponsoring business team and reasonable professional structuring, the
number of practitioners shall not be less than 35, including not less than 20 staff who
have been working in sponsoring-related business in the last three years;
No less than four personnel are qualified to be sponsor representative;
Without any administrative penalties because of significant violation of laws and
rules in the last three years; and
Other conditions regulated by the CSRC.
In addition, Measures for the Administration of the Sponsorship of the Offering and
Listing of Securities (IR8v|LN ^ O…imR{t ) stipulates that, if the aggregate holding
of a sponsoring institution and its controlling shareholder, de facto controller, important related
party exceeds 7% of the issuer’s shares, or an issuer holds or controls more than 7% of the
shares of the sponsoring institution, the institute shall perform the duties of sponsoring with an
unrelated sponsoring institute, which shall perform as main sponsor upon sponsoring the listing
of securities of the issuer. Meanwhile, according to Guidelines on Supervision and
Administration of Direct Investment Business of Securities Companies (IR8QlSvcbim
Rv{c _ ) promulgated by the CSRC on July 8, 2011, a direct subsidiary, direct investment
fund, fund for industry and fund management of a company which is the counseling institute,
financial advisor, sponsoring institute or main underwriter of a to-be-listed company shall not
invest in the said company after the execution of the relevant agreement or the practical
commencement of the relevant business.
The Management Measures on Securities Issuing and Underwriting (IR8v|L bt
) which was effective from September 19, 2006 and amended on October 11, 2010
regulates the issuance of shares or convertible bonds in the PRC by issuers, the underwriting
of securities in the PRC by the securities companies, and the investors’ subscription of
securities issued in the PRC. The securities company shall submit offering and underwriting
plans to the CSRC prior to engaging in any underwriting activities.
– 149 –
REGULATORY ENVIRONMENT
Securities assets management
According to the Provisional Measures on Client Assets Managements of Securities
Companies (IR8QlS[b6u\"{t imRfLl ), securities companies engaging in client
assets managements shall apply to the CSRC for qualification on client assets managements
according to the provisions of the Measures. Subject to the approval of the CSRC, a securities
company may engage in handling targeted asset management businesses for single clients,
handling collective asset management businesses for multiple clients and handling specific-
purpose special asset management businesses for clients. A securities company engaging in
client assets managements shall comply with the following conditions:
It shall be approved by the CSRC as a comprehensive securities company;
Its Net Capital shall not be less than RMB200 million, and it shall comply with the
requirements of the CSRC on the various risk control indicators of comprehensive
securities companies;
Practitioners of clients assets managements shall have securities practice
qualification, and have no record of bad behavior, and the number of staff who have
three years of experience in securities proprietary, assets management or securities
investment funds management shall not be less than five;
It shall have good corporate governance structure, comprehensive internal control
and risk management system, which are effectively implemented;
It has not been subjected to administrative punishment or criminal punishment
within the past one year; and
Other conditions as specified by the CSRC.
According to the Securities Law and the Regulations on Supervision and Management of
Securities Companies, securities companies which engage in securities assets management
shall not do the following:
guarantee the clients that their principal assets will not suffer loss or promise that
they will receive a minimum profit;
the assets value of one single entrustment of a client is lower than the minimum
value as specified by the CSRC;
use the assets of the client for unnecessary securities tradings;
carry out transactions between securities proprietary accounts and assets
management accounts or among different securities assets management accounts,
and there is no sufficient evidence that they have been separated according to law;
and
– 150 –
REGULATORY ENVIRONMENT
Other activities prohibited by laws, regulations and the CSRC.
The Detailed Implementation Rules for the Targeted Asset Management Business of
Securities Companies (Trial Implementation) (IR8QlS[T u\"{t imR[e}0RG (fL ))
and the Detailed Rules for the Implementation of the Collective Asset Management Business
of Securities Companies (Trial Implementation) (IR8QlS–T u\"{t imR[e}0RG (fL )),
which were both promulgated by CSRC on May 31, 2008, and the Trial Rules for Fund
Management Companies’ Asset Management Business for Specific Clients (Wú‘t QlSry[
[ 6u\"{t imRfl ) which was promulgated by CSRC on August 25, 2011 and takes
effect on October 1, 2011, set detailed regulations on the targeted asset management business
and collective asset management business of securities companies.
Margin financing and securities lending (including margin and securities refinancing)
According to the Securities Law (N-N”l QqTW R8l ) and the Regulations on
Supervision and Management of Securities Companies (IR8QlSvwc{t hO ), securities
companies engage in margin financing and securities lending shall enter into margin financing
and securities lending contracts with the client, and open client securities guarantee account at
the securities registration and settlement institution under the name of the securities company,
and open client capital guarantee account at designated commercial banks.
The Management Measures on Securities Companies Margin Financing and Securities
Lending (IR8QlSR8imR{t ) promulgated by the CSRC on June 30, 2006 and
amended on October 26, 2011 clearly state that approval from the CSRC must be obtained for
a securities company to carry out margin financing and securities lending business; it is
stipulated in the operating regulations that, among others, securities companies doing margin
financing and securities lending business shall by reference to third-party custody of the
client’s transaction settlement funds enter into client credit funds custody agreement with their
clients and commercial banks; debt guarantees and interest processing, etc., are clearly
stipulated; supervision and management of securities companies engaged in margin financing
and securities lending by the CSRC, the stock exchanges and securities registration and
settlement institutions.
Pursuant to the recently amended Management Measures on Securities Companies
Margin Financing and Securities Lending (IR8QlSR8imR{t ), PRC securities
firms that apply for the qualification to engage in margin financing and securities lending
business must satisfy of the conditions set out below:
(i) have a minimum operation history of three years in the securities brokerage
business;
(ii) have a sound system of corporate governance and effective internal control in place
that enable the securities firm to identify, control and prevent any potential
operation risk and internal control risk;
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REGULATORY ENVIRONMENT
(iii) the securities firms and their respective directors, supervisors and senior
management must not have been subject to any administrative and criminal penalty
for any violation of relevant laws and regulations in their operation during the past
two years, and they are not subject to any investigation or rectification, orders by the
CSRC for any regulatory non-compliances;
(iv) a sound financial position, with each of their risk control indicators in compliance
with the relevant requirements for the most recent two years and their registered
capital and Net Capital also in compliance with the requirements subsequent to the
commencement of conducting the margin financing and securities lending business;
(v) clients’ assets remain secured and intact with effective measures in place for clients’
third-party fund depository, and client’s particulars remain true and intact;
(vi) the establishment of a comprehensive complaint-feedback mechanism that ensures
the timely and due solution to any disputes with clients;
(vii) the maintenance of a stable information security system, with no material incident
occurred during the past year due to any management issue, and the systems
designated for margin financing and securities lending business have been approved
by the applicable PRC stock exchange and registrars;
(viii) an appropriate number of qualified senior management and professionals who are
responsible for the margin financing and securities lending business, and the
proposals and internal control system have been approved and accredited by the
SAC; and
(ix) any other conditions stipulated by the CSRC.
On October 26, 2011, the CSRC promulgated the Trial Supervision and Management
Measures on Margin and Securities Refinancing Business (I imRvwc{t ) and
specified (i) the requirements for the establishment and operation of the Securities Finance
Company; (ii) the responsibilities of the Securities Finance Company, which include, among
others, providing funding and securities refinancing services to support the margin financing
and securities lending business of PRC securities firms; (iii) the rules and regulations relating
to the margin and securities refinancing business; (iv) the source of funding and securities to
be used in the margin and securities refinancing business by the Securities Finance Company;
and (v) that Securities Finance Company shall establish compliance and risk management
system to ensure its compliance with rules and regulations relating to risk control indicators.
On November 25, 2011, the Shanghai Stock Exchange and the Shenzhen Stock Exchange
separately announced the Implementation Rules of Shanghai Stock Exchange on Margin
Financing and Securities Lending (N mwIR8N¤f b@R8N¤f [ e}0RG ) and the
Implementation Rules of Shenzhen Stock Exchange on Margin Financing and Securities
Lending (mW3IR8N¤f b@R8N¤f [ e}0RG ) which, among others, contain express rules
on regulating the specific procedures for this business and the requirements for eligible
securities. On the same day, according to the implementation rules, the Shanghai Stock
Exchange and the Shenzhen Stock Exchange announced new notices to expand the scope of
securities eligible for margin finance and securities lending business from 90 stocks to 278
stocks and 7 ETFs. The new notices have become effective on December 5, 2011.
– 152 –
REGULATORY ENVIRONMENT
Direct investment
According to the provisions of the Letter on the Relevant Work of Direct Investment
Business Trials of Securities Companies (eIR8QlSvcbimRfg ] O\vQ ) and
its attachment Guidelines for Direct Investment Business Trials of Securities Companies (IR8
QlSvcbimRfc _ ), approval from the CSRC shall be obtained for a securities
company to carry out direct investment business, and no objection letter allowing companies
at trials to carry out direct investment business shall be obtained. Without consent of the CSRC,
a securities company is not allowed to carry out direct investment business by any means. For
a securities company to carry out direct investment business trials, it shall set up a subsidiary
which engages in direct investment business (the “direct investment subsidiary” hereinafter) to
carry out direct investments.
Guidelines on Supervision and Administration of Direct Investment Business of
Securities Companies (IR8QlSvcbimRv{c _ ) made a series of requirements in
respect to investment amount, risk control, compliance management, management of
personnel, the establishment of direct investment fund by direct investment subsidiary, and the
operation and management of direct investment fund for securities companies directly
engaging in investment.
For a securities company to carry out direct investment business, several regulatory
requirements shall be complied with, such as:
For those investing in a direct investment subsidiary, direct investment funds,
industry funds and fund management institutions with its own funds, the aggregate
amount shall not exceed 15% of the Net Capital of the securities company;
A sound internal control mechanism shall be established, risks management and
compliance management shall be strengthened, conflict of interests with the direct
investment subsidiary, the risks of transfer of benefits, “black box” operations and
moral hazard shall be avoided;
Where a security company acts as counseling agency, financial advisor, sponsor or
lead underwriter of a company to be listed, with effect from the date on which
relevant agreement are signed or relevant business are carried out in a substantive
manner, its direct investment subsidiary, direct investment fund, industry fund and
fund management institution are no longer allowed to invest in the said company;
Be independent with the direct investment subsidiary with respect to personnel,
constitution, finance, assets, management, business operation, etc; and
All of the risk control indicators continue to meet the requirements; after
establishment of direct investment companies, all of the risk control indicators
comply with the regulations.
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REGULATORY ENVIRONMENT
Subject to the approval of the CSRC, a direct investment subsidiary may engage in the
following business:
use its own funds to invest in shareholdings of domestic enterprises;
provision of financial advisory services on equity investment to clients;
establish direct investment funds, raise and manage clients’ fund and carry out
equity investments;
use unemployed capital to invest in securities with low risk but high liquidity such
as national debts, investment grade corporate bonds, money market fund and central
bank bills, and the approved establishment of collection of asset management plan
and specific asset management plan of securities companies for the purpose of cash
management provided that effective control of risk and continuous liquidity is
maintained; and
other business with the consent of the CSRC.
Securities investment funds distribution
On June 25, 2004, the CSRC promulgated the Management Measures on Sales of
Securities Investment Funds (IR8bWú‘U.{t ) which took effect on July 1, 2004.
On June 9, 2011, the CSRC promulgated the new Management Measures on Sales of Securities
Investment Funds (e°0 R8bWú‘U.{t 0 ), which was effective from October 1,
2011, and the Management Measures on Sales of Securities Investment Funds with effect from
July 1, 2004 was abolished on October 1, 2011.
The new Management Measures on Sales of Securities Investment Funds provides new
requirements a securities company which applies for the qualification for funds distribution
business shall satisfy:
It shall have good corporate governance structure, comprehensive internal control
and risk management system, which are effectively implemented;
It shall have good financial conditions, standardized and stable operations;
It shall have a place of business, security facilities and other facilities suitable for
carrying out funds distributions business;
It shall have safe and efficient technical facilities to handle funds offering,
application and redemption which shall comply with CSRC’s requirements for
information management platform for funds distribution business, the technology
systems for funds distribution business have been connected and tested with the
corresponding technology systems of the fund managers and China Securities
Depository and Clearing Company Limited, and the test results are in line with the
standards of the PRC;
– 154 –
REGULATORY ENVIRONMENT
It shall have formulated comprehensive fund clearance processes and fund
management conforming to CSRC’s requirements for funds distribution settlement
fund management;
It shall have a method system for assessing risk-bearing capacity of fund investors
and risk level of fund products;
It shall establish management systems for funds distributions such as comprehensive
business processes, practice rules of salesmen and emergency response measures,
etc., which conform to CSRC’s requirements for internal control of fund distribution
institutions;
It shall establish internal control systems related to anti-money laundering as
required by laws and regulations; and
Other requirement promulgated by CSRC.
Provision of Futures IB Business
According to Provisional Measures on Provision of Futures IB Business (IR8QlSp”g
lScON-N}9imRfLl ), a securities company applying for the qualification for the
provision of futures IB Business to futures companies shall comply with the following
conditions:
All risk control indicators meet the required standards in the six months before
application;
The third-party custody system for client transaction settlement funds has been set
up according to the regulations;
It wholly owns or controls a futures company, or is under control of the same
institution with a futures company, and that futures company has the membership
qualification to be a futures exchange implementing members classification
settlement system, and the risks regulatory indices thereof are continuously in
compliance with the required standards in the two months before the application
date;
It has necessary operational staff, and there are at least five and two operational staff
with futures practice qualification respectively in the headquarter of the company
and in the operational department;
Comprehensive systems of operational procedures, internal control, risks isolation
and compliance inspection, etc., have been established according to the regulations;
There are technology systems that meet the demands of the business; and
Other conditions as required by the CSRC based on the developments of the market
and the principle of prudential regulation.
– 155 –
REGULATORY ENVIRONMENT
Securities companies which engage in futures IB Business shall obtain futures IB
Business qualification according to the provisions of the Measures, and shall operate carefully
and uniformly manage the futures IB Business carried out by its operational department. A
securities company engaged by a futures company to carry out futures IB Business shall
provide the following services:
Assist in account opening procedures;
Provide information on the futures market and trading facilities; and
Other services as required by the CSRC.
Securities companies cannot carry out futures trading, clearing, settlement or delivery for
their clients, and they cannot receive or pay futures deposits for futures companies or clients,
to save, withdraw or transfer futures deposits for clients with the securities capital accounts.
Securities companies can only engage in the provision of futures IB Business to their
wholly-owned or controlling futures companies, or futures companies with which they are
under common control of the same institute. They cannot engage in the provision of futures IB
Business to other futures companies. Securities companies shall have adequate business staff
with futures practice qualifications and cannot employ business staff without futures practice
qualifications to engage in the provision of futures IB Business. Staff engaging in futures IB
Business in securities companies cannot carry out futures trading. Securities companies cannot,
directly or indirectly, raise funds or provide guarantee in futures trading for clients.
QDII
According to the Provisional Measures on Management of Investing in Overseas
Securities by Qualified Domestic Institutional Investors (T h
domestic commercial banks to be responsible for assets custody, and they can engage overseas
securities service institutions for sale and purchase of securities. Securities companies which
are QDIIs can raise funds by setting up collection schemes, etc., and to use the funds raised
in the overseas securities market. Applying to be a QDII shall comply with the following
conditions:
All risk control indicators shall meet the required standards; the Net Capital shall
not be less than RMB800 million; the proportion of Net Capital in the net assets
shall not be less than 70%; it shall have been engaging in collection of assets
management scheme (“collection scheme” hereinafter) for more than one year; the
value of assets under management as of the last quarter-end shall not be less than
RMB2 billion or its equivalent in foreign currency;
It shall have staff with overseas investment and management related experience in
compliance with the regulations;
It shall have sound governance structure and comprehensive internal control system,
and standardized operations;
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It has not been subject to material penalty by any regulatory body in the last three
years, and is not being investigated by any judiciary or regulatory body for any
serious matter; and
Other conditions as required by the CSRC based on the principle of prudential
regulation.
RQFII
According to the Provisional Measures on Investing in Domestic Securities by the RMB
Qualified Foreign Institutional Investors of Funds Management Companies and Securities Companies
(Wú‘t QlS0 R8QlSN”l ^ T h
market using the RMB raised in Hong Kong by the Hong Kong subsidiaries of the domestic
funds management companies and securities companies (HK subsidiaries hereinafter), HK
subsidiaries shall obtain CSRC’s approval before they invest in domestic security market and
obtain investment quota approved by SAFE. HK subsidiaries carrying out the trial business of
domestic securities investment shall engage domestic commercial banks with QFII trustee
qualification for asset custody, and they can engage domestic securities companies for sale and
purchase of securities. HK subsidiaries may also authorize domestic fund management
companies and securities companies to manage domestic securities investment. QFIIs are
supervised and administrated by the CSRC, PBOC and SAFE.
The following requirements shall be complied by the HK subsidiaries to conduct domestic
securities investment trial business using RMB raised in Hong Kong:
It shall possess the qualification issued by the Hong Kong securities supervision and
administration authority in asset management business and has commenced such
business with sound finance and credit;
It shall have sound corporate governance and comprehensive internal control, and its
staff shall be qualified according to the related professional regulations and
standards in Hong Kong;
The business of the applicant and its domestic parent company shall be under lawful
and compliant operation, without major punishment rendered by the local
supervision and administration authorities within the past 3 years;
Its domestic parent company shall possess the business qualification of securities
asset management; and
Other conditions as required by the CSRC based on the principle of prudential
regulation.
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Pursuant to the Measures on Implementation of the Provisional Measures on Investing in
Domestic Securities by RMB Qualified Foreign Institutional Investors of Funds Management
Companies and Securities Companies (e[e0 Wú‘t QlS0 R8QlSN”l ^ T h
the trial institution with qualification of domestic securities investment (“the trial institution”)
may, within the approved quota, invest stocks, bonds, warrants, securities investment funds
tradable in domestic securities exchanges and other financial tools allowed by CSRC and
PBOC. Additionally, the trial institution may subscribe for issuance of new shares, convertible
bonds, additional issuance of shares and allotment of shares. Within approved investment
quota, capital for investment in stocks and stock funds shall not exceed 20% of the fund-raising
scale; capital for investment in fixed income securities (including bonds and fixed income
funds) shall be no less than 80% of the fund-raising scale.
Pursuant to the Notice on Relevant Issues of the Provisional Measures on Investing in
Domestic Securities by RMB Qualified Foreign Institutional Investors of Funds Management
Companies and Securities Companies (eWú‘t QlS0 R8QlSN”l ^ T h
RQFII shall not transfer, re-sell its approved quota to other institutions or individuals. The
approved quota which is not used by the RQFII within one year from the approval date will be
reduced or even canceled by SAFE.
Funds
Funds management companies engage in funds business in the PRC are also subject to
regulations of various laws and regulations. Laws and regulations as well as policy documents
such as the Securities Investment Funds Law of the PRC (N-N”l QqTW R8bWú‘l ),
the Management Rules on Securities Investment Funds Companies (IR8bWú‘t QlS{
t ) and the Administration of Securities Investment Fund Operations Procedures (IR8b
Wú‘KO\t ) regulate various aspects of the business of the funds companies.
Under the Securities Investment Funds Law of the PRC, offering funds for sale or raising
funds by funds management companies shall be approved by the CSRC; funds management
companies shall publish the prospectus, funds contracts and other relevant documents three
days before offering of the funds; upon expiry of the funds raising period, if the total amount
of funds raised by closed-end funds reaches 80% of the approved amount, or if the total amount
of funds raised by open-ended funds exceed the approved minimum raising amount, and that
the number of fund holders is in line with the requirements of the CSRC, the fund management
company shall appoint authorized capital verification company to verify capital ten days after
expiry of the fund-raising period, and submit the capital verification report to the CSRC within
ten days after receipt of the capital verification report for records, make funds records, and
shall announce the same; the close-end funds can be listed at the stock exchange for trading
upon application by the funds management company and approval of the CSRC; the fund
managers are responsible for the application, redemption and registration of open-end funds;
sufficient cash or government bonds shall be reserved for the open-end funds to prepare for
redemption payment to the fund holders.
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These laws also provide for the products capable of being invested in with the funds and
the prohibited usages, the disclosure obligations of fund information, the rights of fund holders
and the ways to exercise such rights, which include: in the circumstance where fund holders
holding 10% or above of the funds request to convene the general meeting of fund holders on
the same matter, but the fund management company and the fund custodian refuse to convene,
fund holders holding 10% or above of the funds has the right to convene by themselves, and
report to the CSRC for records. The general meeting of fund holders can only be held when
fund holders holding 50% or above of the funds attend the meeting. The decisions made at the
meeting on the matter under consideration shall be passed by more than 50% of the voting
rights of the fund holders attending the meeting. However, for change of the operation mode
of funds, replacement of fund managers or fund custodians, or early termination of fund
contracts shall be passed by two-thirds of the voting rights of the fund holders attending the
meeting. The matters decided by the general meeting of fund holders shall be reported to the
CSRC for approval or records, and the same shall be announced.
In addition, our Company is one of the first four securities companies who have obtained
fund evaluation license in May 2010 by SAC, based on which we can evaluate securities
investment funds and release funds evaluation results in public. As to the evaluation of funds,
the Tentative Measures on the Administration of Evaluation Businesses of Securities
Investment Funds (IR8bWú‘UPùimR{t fLl ), promulgated by CSRC on
November 6, 2009 and came into effect on January 1, 2010) and the Rules on the
Self-Regulatory Administration of Securities Investment Fund Valuation Services (Trial
Implementation) (IR8bWú‘UPùimRêt ‰ G (fL )), promulgated by SAC in
January 11, 2010), set rules about the conditions, operation and supervision for carrying out
fund evaluation business for securities companies. Our Company is subject to such regulations
and rules when engaged in fund evaluation business.
Futures
Futures companies which engage in futures business in the PRC are also subject to
regulations of various laws and regulations. Laws, regulations and policy documents such as
the Futures Trading Management Regulations (g lSN¤f { hO ), the Provisional
Measures on Futures Investment Consulting Business by Futures Companies (g lSg
imRfLl ) effective from May 1, 2011 regulate various businesses of futures
companies.
The Futures Trading Management Regulations clearly states, among other things, that a
licensing system applies to the business of futures companies. The CSRC is responsible for
issuance of licenses according to the types of business of the commodity futures and financial
futures. Apart from domestic futures brokerage business, futures companies can also apply to
conduct business of overseas futures brokerage, futures investment consulting and other
futures business as specified by the CSRC, and to obtain the business qualification; the
deposits system shall be strictly applied to futures trading. The futures company trade futures
in its own name for its customers and cannot engage in proprietary trading of futures.
The Rules on Management of Client Accounts Opening in Futures Market (g X [ 6
6{t ‰ ) enacted and effective on August 27, 2009 refined the rules for opening accounts
by the clients and management of client information by futures companies.
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On March 23, 2011, the CSRC promulgated the Provisional Measures on Futures
Investment Consulting Business by Futures Companies (g lSg imRfL
l ), which clearly states that for futures companies to engage in futures investment consulting
business, approval from the CSRC shall be obtained to be qualified to do futures investment
consulting business. Staff conducting futures investment consulting business in futures
companies shall obtain the practice qualification for futures investment consulting business.
Stock Index Futures
On April 21, 2010, the CSRC promulgated the Guidelines for Securities Companies
Participating in Stock Index Futures Trading (IR8QlSS g ¤ c _ ), which
regulates the activities of securities companies participating in stock index futures trading.
Securities companies that participate in the trading of stock index futures through securities
proprietary business, collection assets management business, directed assets management
business or amount-limited and specific assets management business shall comply with the
rules of the China Financial Futures Exchange (hereinafter the “CFFE”) regarding hedging.
Securities companies that participate in stock index futures trading through securities
proprietary business without the purpose of hedging shall get approval from the CSRC. The
securities company is allowed to trade stock index futures as part of its asset management
business.
On the same date, the CSRC promulgated the Guidelines for Securities Investment Funds
Participating in Stock Index Futures Trading (IR8bWú‘S g ¤ c _ ), which
provides that equity funds, hybrid funds and capital preservation funds can participate in
trading of stock index futures, while bond funds and money market funds are not allowed to
participate in trading of stock index futures; and the specific procedures and investment
proportion limits for funds in participating in stock index futures trading.
The Guidelines for Qualified Foreign Institutional Investors Participating in Transaction
of Stock Index Futures (T h
participating in trading of stock index futures can only engage in hedging transactions; each
qualified investor can appoint not more than three domestic futures companies to conduct the
stock index futures trading; qualified investors, custodians and futures companies shall,
according to the relevant rules of the CFFE, ascertain the trading and clearing modes of stock
index futures trading participated by qualified investors.
Corporate Governance and Risk Control
Corporate Governance and Risk Control of Securities Companies
Corporate Governance
The Company Law (N-W N”l QqTW QlSl ), the Securities Law (N-N”l QqTW R8
l ), the Regulations on Supervision and Management of Securities Companies (IR8QlSvwc
{ hO ), the Rules for Governance of Securities Companies (Trial Implementation) (IR8Ql
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(fL )) and other laws, regulations and regulatory documents of the PRC provides
a clear basis for corporate governance. Securities companies shall have independent directors
in accordance with the requirements of the CSRC. A securities company that engages in two
or more businesses in securities brokerage business, securities capital management business,
margin financing and securities lending business, securities underwriting and sponsoring
business, its board of directors shall have a remuneration and nomination committee, an audit
committee and a risk control committee to exercise the rights and perform the duties as
specified in the articles of association of the company. A securities company shall have a
secretary for the board of directors to be responsible for the preparation of shareholders
meetings and directors meetings, preservation of documents and management of shareholders
information. A securities company shall set up an organization to perform the duties of
operation and management of the securities company, the name, composition, duties and rules
of procedures of the organization shall be set out in the articles of association of the company,
and the members of the organization shall be the senior managements of the securities
company. At the same time, the above laws and regulations also provide that the directors,
supervisors, senior managements of the securities company shall be honest, with good
character, be familiar with securities laws and administrative regulations, and with the
operating and management capabilities as required for discharging the duties, and they shall
obtain the approval of the securities regulatory authorities to hold the post before taking office.
A person in one of the following circumstances shall not be a director, supervisor or senior
management of a securities company:
No civil capacity or with limited capacity for civil conduct;
Sentenced to criminal penalty because of corruption, bribery, seizure of property,
misappropriation of property or damage to the socialist market economic order, and
it has not been five years since the expiry of the execution period, or was deprived
of political rights for crime and it has not been five years since the expiry of the
execution period;
Has been a director, factory director or manager of a liquidated company or
enterprise, and was personally liable for the bankruptcy of the company or
enterprise, and it has not been three years since completion of the bankruptcy or
liquidation of the company or enterprise;
Has been the legal representative of a company or enterprise of which the business
license was revoked for violation of law and which was ordered to be closed, and
was personally liable, and it has not been three years since the revocation of the
business license of such company or enterprise;
Has large amount of outstanding personal debts;
A person in charge of a securities exchange or a securities registration and clearing
institution, or a director, supervisor or senior management of a securities company,
who was relieved of his duties due to illegal or disciplinary behaviors, and it has not
been five years since the date when he was relieved of his duties; and
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A lawyer, certified public accountant or a professional of an investment advisory
institution, financial consultancy institution, credit rating institution, assets
evaluation institution or certification institution, whose qualification was revoked
due to illegal or disciplinary behavior, and it has not been five years since the date
when the qualification was revoked.
On December 1, 2006, the Regulatory Measures on Qualifications of Directors,
Supervisors and Senior Management of Securities Companies (IR8QlScN0 vNT {
t N”TáNwh
Risk Control
The Securities Law provides for the risk control system of securities companies, which
include: the state establishes the Investor Protection Fund; a securities company shall reserve
for trading risk from the annual after-tax profits to cover the loss of securities trading; a
securities company shall establish and enhance its internal control system, and to adopt
effective isolation measures to prevent conflicts of interest between the company and its clients
and among different clients; a securities company must handle its securities brokerage
business, securities underwriting business, securities proprietary business and securities assets
management business separately, mixed operations are prohibited; the transaction settlement
funds of the clients of a securities company shall be deposited in commercial banks, a separate
account shall be opened and managed for each of the clients; a securities company is not
allowed to categorize the transaction settlement funds of the clients as its own property, any
unit or person is not allowed to misappropriate the transaction settlement funds or securities
of clients in any way.
Under the “Guidelines on Internal Control of Margin Financing and Securities Lending of
Securities Companies” (IR8QlSR8imRQgèc§R6c _ ), which was effective from
August 2, 2006 and amended on October 26, 2011 by the CSRC, a securities company shall
improve its business isolation system, and implement centralized management for margin
financing and securities lending; a securities company shall establish decision-making and
authorization systems for margin financing and securities lending; establish client choice and
credit systems; develop rules and procedures for compulsory liquidation; establish technology
systems for margin financing and securities lending managed by the headquarter; strengthen
the risk control of margin financing and securities lending and examinations of business;
establish scale monitoring and adjustment mechanism centralized in Net Capital for margin
financing and securities lending.
The Regulations on Risk Handling of Securities Companies (IR8QlS“UnhO ) was
effective on April 23, 2008; it provides that the CSRC is responsible for the organization,
coordination and supervision of the risk handling of securities companies. In circumstances
where the risk indicators of a securities company do not comply with the regulations, or
material risk control indicators, the risk handling measures include temporary closure for
rectification, custody, taking over, administrative reorganization, liquidation and restructuring;
the legal liabilities of the controlling shareholders, actual controllers, directors, supervisors,
senior managements of securities companies are also stipulated.
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Under the Administrative Measures for Risk Control Indicators of Securities Companies
(IR8QlS“c§R6c j { ) (which was effective from November 1, 2006 and was
amended on June 24, 2008), a securities company shall calculate the Net Capital and reserve
of risk capital, prepare Net Capital calculation sheets, risk capital reserves calculation sheets
and risk control indicator supervision statements according to the regulations. The CSRC may
make appropriate adjustments to the standards for risk control indicators and the calculated
proportion of risk capital reserve of a particular business of different kinds of companies based
on the principle of classification and according to the governance structure, the internal control
and risk control of the securities companies. The CSRC and its local counterparts shall inspect
the generation of the risk control data of securities companies and supervise the authenticity,
accuracy and completeness of such data regularly or from time to time. They may require a
securities company to engage certified public accountants with relevant securities
qualifications to audit its monthly Net Capital calculation sheets, risk capital reserves
calculation sheets and risk control indicators supervision statements. A securities company
shall establish dynamic monitoring and amendment mechanisms for risk control indicators, and
to ensure that all risk control indicators such as Net Capital are in compliance with required
standards at any time.
Under the Risk Control Indicator Measures, a securities company is required to maintain
a minimum level of Net Capital that varies based on its business activities. According to the
Risk Control Indicator Measures, Net Capital is measured by subtracting from net assets the
risk-adjusted value of the securities company’s financial assets, the risk-adjusted value of its
other assets, and the risk-adjusted value of its contingent liabilities, and further adding or
subtracting any other adjustments determined or authorized by the CSRC. The Risk Control
Indicator Measures stipulate a warning ratio and a minimum regulatory ratio for certain risk
control indicators. A securities company shall comply with the following risk control indicators
standards on a continuing basis:
Warning level (1) Minimum level
Net Capital/total risk capital reserves (%) . . . . . . . . . >120.0% >100.0%
Net Capital/net assets (%) . . . . . . . . . . . . . . . . . . >48.0% >40.0%
Net Capital/total liabilities (%) . . . . . . . . . . . . . . . . >9.6% >8.0%
Net assets/total liabilities (%) . . . . . . . . . . . . . . . . >24.0% >20.0%
Value of equity securities and derivatives held/Net
Capital (%) . . . . . . . . . . . . . . . . . . . . . . . . . . <80.0% <100.0%
Value of fixed income securities held/Net Capital (%) . <400.0% <500.0%
(1) The warning level is set by the CSRC according to the Risk Control Indicator Measures. If a risk control
indicator is required to stay above a minimum level, the warning level is 120% of the minimum
requirement, and if a risk control indicator is required to stay below a maximum level, the warning level
is 80% of the maximum requirement.
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According to the Administrative Measures for Risk Control Indicators of Securities
Companies (IR8QlS“c§R6c j { ), a securities company shall calculate its risk
capital reserve according to a certain standard and establish corresponding relation between the
risk capital reserve and the Net Capital, when operating business and establishing branches and
other activities which may incur the risk of loss of Net Capital. The Regulations on Calculation
Standard for Risk Capital Reserve of Securities Companies (eIR8QlS“g,n–P {
j n–v , promulgated by the CSRC on June 24, 2008 and came into effect on December 1,
2008) set different standards to calculate risk capital reserve for different businesses of a
securities company and securities companies of different classifications.
In addition, the Administrative Measures for Risk Control Indicators of Securities
Companies require a securities firm to comply with the following requirements when engaging
in proprietary trading: (i) the cost of holding one kind of equity securities shall not exceed 30%
of its Net Capital; and (ii) the market value of one kind of equity securities held by a securities
company shall not exceed 5% of its total market value, excluding the situations resulted from
the underwriting or other regulations by the CSRC. Meanwhile, when conducting margin
financing and securities lending activities, a securities firm needs to comply with the following
requirements: (i) the margin financing value for a single customer should not exceed 5% of its
Net Capital; (ii) the business scale of securities lending business for a single customer should
not exceed 5% of its Net Capital; and (iii) the market value it accepts for a single
security-backed stock should not exceed 20% of its total market value.
Under the Regulations on Classification of Securities Companies (IR8QlSR {
[ ) (which was effective from May 26, 2009), the CSRC and its branches classify the securities
companies into five types and eleven categories as A (AAA, AA, A), B (BBB, BB, B), C (CCC,
CC, C), D, E, on the basis of six indicators: capital adequacy, corporate governance and
compliance management, dynamic risk control, safety of information system, protection of
clients’ rights and interests and the information disclosure. The CSRC and its branches
implement different regulatory policies on different kinds of securities companies according to
the classification results for securities companies.
In March 2011, the CSRC issued Questions Concerning Strengthening the Ability of the
Newly Established Securities Sales Department in Providing Service to Clients and Policy of
Setting Commission of Securities Trade in a Scientific Way Official Reply (ee°-IR8qim
_ S [ 6g RRTy[xR6[IR8N¤f Oc‘e?Vg UOLvQ ), which clearly requests to
strengthen the supervision on the ability of newly established sales departments of securities
companies in the provision of service to their clients as well as the setting of commission in
a scientific way.
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Corporate Governance and Risk Control of Funds Companies
Corporate Governance
On June 15, 2006, the Governance Guidelines for Securities Investment Funds Companies
(IR8bWú‘t QlSlt n–RG ) enacted and promulgated by the CSRC enhance the
corporate governance of securities investment funds management companies, and clearly
stipulates the duties and rights of the shareholders meeting, board of directors, supervisors or
executive supervisors, managements and the inspector general. The above regulations stipulate
that shareholders may make special arrangements for the exercise of some of their rights within
the scope as allowed by the laws, administrative regulations and the regulations of the CSRC,
and they may resolve to pass the contents of the articles of association; the articles of
associations clearly state the duties of the shareholders meeting, the company shall develop
procedures for the shareholders meetings; the articles of associations clearly state the duties of
the board of directors, the company shall develop procedures for the board meetings and
independent directors system; the articles of associations shall clearly state the duties,
personnel, procedures, voting procedures, etc.; the company shall have a inspector general who
is responsible for supervision and inspection of legality and compliance of the operations of the
funds and the company and the internal risk control of the company, and to exercise the duties
and rights as provided by the laws, administrative regulations, the CSRC and the articles of
association of the company; the avoid-voting system for related party transactions; the
company shall establish long-term incentive and restraint mechanisms such as equity
incentives.
In order to enhance the internal control of the funds management companies, the CSRC
promulgated the Guidance Opinions on Management of Investment Management Personnel of
Funds Management Companies (Wú‘t QlSbt N”Tá{t c \ a ‰ ) on March 17,
2009, which further provides for, among other things, the basic code of conduct of the
investment management personnel of the funds management companies and the supervision
and management systems for the management personnel of the funds management companies.
Risk Control
The CSRC Notice on the Relevant Issues about Risk Reserve of Funds Management Companies
(N-W R8vwc{t Y Tág eWú‘t QlScS“n–Pg UOLv w ) effective from
August 14, 2006 was amended by the CSRC Notice about Amending the “Notice on the Relevant
Issues about Risk Reserve of Funds Management Companies” (N-W R8vwc{t Y Tág eOe9
24, 2008), provides that funds management companies shall reserve for risk funds from the
income of funds management fee on a monthly basis, the proportion of the reserve shall not be
less than 10% of the income of funds management fee. No reserve will be required if the
balance of the risk reserve reaches 1% of the net value of the fund assets. Upon use of the risk
reserve, if the balance thereof falls below 1% of the net value of the fund assets, the funds
management company shall continue to reserve until the proportion of the risk reserve in the
net value of the fund assets achieves 1%. Funds management companies shall establish a
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REGULATORY ENVIRONMENT
management system for risk reserves to regulate the procedures of reservation, transfer, use and
payment, etc., of the risk reserves, the same shall be approved by the board of directors and
then reported to the CSRC for records.
Corporate Governance and Risk Control of Futures Companies
Corporate Governance
The Management Measures on Futures Companies (g lS{t ) provides that the
CSRC implements the qualification management system on the directors, supervisors, senior
managements and other futures practicing persons of the futures companies and other futures
operating institutions; the business, personnel, assets, finance and place of business of a futures
company shall be strictly separated from those of its controlling shareholders, the operations
and accounting shall be independent; the shareholders meeting of a futures company shall
consider and vote for the matters within their scope of duties according to the Companies Law
and the articles of association of the company. The shareholders meeting shall be held at least
once a year; a futures company shall have a board of directors. The board meeting shall be held
at least two times a year; the circumstances which shall be noticed to all shareholders in writing
by the futures companies and shall be reported to the local branch of the CSRC of the futures
company are also stipulated; futures companies with the qualification for clearing business of
a futures exchange under the membership classification and clearing system and wholly-owned
futures companies, etc., shall have directors; a futures company shall have a board of
supervisors or supervisors, and a chief risk officer as well.
The Management Measures on Qualifications of Directors, Supervisors and Senior
Managements of Futures Companies (g lScN0 vNT { N”TáNwh<{t )
enacted by the CSRC and was effective from July 4, 2007 further strengthens the management
of qualifications of the directors, supervisors and senior managements of futures companies.
Effective on the same date, the Management Measures on Futures Practitioners (g mN”Tá
{ ) regulates the activities of the futures practitioners; the awarding and revocation of
the practice qualification and practice rules for futures practitioners are also provided.
Risk Control
According to the Regulations on Management of Futures Trading, a futures company
engages in futures brokerage and other futures business shall strictly implement the systems for
separation of business and separation of capital, mixed operations are prohibited; the CSRC
makes regulations on the risk regulatory indices such as the proportion of Net Capital in the
net assets, the proportion of Net Capital in the business scale of domestic futures brokerage and
overseas futures brokerage etc., and the ratio of current assets and current liabilities of the
futures companies; the CSRC makes requirements on the operating conditions, risk
management, internal control, depositories, related party transactions etc. of the futures
companies and their branches; a futures company shall set up risk management department or
positions to manage and control the operating risks of the futures company. A futures company
shall set up compliance department or positions to review and examine the operating and
– 166 –
REGULATORY ENVIRONMENT
management activities of the futures company; a futures company is not allowed to operate and
manage its business department through joint venture or cooperation with others, and the
business department is not allowed to be contracted, leased or delegated to others for operation
and management.
The Guidance on Further Strengthen the Management of Information Technologies of
Futures Companies (e2N keR7g lSOá`obSt ] O\vc \ a ‰ ) which was
enacted by the CSRC and was effective on July 3, 2009 provides guidelines for the futures
companies to strengthen the establishment and management of information systems, and to
control the technology operating risks of the industry effectively.
In order to enhance the long-term mechanism for protection of futures investors, the
CSRC promulgated the Regulations on the Relevant Matters about Contribution of Futures
Investors Protection Fund by the Futures Exchanges and Futures Companies (eg ¤
b@0 g lS~s g O–Wú‘g N v ) on March 15, 2010, which provides
that futures companies shall contribute to the Futures Investors Protection Fund, and the
specific proportion and rules for contribution to the Futures Investors Protection Fund by the
Futures Companies.
The Regulations on Management of Information Publications of Futures Companies (g
lSOá`oQly:{t ‰ ) effective from November 16, 2009 provides that the basic
information, information about the senior management and the staff, information about the
shareholders, information about the credit records, etc., of the futures companies and its
subsidiaries shall be published to the public.
On April 12, 2011, the CSRC enacted and promulgated the Regulations on Classification
and Supervision of Futures Companies (g lSR { ), which provides that the
CSRC shall establish the Evaluation Committee for Classification and Supervision of Futures
Companies to determine the classes of the futures companies according to the evaluation
indicators.
Regulation on Anti-money Laundering
The Anti-money Laundering Law of the PRC (N-N”l QqTW Sm “ l ) effective on
January 1, 2007 provides for the duties of the relevant financial regulatory authorities in
anti-money laundering, which includes participation in enactments of rules and regulations on
anti-money laundering of the financial institutions under their supervisions, and require the
financial institutions to establish comprehensive anti-money laundering internal control
systems.
In order to promote the implementation of the Anti-money Laundering Law of the PRC,
the PBOC promulgated the Provisions on Anti-money Laundering of Financial Institutions (‘
_ Sm “ ‰ ), which was effective on January 1, 2007. According to these regulations,
financial institutions shall establish internal anti-money laundering procedures, and shall
establish independent anti-money laundering department or appoint the relevant departments to
implement the anti-money laundering procedures.
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According to the Measures on Administration of Identification of Clients and
Preservation of Client Identities Information and Trading Records of Financial Institutions (‘
_ [b6NXR%Tb6NeSN¤f “ O[Xt ) which was enacted by The
People’s Bank of China, China Banking Regulatory Commission, the CSRC, China Insurance
Regulatory Commission and was effective on August 1, 2007, financial institutions shall
establish client identification systems, and shall record the identities of all clients and the
information about each of the transactions, and shall preserve the retail trading documents and
books.
According to the Administrative Measures for the Financial Institutions’ Report of
Large-sum Transactions and Doubtful Transactions (‘jiY’MN¤f TSu‘Nf X1TJ{t
l ) which was enacted by The People’s Bank of China and was effective on March 1, 2007 once
a suspicious transaction or a transaction involving a large amount of money is found, the
financial institutions shall report the relevant transaction to the PBOC or the Administration of
Foreign Exchange (if applicable). When necessary, financial institutions shall cooperate with
the government authorities in anti-money laundering actions and assets freezing in accordance
with the appropriate procedures. According to the Anti-money Laundering Law of the PRC, the
PBOC supervises and conducts on-site inspections on the compliance with the anti-money
laundering regulations by the financial institutions, and will impose penalties for any violating
activities.
The Measures on the Anti-money Laundering by Securities and Futures Industry (IR8g
mSm “ ] O\el ), which was enacted by the CSRC and was effective on October 1,
2010, further provides for the anti-money laundering regulations for the Securities and Futures
Industry, as well as the anti-money responsibilities of the institutions engage in sales of funds
in funds selling business, securities and futures institutions shall establish and enhance internal
control systems for anti-money laundering.
Exchange Control
The State Administration of Foreign Exchange (“SAFE”) promulgated the Notice of
SAFE on the Relevant Issues Concerning Foreign Exchange Administration of Foreign
Investment by Funds Management Companies and Securities Companies (W [ S/{t \ e
Wú‘t QlSTIR8QlSX R8b S/{t g UOLv w ) on September 29, 2009,
which regulates the exchange control for investments in overseas securities by funds
management companies and securities companies. It is stipulated that for securities operating
institutions which have the qualification to engage in foreign exchange business to conduct
investments in overseas securities, they shall apply to the SAFE for investment quotas; the
SAFE adopts the method of quota balance in managing the investment quotas, the net amount
remitted by a securities operating institution shall not exceed the approved investment quota,
a securities institution is not allowed to transfer or sell its investment quota to other institutions
in any form; a securities operating institution may raise foreign exchange funds from the
domestic investors, or it may raise capital in RMB from the domestic investors to purchase
foreign currency for investments in overseas securities, domestic investors are not allowed to
purchase the relevant products issued by securities operating institutions with foreign
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REGULATORY ENVIRONMENT
currencies; a securities company shall, within seven working days after establishment of each
product, report to the SAFE the situations such as the actual size and source of funds of the
product, a securities operating institution shall, within seven working days after the end of each
month, report to the SAFE the aggregate data on overseas securities investments by that
institution, a domestic custodian shall, within seven working days after the end of each month,
report to the SAFE the relevant data for investments in overseas securities by the securities
operating institutions under the custody. Securities operating institutions and domestic
custodians shall discharge their declaration responsibilities in accordance with the relevant
provisions of the declaration of international balance of payment statistics.
The Provisions on Foreign Exchange Administration of Domestic Securities Investments
by Qualified Foreign Institutional Investors (T h
management system on the investments in domestic securities by the qualified foreign
investors. The SAFE approves the investment amount of the individual qualified investors; the
investment amount applied for by an individual qualified investor shall not be less than the
equivalent of US$50 million each time, and the aggregate total amount shall not exceed the
equivalent of US$1 billion. The SAFE has the right to adjust. A qualified investor is not
allowed to apply to increase the investment amount within one year after approval of the
investment amount last time. The lock-up period for the investment principal amount of the
qualified investors such as pension funds, insurance funds, mutual funds, charity funds,
endowment funds, governments and monetary authorities, and the open-end China funds
established by the qualified investors is three months; the lock-up period for the investment
principal amount of other qualified investors is one year; a custodian shall, within five working
days after opening of the foreign currency account and RMB special account of the qualified
investors, report to the local foreign exchange bureau for records, and submit the formal
custody agreement to the SAFE, and to collect the “Foreign Exchange Registration Certificate”
(Y S/v{ ) for the qualified investors. The Provisions on Foreign Exchange Administration
of Domestic Securities Investments by Qualified Foreign Institutional Investors (T h
exchange management, statistics and supervision management of the qualified investors.
Regulation on the Listed Companies
Our A Shares were listed on the Shanghai Stock Exchange in 2007, therefore our
Company shall comply with the Securities Law and the listing rules of the Shanghai Stock
Exchange. The listing rules of the Shanghai Stock Exchange regulate the listing matters and the
information disclosures by the listed companies (including our Company), with the aim to
maintain the order of the stock market and to protect the interests of the investors. As the A
Shares of our Company are listed on the Shanghai Stock Exchange, the various obligations as
provided by the Shanghai Stock Exchange must be complied with, including:
Publication of annual, interim and quarterly reports;
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REGULATORY ENVIRONMENT
Disclosure of all information that may have an important impact on the affairs of our
Company;
Publication of announcements in relation to certain affairs of our Company; and
Appointment of a secretary for the board of directors of our Company to be
responsible for matters including certain administrative affairs and disclosure of
information of our Company.
Our Company is also subject to various laws of the PRC regulating the securities market.
The CSRC is responsible for drafting the securities market regulatory rules and regulations to
regulate the securities companies, to manage the Chinese listed companies in issuing securities
to the public, and to manage securities trading. For example, it is prohibited for a listed
company to use inside information in securities issuing or trading. Companies whose securities
are listed in both China and overseas also have to comply with the laws and regulations of
China and the regulations of the relevant country in relation to management of securities
market, and shall disclose important information to the investors.
HONG KONG REGULATORY OVERVIEW
Securities and Futures Commission
The SFC is a statutory regulatory body in Hong Kong that administers the SFO, which
governs the securities and futures markets and the non-bank retail leveraged foreign exchange
market in Hong Kong.
Securities and Futures Ordinance
The SFO is the primary legislation regulating the securities and futures industry in Hong
Kong, including the regulation of securities, futures and leveraged foreign exchange markets,
the offering of investments to the public in Hong Kong, trading services, margin financing,
asset management, credit rating services and intermediaries conducting regulated activities.
Part V of the SFO particularly deals with licensing and registration matters.
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REGULATORY ENVIRONMENT
Types of Regulated Activities
The SFO promulgates a single licensing regime where a person needs only one license to
carry on different types of regulated activity as defined in Schedule 5 to the SFO for which it
is licensed provided that the individual is fit and proper to do so.
The SFO prescribes ten types of regulated activities, namely:
Type 1: dealing in securities;
Type 2: dealing in futures contracts;
Type 3: leveraged foreign exchange trading;
Type 4: advising on securities;
Type 5: advising on futures contracts;
Type 6: advising on corporate finance;
Type 7: providing automated trading services;
Type 8: securities margin financing;
Type 9: asset management; and
Type 10: providing credit rating services.
The SFC is currently reviewing the regulatory framework in respect of regulating the
over-the-counter derivatives market through amendments to the SFO and the introduction of a
new regulated activity. The new regulations will cover areas including reporting, clearing and
trading of over-the-counter derivatives. The SFC is aiming to have the new regulations on
over-the-counter derivatives to take effect by the end of 2012.
As of the Latest Practicable Date, the following Group companies are licensed under the
SFO to carry out the following regulated activities:
Licensed to carry out the
Group Companies following regulated activities:
HFT Investment Management (HK) Limited Type 4 and Type 9
Hai Tong Asset Management (HK) Limited Type 4, Type 5 and Type 9
Hai Tong Capital (HK) Limited Type 6
Haitong International Asset Management Limited Type 4, Type 5 and Type 9
Haitong International Capital Limited Type 6
Haitong International Consultants Limited Type 1, Type 4 and Type 9
Haitong International Futures Limited Type 2 and Type 5
Haitong International Investment Managers Limited Type 1, Type 4 and Type 9
Haitong International Investment Services Limited Type 1
Haitong International Research Limited Type 4
Haitong International Securities Company Limited Type 1, Type 3 and Type 4
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REGULATORY ENVIRONMENT
Overview of Licensing Requirements
Under the SFO, any person who:
(a) carries on a business in a regulated activity; or
(b) holds itself out as carrying on a business in a regulated activity
must be licensed under the relevant provisions of the SFO to carry on that regulated activity,
unless one of the exceptions under the SFO applies. It is a serious offense for a person to
conduct any regulated activity without the appropriate license.
Further, if a person actively markets (whether by itself or another person on his behalf and
whether in Hong Kong or from a place outside of Hong Kong) to the public in Hong Kong any
services that it provides and such services, if provided in Hong Kong, would constitute a
regulated activity, then that person will also be subject to the licensing requirements under the
SFO.
In addition to the licensing requirements on corporations, any individual who:
(a) performs any regulated function in relation to a regulated activity carried on as a
business; or
(b) holds himself out as performing such regulated function,
must separately be licensed under the SFO as a licensed representative accredited to his
principal.
For each regulated activity conducted by a licensed corporation, it must appoint at least
two responsible officers, at least one of whom must be an executive director, to supervise the
business of the regulated activity. A responsible officer is an individual approved by the SFC
to supervise the regulated activity or activities of the licensed corporation to which he/she is
accredited. In addition, every director of the licensed corporation who actively participates in
or is responsible for directly supervising the licensed corporation’s regulated activity or
activities must apply to the SFC to become a responsible officer.
Fit and Proper Requirement
Persons applying for licenses under the SFO must satisfy and continue to satisfy after the
grant of such licenses by the SFC that they are fit and proper persons to be so licensed. In
simple terms, a fit and proper person means one who is financially sound, competent, honest,
reputable and reliable.
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REGULATORY ENVIRONMENT
In considering whether an applicant is a fit and proper person to be licensed under the
SFO, the SFC will have regard to:
(a) the financial status or solvency of the applicant;
(b) the educational or other qualifications or experience of the applicant having regard
to the nature of the functions to be performed;
(c) the ability of the applicant to carry on the regulated activity competently, honestly
and fairly;
(d) the reputation, character, reliability and financial integrity of the applicant; and
(e) any decisions made by competent authority or regulatory organization whether in
Hong Kong or elsewhere in respect of the applicant.
The above matters will also be considered in respect of any officer of the applicant where
the applicant is a corporation.
In considering the fitness and properness of a corporate applicant, the SFC will also take
into account, among other things:
(a) whether the applicant has established effective internal control procedures and risk
management systems to ensure compliance with all applicable regulatory
requirements;
(b) the state of affairs of any other business which the applicant carries on or proposes
to carry on; and
(c) any information in the possession of the SFC relating to:
any substantial shareholder or officer of the applicant;
any person who is or is to be employed by, or associated with, the applicant for
the purposes of the regulated activity in question;
any person who will be acting for or on behalf of the applicant in relation to
the regulated activity in question; and
any other corporation in the same group of companies as the applicant, and any
substantial shareholder or officer of any such intra-group company.
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REGULATORY ENVIRONMENT
Continuing Obligations of Licensed Corporations
Licensed corporations, licensed representatives and responsible officers must remain fit
and proper at all times. They are required to comply with all applicable provisions of the SFO
and its subsidiary rules and regulations as well as the codes and guidelines issued by the SFC.
Outlined below are some of the key continuing obligations of a licensed corporation:
maintenance of minimum paid-up share capital and liquid capital, and submission of
financial returns to the SFC, in accordance with the requirements under the
Securities and Futures (Financial Resources) Rules (as discussed in more detail
below);
maintenance of segregated account(s), and custody and handling of client securities
in accordance with the requirements under the Securities and Futures (Client
Securities) Rules;
maintenance of segregated account(s), and holding and payment of client money in
accordance with the requirements under the Securities and Futures (Client Money)
Rules;
issue of contract notes, statements of account and receipts, in accordance with the
requirements under the Securities and Futures (Contract Notes, Statements of
Account and Receipts) Rules;
record keeping requirements prescribed under the Securities and Futures (Keeping
of Records) Rules;
submission of audited accounts and other required documents in accordance with the
requirements under the Securities and Futures (Accounts and Audit) Rules;
payment of annual fees and submission of annual returns to the SFC, within one
month after each anniversary date of the license;
maintenance of insurance against specific risks for specified amounts in accordance
with the requirements under the Securities and Futures (Insurance) Rules;
notification to the SFC of certain changes and events, in accordance with the
requirements under Securities and Futures (Licensing and Registration)
(Information) Rules;
complying with the continuous professional training requirements under the
Guidelines on Continuous Professional Training issued by the SFC;
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REGULATORY ENVIRONMENT
implementation of appropriate policies and procedures relating to customer
acceptance, customer due diligence, record keeping, identification and reporting of
suspicious transactions and staff screening, education and training, in accordance
with the requirements under the Prevention of Money Laundering and Terrorist
Financing Guidance Note issued by the SFC (as discussed in more detail below); and
business conduct requirements under the Code of Conduct for Persons Licensed by
or Registered with the SFC, the Management, Supervision and Internal Control
Guidelines for Persons Licensed by or Registered with the SFC, and other applicable
codes and guidelines issued by the SFC.
Securities and Futures (Financial Resources) Rules (“Financial Resources Rules”)
Subject to certain exemptions described below, a licensed corporation is required to
maintain minimum paid-up share capital of:
HK$5,000,000 – in the case of: (i) a corporation licensed for Type 1 regulated
activity that does not provide securities margin financing; (ii) a corporation licensed
for Type 2 or Type 7 regulated activity; (iii) a corporation licensed for Type 3
regulated activity that is an approved introducing agent; (iv) a corporation licensed
for Type 4, Type 5, Type 9 or Type 10 regulated activity that is not subject to the
licensing condition that it shall not hold client assets; or (v) a corporation licensed
for Type 6 regulated activity that is subject to the no sponsor work licensing
condition (but is not subject to the licensing condition that it shall not hold client
assets);
HK$10,000,000 – in the case of (i) a corporation licensed for Type 1 regulated
activity that provides securities margin financing; (ii) a corporation licensed for
Type 8 regulated activity; or (iii) a corporation licensed for Type 6 regulated activity
that is not subject to the no sponsor work licensing condition; or
HK$30,000,000 – in the case of a corporation licensed for Type 3 regulated activity
that is not an approved introducing agent.
There is no minimum paid-up share capital requirement if the corporation is (i) licensed
for Type 1 regulated activity and is an approved introducing agent or a trader; (ii) licensed for
Type 2 regulated activity and is an approved introducing agent, a trader or a futures
non-clearing dealer; (iii) licensed for Type 4, Type 5, Type 9 or Type 10 regulated activity that
is subject to the licensing condition that it shall not hold client assets; or (iv) licensed for Type
6 regulated activity that is subject to both the licensing condition that it shall not hold client
assets and the no sponsor work licensing condition.
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REGULATORY ENVIRONMENT
Pursuant to the Financial Resources Rules, a licensed corporation shall also maintain
minimum liquid capital of the higher of the amount of (a) and (b) below:
(a) the amount of:
HK$100,000 – in the case of a corporation licensed for Type 4, Type 5, Type
6, Type 9 or Type 10 regulated activity that is subject to the licensing condition
that it shall not hold client assets;
HK$500,000 – in the case of (i) a corporation licensed for Type 1 regulated
activity that is an approved introducing agent or trader; or (ii) a corporation
licensed for Type 2 that is an approved introducing agent, a trader or a futures
non-clearing dealer; or
HK$3,000,000 – in the case of (i) a corporation licensed for Type 1 regulated
activity that is not an approved introducing agent or a trader; (ii) a corporation
licensed for Type 2 that is not an approved introducing agent, a trader or a
futures non-clearing dealer; (iii) a corporation licensed for Type 3 regulated
activity that is an approved introducing agent; (iv) a corporation licensed for
Type 4, Type 5, Type 6, Type 9 or Type 10 regulated activity that is not subject
to the licensing condition that it shall not hold client assets; or (v) a corporation
licensed for Type 7 or Type 8 regulated activity; or
HK$15,000,000 – in the case of a corporation licensed for Type 3 regulated
activity that is not an approved introducing agent; and
(b) its variable required liquid capital, as defined in the Financial Resources Rules.
If the licensed corporation is licensed for more than one type of regulated activity, the
minimum paid-up share capital and liquid capital that the corporation should maintain shall be
the highest amount required among those regulated activities.
Anti-Money Laundering and Terrorist Financing
Licensed corporations are also required to comply with applicable anti-money laundering
laws and regulations in Hong Kong, as well as the Prevention of Money Laundering and
Terrorist Financing Guidance Note (“Guidance Note”) issued by the SFC.
The Guidance Note sets out the steps that a licensed corporation and its representatives
should implement to discourage and identify any money laundering or terrorist financing
activities. Under the Guidance Note, licensed corporations should, among other things:
develop customer acceptance policies and procedures to identify the types of
customers that are likely to pose a higher than average risk of money laundering and
terrorist financing;
– 176 –
REGULATORY ENVIRONMENT
take all reasonable steps to establish the true and full identity of each customer, and
of each customer’s financial situation and investment objectives;
ensure compliance with all applicable record keeping requirements and maintain
such records that are sufficient to permit reconstruction of individual transactions;
and
conduct ongoing monitoring for identification of suspicious transactions and ensure
compliance with their legal obligations of reporting funds or property known or
suspected to be proceeds of crime or terrorist property to the Joint Financial
Intelligence Unit, a unit jointly run by the Hong Kong Police Force and the Hong
Kong Customs & Excise Department to monitor and investigate suspected money
laundering.
We set out below a brief summary of the principal legislation concerned with money
laundering and terrorist financing in Hong Kong.
(1) Drug Trafficking (Recovery of Proceeds) Ordinance (Chapter 405 of the Laws of
Hong Kong) (“DTROP”)
Among other things, the DTROP contains provisions for the investigation of assets
suspected to be derived from drug trafficking activities, the freezing of assets on arrest and the
confiscation of the proceeds from drug trafficking activities. It is an offence under the DTROP
if a person deals with any property knowing or having reasonable grounds to believe it to
represent the proceeds of drug trafficking. The DTROP requires a person to report to an
authorized officer if he/she knows or suspects that any property (directly or indirectly)
represents the proceeds of drug trafficking or is intended to be used or was used in connection
with drug trafficking, and failure to make such disclosure constitutes an offence under the
DTROP.
(2) Organized and Serious Crimes Ordinance (Chapter 455 of the Laws of Hong Kong)
(“OSCO”)
Among other things, the OSCO empowers officers of the Police and the Customs and
Excise Department to investigate organized crime and triad activities, and it gives the courts
jurisdiction to confiscate the proceeds of organized and serious crimes, to issue restraint orders
and charging orders in relation to the property of defendants of specified offences. The OSCO
extends the money laundering offence to cover the proceeds of all indictable offences in
addition to drug trafficking.
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REGULATORY ENVIRONMENT
(3) United Nations (Anti-Terrorism Measures) Ordinance (Chapter 575 of the Laws of
Hong Kong) (“UNATMO”)
Among other things, the UNATMO provides that it would be a criminal offence to: (i)
provide or collect funds (by any means, directly or indirectly) with the intention or knowledge
that the funds will be used to commit, in whole or in part, one or more terrorist acts; or (ii)
make any funds or financial (or related) services available, directly or indirectly, to or for the
benefit of a person knowing that, or being reckless as to whether, such person is a terrorist or
terrorist associate. The UNATMO also requires a person to report his knowledge or suspicion
of terrorist property to an authorized officer, and failure to make such disclosure constitutes an
offence under the UNATMO.
– 178 –
HISTORY AND CORPORATE STRUCTURE
OUR HISTORY
The history of our Company traces back to August 1988 when Shanghai Haitong
Securities Company* (N mwmw R8QlS ), our Company’s predecessor, was established in the
PRC as an enterprise owned by the whole people (Qhl b@g R6O im ) with a registered share
capital of RMB10 million and solely funded by Bank of Communications, Shanghai Branch.
We were one of the founding members of the Shanghai Stock Exchange in 1990, and we
became a member of the Shenzhen Stock Exchange when it started admitting members in 1992.
On September 27, 1994, our Company was converted into a limited liability company, and
was renamed as Haitong Securities Company Limited* (mw R8g – QlS ).
On January 28, 2002, upon approval from the CSRC and the Shanghai municipal
government, Haitong Securities Company Limited was converted into a joint-stock limited
liability company, and was renamed as Haitong Securities Co., Ltd* (mw R8Ng – QlS ).
On July 31, 2007, we were listed on the Shanghai Stock Exchange via a reverse takeover
of SUABC with stock code 600837.
We provide a comprehensive range of financial products and services and primarily focus
on five principal business lines in the PRC, including securities and futures brokerage
(including margin financing and securities lending), investment banking, asset management,
proprietary trading and direct investment. We also provide a variety of securities products and
services overseas.
MAJOR INCREASE IN SHARE CAPITAL
On December 29, 2000, upon the approval from the CSRC, the registered share capital of
our Company was increased to RMB3,746,928,000.
On December 6, 2002, upon the approval from the CSRC, the registered share capital of
our Company was increased to RMB8,734,438,870.
On July 6, 2007, the registered share capital of our Company was changed to
RMB3,389,272,910 as a result of the reverse takeover of SUABC.
On November 21, 2007, the registered share capital of our Company was increased to
RMB4,113,910,590 as a result of issuance of 724,637,680 shares in a non-public offering.
On June 11, 2008, upon the approval by our Shareholders in the 2007 Shareholders’
meeting, we distributed a cash dividend of RMB411,391,059 together with a total of
1,234,173,177 bonus shares, and a total of 2,879,737,413 A Shares by converting a portion of
our capital reserve into share capital. As a result, our total share capital was increased to
RMB8,227,821,180.
– 179 –
HISTORY AND CORPORATE STRUCTURE
BUSINESS MILESTONES IN OUR HISTORY
We have achieved the following important milestones in the history of our business:
1990 In November, we became one of the founding members of the Shanghai Stock
Exchange.
1992 In January, we started our B share business.
In July, we were admitted as a member of the Shenzhen Stock Exchange.
1999 In April, Fullgoal Fund Management, one of the first ten fund management
companies authorized by the CSRC to provide asset management services in
the PRC, was established, and we held 27.775% of its equity interests as of the
Latest Practicable Date.
2003 In April, HFT Investment Management was established in the PRC, and we
held 51.00% of the equity interests of HFT Investment Management as of the
Latest Practicable Date.
2004 In October, we established Haitong-Fortis PE Management (the first private
equity fund management company in the PRC) to act as the manager of the
China-Belgium Fund (the first industrial private equity fund approved by PRC
government) which was jointly set up by the governments of the PRC and
Belgium in November; we held 67.00% of the equity interest in Haitong-Fortis
PE Management as of the Latest Practicable Date.
2005 In May, we were qualified by the SAC as one of the pilot innovative securities
companies.
In August, we took over the business of Gansu Securities Co., Ltd.* (u
R8g – QlS ), with its nine sales branches, six services branches and all of
its operational assets and necessary trading seats in relation to functional
division associated with brokerage business, increasing our customer base and
branch offices.
In October, we acquired 56.67% of the equity interest in Shanghai Huanghai
Futures Brokerage Co., Ltd.* (N mwmwg g – QlS ), currently known
as Haitong Futures, which marked the launch of our futures business; we held
66.67% of its equity interest as of the Latest Practicable Date.
In December, we took over the securities business of Xing’an Securities Co.,
Ltd. ( [ R8g – QlS ), with its 23 sales branches, 30 services branches
and all of its operational assets and necessary trading seats in relation to
functional division associated with brokerage business, increasing our
customer base and branch offices.
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HISTORY AND CORPORATE STRUCTURE
2007 In July, our wholly-owned subsidiary Haitong Finance Holding (HK) Co., Ltd.
(currently known as Haitong International Holdings) was incorporated in Hong
Kong, through which we provide securities and futures brokerage, margin
financing and securities lending, corporate finance and advisory services and
asset management products and services.
In July, our A Shares were listed on the Shanghai Stock Exchange with the
stock code 600837 via a reverse takeover of SUABC.
2008 In January, we were approved by the CSRC as a QDII.
In April, we were permitted by the CSRC to provide futures IB business.
In July, we were approved by the CSRC as one of the pilot companies in direct
investment, and in October, we incorporated Haitong Capital Investment, a
wholly-owned subsidiary, to develop the direct investment business.
In July, we were first granted an “AA” rating by the CSRC, and have received
such a rating for the past four consecutive years.
2009 In December, through Haitong Finance Holding (HK) Co., Ltd. (currently
known as Haitong International Holdings), we acquired 52.86% of the equity
interest of Taifook Securities (currently known as Haitong International
Securities), a company listed on the Hong Kong Stock Exchange with stock
code 00665, and through a series of purchase and loan capitalization, we
increased our equity interest to 69.74% as of the Latest Practicable Date.
2010 In February, Haitong Futures qualified as one of the first PRC futures
companies to open accounts for stock index futures tradings.
In March, we qualified as one of the first PRC securities companies to
participate in the pilot program of margin financing and securities lending.
In August, a subsidiary of Taifook Securities (currently known as Haitong
International Securities) successfully launched the first offshore RMB fixed
income fund in Hong Kong.
In November, Taifook Securities was renamed as Haitong International
Securities.
2011 In June, we applied to the CSRC to establish a subsidiary engaging in
investment services of alternative financial products.
2012 In January, a subsidiary of Haitong International Securities successfully
launched one of the first offshore investment funds which invest in the
domestic securities market through RQFII.
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HISTORY AND CORPORATE STRUCTURE
OUR KEY SUBSIDIARIES AND AFFILIATES
Our key subsidiaries and affiliates include:
1. HFT Investment Management
HFT Investment Management was established in April 2003 with a registered capital of
RMB150 million. Its main scope of business includes fund raising, fund sale, and asset
management. We and BNPP IP BE Holding held 51% and 49% of the equity interest in HFT
Investment Management as of the Latest Practicable Date, respectively. According to Measures
for the Administration of Securities Investment Fund Management Companies (IR8bW
{ QlSt ) promulgated by CSRC on August 10, 2004 and effective from October 1,
2004, equity interest held by non-PRC shareholders in a securities investment fund
management company incorporated under the PRC law shall not exceed 49%. Upon Listing, the
aggregate of equity interest percentage in HFT Investment Management held by BNPP IP BE
Holding and that held by the H Share Shareholders through the Company, which, under the
Administration of Securities Investment Fund Management Companies, represents the
shareholding percentage of the H Shareholders in the Company multiplied by the equity
interest percentage of the Company in HFT Investment Management, will exceed 49%.
Accordingly, we have undertaken to the CSRC to take appropriate measures to ensure the
shareholding structure of HFT Investment Management complies with the relevant regulatory
requirements within one year following the Listing.
2. Haitong International Holdings and Haitong International Securities
Haitong International Holdings, our wholly-owned subsidiary, was incorporated in July
2007 in Hong Kong with an authorized capital of HK$4 billion. Haitong International
Securities is a company listed on the Hong Kong Stock Exchange with stock code 00665. As
of the Latest Practicable Date, 69.74% of its equity interest was held by Haitong International
Holdings. The main scope of business of these two companies includes investment holding,
brokerage business, corporate finance and asset management business authorized by Hong
Kong securities regulatory rules through various subsidiaries, and other businesses.
– 182 –
HISTORY AND CORPORATE STRUCTURE
3. Haitong Futures
Haitong Futures is a limited liability company incorporated in the PRC in March 1993
with a registered capital of RMB1.0 billion. Its main scope of business includes commodity
futures brokerage and financial futures brokerage.
4. Haitong Capital Investment and its subsidiaries
Haitong Capital Investment, our wholly-owned subsidiary, was established in October
2008 with a registered capital of RMB4 billion. Its main scope of business includes equity
investments in domestic enterprises, investment in treasury bonds and central bank notes,
financial advisory services on equity investment, and establishment of direct investment funds.
Haitong Jihe Management and Haitong Chuangxin Management are subsidiaries of Haitong
Capital Investment.
Haitong Jihe Management was established in November 2010 with a registered share
capital of RMB50 million. Its main scope of business includes management of equity
investment and investment consultancy.
Haitong Chuangxin Management was established in February 2011 with a registered share
capital of RMB50 million. Its main scope of business includes investment management, asset
management, investment consultancy, industrial investment, and venture capital investment.
5. Haitong-Fortis PE Management
Haitong-Fortis PE Management was established in October 2004 with a registered capital
of RMB20 million. Its main scope of business includes industrial investment fund
management, investment advisory, and establishment of investment funds by way of
promotion.
6. Fullgoal Fund Management
Fullgoal Fund Management was established in April 1999 with a registered capital of
RMB180 million. Its main scope of business includes the provision of traditional fund
management services, fund raising, fund sale, and asset management.
– 183 –
HISTORY AND CORPORATE STRUCTURE
OUR SHAREHOLDING AND GROUP STRUCTURE
The following chart sets out our simplified shareholding structure and key subsidiaries
and affiliates, immediately following the completion of the Global Offering (assuming there is
no change in the number of Shares held by the top ten A Share Shareholders of our Company
and the shareholdings held by our Company in our subsidiaries after the Latest Practicable Date
and the Over-allotment Option is not exercised):
Top 10 A Share Other A Share H Share
Shareholders NSSF(2)
Shareholders(1) Shareholders
29.34% 56.36% 13.00% 1.30%
Our Company
51.00% 66.67% 100.00% 67.00% 27.775% 100.00%
HFT Haitong Haitong- Fullgoal Haitong
Haitong
Investment Capital Fortis PE Fund International
Management(3) Futures(4)
Investment Management(5) Management(6) Holdings
51.00% 51.00% 69.74%
Haitong Haitong Haitong
Jihe Chuangxin International
Management(7) Management(8) Securities(9)
(1) The top ten shareholders of our Company are Bright Food (Group) Co., Ltd., Shanghai Haiyan
Investment Management Company Limited, Shanghai Electric (Group) Corporation, Shenergy Group
Company Limited, Shanghai Jiushi Company, Shanghai Shangshi, Shanghai Friendship Group
Incorporated Company, Wenhui-Xinmin United Press Group, Shanghai Lansheng Corporation, and
Liaoning Energy Investment (Group) Co., Ltd. Immediately following completion of the Global
Offering, none of the top ten A Share Shareholders will directly or indirectly control, or is entitled to
exercise, or control the exercise of, 5% or more of our total issued share capital. As of the Latest
Practicable Date, to the Directors’ best knowledge, eight of our ten largest shareholders are controlled
by Shanghai SASAC and such shareholders held an aggregate of approximately 27.94% shareholding in
the Company. However, under the Hong Kong Listing Rules, a PRC Governmental Body as defined
under Rule 19A.04 such as Shanghai SASAC is normally not considered as a Connected Person or a
controlling shareholder of a PRC issuer.
(2) H Shares that are converted from an equal number of A Shares immediately after the completion of the
Global Offering (assuming the Over-allotment Option is not exercised) are held by the NSSF. For
details, please see “Share Capital – Share Capital – Transfer of the State-owned Shares to the NSSF”
in this prospectus.
(3) The rest of the equity interest in HFT Investment Management is held by BNPP IP BE Holding. BNPP
IP BE Holding is a member of BNP Group, which is in turn a banking group headquartered in Paris,
France. The principal businesses of BNP Group are retail banking, corporate and investment banking,
and investment solutions. Investment solutions provides integrated solutions to investors (including
institutional investors, businesses, individuals and high net worth clients) and to its distribution
partners. Investment solutions’ services encompass amongst others wealth management, asset
management and securities services. BNP Group is a Connected Person of our Group due to and solely
due to its shareholding in HFT Investment Management and Haitong-Fortis PE Management.
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HISTORY AND CORPORATE STRUCTURE
(4) The rest of the equity interest in Haitong Futures is held by Shanghai Shengyuan Real Estate (Group)
Co., Ltd.* (N mwvnbW0u\" (–W )g – QlS ) (“Shanghai Shengyuan Real Estate (Group)”). Shanghai
Shengyuan Real Estate (Group) is a limited liability company incorporated in the PRC and primarily
engaged in the development and valuation of real estate, maintenance of real estate properties, and
management of real estate properties. Shanghai Shengyuan Real Estate (Group) is an independent third
party.
(5) The rest of the equity interest in Haitong-Fortis PE Management is held by BNPP IP BE Holding. BNPP
IP BE Holding is a member of BNP Group, which is in turn a banking group headquartered in Paris,
France. The principal businesses of BNP Group are retail banking, corporate and investment banking,
and investment solutions. Investment solutions provides integrated solutions to investors (including
institutional investors, businesses, individuals and high net worth clients) and to its distribution
partners. Investment solutions’ services encompass amongst others wealth management, asset
management and securities services. BNP Group is a Connected Person of our Group due to and solely
due to its shareholding in HFT Investment Management and Haitong-Fortis PE Management.
(6) The rest of the equity interest in Fullgoal Fund Management is held by Shenyin & Wanguo Securities
Co., Ltd. (27.775%), Bank of Montreal (27.775%), and Shandong International Trust Corporation
(16.675%), respectively. Shenyin & Wanguo Securities Co., Ltd. is a limited liability company
incorporated in the PRC, and it is primarily engaged in securities brokerage, securities investment
advisory, financial advisory related to securities trading and investment, proprietary trading, securities
underwriting and sponsoring, asset management, futures IB business and margin financing and
securities lending business. Bank of Montreal is a banking group the headquarters of which is in Canada,
and it is primarily engaged in investment and corporate banking and wealth management. Shandong
International Trust Corporation is a limited liability company incorporated in the PRC; it is primarily
engaged in various trust business, investment banking business and proprietary trading. Each of Shenyin
& Wanguo Securities Co., Ltd., Bank of Montreal and Shandong International Trust Corporation is an
independent third party.
(7) The rest of the equity interest in Haitong Jihe Management is held by Jilin Investment Group Co., Ltd.*
(T g—w b (–W )g – QlS ) (43%) and Hangzhou Wulian Investment Management Company* (gm]N
bt g – QlS ) (6%). Jilin Investment Group Co., Ltd. is a limited liability company incorporated
in the PRC and it is primarily engaged in investment, financing, asset management and investment
consultancy business. Hangzhou Wulian Investment Management Company is a limited liability
company incorporated in the PRC, and it is primarily engaged in investment management consultancy.
Jilin Investment Group Co., Ltd. is a Connected Person of our Group due to and solely due to its
shareholding in Haitong Jihe Management. Hangzhou Wulian Investment Management Company is an
independent third party.
(8) The rest of the equity interest in Haitong Chuangxin Management is held by Xi’an Space Center
Chuangxin Investment Co., Ltd.* (‰*Y)WúW0Rue°bg – QlS ). Xi’an Space Center Chuangxin
Investment Co., Ltd. is a limited liability company incorporated in the PRC and it is primarily engaged
in investment in high-tech projects, investment consultancy and management consultancy business.
Xi’an Space Center Chuangxin Investment Co., Ltd. is a Connected Person of our Group due to and
solely due to its shareholding in Haitong Chuangxin Management.
(9) Haitong International Securities is a company listed on the Hong Kong Stock Exchange, the stock code
of which is 00665. It was previously named Taifook Securities until November 2010.
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BUSINESS
OVERVIEW
We are a leading full-service securities firm in the PRC with an integrated business
platform, extensive branch network and substantial customer base. We have established
prudent operating strategies and are the only major PRC securities firm founded in the 1980s
that remains in operation under the same brand without receiving government-backed capital
injections or being the target of a successful acquisition. Leveraging our integrated business
platform, we provide a comprehensive range of financial products and services, and primarily
focus on five principal business lines in the PRC, comprising securities and futures brokerage
(including margin financing and securities lending), investment banking, asset management,
proprietary trading and direct investment. We have gained leading market positions across
multiple business lines in the PRC securities industry. We also provide a variety of securities
products and services overseas.
We are one of the largest securities firms in the PRC. According to the SAC, we ranked
second among all securities firms in the PRC in terms of total assets and net assets as of
December 31, 2011 and second in terms of total revenue in 2011 (1). As of December 31, 2011,
we owned 216 securities and futures brokerage branches, the fourth largest branch network
among all PRC securities firms according to the data from the Shanghai Stock Exchange and
the China Futures Association. Headquartered in Shanghai, the financial center of the PRC, our
branches are located across 27 provinces and 125 cities in the PRC. In addition, as of December
31, 2011, we operated 13 branches in Hong Kong and Macau through our Hong Kong-listed
subsidiary, Haitong International Securities. As of December 31, 2011, we had over 4.0 million
retail customers (including approximately 2.1 million active customers) and over 12,000
institutional and high net worth customers in the PRC. Our A Shares have been listed on the
Shanghai Stock Exchange since July 2007. In July 2007, December 2007 and December 2008,
we were admitted to the CSI 300 Index, the SSE 180 Index and the SSE 50 Index, respectively.
In addition, in June 2008, our A Shares became one of the constituent stocks of the SSE
Corporate Governance Index.
Our five principal business lines in the PRC include:
Securities and futures brokerage. We engage in the trading of equities, bonds, funds
and warrants, as well as futures on behalf of our customers, and also provide margin
financing and securities lending and investment advisory services.
Investment banking. We provide corporate finance services, including equity
underwriting, debt underwriting and financial advisory services to our institutional
clients.
Asset management. We offer traditional asset management products and services
through our Company and one of our subsidiaries, HFT Investment Management.
We operate our private equity asset management business through our subsidiaries,
Haitong-Fortis PE Management, Haitong Jihe Management and Haitong Chuangxin
Management.
(1)
The 2011 data from the SAC was based on the preliminary results of PRC securities firms.
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BUSINESS
Proprietary trading. We engage in the trading of equities, bonds, funds, derivatives
and other financial products for our own account.
Direct investment. We make direct equity investments in private companies and earn
capital gains by exiting from these private equity investments through IPOs or share
sales, or by receiving dividends from these portfolio companies. In addition, we
invest in private equity funds with our own capital.
We conduct our overseas business primarily through our Hong Kong-based subsidiary,
Haitong International Holdings. Haitong International Securities, a subsidiary of Haitong
International Holdings, is a leading full-service securities firm in Hong Kong. Haitong
International Securities provides securities and futures brokerage, corporate finance and
advisory services, asset management services and other securities products and services to a
broad range of retail customers and institutional clients in Hong Kong and overseas.
Established in 1988, we have navigated through various market and business cycles,
regulatory reforms and industry developments over our 23 years of operating history, including
the Asian financial crisis in 1997 and the most recent global financial crisis in 2008. We have
established prudent corporate governance and effective risk management and internal control
systems to reduce our exposure to various risks in the securities markets. In recognition of our
strong capital position, effective risk management and internal control systems, as well as our
proven track record, we have received an “AA” regulatory rating from the CSRC for the past
four consecutive years, the highest rating given to a PRC securities firm to date.
Leveraging our prudent operating strategies and proven execution capabilities, we have
gained leading market positions in securities and futures brokerage, investment banking and
other traditional businesses in the PRC, which have experienced steady growth in recent years.
According to the data from the SAC, the Shanghai Stock Exchange, the Shenzhen Stock
Exchange and the CSRC, among all PRC securities firms, we ranked:
second in terms of total assets and net assets as of December 31, 2009, 2010 and
2011 (1);
among the top five in terms of securities brokerage trading volume in 2009, 2010
and 2011;
third in terms of the number of equity securities underwritten in 2011; and
in the top two in terms of the number of major asset restructuring transactions for
listed domestic PRC companies we advised in 2009, 2010 and 2011.
(1) The 2011 data from the SAC was based on the preliminary results of PRC securities firms.
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BUSINESS
We have also established leading positions in developing new businesses, such as margin
financing and securities lending, stock index futures brokerage and direct investment
businesses. We are frequently designated by the PRC regulatory authorities as one of the first
PRC securities firms to participate in pilot programs for new securities products and services.
Benefiting from our strong capital position, substantial customer base and proven execution
capabilities, we have experienced rapid growth and achieved leading market positions in
developing new businesses in the PRC securities industry, such as margin financing and
securities lending, stock index futures brokerage and direct investment businesses. According
to the data from the Shanghai Stock Exchange, the Shenzhen Stock Exchange and the China
Financial Futures Exchange, we ranked:
first among PRC securities firms in terms of margin trading volume in 2011, and in
terms of margin loan balance and market value of securities lent as of December 31,
2011;
first among PRC futures companies in terms of stock index futures brokerage
trading volume in 2011; and
second among PRC securities firms in terms of registered capital of direct
investment subsidiaries as of December 31, 2011.
In recent years, we have received numerous awards and honors in recognition of our
outstanding performance and management capabilities, including, among others:
“2011 Best PRC Securities Firm” by Moneyweek;
“2011 Best PRC Investment Bank” by Moneyweek;
“2011 Most Respectable Investment Bank” by New Fortune Magazine;
“2011 Best Margin Financing Broker” by Securities Times;
“2011 Best IB Business Underwriter” by Securities Times;
“2010 Best PRC Securities Firm” by 21st Century Business Herald;
“2010 Top 10 PRC Investment Banks” by Moneyweek; and
“2009 Best Securities Broker” by Securities Times.
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BUSINESS
As of December 31, 2009, 2010 and 2011, we had total assets of RMB120,730.2 million,
RMB115,413.1 million and RMB98,977.0 million, respectively, and total equity of
RMB44,518.6 million, RMB45,616.8 million and RMB46,610.7 million, respectively. For the
years ended December 31, 2009, 2010 and 2011, our total revenue and other income was
RMB11,315.8 million, RMB11,304.9 million and RMB10,860.4 million, respectively, and our
profit was RMB4,661.7 million, RMB3,868.2 million and RMB3,282.0 million, respectively.
COMPETITIVE STRENGTHS
We believe the following competitive strengths contribute to our success and distinguish
us from our competitors:
Full-service securities firm in the PRC with leading market positions across multiple
business lines
We are one of the largest securities firms in the PRC. According to the SAC, we ranked
second among PRC securities firms in terms of total assets and net assets as of December 31
2009, 2010 and 2011 (1), respectively. We primarily focus on five principal business lines in the
PRC, including securities and futures brokerage, investment banking, asset management,
proprietary trading and direct investment. Each of these businesses contributed 38.3%, 9.8%,
10.1%, 10.5% and 0.5%, respectively, to our total revenue and other income in 2011. Our
overseas business, conducted primarily through Haitong International Holdings, contributed
8.8% to our total revenue and other income in 2011.
With our extensive network, substantial customer base and proven track record, we have
gained leading market positions in the securities and futures brokerage and investment banking
businesses in the PRC and have established a well-recognized brand. According to the
Shanghai Stock Exchange and the Shenzhen Stock Exchange, among PRC securities firms, we
ranked among the top five in terms of securities brokerage trading volume in 2009, 2010 and
2011, among the top two in terms of the number of domestic listed PRC companies we advised
on major asset restructuring transactions in 2009, 2010 and 2011 and third in terms of the
number of equity securities underwritten in 2011. In addition, we have experienced rapid
growth and achieved leading market positions in developing new businesses, such as margin
financing and securities lending, stock index futures brokerage and direct investment.
Our diversified business model has allowed us to achieve sustainable growth. Our
securities and futures brokerage and asset management businesses have achieved steady growth
and provided us with stable revenue streams. In addition, our investment banking, proprietary
trading, direct investment businesses and the development of new businesses have served as
additional growth drivers. We believe our business model generates balanced revenue streams
which provide sustainable profits and strong growth prospects.
In addition, we believe our integrated business platform has allowed us to benefit from
revenue and cost synergies across different business lines and enhanced our capabilities to
attract and retain customers by maximizing cross-selling opportunities and the sharing of
business resources.
(1) The 2011 data from the SAC was based on the preliminary results of PRC securities firms.
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BUSINESS
Strategically located branch network across the PRC with a substantial and stable customer
base
We have an extensive nationwide branch network in the PRC. As of December 31, 2011,
we had 216 securities and futures brokerage branches spanning across 27 provinces and 125
cities in the PRC, as well as 13 branches in Hong Kong and Macau operated through our
subsidiary, Haitong International Securities. According to the data from the Shanghai Stock
Exchange and the China Futures Association, we ranked fourth among all securities firms in
the PRC in terms of the number of securities and futures brokerage branches as of December
31, 2011. In addition, in order to adapt to the evolving competitive landscape and development
trends specific to different regions, we have established 20 branch offices in Beijing, Shanghai
and several other provinces. Such branch offices directly manage and supervise regional
securities brokerage branches and allow us to enhance management efficiency and resource
allocation at our branches.
Our branches are also strategically located. We are headquartered in Shanghai, the
financial center in the PRC. We first expanded into the Yangtze River Delta, Pearl River Delta
and Bohai Rim where high net worth customers and SMEs are concentrated. As of December
31, 2011, approximately half of our securities brokerage branches were located in these
well-developed regions. We also established branches in less penetrated regions such as the
northeastern, central and western regions of the PRC. While expanding our traditional branch
network, we have also developed a web-based platform, which our customers can use to trade
online. In addition, our customer service representatives at our branches offer real-time
advisory services to our customers. This has provided a solid foundation for attracting new
customers and expanding our businesses. We believe that our balanced geographic coverage of
branches in the PRC has enabled us to benefit from the rapid economic growth and accelerating
urbanization in certain developing regions.
We believe our strategic geographic coverage has enabled us to provide localized services
to our customers and capture growth potential and cross-selling opportunities among multiple
business lines. For example, we have identified investment banking opportunities from our
numerous SME customers covered by our branch network. Our extensive branch network and
localized services also support our distribution of differentiated and value-added products and
services, such as our wealth management products.
Leveraging our extensive and strategically located branch network, we have built a large
and stable customer base. As of December 31, 2011, we had over 4.0 million retail customers
(including approximately 2.1 million active customers) and over 12,000 institutional and high
net worth customers in the PRC. Among these customers, approximately 76% had opened
accounts with us for over three years and approximately 38% had a business relationship of
over ten years with us.
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BUSINESS
A pioneer in the PRC securities industry for offering new businesses
In recognition of our strong capital position, effective risk management and internal
controls and proven execution capabilities, we are frequently designated by the regulatory
authorities as one of the first few securities firms to participate in pilot programs for new
businesses in the PRC securities industry, for example:
in February 2010, we became one of the first few PRC securities firms approved by
the CSRC to conduct a stock index futures brokerage business in the PRC;
in March 2010, we were designated by the CSRC as one of the first six securities
firms in the PRC to pilot run the margin financing and securities lending business;
in October 2008, we became one of the first few PRC securities firms to launch a
direct investment business. As early as 2004, we co-founded the China-Belgium
Fund with other shareholders and established Haitong-Fortis PE Management to
enter into the private equity investment and management businesses; and
in April 2008, we were among the first few PRC securities firms approved by the
CSRC to conduct futures IB business.
In recent years, we have experienced rapid growth and established leading market
positions in our new businesses. According to data from the Shanghai Stock Exchange, the
Shenzhen Stock Exchange and the China Financial Futures Exchange, we ranked:
first among PRC securities firms in terms of margin trading volume during the year
ended December 31, 2011, and in terms of margin loan balance and market value of
securities lent as of December 31, 2011;
first among PRC futures companies in terms of stock index futures brokerage
trading volume in 2011; and
second among PRC securities firms in terms of registered capital of direct
investment subsidiaries as of December 31, 2011.
We believe our substantial customer base, strong capital position, extensive branch
network, strong cross-selling and execution capabilities have enabled us to gain a first-mover
advantage in offering new businesses. In addition, we believe our integrated business platform
has enabled us to expand our new businesses quickly. For example, our sizable proprietary
trading business has provided a sufficient pool of stocks to expand our securities lending
business and our strong futures IB business platform has contributed to the rapid growth of our
stock index futures and futures brokerage businesses.
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BUSINESS
We believe that our leadership in new businesses could enable us to further expand our
market share in traditional securities businesses. For example, our leading market position in
margin financing and securities lending and stock index futures businesses has expanded our
source of revenue, diversified our product and service offerings and enhanced customer loyalty
in our brokerage business.
We expect the CSRC to continue to launch pilot programs and encourage the introduction
of new businesses in the PRC securities markets. With the gradual relaxation of the PRC
securities regulations, we believe we are well-positioned to capture future market opportunities
by leveraging our leading market positions in multiple business lines and our first-mover
advantage in new businesses.
Well-established international platform to capture growing cross-border business
opportunities
In December 2009, we acquired a controlling interest in Taifook Securities in Hong Kong,
which we subsequently renamed as Haitong International Securities. The acquisition and
successful integration of Taifook Securities allowed us to establish a foothold in Hong Kong
and provided a platform for further overseas expansion.
Haitong International Securities is one of the leading local full-service securities firms in
Hong Kong, with 39 years of operating history, and has been awarded the best equity house in
Hong Kong for over ten consecutive years by internationally renowned financial media, such
as FinanceAsia, Asiamoney and Euromoney. Currently, through 13 branches in Hong Kong and
Macau, two representative offices in Beijing and Shanghai and six investment advisory centers
in six major cities in the PRC, Haitong International Securities serves over 145,000 brokerage
customers with comprehensive securities and futures brokerage products and services, and
other clients with corporate finance and advisory services and asset management services.
Currently, there are only a small number of PRC securities firms which have listed business
platforms in Hong Kong, among which Haitong International Securities has a long operating
history, with the most extensive distribution network in Hong Kong.
The full-service overseas platform of Haitong International Securities and its overseas
customer base and branch network have allowed us to capture increasing cross-border business
opportunities and to meet changing customer demands in the Greater China region. We are
well-positioned to benefit from potential cross-selling opportunities among our PRC and
overseas customer bases. For example:
we have successfully referred large PRC institutional and QDII brokerage clients, as
well as corporate clients who intend to raise capital overseas to Haitong
International Securities;
with the potential launch of the International Board, Haitong International Securities
is positioned to refer overseas clients who intend to raise capital in the PRC to our
investment banking business; and
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BUSINESS
we are well-positioned to develop RQFII and QDII businesses through our PRC and
Hong Kong platforms. In addition, our Hong Kong platform will continue to capture
business opportunities arising from the on-going internationalization of the
Renminbi. For example, a subsidiary of Haitong International Securities launched
the first SFC-authorized public offshore Renminbi fund in Hong Kong in August
2010 and one of the first offshore investment funds which invest in the domestic
securities market through RQFII in January 2012.
The overseas platform of Haitong International Securities enables us to enhance our brand
recognition overseas. The successful acquisition and integration of Haitong International
Securities have helped us realize our business strategy of capitalizing on growing cross-border
business opportunities. It also provided us with a solid foundation for pursuing overseas
acquisitions in the future.
Prudent corporate governance and effective risk management and internal control systems
We have navigated through various market and business cycles, regulatory reforms and
industry developments over our 23 years of operating history, including the most recent global
financial crisis in 2008. We have established prudent corporate governance, effective risk
management and internal control systems to reduce our exposure to various risks in the
securities markets. We are the only major PRC securities firm founded in the 1980s that
remains in operation under the same brand without receiving government-backed capital or
being the target of a successful acquisition.
Since our listing on the Shanghai Stock Exchange, we have maintained effective and
transparent corporate governance measures as required by the Shanghai Stock Exchange and
the CSRC. We have developed a comprehensive, firm-wide risk control system that effectively
manages market risk, credit risk, liquidity risk and operational risk, and have received an “AA”
regulatory rating from the CSRC for the past four consecutive years, the highest rating given
to a PRC securities firm to date. We have also established effective Chinese walls and
precautionary mechanisms across our business lines to prevent potential conflicts of interests.
In addition, we have established an independent and centralized internal audit and compliance
system, which effectively monitors our operations and transactions. In June 2008, our A Shares
became one of the constituent stocks of the SSE Corporate Governance Index in recognition
of our sound corporate governance.
In addition, we have no single shareholder owning more than 6.0% of our total
outstanding A Shares as of December 31, 2011. Such shareholding structure allows our Board
of Directors and senior management team to exercise independent judgment and a high level
of professionalism, with a view to maximizing our corporate value in the best interest of all
shareholders.
Experienced and stable management team with a highly proficient professional workforce
Our success is attributable to the sound leadership of our Directors and senior
management. The majority of our Directors, including our Chairman and Vice Chairman, and
members of our senior management, including our General Manager, Deputy General Manager,
Chief Financial Officer and General Compliance Officer, have an average of 20 years of
experience in the PRC financial and securities industries. Most of them have served us for over
ten years.
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BUSINESS
We believe that the strategic vision of our senior management team has distinguished us
from our competitors and has allowed us to capture business opportunities arising from product
innovation and globalization of the PRC securities industry. In recognition of the achievements
of our senior management team, from 2008 to 2010, our Board of Directors was awarded as
“Excellent Board of Directors” by the “Directors and Boards” magazine for each of years from
2008 to 2010. Our Chairman, Mr. Wang Kaiguo, was awarded “The Most Visionary Chairman
of the Board” by “Directors and Boards” magazine in 2010. Our General Manager, Mr. Li
Mingshan, was awarded “The Most Respected Chief Executive Officer of a PRC Securities
Firm” by “Directors and Boards” magazine in 2011.
We have a highly proficient professional workforce. As of December 31, 2011, 5,377 of
our employees held a bachelor’s or more advanced degree, representing 73.7% of the total
number of our employees. Our Directors believe that the retention of key employees is
attributable to our well-recognized brand name, business prospects and successful recruitment
and customized professional training programs.
BUSINESS STRATEGIES
We aim to become a domestically top-tier and globally renowned financial group with a
distinct focus on our securities business. Through continuous innovation and leveraging our
international platform, we plan to focus on the PRC market and stay committed to core
financial intermediary services, including our securities and futures brokerage, investment
banking and asset management businesses. Further, we intend to expand and promote our
proprietary trading and direct investment businesses to supplement our core financial
intermediary businesses while generating competitive risk-adjusted returns. In addition, we
plan to strengthen our business infrastructure, including risk management, research
capabilities, IT and human resources, to support our business growth. Our specific strategies
include the following:
Further enhance our leading market position and profitability in the securities and futures
brokerage business
The securities and futures brokerage business is one of our core businesses with stable
revenue streams and considerable growth potential. We believe our securities and futures
brokerage business will continue to be a major source of revenue. We will continue to focus
on serving retail customers, institutional clients and high net worth customers and expanding
our futures and cross-border brokerage businesses. We plan to enhance our leading market
position and profitability in the securities and futures brokerage business by improving our
market share, increasing customer loyalty and enhancing pricing power through the
implementation of the following strategies:
further improving customer segmentation by offering customized investment
solutions and differentiated products and services, such as investment advisory
services, wealth management services, futures IB services and research reports
support, to our high-end retail customers, institutional clients and high net worth
customers;
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BUSINESS
actively promoting new businesses and products, such as margin financing and
securities lending and stock index futures brokerage, and enhancing cross-selling
capabilities by leveraging our integrated business platform in order to diversify the
revenue composition and optimize the profit-making model of our brokerage
business;
organically broadening our coverage and optimizing operating efficiency by
strategically positioning our branches, such as establishing, subject to the PRC
regulatory approvals, a number of new branches each year in central and western
regions and second and third-tier cities of the PRC, which we believe are less
penetrated and offer significant growth potential, and introducing flagship branches
as permitted by the CSRC that are established to offer financial products, investment
advisory, wealth management and other value-added services, as well as improving
the quality and training of our brokers who support our branch network expansion;
capturing market consolidation and acquisition opportunities of selected securities
firms in the PRC to enhance our geographic reach and market share; and
leveraging Haitong International Securities’ presence in Hong Kong to develop
cross-border brokerage businesses in the PRC and overseas markets by offering
comprehensive financial products and services to overseas customers to further
expand our customer base while providing our domestic customers with access to
international markets to further strengthen our competitiveness.
Maintain the growth momentum of our investment banking business and further integrate
our business platform
Our investment banking business grew rapidly in recent years, and we believe it has
significant growth potential. In addition, the rapid growth of our investment banking business
will substantially enhance our brand name and provide cross-selling opportunities across
different business lines. We plan to strengthen our market leadership in our investment banking
business by implementing the following strategies:
enhancing our customized investment banking solutions to clients, in particular
those in the PRC financial, technology and cultural industries, while strengthening
our coverage of both large corporations and SMEs. We cover large corporations by
industry sectors and provide localized services to SMEs, including private
enterprises;
focusing on SMEs, in particular private enterprises, to better capture business
opportunities arising from the fast growing ChiNext Board and SME Board, as well
as the potential launch of the New OTC Board in the PRC;
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BUSINESS
maximizing synergies between our PRC and overseas business platforms to capture
new business opportunities, such as the increasing demand for overseas fundraising
by PRC enterprises and the potential launch of the International Board in the PRC,
and to capitalize on potential cross-selling opportunities;
strengthening our debt underwriting capabilities and financial advisory services to
capture the growth potential of debt financing and M&A activities in the PRC capital
markets, and increase their revenue contribution;
further developing our equity and debt capital markets divisions to enhance our
pricing and distribution capabilities; and
integrating the back office operations of equity underwriting, debt underwriting and
financial advisory services to improve operating efficiency.
Strategically expand our asset management business to provide comprehensive product
offerings to meet increasing and diversifying customer demands
We believe our asset management business is a strategically important business with
long-term growth potential and will allow us to improve our revenue composition and
effectively serve our retail and institutional clients with sizable investment assets.
We will leverage our extensive branch network and substantial customer base to capture
potential cross-selling opportunities between our asset management business and other
business lines and to further develop our asset management products and services in order to
increase the range of our product suites, our AUM and operating income.
For our traditional asset management business, we plan to implement the following to
broaden our product and service offerings, enhance our ability to design new and customized
products, integrate our distribution channels and improve the quality of customer service:
building on HFT Investment Management’s platform of mutual fund products that
are primarily offered to retail customers, we intend to actively expand asset
management services for institutional clients, such as enterprise annuity and
investment advisory services for QFII;
continuing to expand Fullgoal Fund Management’s mutual fund products that are
primarily offered to retail customers, further enhancing its brand name and
expediting the development of product distribution channels; and
establishing a wholly-owned asset management subsidiary to serve mid to high-end
retail customers and high net worth individual customers. Such subsidiary will adopt
an optimized investment decision-making process and an enhanced performance
appraisal system with market-driven incentive schemes to attract and retain
professionals.
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For our alternative asset management business, we intend to continue to focus on private
equity asset management and other relevant businesses by implementing the following:
leveraging our competitive advantages in the direct investment business to establish
a leading franchise in private equity asset management; and
expanding our alternative asset management services and providing new products
such as real estate investment trusts and commodity trading advisory services to
meet the diversified demand of our customers.
Continue to expand and promote new businesses and products with high growth potential
The development of new businesses is key to our continued growth and successful
transformation. These new businesses will enhance our service quality and customer loyalty,
strengthen our competitive advantage in traditional businesses and contribute to additional
revenue growth. We will keep abreast of market dynamics and continue to expand and compete
through new and differentiated products and services with high growth potential.
We intend to further enhance our existing new businesses by implementing the following
strategies:
Margin financing and securities lending: Our margin financing and securities
lending service is a value-adding service, which allows our securities brokerage
customers to diversify their trading strategies while promoting customer loyalty. We
believe margin financing and securities lending will not only help maintain our
market leading position in securities brokerage but also expand our revenue streams.
On October 26, 2011, the CSRC converted margin financing and securities lending
business from a pilot program conducted by CSRC-designated PRC securities firms
to a regular business operation available to all the PRC securities firms that meet
certain requirements. In addition, on the same day, the CSRC promulgated the Trial
Supervision and Management Measures on Margin and Securities Refinancing
Business (I imRvwc{t ) pursuant to which we expect a pilot
program for the margin and securities refinancing business to be launched in the
PRC. On December 5, 2011, the Shanghai Stock Exchange and the Shenzhen Stock
Exchange further expanded the scope of securities eligible for the margin financing
and securities lending business from 90 stocks to 278 stocks and 7 ETFs. Please see
“– Our Business and Operations – Securities and Futures Brokerage – Margin
financing and securities lending.” In order to capture the new business opportunities,
we aim to expand our margin financing and securities lending business by (i)
deploying additional capital to expand the scale of such business; (ii) promoting
cross-selling in order to increase customer penetration; and (iii) developing our
margin and securities refinancing business in order to enhance our financial leverage
and, as a result, the profitability of our margin financing and securities lending
business.
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Direct investment: Our direct investment business allows us to further expand our
private equity asset management business and positions our investment banking
business to capture future opportunities in securities underwriting for our SME
customers. We intend to increase capital contributions in Haitong Capital Investment
and to continue to establish, invest in, and manage a variety of private equity funds
to further develop our private equity asset management business. For example, we
invested in Jilin Modern Agricultural and Emerging Industrial Investment Fund (T
g—w sNimTe u\"imbW ) and Xi’an Aerospace and New Energy Industry
Fund (‰*Y)e°nu\"imWú ), which are managed by Haitong Jihe Management
and Haitong Chuangxin Management, respectively, both of which are subsidiaries of
Haitong Capital Investment. In addition, we have gained approval from the Shanghai
municipal government and the CSRC to establish the Shanghai Cultural Industry
Fund.
Financial futures and other derivatives business: The development of financial
futures and other derivatives products such as stock index futures which was
launched in February 2010 enables us to offer our brokerage and asset management
customers comprehensive investment solutions and to reduce volatility in our
proprietary trading business. We plan to increase capital contributions to expand our
financial futures and other derivatives business, including, but not limited to, stock
index futures and other financial derivative products, such as interest rate futures
and options and foreign currency futures and options, when they are introduced to
the market. Meanwhile, we will adhere to our stringent risk management procedures
as we grow this business.
In addition, we also intend to promote the following newly-introduced securities
businesses:
Alternative financial product investment: We plan to invest in alternative financial
products to enhance the diversity and stability of our proprietary trading business
while developing a market-making business to facilitate trading and issuance of
financial products. According to regulations promulgated by the CSRC in April
2011, in addition to the three categories of investment products that have been
approved for trading, PRC securities firms can also establish subsidiaries to engage
in investment activities involving alternative financial products, such as derivative
investment, trust and inter-bank wealth management products. We became the first
PRC securities firm to apply to the CSRC in July 2007 for establishing such a
subsidiary to diversify our investment product suite, such as developing our market
making business and broadening our revenue streams. Please see “ Our Business
and Operations Proprietary Trading.” We plan to contribute RMB3.0 billion to our
proposed subsidiary for alternative financial product investments as initial
registered capital. We expect to build a team of professional staff with two to five
years of experience in derivative and alternative financial product investments. We
intend to independently operate this business through our designated subsidiary and
establish a risk control management system through which we can designate its
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directors, impose investment limitations, formulate risk control indicators, establish
an effective reporting structuring and perform regular inspections and reviews. We
have also conducted a feasibility study with respect to the alternative financial
product investment business, which was presented to our Board of Directors for
consideration and was subsequently approved.
Going forward, we will continue to seek opportunities in new businesses in response to
changes in PRC regulatory requirements, market trends and customer demands, and to capture
new business opportunities, such as the potential launch of the International Board, the New
OTC Board, margin and securities refinancing and financial derivatives in the PRC by
capitalizing on our strong capital position, integrated business platform and innovation,
execution and risk management capabilities.
Actively pursue our internationalization strategy to capture cross-border opportunities
Our internationalization strategy forms an important part of our overall business strategy.
We aim to implement a customer-focused strategy to satisfy our customers’ increasing demands
for cross-border financial services and further enhance our ability to service our customers in
the PRC and overseas, optimize our revenue composition and enhance our brand recognition
overseas.
By leveraging Haitong International Holdings as the flagship of our overseas business, we
plan to expand the scale of our overseas operations and business platform through organic
growth and/or acquisitions. Our criteria for overseas acquisition targets include: (i) meaningful
presence in local markets; (ii) complementary business and synergies with our business; (iii)
ability for us to exercise control in the target; and (iv) likelihood to strengthen our existing
customer base, distribution network and professional expertise. As of the Latest Practicable
Date, we have not identified any specific acquisition targets.
We also intend to implement the following strategies with respect to our existing
international platform:
strengthening Haitong International Securities’ leading position in Hong Kong
market and taking advantage of its proximity to overseas markets, sales network and
international customer base;
expanding cross-selling opportunities among PRC and overseas customers and
developing new businesses by capitalizing on Hong Kong’s position at the forefront
of the internationalization of RMB. We intend to offer more RMB-related products
and services, such as RMB funds, RMB-denominated IPOs, RMB bond underwriting
and RQFII products; and
developing cross-border business and realizing synergies between our PRC and
overseas businesses, especially in the areas of investment banking, asset
management, securities brokerage and research. For example, our PRC and overseas
businesses can refer investment banking, assets management and securities
brokerage customers to each other and share research resources.
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Strengthen our risk management systems, internal controls, IT capabilities, research
capabilities and human resource management to support our business operations
We believe an effective risk management system, internal controls, research and IT
capabilities and human resource management are essential to developing a sustainable business
and maintaining our market leadership. We plan to strengthen our overall risk management and
regulatory compliance by implementing the following strategies:
enhancing our internal control and risk management framework;
strengthening our risk management capabilities through classification of risk
profile;
enhancing the monitoring system of the Net Capital-based risk control indicators
and optimizing capital allocation efficiency among different business lines; and
strengthening the Chinese walls across various business divisions.
We recognize the importance of a strong research team to the development of our
principal business lines. We will continue to enhance our research capability to support our
business development by:
expanding our research team and enhancing its market recognition;
upgrading our research knowledge management and database infrastructure; and
increasing our research coverage for listed companies in the PRC and developing
our overseas research capabilities in a focused manner.
We also plan to devote more resources to enhance our IT systems in order to provide
efficient, secure and stable technology services to support our business operations. We plan to
strengthen our IT systems by implementing the following strategies:
conducting a full review of our IT infrastructure and strengthening our IT
administration and risk management capabilities;
further strengthening the development of our IT infrastructure; and
upgrading critical IT applications relating to our operational and management
functions.
Our success, to a large extent, depends on our ability to attract, motivate and retain
professional and experienced personnel. In order to maintain our competitive advantage in the
marketplace, we intend to:
continue to attract and retain qualified professionals, such as senior management,
licensed sponsor representatives and experienced investment managers with
international vision;
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offer professional training to our employees and provide clear career advancement
and comprehensive development opportunities; and
promote a merit-based compensation system across all business lines and continue
to support and recognize the importance of a market-driven compensation system
that rewards performance and results.
OUR BUSINESS AND OPERATIONS
Our five principal business lines in the PRC comprise securities and futures brokerage
(including margin financing and securities lending), investment banking, asset management,
proprietary trading and direct investment. In addition, we conduct our overseas business
primarily through our Hong Kong-based subsidiary, Haitong International Holdings.
The following table sets forth the breakdown of our total revenue and other income by
business segments and segment revenue and other income (excluding inter-segment revenue),
expressed as a percentage of our total revenue and other income for the periods indicated:
Year ended December 31,
2009 2010
(RMB in (RMB in (RMB in
millions) % millions) % millions) %
PRC business
Securities and futures brokerage . . 7,284.0 64.4 5,774.8 51.1 4,163.1 38.3
Investment banking . . . . . . . . . . 496.8 4.4 1,091.7 9.7 1,068.6 9.8
Asset management . . . . . . . . . . 878.9 7.8 868.5 7.7 1,092.1 10.1
Proprietary trading . . . . . . . . . . 804.8 7.1 779.8 6.9 1,144.8 10.5
Direct investment . . . . . . . . . . . 52.1 0.5 106.0 0.9 55.0 0.5
Headquarters and others (1) . . . . . 1,602.0 14.1 1,779.1 15.7 2,382.3 22.0
Overseas business . . . . . . . . . . . 197.2 1.7 905.0 8.0 954.5 8.8
Total . . . . . . . . . . . . . . . . . . . 11,315.8 100.0 11,304.9 100.0 10,860.4 100.0
(1) Revenue and other income in headquarters and others mainly includes: (i) interest income from our own bank
deposits and deposits we hold on behalf of our customers; and (ii) dividends and other investment gains as well
as government grants. Please see “Financial Information – Summary Segment Results” and “Appendix I –
Accountants’ Report” in this prospectus.
Securities and Futures Brokerage
Overview
Our securities and futures brokerage business primarily engages in the following
activities:
securities brokerage;
futures brokerage;
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margin financing and securities lending; and
investment advisory services.
As of December 31, 2011, through our 216 securities and futures brokerage branches
located in 27 provinces and 125 cities across the PRC and utilizing over 6,300 sales and
marketing personnel, we provide securities brokerage services to over 4.0 million retail
customers (including approximately 2.1 million active customers) and over 12,000 institutional
and high net worth customers, as well as futures brokerage services to over 40,000 customers
in the PRC.
Historically, revenue from our securities and futures brokerage business has represented
the largest source of our revenue. For the years ended December 31, 2009, 2010 and 2011,
segment revenue and other income from our securities and futures brokerage business
amounted to RMB7,284.0 million, RMB5,774.8 million and RMB4,163.1 million, respectively,
representing 64.4%, 51.1% and 38.3% of our total revenue and other income, respectively.
According to the Shanghai Stock Exchange and the Shenzhen Stock Exchange, from 2009
to 2011, we ranked among the top five PRC securities firms in terms of securities brokerage
trading volume. According to the Shanghai Stock Exchange and the Shenzhen Stock Exchange,
we ranked first in terms of margin trading volume among PRC securities firms in 2011 and first
in terms of margin loan balance and market value of securities lent among PRC securities firms
as of December 31, 2011. In addition, according to the China Financial Futures Exchange, we
ranked first among PRC securities firms in terms of stock index futures brokerage trading
volume in 2011.
In recent years, we received the following major awards in recognition of our securities
and futures brokerage business:
“2011 Best PRC Securities Firm” by Moneyweek;
“2011 Best Margin Financing Broker” by Securities Times;
“2010 Best Securities Firm in the PRC” by the 21st Century Business Herald;
“2009 Best PRC Securities Broker” by Securities Times; and
“2009 Best Corporate Brand in the PRC Futures Market Award” by Shanghai
Securities News.
Securities brokerage
We engage in the trading of a wide range of financial products on behalf of our customers,
including:
Stocks – primarily shares of listed companies on the Shanghai Stock Exchange, the
Shenzhen Stock Exchange and the OTC markets in the PRC;
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Funds – listed funds, including open-end funds, closed-end funds and ETFs;
Bonds – enterprise bonds (bonds issued by private companies), corporate bonds
(bonds issued by listed companies), financial bonds (bonds issued by financial
institutions), government bonds and convertible bonds; and
Derivatives – derivative products, such as warrants, listed on the Shanghai Stock
Exchange and the Shenzhen Stock Exchange.
The following table sets forth the breakdown by product type of our securities brokerage
business in terms of trading volume and market share for the periods indicated:
Year ended December 31,
2009 2010
Trading volume
(RMB in billions)
Stocks . . . . . . . . . . . . . . . . . . . . . . . . . 4,448.2 4,419.6 3,447.3
Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 45.5 57.2 55.6
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . 575.1 846.0 2,100.4
Warrants . . . . . . . . . . . . . . . . . . . . . . . . 342.7 75.9 17.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,411.5 5,398.7 5,620.4
Market share (%) (1)
Stocks . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 4.1 4.1
Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 3.4 4.6
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 6.9 5.6
Warrants . . . . . . . . . . . . . . . . . . . . . . . . 3.2 2.5 2.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 4.3 4.6
(1) Market share is calculated based on total trading volume of member securities firms of the Shanghai
Stock Exchange and Shenzhen Stock Exchange.
Source: Shanghai Stock Exchange and Shenzhen Stock Exchange
We classify our securities brokerage business into two categories based on customer
types: (i) retail brokerage business and (ii) brokerage business for institutional and high net
worth customers.
Retail brokerage business
Our retail brokerage business is the foundation of our brokerage business. It serves
individual customers with less than RMB10 million of assets in their accounts held with us. We
provide standard brokerage trading services, investment advisory and other value-added
services to our retail customers. We have also established the “Rainbow Treasure Club,” a
loyalty program that is dedicated to providing our retail customers with active trading and
sizable assets, through which we offer customized and differentiated services. Please see “–
Customer Services.” In addition, we distribute asset management products and introduce
futures products to customers through our sales and marketing team, enabling us to diversify
our product and service offerings while promoting cross-selling across multiple business lines.
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As of December 31, 2011, we had over 4.0 million retail brokerage customers (including
approximately 2.1 million active customers) in the PRC, one of the largest customer bases
among PRC securities firms. Of our retail customer base, approximately 76% had maintained
accounts with us for over three years and approximately 38% had a business relationship of
over ten years with us. We believe that a sizeable and stable retail customer base provides a
solid foundation for our future business growth.
Brokerage business for institutional and high net worth customers
We provide securities brokerage services for institutional and high net worth customers.
Our institutional brokerage customers primarily include fund management companies,
commercial banks, trust companies and other large corporations. As of December 31, 2011, we
had over 12,000 institutional and high net worth customers in the PRC.
In addition to traditional brokerage trading services, we also provide other value-added
products and services to our institutional and high net worth customers, such as customized
research, block trades, financial advising, mutual funds distribution, securities custodian
services, wealth management and tax planning services.
We also provide trading, research and investment advisory services to QFII clients. We
are an authorized broker in the PRC for a number of large QFIIs, including investment banks,
commercial banks and asset management firms. The total assets our QFII clients have entrusted
to us amounted to approximately RMB27.5 billion as of December 31, 2011, with QFII
brokerage trading volume amounting to approximately RMB72.0 billion in 2011.
Futures brokerage
We provide futures brokerage services through our subsidiary, Haitong Futures. As of
December 31, 2011, our futures products included all 26 commodity and stock index futures
that are listed and traded on the PRC futures exchanges.
We became one of the first PRC securities firms to launch a futures brokerage business
after we acquired a controlling interest in Huanghai Futures (renamed as Haitong Futures) in
October 2005. As of December 31, 2011, among the 163 PRC futures brokerage firms, we had
a market share of 4.4% in terms of futures brokerage trading volume.
We are one of the founding members of the Shanghai Futures Exchange, the Dalian
Commodity Exchange and the Zhengzhou Commodity Exchange. We are also one of the first
clearing members of the China Financial Futures Exchange since December 2007. In addition,
we were among the first group of futures companies to be certified for ISO9001:2008 Quality
Management System Certification in recognition of our effective risk management system. In
March 2010, we were one of the first futures companies to be licensed to conduct the stock
index futures brokerage business. According to the China Financial Futures Exchange, we
ranked first among PRC futures companies in terms of brokerage trading volume of stock index
futures in 2011, representing an approximately 8.3% of the total market share.
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The following table sets forth the total trading volume and market share of our futures
brokerage business for the periods indicated:
Year ended December 31,
2009 2010
Trading volume
(RMB in billions) (1) . . . . . . . . . . . . . . . . . 1,866.8 10,517.5 12,094.8
Market share (%) (2) . . . . . . . . . . . . . . . . . . 1.4 3.4 4.4
(1) The trading volume of the PRC futures market before 2011 includes both sides of the trades. Since 2011,
the trading volume of the PRC futures market includes only one side of the trades.
(2) Market share is based on the total trading volume disclosed by the China Futures Association.
As of December 31, 2011, we had 23 futures brokerage branches in 21 cities in the PRC.
Furthermore, 73 of our 193 securities brokerage branches are qualified for futures IB business,
which allows those branches to refer their securities brokerage customers to Haitong Futures.
As of December 31, 2011, our futures brokerage business had over 40,000 customers.
From 2009 to 2011, the number of our futures brokerage customers increased at a CAGR of
approximately 46.3% and the trading volume of our futures brokerage increased at a CAGR of
approximately 154.5%.
Margin financing and securities lending
In March 2010, we were authorized by the CSRC as one of the first six PRC securities
firms to pilot a margin financing and securities lending business. Our margin financing services
involve offering securities-backed loans to brokerage customers who wish to finance their
securities purchases. Margin financing offers funding flexibility to our brokerage customers
and assists them in maximizing investment returns through leverage. Our securities lending
services involve the lending of securities held on our own account to customers. Securities
lending allows our brokerage customers to borrow securities to take advantage of potential
short selling opportunities in the markets. Our agreements with customers typically include
terms such as margin loan or securities lending amount, maturity date and interest rate, which
represents a percentage of our customers’ margin loan balance and the market value of the
securities we lent. Currently, we charge an annualized interest rate on margin financing and
securities lending, which was approximately 9.1% as of December 31, 2011. In addition, we
charge brokerage commission fees on margin trading and short selling.
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Benefiting from our substantial securities brokerage customer base, distribution network,
capital strength, proprietary business capabilities and brand recognition, our margin financing
and securities lending business has grown rapidly since its launch in March 2010. We ranked
first among PRC securities firms in terms of margin trading volume in 2011 and margin loan
balance and the market value of securities lent as of December 31, 2011. As of December 31,
2011, 175 of our 193 securities branches in the PRC were allowed to provide margin financing
and securities lending services. At the same time, we had 68,737 customers who were eligible
for margin financing and securities lending services, among which 13,489 customers had
opened margin financing and securities lending accounts with us and 5,713 had executed
transactions, representing 19.6% and 8.3%, respectively, of our eligible customer pool. As
such, we believe there is significant growth potential in our margin financing and securities
lending business.
In 2011, interest income from our margin financing and securities lending business in the
PRC amounted to RMB280.2 million. According to the data from the Shanghai Stock Exchange
and the Shenzhen Stock Exchange, we had a margin loan balance of over RMB3.6 billion as
of December 31, 2011, representing 9.8% of total market share in the PRC. We had margin
trading volume of approximately RMB47.7 billion in 2011, representing 16.4% of total market
share in the PRC. In addition, according to data from the Shanghai Stock Exchange and the
Shenzhen Stock Exchange, as of December 31, 2011, the market value of securities we lent was
approximately RMB254.1 million, representing 38.6% of total market share in the PRC. As of
December 31, 2011, there were 278 stocks and 7 ETFs eligible for margin financing in the
PRC, of which we offered 221 stocks and 3 ETFs to customers for securities lending and we
deemed 277 stocks and 7 ETFs eligible for margin financing.
The following table sets forth a summary of the operating and financial information of our
margin financing and securities lending business:
As of and for As of and for the
the year ended year ended
December 31, December 31,
2010
Number of our customers who are eligible for margin
financing and securities lending services (1) . . . . . . . . . . . 88,031 68,737
Percentage of total number of brokerage customers (%): . . . 2.3% 1.7%
Number of customers with margin financing and securities
lending accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,068 13,489
Percentage of total number of brokerage customers (%): . . . 0.1% 0.3%
Margin trading volume (RMB in billions) . . . . . . . . . . . . . 19.2 47.7
Market share of margin trading volume . . . . . . . . . . . . . 27.5% 16.4%
Margin loan balance (RMB in millions) . . . . . . . . . . . . . . 2,091 3,675
Market share of margin loan balance(2) . . . . . . . . . . . . . . 16.4% 9.8%
Market value of securities lent (RMB in millions) . . . . . . . . 0.3 254.1
Market share of market value of securities lent (2) . . . . . . . 2.5% 38.6%
(1) As a result of the adverse market condition in the second half of 2011, the number of customers eligible
for the margin financing and securities lending business declined in 2011 as fewer customers could
maintain a minimum balance of RMB500,000 in their brokerage accounts with us, which is one of the
criteria for the margin financing and securities lending business.
(2) Market share is calculated based on margin loan balance and market value of securities lent as disclosed
by the Shanghai Stock Exchange and Shenzhen Stock Exchange.
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We have established strict criteria for acquiring new customers and a rigorous risk
management system in our margin financing and securities lending business. In compliance
with the CSRC’s guidance, we require our customers to maintain a brokerage account with us
for at least 18 months before they become eligible for margin financing and securities lending
services. In addition, we require our customers to maintain a minimum balance of
RMB500,000 in their brokerage accounts upon their applications for margin financing and
securities lending accounts. Furthermore, we require our customers to have sound credit
history and strong risk tolerance. We require our customers to deposit with us a portion of the
cash or securities in their accounts. We also hold the securities acquired from margin financing
or the funds received from short selling by our customers as collateral. We determine the credit
limit we extend to our customers based on various factors, such as the value of their total assets
maintained with us and their creditworthiness. We determine a customer’s eligibility for a new
transaction based on the credit line available to the client and the balance of the client’s
deposits. We have also established a margin call risk control mechanism through which we
monitor the value of our customers’ collateral on a real-time basis.
While margin financing and securities lending is an established business in many mature
securities markets in the world, it is still an emerging business in the PRC. The CSRC imposed
stringent entry requirements regarding a securities firm’s Net Capital, risk management
capabilities and regulatory ratings. In addition, the CSRC imposed specific restrictions on the
margin financing and securities lending business in the PRC when the pilot program was
launched in March 2010. For example:
a securities firm can only use its own funds for margin financing services and its
own securities for securities lending services; and
potential customers must have maintained a brokerage account with the same
securities firm for at least 18 months in order to open a margin financing and
securities lending account.
On October 26, 2011, the CSRC revised the Management Measures on Securities
Companies Margin Financing and Securities Lending Trials (IR8QlSR8imRft
) and Guidelines on Internal Control of Margin Financing and Securities Lending Trials of
Securities Companies (IR8QlSR8imRfQgèc§R6c _ ), and converted margin
financing and securities lending business from a pilot program conducted by CSRC-designated
PRC securities firms to a regular business available to all the PRC securities firms that meet
certain requirements. In addition, on the same day, the CSRC promulgated the Trial
Supervision and Management Measures on Margin and Securities Refinancing Business (I
imRvwc{t ) pursuant to which we expect a pilot program for the margin and
securities refinancing business to be launched in the PRC. On December 5, 2011, the Shanghai
Stock Exchange and the Shenzhen Stock Exchange further expanded the scope of securities
eligible for the margin financing and securities lending business from 90 stocks, being the
constituent stocks of the SSE 50 Index and SZSE Component Index and representing only 3.1%
of the total number of stocks listed on the two exchanges as of December 31, 2011, to 278
stocks and 7 ETFs, which accounted for 9.8% of the total number of stocks listed on the two
exchanges as of December 31, 2011.
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Following the lifting of restrictions on the use of external funding and securities
borrowing, the expansion of the scope of securities eligible for margin trading and short
selling, the relaxation of account opening requirements and the conversion of the margin
financing and securities lending business from a pilot program to a regular business, we believe
the margin financing and securities lending business has great potential for further
development. We aim to expand our margin financing and securities lending business by (i)
deploying additional capital to expand the scale of such business; (ii) promoting cross-selling
in order to increase our customer base; and (iii) developing the margin and securities
refinancing business in order to enhance our financial leverage and, as a result, the profitability
of our margin financing and securities lending business.
Customers
We develop and maintain our brokerage customer base through various channels:
Retail brokerage customers – we primarily source and serve retail customers
through our nationwide securities branch network and over 6,300 marketing and
sales personnel;
Institutional and high net worth customers – we primarily established contact with
such customers through our headquarters and nationwide branch network, as well as
internal referrals from our other business lines. To expand our customer base, we
also maintain good relationships with major custodian banks and global financial
institutions.
As of December 31, 2011, we provided securities brokerage services to over 4.0 million
retail customers (including approximately 2.1 million active customers) and over 12,000
institutional and high net worth customers, as well as futures brokerage services to over 40,000
customers in the PRC. The following table sets forth the breakdown of our securities brokerage
customers in the PRC for the periods indicated:
As of December 31,
2009 2010
Retail brokerage customers . . . . . . . . . . . . . . 3,721,430 3,746,659 4,097,269
Institutional and high net worth customers . . . . . 11,742 12,078 12,134
Total customers . . . . . . . . . . . . . . . . . . . . . 3,733,172 3,758,737 4,109,403
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We maintain long-term and stable relationships with our customers. The following table
sets forth the breakdown of our brokerage customers in the PRC in terms of account holding
period for the periods indicated:
As of December 31,
2009 2010
(%) (%) (%)
Account holding period
not less than ten years . . . . . . . . . 1,082,650 29.0 1,320,641 35.1 1,556,143 37.9
five to ten years (excluding five and
ten years) . . . . . . . . . . . . . . . . 719,482 19.3 429,235 11.4 291,128 7.1
three to five years (excluding three
and five years) . . . . . . . . . . . . 120,643 3.2 1,024,823 27.3 1,283,678 31.2
less than three years . . . . . . . . . . 1,810,397 48.5 984,038 26.2 978,454 23.8
Total . . . . . . . . . . . . . . . . . . . 3,733,172 100.0% 3,758,737 100.0% 4,109,403 100.0%
We believe we have successfully maintained our customers’ loyalty as a result of our
well-established brand, comprehensive customer services, strong capital base and stable
operations. As of December 31, 2011, approximately 76% of our brokerage customers had
maintained accounts with us for over three years and approximately 38% had a business
relationship of over ten years with us. We believe that a sizeable and stable customer base
provides a solid foundation for our future business growth.
Our retail customers, representing the majority of our brokerage customers, are the
foundation of our brokerage business. We intend to diversify our retail brokerage business by
expanding our wealth management services for retail customers in the first-tier cities and by
originating new customers in the second and third-tier cities, where we believe brokerage
business has lower market penetration and less competition.
We are committed to developing our base of institutional and high net worth customers
and expanding cross-selling opportunities by leveraging our full-service integrated platform.
Brokerage commission and fee income
We receive commission and fee income from customers who trade securities and futures
through our trading platforms. For the years ended December 31, 2009, 2010 and 2011,
segment revenue and other income from our securities and futures brokerage business in the
PRC accounted for 64.4%, 51.1% and 38.3% of our total revenue and other income,
respectively.
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BUSINESS
The following tables set forth the total trading volume and commission and fee income
of our securities and futures brokerage business in the PRC market and the average commission
rate for stocks and funds in the PRC market for the period indicated:
Year ended December 31,
2009 2010
Securities Business
Trading volume (1)
(RMB in billions) . . . . . . . . . . . . . . . . . . . 4,866 4,562 3,891
Commission and fee income (2)
(RMB in millions) . . . . . . . . . . . . . . . . . . 6,777 5,242 3,426
Futures Business
Trading volume(3)
(RMB in billions) . . . . . . . . . . . . . . . . . . . 1,867 10,518 12,095
Commission and fee income
(RMB in millions) . . . . . . . . . . . . . . . . . . 143 273
Total commission and fee income
(RMB in millions) . . . . . . . . . . . . . . . . . . 6,920 5,515 3,705
Average securities brokerage
commission rate . . . . . . . . . . . . . . . . . . . 0.147% 0.118% 0.100%
(1) Sourced from our internal data.
(2) Commission and fee income includes commission and fee income from our securities brokerage
business and other fee income from fund management firms, our margin financing and securities lending
and QFII clients.
(3) According to the practice adopted by the China Financial Futures Exchange, the trading volume of the
PRC futures market before 2011 included both sides of each trade. Since 2011, the trading volume of
the PRC futures market has only included one side of the trade.
In recent years, intense competition in the PRC securities brokerage business has lowered
commission rates for the securities brokerage business. Please see “Risk Factors – Risks
Relating to Our Business and Industry – Our securities and futures brokerage business is
subject to various risks and we cannot assure you that our brokerage commission and fee
income can be sustained.”
In order to mitigate the impact of price competition, we have implemented the following
measures:
further developing and expanding the scope of our products and services, including
margin financing and securities lending, stock index futures brokerage and futures
IB businesses and investment advisory services. Moreover, we offer differentiated
products and services to our customers to avoid homogeneous competition, as well
as to diversify our revenue streams;
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further improving the quality of our customer service and providing customized and
comprehensive investment solutions for our customers. We aim to implement a
vertically integrated service platform and to enhance our customers’ loyalty,
especially those customers with sizable assets, by providing customized wealth
management services;
expanding our branch network with strategic coverage and improving our operating
efficiency to further expand our customer coverage. Please see “– Business
Network;” and
further enhancing our research capabilities and expanding our professional research
team to provide better securities brokerage services for our customers.
We monitor and adjust the structure and the level of our brokerage commission rates on
a regular basis based on geographic location, asset size, trading pattern and loyalty of our
customers. We charge different commission rates for different services in accordance with our
internal rating and classification system. Nonetheless, we adhere to the principle of equal
treatment of clients in terms of services provided and fees charged in accordance with the
Circular on Further Reinforcing the Management of Securities Firms’ Client Service and
Commission Income of Securities Transactions (e2N keR7IR8QlS[b6g RTIR8N¤
f Oc‘t ] O\v w ) promulgated by the SAC.
Investment Banking
Overview
We provide corporate finance services, including equity underwriting, debt underwriting
and financial advisory services to our institutional clients. We are committed to offering our
clients customized corporate finance services and expanding cross-selling opportunities across
multiple business lines through our integrated investment banking platform.
We have gained a leading position in the PRC investment banking industry and aim to
continue to improve this position. According to the SAC, we ranked third among PRC
securities firms in terms of the number of equity securities underwritten in 2011. According to
the CSRC, as measured by the number of major asset restructuring transactions we advised for
A share listed companies, we ranked in the top two PRC securities firms for the past three
consecutive years.
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In recent years, we have received the following major awards in recognition of our
investment banking business:
“2011 Best PRC Investment Bank” by Moneyweek;
“2011 Most Respectable Investment Bank” by New Fortune Magazine;
“2011 Best Local Investment Banking Team” by New Fortune Magazine;
“2011 Best Follow-on Offering” by New Fortune Magazine;
“2011 Best Rights Issue” by New Fortune Magazine;
“2011 Best IB Business Underwriter” by Securities Times;
“2011 Best PRC Investment Bank For Equity Refinancing” by Moneyweek; and
“2010 Top 10 PRC Investment Banks” by Moneyweek.
Equity underwriting
Equity underwriting is the core strength of our investment banking business in the PRC.
We sponsor and underwrite IPOs, follow-on offerings and rights issues on the A share market
to assist our clients’ equity financing activities. Up to December 31, 2011, we had acted as the
lead underwriter for equity offerings of over 224 institutional clients. During the Track Record
Period, we acted as the lead underwriter for equity offerings with an aggregate value of
RMB72.2 billion, including RMB37.2 billion from 31 IPOs, RMB28.3 billion from 22
follow-on offerings and RMB6.7 billion from four rights issues.
According to the Measures for the Administration of the Sponsorship of the Offering and
Listing of Securities (IR8v|LN ^ O…imR{t ) promulgated by the CSRC, the CSRC
only allows a qualified securities firm to underwrite equity offerings on the A share market, and
such firm is required to designate two sponsor representatives to be principally responsible for
each offering. As a result, the number of sponsor representatives is key to the scale of a
securities firm’s equity underwriting business. As of December 31, 2011, we had 74 qualified
sponsor representatives and an additional 20 sponsor representative candidates who are in the
process of applying for qualification. The number of sponsor representatives we have ranks
among the top in the PRC securities industry.
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The following table sets forth a breakdown of equity offerings for which we acted as the
lead underwriter in terms of listing venues for the periods indicated:
Year ended December 31,
2009 2010
Number of equity offerings 10 26
Main board . . . . . . . . . . . . . . . . . . . . . . . . 5 11
SME Board . . . . . . . . . . . . . . . . . . . . . . . . 2 11
ChiNext Board . . . . . . . . . . . . . . . . . . . . . . 3 4
Total amount underwritten
(RMB in millions) 7,530.4 49,657.7 15,091.0
Main board . . . . . . . . . . . . . . . . . . . . . . . . 4,366.7 37,771.5 5,257.5
SME Board . . . . . . . . . . . . . . . . . . . . . . . . 1,618.8 8,716.2 7,497.2
ChiNext Board . . . . . . . . . . . . . . . . . . . . . . 1,544.9 3,170.0 2,336.3
We have successfully completed several landmark equity offerings in the PRC, including
acting as:
the lead underwriter for the A share follow-on offering of Shanghai Shangling
Electric Appliances in 1999. This transaction was the first in the PRC to apply a
market price discount method that followed the international general pricing
standard, a method which is now widely adopted by listed companies in the PRC for
their follow-on offerings;
the lead underwriter for the first IPO of a commercial bank, Shanghai Pudong
Development Bank, after the removal of restrictions on the listing of PRC financial
institutions in 1999; and
the lead underwriter for the first IPO of a non state-owned commercial bank, China
Minsheng Banking Corp., Ltd., in 2000.
We divide our institutional clients into large corporate clients and SME clients based on
the scale of their business. We provide customized coverage and equity underwriting services
based on prevailing market conditions and customer needs. We have established sector-focused
groups of designated relationship managers to serve our large corporate clients. We cover our
SME clients through local relationship managers deployed in strategically important markets
in the PRC.
We have participated in a number of landmark equity offerings involving large corporate
clients in the PRC and have established long-term business relationships with them. For
example, during the Track Record Period, we acted as:
the joint sponsor and the joint lead underwriter for China Construction Bank
Corporation in its rights offering;
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BUSINESS
the joint lead underwriter for SAIC Motor Corporation Limited in its private
placement; and
the sponsor and the lead underwriter for Fosun Pharmaceutical (Group) Co., Ltd. in
its private placement.
In addition, we participated in various financing activities for China Minsheng Banking
Corp., Ltd., including its IPO, follow-on offerings, subordinated bond issuance and hybrid
capital bond issuance in the PRC. We also participated in at least three financing activities for
each of the Bank of Communications Co., Ltd., Shenzhen Development Bank Co., Ltd. and
Shanghai Shimao Co., Ltd.
We are also focused on providing equity underwriting services to SMEs, especially non
state-owned companies, which have contributed significantly to our fast-growing investment
banking business. From 2009 to 2011, we acted as the lead underwriter for 36 equity offerings
on the SME Board and the ChiNext Board. The total proceeds raised from these equity
offerings increased from RMB3.2 billion in 2009 to RMB9.8 billion in 2011, representing a
CAGR of 76.3%. In 2011, we acted as the lead underwriter for 16 equity offerings on the SME
Board and the ChiNext Board. The revenue contribution from our equity underwriting on the
SME Board and the ChiNext Board increased from approximately 57% in 2009 to 82% in 2011
of our total revenue from equity underwriting in those years. In addition, based on the equity
offerings in which we participated in the past, underwriting fee rates of the SME Board and the
ChiNext Board are generally higher than those of the main board in the PRC.
Debt underwriting
We underwrite enterprise bonds, corporate bonds, financial bonds, medium-term notes,
short-term commercial papers and asset-backed securities to assist our clients’ debt financing
activities.
Our debt underwriting business primarily serves large corporate clients. In recent years,
our debt underwriting business expanded rapidly. For the years ended December 31, 2009,
2010 and 2011, the total amount of bonds we underwrote as the lead underwriter was RMB10.6
billion, RMB12.3 billion and RMB19.2 billion, respectively, representing a CAGR of 34.2%
from 2009 to 2011. We have increased the employee headcount in our debt underwriting
business from 45 as of December 31, 2009 to 67 as of December 31, 2011 in order to better
capture the strategic opportunities in, and to meet increasing demands from, the fast-
developing debt underwriting market in the PRC.
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The following table sets forth our performance as lead underwriter in debt underwriting
business for the periods indicated:
Year ended December 31,
2009 2010
Number of debt offerings . . . . . . . . . . . . . . . 8 10
Total amount underwritten
(RMB in millions) . . . . . . . . . . . . . . . . . . 10,640.0 12,320.0 19,158.0
We believe that we have established a competitive advantage in the marketing and
innovation capabilities of our debt underwriting business. We have established a distribution
network for fixed income products that covers major investors such as large commercial banks,
insurance companies, fund management companies and rural credit cooperation associations.
We assign our sales and marketing personnel to cover specific geographic regions and maintain
nationwide sales coverage. We are a pioneer in product innovation and are committed to
assisting our clients to achieve lower financing costs. For example, according to China Central
Depository & Clearing Co., Ltd., the bond issuance by Shanghai Huayi (Group) Company,
underwritten by us in 2007, was the first floating rate notes offering benchmarking Shibor and
represented a milestone of the PBOC’s efforts to promote Shibor.
Financial advisory services
We provide financial advisory services on M&A, restructuring, stock option schemes of
listed companies and private financing transactions. During the Track Record Period, we
mainly provided financial advisory services to listed companies across different industry
sectors in the PRC. We provide localized customer coverage through our branch network
nationwide in order to develop an in-depth understanding of our customers’ needs and provide
customized financial advisory services.
According to the CSRC, for each of the years ended December 31, 2009, 2010 and 2011,
we were among the top two financial advisors in the PRC in terms of the number of major asset
restructuring transactions we advised for domestic listed PRC companies. From 2009 to 2011,
we advised on 14 major asset restructuring transactions with a total transaction value of
RMB41.4 billion. In addition, we have strong innovation capability. For example, we advised
on the first listing of a publication group through reverse takeover in the PRC. In terms of
financial advisory services relating to non-tradable shares reform in the PRC, we have advised
133 companies since the launch of such reform in 2005, representing approximately 10.0% of
total market share in terms of the number of transactions, ranking first in the PRC securities
industry.
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Asset Management
Overview
We offer traditional asset management products and services through our Company and
our subsidiary, HFT Investment Management and our affiliate, Fullgoal Fund Management. In
addition, we operate our private equity asset management business through Haitong-Fortis PE
Management, Haitong Jihe Management and Haitong Chuangxin Management.
In recent years, we have received the following major awards in recognition of our
achievements in the asset management business, including:
HFT Investment Management was awarded the “Top Ten Fund Companies” by
Securities Times in 2010 and was rated “M2+” by Fitch Ratings from 2009 to 2011
in recognition of our accomplishments;
“Best Collective Asset Manager among PRC Securities Firms” by Thomson Reuters
and Sinolink Securities in 2008, “Continued Excellence Award for Private Equity
Funds in the PRC” by Sinolink Securities in 2009, and our Haitong Stable Growth
Collective Asset Management Scheme was awarded “Best Collective Asset
Management Product of PRC Securities Firms” sponsored by Thomson Reuters and
Sinolink Securities in 2008; and
In 2008 and 2009, the president of Haitong-Fortis PE Management was awarded by
Forbes as the “Best China Venture Capitalists”. Haitong-Fortis PE Management was
also awarded “Top Ten Chinese Private Equity Investment Institution” by China
Venture in 2008, 2009, 2010 and 2011, and “PE Exit Winner of the Year 2010” by
Zero2IPO in December 2010.
Traditional asset management products and services
We develop asset management products and services based on asset size and customer
demands, which mainly include collective asset management schemes and targeted asset
management schemes. As of December 31, 2011, we had seven collective asset management
schemes and seven targeted asset management schemes. The total AUM at our Company level
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amounted to approximately RMB13.7 billion as of December 31, 2011. The table below sets
forth the total AUM of our different asset management schemes for the periods indicated:
As of December 31,
2009 2010
(RMB in millions)
Collective asset management schemes . . . . . . . . 1,102.7 1,054.7 2,506.0
Targeted asset management schemes . . . . . . . . 2,944.2 7,644.6 11,185.6
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,046.9 8,699.3 13,691.6
Collective asset management schemes include large and small collective asset
management schemes. As of December 31, 2011, all of our collective asset management
schemes were large collective asset management schemes. We are also in the planning stage to
launch small collective asset management schemes. Large collective asset management
schemes, designed mainly for retail customers and certain institutional customers, typically
have a minimum subscription amount of RMB50,000 to RMB100,000 per customer. We charge
a management fee of 0.6% to 1.5% of the total AUM of such schemes, plus a pre-agreed
performance fee for certain schemes. In order to meet investor demands with different risk
profiles, we provide diversified products, such as equity funds, balanced funds, bond funds,
FOF and money market funds. Small collective asset management schemes, designed mainly
for up to 200 institutional and high net worth customers, typically have a total AUM of up to
RMB1 billion with a minimum subscription amount of RMB1 million per customer. We plan
to charge a management fee of up to 1.5% of the total AUM of such schemes, plus a pre-agreed
performance fee for certain schemes.
We also provide targeted asset management schemes, which are customized wealth
management plans designed for a single customer and typically have a minimum subscription
amount of RMB10 million. We charge a management fee of up to 2.0% of the total AUM of
such schemes, plus a pre-agreed performance fee. Through our targeted asset management
schemes, we provide customized investment plans to our customers based on their
characteristics and investment needs, as well as the most suitable financial products available
in the market, such as fixed income funds, balanced funds, selected FOF, selected equity funds
and stock index futures.
We have formulated different marketing strategies and established various sales channels
for our products. Our collective asset management products are promoted through our branches
nationwide or through agency banks. We cross-sell our diversified asset management products
and services to our brokerage customers through our nationwide sales network. Our customer
managers analyze our customers’ needs in order to identify suitable candidates for our targeted
asset management products. Institutional clients are also referred by our investment banking
business and securities brokerage business.
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HFT Investment Management
HFT Investment Management is our fund management subsidiary in which we own a
51.0% equity interest. Please see “History and Corporate Structure”. HFT Investment
Management offers a full range of asset management products and services, including mutual
funds, enterprise annuities, segregated account management services and QFII investment
advisory services. As of December 31, 2011, HFT Investment Management managed mutual
funds, including 20 open-end funds, which had total AUM of over RMB32.5 billion.
Meanwhile, HFT Investment Management acted as the investment manager for more than 60
enterprise annuity funds, which had total AUM of approximately RMB15.9 billion. Total AUM
under HFT Investment Management’s segregated account management reached over RMB2.8
billion as of December 31, 2011. Since the end of 2004, HFT Investment Management has been
offering investment advisory and sub-management services to QFIIs and other domestic and
overseas investment portfolios. As of December 31, 2011, the assets managed by our customers
to whom HFT Investment Management provides investment advisory services amounted to
approximately RMB20.6 billion. During the Track Record Period, the management fee rate
charged by HFT Investment Management ranged from 0.33% to 2.0%, subject to adjustments,
according to different asset sizes and types of funds and investment portfolios. During the same
period, the management fee rate of mutual funds ranged from 0.33% to 1.8%, and varied by
different product types such as stocks and bonds. The management fee rate of segregated
account management services ranged from 0.4% to 2.0%, plus a performance fee if certain
conditions are satisfied.
The following table sets forth the total AUM of our different types of asset management
products as of the dates indicated:
As of December 31,
2009 2010
(RMB in millions)
Product
Mutual funds . . . . . . . . . . . . . . . . . . . . . . . 45,818.9 46,898.4 32,488.4
Enterprise annuities . . . . . . . . . . . . . . . . . . . 10,096.8 13,607.1 15,887.5
Segregated account management services . . . . . . 1,039.4 2,553.6 2,862.8
HFT Investment Management, with its diversified product offerings, attracts a wide
spectrum of customers. Its customer base ranges from retail individuals to high net worth and
institutional customers. The minimum subscription amount of the products offered by HFT
Investment Management is RMB1,000. As of December 31, 2011, HFT Investment
Management had approximately 1.27 million retail customers and over 680 institutional
clients. In December 2010, HFT Investment Management was designated by the NSSF as its
entrusted domestic investment manager. Thus, HFT Investment Management became a
fully-licensed fund management company offering asset management products such as mutual
funds, segregated account management services and enterprise annuity plans. We are also
licensed to provide asset management services to QDIIs.
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Fullgoal Fund Management
Fullgoal Fund Management is an affiliate fund management company in which we own
an equity interest of approximately 28%. Please see “History and Corporate Structure”. As of
December 31, 2011, Fullgoal Fund Management managed 26 mutual funds and provided
various segregated account management services and enterprise annuity fund management
services, with a total AUM of approximately RMB72.4 billion. Fullgoal Fund Management
primarily distributes investment management products to retail and institutional customers
nationwide through banks, securities firms and our branches. In December 2010, Fullgoal Fund
Management was designated by the NSSF as its entrusted domestic investment manager. Thus,
Fullgoal Fund Management became a fully-licensed fund management company offering asset
management products such as mutual funds, segregated account management services and
enterprise annuity plans. We are also licensed to provide asset management services to QDIIs.
Private equity asset management business
In addition to our traditional asset management business, by leveraging our experience
and advantages in direct investment business, we have developed our private equity asset
management business and thereby broadened the revenue streams of our asset management
business through management fees and performance fees received from private equity funds we
manage.
We established Haitong-Fortis PE Management in 2004 to manage the assets of the
China-Belgium Fund. Please see “– Our Business and Operations – Direct Investment –
China-Belgium Fund.” Haitong-Fortis Private Equity Fund Management was the first industry
investment fund management company in the PRC, approved by the NDRC. As of December
31, 2011, Haitong-Fortis Private Equity Fund Management is a joint venture fund management
company in which we and BNPP IP BE Holding (formerly known as “Fortis Investment
Management SA/NV”) hold equity interests of 67.0% and 33.0%, respectively. In addition, we
manage several private equity funds through Haitong Jihe Management and Haitong
Chuangxin Management, which are subsidiaries of Haitong Capital Investment. These private
equity funds include Jilin Modern Agriculture and Emerging Industry Investment Fund and
Xi’an Aerospace New Energy Fund. Please see “– Our Business and Operations – Direct
Investment” for details of these private equity funds.
Proprietary Trading
Overview
We engage in the trading of equities, bonds, funds, derivatives and other financial
products for our own account. For the years ended December 31, 2009, 2010 and 2011, segment
revenue and other income from our proprietary trading business in the PRC was RMB804.8
million, RMB779.8 million and RMB1,144.8 million, respectively, accounting for 7.1%, 6.9%
and 10.5% of our total revenue and other income, respectively.
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According to the Regulations on Investment Scopes of the Proprietary Trading Business
of Securities Companies and the Relevant Matters (eIR8QlSêqimRbW Sg N
v ) promulgated in April 2011, PRC securities firms can invest in three categories of
investment products, including (i) securities listed on domestic stock exchanges; (ii) securities
traded in the domestic inter-bank market (including government bonds, RMB denominated
bonds issued by international development agencies, instruments of central banks, financial
bonds, short-term financing bonds, corporate bonds, medium-term notes and enterprise bonds);
and (iii) securities approved by or filed with the CSRC that are issued and traded over the
counters of domestic financial institutions. In addition, the CSRC allows PRC securities firms
to set up special purpose subsidiaries in the PRC for trading certain alternative financial
products with its own capital in addition to the above three categories. In June 2011, we
became the first PRC securities firm to apply to the CSRC for establishing a subsidiary for
investments in alternative financial products. With the ability to invest in an additional array
of financial products, we are well-positioned to diversify our investment product suite, such as
developing our market making business and broadening future revenue streams.
Investment portfolio
We invest in a diversified suite of financial products, including debt securities, equity
securities, funds and derivatives for our own account. The table below sets forth our investment
portfolio of financial instruments held for trading in our proprietary trading business as of the
dates indicated:
As of December 31,
2009 2010
(RMB in (RMB in (RMB in
millions) % millions) % millions) %
Debt securities . . . . . . . 5,539.1 45.8 7,508.9 67.4 11,303.0 81.0
Equity securities . . . . . . . 2,038.6 16.9 2,851.4 25.6 1,503.0 10.8
Funds . . . . . . . . . . . . . 4,278.1 35.4 785.7 7.0 1,053.0 7.5
Derivatives . . . . . . . . . . 230.6 1.9 – – 101.0 0.7
Total . . . . . . . . . . . . . . 12,086.4 100.0% 11,146.0 100.0% 13,960.0 100.0%
The table below sets forth our investment portfolio of available-for-sale investments in
our proprietary trading business as of the dates indicated:
As of December 31,
2009 2010
(RMB in (RMB in (RMB in
millions) % millions) % millions) %
Debt securities . . . . . . . . 40.7 0.9 201.1 5.0 436.0 10.8
Equity securities . . . . . . . 4,256.9 99.1 3,774.2 94.8 3,611.0 89.2
Funds . . . . . . . . . . . . . – – 6.4 0.2 – –
Total . . . . . . . . . . . . . 4,297.6 100.0% 3,981.7 100.0% 4,047.0 100.0%
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Investment strategies
For our investment in equity securities, we adhere to a value-investing strategy with the
aim of achieving stable returns. We make equity investment decisions based on our research,
which covers macroeconomics, industry sectors and individual stocks. We have an equity
securities investment product selection pool consisting of over 300 stocks listed on domestic
stock exchanges. Before reaching an investment decision, our investment managers select
different types of stocks for investment from the selection pool based on our research,
discussions with research analysts and the prevailing market conditions. After our investment
decision committee approves an investment decision, our investment managers seek final
authorizations from different levels of management based on the value of each investment and
subsequently place orders with our traders.
For our investments in debt securities, we have adopted a stringent risk management
system to keep our investment risks within a reasonable level. We strictly control our
investment periods to minimize the risk of default. Currently, most of our debt securities
comprise short-term and mid-term bonds which mature within five years. Based on prevailing
market conditions, we actively adjust our investment strategies and asset allocation between
aggressive and conservative approaches to minimize risks and capture gains. In addition, to
manage our credit risks in investing in debt securities, we adopt the following measures:
primarily purchasing investment products with high credit ratings issued by major
state-owned enterprises in the PRC. We invest in long-term debt securities that are
rated AA or higher, and short-term debt securities that are rated A-1 or higher in the
PRC;
diversifying our investment portfolio and closely monitoring the business operations
and credit rating of the issuers of our debt securities; and
classifying our counterparties based on their credit ratings and setting our settlement
methods and trading scope accordingly.
We conduct derivative trading activities primarily through the trading of ETFs and stock
index futures. Our traders and analysts select suitable derivative products for investment based
on internal research and analysis and our special investment decision committee reviews and
gives final approval for such investment decisions.
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Direct Investment
Overview
We classify our direct investment activities into the following two categories:
making direct equity investments in private companies and earning capital gains by
exiting from these private equity investments through IPOs or share sales, or by
receiving dividends from these portfolio companies; and
investing in private equity funds with our own capital.
The following table sets forth a summary of our direct investments as of December 31,
2011:
Amounts
Number of invested
investment as of
projects December
Date (year/ Our share of as of 31, 2011
Fund Investment month) of Management interest in December (RMB in
Company establishment company Focused industries Size of funds the funds 31, 2011 millions)(1)
Haitong Capital 2008/10 – Renewable and clean RMB4,000 100.0% 36 1,569
Investment energy, new million
materials, consumer
goods,
biomedicine, IT,
communications
and advanced
manufacturing
Jilin Modern 2010/12 Haitong Jihe Emerging industries RMB800 37.5% 6
Agricultural and Management such as modern million
Emerging agriculture and
Industrial biotechnology
Investment Fund
Xi’an Aerospace 2011/1 Haitong Emerging industries RMB1,000 37.0% 10
and New Energy Chuangxin such as aerospace, million
Industry Fund Management green energy, clean
technology and
new materials
China-Belgium 2004/11 Haitong-Fortis PE All industries EUR100 10.0% 33 1,250
Fund Management (excluding real million
estate)
(1) Invested amounts include re-investments after we exit our previous investment projects.
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Haitong Capital Investment
We were among the first PRC securities firms to engage in the direct investment business
after the CSRC launched a pilot program to allow securities firms to engage in direct
investment business in September 2007. We established a wholly owned subsidiary, Haitong
Capital Investment, to engage in direct investment business after we received the approval
from the CSRC in 2008. The CSRC requires PRC securities firms to conduct direct investment
activities through their subsidiaries and limit the capital dedicated to their direct investment
business to 15% of its Net Capital. As of the Latest Practicable Date, Haitong Capital
Investment had a registered capital of RMB4.0 billion, and as of December 31, 2011, it was the
second largest direct investment subsidiary of PRC securities firms. Haitong Capital
Investment mainly invests in industries with steady growth potential, which include renewable
and clean energy, new materials, consumer products, biomedicine, IT, telecommunications and
advanced manufacturing. According to our investment policy, Haitong Capital Investment
cannot hold more than 20% equity interest in a target company. In addition, we generally invest
in companies with the following characteristics: a clean corporate history, clear shareholding
structure, operating in a sector with viable growth potential, being profitable, and having the
potential for IPO within three years. Haitong Capital Investment generally imposes an
investment period of four to six years.
Haitong Capital Investment successfully completed its first exit from a private equity
investment in 2010. From its inception in 2008 through December 31, 2011, Haitong Capital
Investment had invested in 36 companies with a total investment amount of approximately
RMB1.6 billion, and among these companies, four have been listed in the PRC. Major awards
that Haitong Capital Investment has received include:
the “Distinguished Securities Firms for Direct Investment Business” by Securities
Times in May 2011;
the “Best Securities firm for Direct Investment Business” by 21st Century Business
Herald in 2010; and
the “Outstanding Investment Institution Award” by Shanghai Securities News in
May 2010.
With the rapid development of emerging industries in the PRC, we will continue to
broaden the scope of our direct investment business. In 2010, Haitong Capital Investment
established Jilin Modern Agricultural and Emerging Industrial Investment Fund and Xi’an
Aerospace and New Energy Resources Industry Fund. Jilin Modern Agricultural and Emerging
Industrial Investment Fund is managed by Haitong Jihe Management, a subsidiary of Haitong
Capital Investment, and mainly invests in emerging industries such as modern agriculture and
biotechnology. As of December 31, 2011, this fund has invested in six projects. Xi’an
Aerospace and New Energy Resources Industry Fund is managed by Haitong Chuangxin
Management, a subsidiary of Haitong Capital Investment, and mainly invests in emerging
industries such as aerospace, new energy, green technology and new materials. As of December
31, 2011, this industry fund has invested in ten projects. Moreover, we have gained approval
from the Shanghai municipal government and the CSRC and are in the process of establishing
a Shanghai Cultural Industry Fund.
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China-Belgium Fund
Before the CSRC allowed PRC securities firms to conduct direct investment business, we
co-founded the China-Belgium Fund with the Ministry of Finance of the PRC, the National
Council for Social Security Fund Committee, China Development Bank and Fortis Bank in
November 2004 with an initial capital of EUR100 million. We have also established and owned
a controlling interest in Haitong-Fortis Private Equity Fund Management to manage the
China-Belgium Fund which principally invests in domestic high-tech SMEs that are at a
high-growth stage with a clear path to IPO, adhering to its prudent investment strategy. As of
December 31, 2011, the China-Belgium Fund had invested in 33 portfolio companies, 11 of
which were completely or partially exited.
In July 2011, the CSRC promulgated guidelines that allow a PRC securities firm’s direct
investment subsidiary to raise funds through private placement and to use its proceeds, in
addition to its own capital, to make direct investments. Following these guidelines, we believe
that there is great potential for our direct investment business in the PRC, and we will continue
to expand our direct investment business under active and prudent management strategies. We
believe that Haitong Capital Investment and China-Belgium Fund will continue to exit from
existing direct investment projects. In addition, in order to further strengthen our direct
investment business and capture market opportunities, we intend to increase the capital of
Haitong Capital Investment and invest in more PRC industry funds.
Overseas Business
Overview
In addition to our PRC business operations, we are also actively developing our business
overseas. In July 2007, we established Haitong International Holdings in Hong Kong. In
December 2009, we acquired a controlling interest in Taifook Securities and, through
acquisition, became among the first group of PRC securities firms to own a full-service
overseas securities platform. Please see “History and Corporate Structure” for more
information. Established in 1973 and listed on the Hong Kong Stock Exchange in August 1996,
Taifook Securities was a leading local full-service securities firm in Hong Kong. In November
2010, we renamed Taifook Securities as Haitong International Securities. As of June 30, 2011,
Haitong International Securities had total assets of approximately RMB10.0 billion and was the
largest listed securities firm in Hong Kong with a PRC background in terms of total assets.
Through Haitong International Securities, we provide securities and futures brokerage
(including margin financing and securities lending), corporate finance and financial advising,
wealth management and other financial services overseas. As of December 31, 2011, we had
13 branches located in Hong Kong and Macau with approximately 152 account executives, two
representative offices located in Beijing and Shanghai and six investment advisory centers
located in Beijing, Shanghai, Guangzhou, Shenzhen, Hangzhou and Xiamen. Our high-quality
service is well recognized in the securities industry, and we have been named the best equity
house in Hong Kong for over ten consecutive years by internationally renowned financial
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media, such as FinanceAsia, Asiamoney and Euromoney. In 1999, we were among the first
group of Hong Kong securities firms to obtain the ISO9002 Quality Control System
Certification. We have established an outstanding track record in fund management. We
received the Lipper Fund Award as the “Best Pension Fund Over Five Years, Equity Hong
Kong” for three consecutive years from 2008 to 2010 and the “Best Fund Over Three Years,
Equity China” in 2010.
The number of our overseas brokerage customers increased from approximately 100,000
as of December 31, 2009 to approximately 145,000 as of December 31, 2011. Apart from retail
customers, we also have a large institutional and QDII customer base, including large well
known PRC-based institutional investors, such as China Asset Management Corporation, China
Southern Fund and China Merchants Fund.
For the years ended December 31, 2009, 2010 and 2011, revenue and other income
generated from our overseas business was RMB197.2 million, RMB905.0 million and
RMB954.5 million, respectively, representing 1.7%, 8.0% and 8.8% of our total revenue and
other income. In addition, our segment results from our overseas business amounted to
RMB109.6 million, RMB178.8 million and RMB120.9 million for the years ended December
31, 2009, 2010 and 2011, respectively, representing 1.9%, 3.6% and 2.9% of our profit before
income tax during those years.
Brokerage services
We provide innovative and flexible securities trading and investment services to our
global institutional, corporate and retail customers, such as trading of securities and
derivatives, futures and options, bonds, bullion and forex, margin financing, wealth
management, nominee and custodian services and research.
Corporate finance and financial advisory services
We provide corporate finance and financial advisory services to companies listed in Hong
Kong, the PRC and other global exchanges, as well as private enterprises. Our services include
IPO sponsorship, underwriting and pre-IPO financing, financial advisory services and
compliance advisory services. During the Track Record Period, we sponsored eight IPOs,
underwrote 50 IPOs and completed 16 private placements and rights issues, raising total
proceeds of approximately HK$226.1 billion in Hong Kong.
In 1999, we became one of the first group of GEM sponsors approved by the SFC and
sponsored the first H share IPO of a PRC state-owned enterprise on GEM. Our landmark
corporate finance transactions include acting as:
the joint bookrunner and joint lead manager for the offshore RMB bonds offering of
RMB1.25 billion issued by Zhongsheng Group Holdings Limited in April 2011;
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the joint sponsor, joint bookrunner and joint lead manager for the listing of the
H shares of Goldwind Science & Technology Co., Ltd. in 2010, raising
approximately HK$8.2 billion, the fourth largest H share IPO in 2010; and
the joint bookrunner and joint lead manager for the listing of the H shares of China
Minsheng Banking Corp., Ltd. in 2009, raising approximately HK$31 billion, the
largest Hong Kong IPO in 2009.
Asset management and wealth management
We provide our institutional and retail customers with a wide range of fund management
services. We are also one of the service providers for the Hong Kong mandatory provident
funds.
Capitalizing on the opportunities arising from RMB appreciation and internationalization
and fast growing offshore RMB deposits, in August 2010 we launched Haitong Global RMB
Fixed Income Fund, which is the first SFC-authorized public offshore RMB fund and in
January 2012 we launched Haitong China RMB Income Fund, which is one of the first offshore
funds which invest in the domestic securities market through RQFII. We also intend to raise
other types of RMB-denominated funds, such as RMB money-market funds and high-yield
RMB-funds.
Synergies
Hong Kong is a major international financial center which connects the PRC’s capital
markets to the international capital markets. As such, we believe that our service platform in
Hong Kong and our ability to attract international customers could enable us to capture
fast-growing cross-border opportunities for expanding our overseas business, gain brand
recognition overseas and benefit from synergies between our PRC and overseas operations.
Major examples of cross-selling opportunities between Haitong International Securities
and our PRC operations are as follows:
in securities brokerage, we have introduced a number of large institutional and QDII
customers to Haitong International Securities;
in corporate finance, we have referred large PRC corporate clients to Haitong
International Securities for their fund raising activities in Hong Kong. These clients
include, among others, China Minsheng Banking Corp., Ltd., China Pacific
Insurance (Group) Co., Ltd. and Goldwind Science & Technology Co., Ltd;
Haitong International Securities can benefit from the comprehensive coverage and
in-depth understanding of the PRC economy and enterprises of our research team;
and
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our operations in the PRC can benefit from Haitong International Securities’
experience and use of best practices in the international capital markets to gain
insight into the development of international securities markets and new businesses.
Delineation of businesses
Currently, we principally conduct all our business in Hong Kong and Macau through
Haitong International Securities, which is controlled by Haitong International Holdings, one of
our wholly owned subsidiaries. Haitong International Holdings is the holding company of our
operating subsidiaries in Hong Kong and Macau and does not itself conduct any other material
business operations. Haitong International Securities and its subsidiaries have licenses to
conduct securities-related business in Hong Kong and Macau. As of the Latest Practicable
Date, apart from our operations in Hong Kong and Macau, Haitong International Securities had
six investment advisory centers and two representative offices in the PRC to promote its
overseas business and provide assistance to customers with respect to their investments outside
the PRC.
Following the Listing, Haitong International Holdings will continue to be our overseas
platform, while Haitong International Securities will continue to be our flagship company in
Hong Kong and Macau through which we conduct our business in Hong Kong and Macau and
cross-border business between the PRC and Hong Kong and Macau. If we decide to pursue any
new business opportunities in the future, we intend to continue to follow such strategies in
assigning different businesses to different members of our Group to avoid any potential
conflicts of interest.
Given the cooperative nature of the business relationship and the clear delineation of
business between Haitong International Securities and the rest of our Group, and as both
Haitong International Securities and the rest of our Group are under the supervision of a
number of regulators, we believe that minority shareholders of our Company and Haitong
International Securities will be adequately protected when new business opportunities arise in
the future.
RESEARCH
Our research capability is one of our core competencies and plays a key role in the
development of our principal business lines. In recent years, we have increased our resource
allocation to strengthen our research capability. The number of employees in our research team
has increased from 85 as of December 31, 2009 to 114 as of December 31, 2011. Over 92%
of our research analysts hold master’s degrees and a number of our research analysts hold
professional qualifications, such as CFA, FRM and CIIA. We encourage our research analysts
to participate in training to enhance their professional expertise. Our research team provides
research reports and regular company updates to external customers, including domestic fund
management companies, insurance companies and institutional investors, assisting them in
identifying and evaluating investment opportunities. In addition, our research team provides
support to our other business lines, such as our investment banking, asset management and
proprietary trading businesses.
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We have broad research coverage, including macroeconomic analysis, investment
strategies, industry sector and company research, fixed income products, derivatives, financial
engineering and policy studies. Our equity research covers 28 industry sectors and over 1,013
listed companies in the PRC. As of December 31, 2011, the total market capitalization of the
listed companies under our research coverage accounted for over 71% of the aggregate market
capitalization of the Shanghai Stock Exchange and the Shenzhen Stock Exchange. In May
2010, we were among the first securities firms in the PRC to obtain qualification from the
CSRC to evaluate PRC mutual funds. As of the Latest Practicable Date, there were only four
securities firms in the PRC with such qualifications.
In addition to our research department, our subsidiary, Haitong Futures, has established
a dedicated research team focusing on technical analysis of futures products and providing
recommendations to its customers to maximize their returns while minimizing investment
risks. As of December 31, 2011, our Haitong Futures research team consisted of 14 research
analysts, covering commodities futures, financial futures, financial engineering and investment
strategies.
In addition, our Hong Kong-based research team under Haitong International Securities
provides research coverage on Hong Kong-listed companies, which serves to complement our
research coverage on domestic listed companies. As of December 31, 2011, the research team
of Haitong International Securities consisted of 18 research analysts and has covered 13 sectors
and over 130 listed companies in Hong Kong since 2009.
In recent years, we have received a number of awards in recognition of our research
capabilities, including:
first in the wholesale and retail sector by New Fortune Magazine in 2009, 2010 and
2011;
third in the petrochemical sector by New Fortune Magazine in 2011;
awards for two outstanding research analysts for the IT and consumer durables and
software and services industries by Thomson Reuters StarMine in 2011;
second in the transportation and logistics sector by Financial Times in 2010;
five awards from the Shanghai Futures Exchange for outstanding analysts and
research teams in our Haitong Futures research department in 2010; and
third in Hang Seng Index Recommendation, fourth in SME Stock Recommendation
and seventh in HSCEI Recommendation for our Haitong International Securities
research department from South China Morning Post/StarMine in 2010.
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TREASURY MANAGEMENT
We believe the management of our liquidity and capital resources is critical to our
success. Our planning and finance department actively monitors our capital structure, source
of financing and liquidity, and is responsible for ensuring the liquidity and safety of our capital
while improving yields on surplus cash.
We have a comprehensive budgeting system that forecasts our cash inflow, cash outflow,
and cash balance and estimates our liquidity needs for business expansion and other
investments. We have also established stringent treasury management measures based on our
Net Capital, which require stress tests on overall liquidity and other financial indicators before
we make any capital investments.
To manage our liquidity while improving yields on surplus cash, in addition to bank
deposits and inter-bank borrowings, we actively manage our liquid assets through money
market and bond market operations by investing in liquid financial instruments with low risk,
such as fixed income securities and financial assets held under resale agreements.
We seek to diversify our source and type of financing to meet various liquidity needs in
our operations. Currently, we derive short-term financing for our PRC operations primarily
from bond repurchase transactions in the interbank market or through stock exchanges.
Income from our treasury management activities is included in the revenue and other
income of headquarters and others. Please see “Financial Information – Summary Segment
Results” and “Appendix I – Accountants’ Report”.
BUSINESS NETWORK
As of December 31, 2011, we had 216 brokerage branches, including 193 securities
brokerage branches and 23 futures brokerage branches in the PRC, as well as 13 securities
brokerage branches in Hong Kong and Macau. According to the data from the Shanghai Stock
Exchange and the China Futures Association, we ranked fourth among all PRC securities firms
in terms of branch network coverage in the PRC as of December 31, 2011.
The table below sets forth the total numbers of our securities and futures brokerage
branches in the PRC as of the indicated dates.
As of December 31,
2009 2010
Securities brokerage. . . . . . . . . . . . . . . . . . . 180 183
Futures brokerage . . . . . . . . . . . . . . . . . . . . 18 18
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 201
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Our business network in the PRC covers 27 provinces (excluding Tibet, Qinghai, Inner
Mongolia and Ningxia in the PRC) and 125 cities, as well as Hong Kong and Macau. In
addition, we have 20 branch offices in Beijing, Shanghai and several other provinces to manage
our brokerage branches locally, which could contribute to greater operating efficiency and
more effective resource allocation.
In expanding our branch network, we also consider the differences in securities market
developments and the regulatory requirements of different regions. Our branches are
strategically located in the economically well-developed coastal regions in Eastern China and
Southern China with high concentrations of affluent individuals and SME clients, such as
Shanghai, Zhejiang, Shandong, Jiangsu and Guangdong. We also set up branches in less
penetrated regions with high growth potential but less price competition, such as Heilongjiang,
Gansu, Jiangxi and Anhui. As such, we have developed a strategically located branch network,
with coverage spanning from first-tier cities to third-tier cities. As of December 31, 2011,
approximately half of our securities branches were located in developed areas including the
Yangtze River Delta, the Bohai Rim and the Pearl River Delta and the remaining half were
located in the PRC’s central, western and northeastern regions.
The following table sets forth the coverage of our securities brokerage branches in the
PRC by region as of December 31, 2011:
Location Number Percentage
Yangtze River Delta . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 29.0%
Central and western region . . . . . . . . . . . . . . . . . . . . . . 51 26.4%
Northeastern region . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 22.3%
Bohai Rim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 13.5%
Pearl River Delta . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 6.7%
Hainan and Fujian provinces . . . . . . . . . . . . . . . . . . . . . 4 2.1%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 100.0%
In terms of staff structure at the branches, each branch has its sales and marketing teams,
customer service centers and back-office operations. Our sales and marketing team is typically
composed of marketing managers and licensed brokers, primarily engaging in business
development and product promotion. Our customer service centers engage in the provision of
customer service, customer management and investment advisory services, as well as the
provision of sales and trading-related services. Our back-office team provides comprehensive
support to other teams, including finance, accounting and IT functional support.
We have established a top-down management structure governing our local branches
based on our business management model, with the aim of forming a comprehensive local
platform. We intend to extend the services we provide through our branch network from local
brokerage services to one-stop customer solutions.
Our extensive network and market presence in strategic locations in the PRC has enabled
us to provide regionally focused customer service and coverage. In addition, through our
branch network and together with our substantial customer base, we believe we can maximize
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cross-selling opportunities across our business segments. For example, products such as margin
financing and securities lending, asset management and stock index futures may be cross-sold
to retail customers, while business opportunities with investment banking and customized
financial products may be developed among institutional customers.
We believe, to some extent, the extensive coverage of branches will play a more important
role in the competition among securities firms, especially if current regulations set limitations
to mitigate commission competition among securities firms in the PRC. In addition, given the
CSRC’s regulatory requirements governing the opening of securities brokerage branches, the
size of branch networks of securities firms has become an important factor for gaining
competitive edge. Therefore, we have been actively developing and expanding our branch
network and we strive to achieve a balance between branch network expansion and profitability
at individual branches. Specifically, our criteria for opening a brokerage branch in a particular
location typically take into consideration the size of the local brokerage market as compared
to the overall PRC brokerage market, as well as its growth potential.
We have been actively adjusting and optimizing our existing network coverage. Since
2009, we have been establishing new branches in fast-growing second- and third-tier cities and
relocating branches from highly competitive and concentrated regions to regions with
relatively low penetration, moderate competition and high growth potential. We will continue
to establish new branches in order to expand our brokerage network coverage to increase our
revenue.
Development of our futures business network has always been one of our business
focuses. We increased our futures brokerage branches to 23 as of December 31, 2011 compared
to 18 as of December 31, 2009. Our futures brokerage branches and securities brokerage
branches are complementary to each other. In regions where our securities brokerage business
has less customer penetration, we intend to devote more resources to develop our futures
business platform in order to capture a larger market share. We intend to allocate resources
towards developing our futures business network to capture a dominant market position.
SALES AND MARKETING
Our sales and marketing team not only has extensive sales and marketing experience in
the financial and securities industries, but also possesses a broad knowledge of financial
products. In order to maintain our competitive advantage, we require our sales and marketing
professional staff to complete rigorous training and examinations. In addition, we have
implemented a competitive incentive scheme to reward sales and marketing personnel who
demonstrate outstanding performance.
To support local sales and marketing teams, our branches have established service centers
to handle customers’ enquiries, account opening procedures and the offering of after-sales
services and technical support. As of December 31, 2011, we had over 1,800 customer service
staff members serving at our service centers.
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The stability of our sales and marketing teams is crucial to the ongoing development of
our new businesses and serving of our existing customers. The size of our sales and marketing
team increased from approximately 3,000 as of December 31, 2009 to over 6,300 as of
December 31, 2011, including 4,815 licensed brokers who have an exclusive agent contract
with us. Given their independent nature, these licensed brokers are not considered our
employees. The remuneration of our brokers primarily depends on the brokerage commissions
contributed by their respective clients, their compensation index and the results of our monthly
broker performance appraisal. Among these factors, the compensation index depends on the
rank and seniority of each broker, and the results of our monthly broker performance appraisal
are based on a grading system that factors in the broker’s personal performance and compliance
history. We conduct monthly reviews of our brokers’ compliance and have established a
detailed point deduction system for any non-compliance.
The licensed brokers system was amended in accordance with Provisional Measures on
Management of Securities Brokers (IR8} N”{t fL ) promulgated by the CSRC in
March 2009 pursuant to which securities brokers are required to pass a qualifying exam,
complete certain professional training and register their qualification status with the SAC. For
details, please see “Regulatory Environment – Regulation on the PRC Securities Industry –
Regulation on Operations – Securities – Securities brokerage.” To comply with these
provisions, we do not allow our brokers to engage in securities brokerage activities until they
have passed the qualification exam, completed required professional training and registered
their qualification status with the SAC. Through the implementation of these measures, the
number of our licensed brokers increased significantly from 349 as of December 31, 2009 to
3,762 as of December 31, 2010 and further to 4,815 as of December 31, 2011. The table below
sets forth the total number of our licensed brokers as of the dates indicated:
As of December 31,
2009 2010
Number of licensed brokers . . . . . . . . . . . . 349 3,762 4,815
As of December 31, 2011, we ranked first in the PRC securities industry in terms of the
total number of licensed brokers we contracted with.
To maximize our sales and marketing efforts, we leverage cross-selling opportunities
among our various business operations, as well as between our PRC and overseas platforms.
For example, our investment banking business may refer high net worth customers and
institutional clients to our securities and futures brokerage business, while our securities and
futures business may refer potential institutional clients to our direct investment business. In
addition, our brokerage business may also refer customers to our asset management business.
To enhance brand awareness, our sales and marketing team conducts face-to-face
meetings with prospective customers, hosts public relations and investor education events and
attends industry conferences. Our sales and marketing team also distributes our featured
research reports and provides other value-added financial advisory services to our customers
in order to enhance customers’ loyalty.
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CUSTOMER SERVICES
We operate a customer service network that provides a full range of services through
different channels, including our nationwide branch network, customer service hotline,
Rainbow Treasure Club and online platform. Our customer services principally include:
Branches: We offer customized services at our branches. Many of our branches in
the PRC have different service zones to provide specific types of services to our
customers.
Customer service hotline: Our customer service hotline is a comprehensive platform
that combines trading, information, consultation and marketing functions. Our
customer service hotline was awarded five-star head office level accreditation under
the Customer Contact Center Standard in 2009, making us the first PRC securities
firm to receive such an accreditation.
Rainbow Treasure Club: Our Rainbow Treasure Club is a loyalty program dedicated
to our active retail customers with sizable assets. Under this program, we designate
our investment advisors to provide customized and value-added services, including
investment advice on securities and other financial products, to our members.
Online platform: Our online platform allows our customers to execute real-time
trades, record trading status and records, and check position and account
information. We also offer stock quotes, financial news, global market updates and
financial commentaries, as well as research reports on stocks through our online
platform. In 2011, online trading accounted for more than 80% of our total securities
and futures trading volume. Please see “Risk Factors – Risks Relating to Our
Business and Industry – We rely heavily on IT systems to process and record our
transactions and offer online products and services” for risks associated with our
online platform.
In addition, we actively provide customized and value-added services to institutional
clients to satisfy their demands through our nationwide branch network and comprehensive
services, such as product recommendations, advice on asset allocation and distribution of
featured research reports.
INTERNAL CONTROL AND RISK MANAGEMENT
Governance Structure
We believe effective risk management and internal controls are key to our success. We
have established an effective and comprehensive risk management and internal control system
to identify, evaluate and manage the risks we face in our business operations. As a result of our
sound internal controls and risk management capabilities, we have received an “AA”
regulatory rating from the CSRC for the past four consecutive years, the highest rating given
to a PRC securities firm to date. In 2007, we were selected by the CSRC as one of the first six
PRC securities firms to participate in the pilot compliance management program.
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We have established a five-level risk management and internal control governance
structure, which includes: (i) the Compliance and Risk Management Committee; (ii) the
General Compliance Officer; (iii) the Compliance and Risk Management Department; (iv) the
functional departments; and (v) the risk management staff in our business lines. The following
chart sets forth a brief overview of our five-level governance structure:
Compliance and Risk Management Committee
General Compliance Of cer
Compliance and Risk Management Department
Functional Departments
Risk Management Staff in Our Business Lines
Compliance and Risk Management Committee
The Compliance and Risk Management Committee is the highest level of our risk
management and internal control structure. Organized under our Board, the Compliance and
Risk Management Committee is designed to assist our Board in overseeing our compliance
with the laws and regulations applicable to our business operations. The Compliance and Risk
Management Committee is mainly responsible for:
overseeing our general risk management and internal control systems;
reviewing and modifying our internal control policies; and
ensuring all risks associated with our business activities are identified and
controlled.
As of December 31, 2011, the Compliance and Risk Management Committee consisted of
five members of our Board, including Mr. Li Mingshan, Mr. Zhou Donghui, Mr. Feng Huang,
Mr. Zhang Huiquan and Mr. Dai Genyou. They have long-term professional experience in the
PRC securities, financial management, investment and/or legal industries. For more details
about their background, please see “Directors, Supervisors and Senior Management.”
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General Compliance Officer
The General Compliance Officer appointed by our Board is independent from our
management and reports directly to our Board and other PRC regulatory authorities. Our
General Compliance Officer serves as the counsel to the Compliance and Risk Management
Committee and advises our Board and the Compliance and Risk Management Committee on a
regular basis about the following major areas:
implementing our risk management and internal control policies;
overseeing and identifying risks management issues in our material corporate
decisions and business activities;
conducting independent investigations into potential non-compliance incidents; and
engaging external counsels or third parties, at its discretion, to conduct independent
assessments of major corporate activities, such as mergers and acquisitions.
Our General Compliance Officer, Mr. Wang Jianye, who is also our Chief Risk Control
Executive, has over 25 years of working experience in the PRC banking and securities
industries, including 15 years of management experience. For more details about Mr. Wang’s
background, please see “Directors, Supervisors and Senior Management.”
Compliance and Risk Management Department
The Compliance and Risk Management Department reports directly to our Board and our
General Compliance Officer on a regular basis and plays a critical role in implementing our
internal control policies through assisting our General Compliance Officer in:
designing our internal compliance protocols relating to our business, employees and
subsidiaries;
preparing our internal control reports, manuals and training materials;
monitoring our compliance risks;
evaluating whether each of our business operations, branch offices and subsidiaries
adhere to our internal control policies; and
implementing Chinese wall policies and managing our anti-money laundering and
foreign exchange risks.
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As of December 31, 2011, our Compliance and Risk Management Department consisted
of 40 professional staff, among which approximately 20 had over five years of professional risk
management experience. Our Compliance and Risk Management Department currently has
eight different operating units, including (i) compliance monitoring unit; (ii) trading risk
management unit; (iii) operation risk management unit; (iv) investment banking risk
management unit; (v) compliance and review unit; (vi) inspection and audit unit; (vii) legal and
litigation unit; and (viii) regulatory liaison unit. In addition to the risk management staff at our
head office, we recruit additional staff at our branch offices, brokerage branches and
subsidiaries to assist us in monitoring and managing our risk management and internal control
systems on-site.
Functional Departments
Our functional departments primarily include our brokerage operation center, finance and
planning department and IT department. Our functional departments cooperate with the
Compliance and Risk Management Department to manage risk exposure arising from the
securities trading, capital deployment and asset allocation, financial, accounting and IT
systems, as well as to implement department-specific risk management procedures.
As of December 31, 2011, our functional departments consisted of 131 professional staff,
among which approximately 110 had over five years of working experience in the industry.
Risk Management Staff in Our Business Lines
We have risk management staff in our principal business lines to monitor and manage
risks specific to our business activities, and these staff work closely with our Compliance and
Risk Management Department.
As of December 31, 2011, we had 207 risk management staff, among which
approximately 160 had over five years of working experience in the industry.
Risk Management and Internal Control Policies and Procedures
We have implemented a series of risk management and internal control procedures to
manage risks that are specific to our business activities.
Brokerage Business
To ensure our brokerage business and branch network’s compliance with the applicable
laws and regulations and to standardize our brokerage business practice, we have established
comprehensive internal rules and guidelines for our brokerage business. We manage our
brokerage branch network based on a three-level governance structure: (i) head office; (ii)
branch offices; and (iii) brokerage branches.
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We manage the risks associated with our brokerage business through the following major
risk management measures:
Account opening procedures Our account opening procedures are designed to
ensure that our customers’ account opening
information is accurate, sufficient and in
compliance with the applicable PRC regulations and
our internal control policies. For example, our
account executives are required to obtain the
original IDs of our brokerage customers before
opening accounts for them.
Customer risk profiling To assess our customers’ risk tolerance on a
particular type of financial product, we evaluate our
customers’ risk profiles based on a combination of
factors, such as financial strength, knowledge of
financial products and investment experience, as
well as educational background.
Segregation of customer According to the relevant laws and regulations that
deposits govern cash held on behalf of customers, we require
our brokerage branches to maintain trust accounts
with qualified commercial banks and authorized
financial institutions to hold customer deposits. We
also prohibit our sales and marketing personnel
from managing customer accounts or handling
customer deposits to minimize the occurrence of
improper trading.
Real-time monitoring system Through our IT system, we are able to monitor our
customers’ transactions on a real-time basis and
detect unusual transactions and irregular trading
patterns.
Centralized brokerage trading To prevent our customers’ funds from
misappropriation, we have established and
implemented standardized procedures for brokerage
deposit, account management, contract execution,
fund transfers, liquidation and transfer of
customers’ assets. Our brokerage operation center
conducts account liquidation, registration, deposit
and settlement of our customers’ securities and
funds on a centralized and independent basis.
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Segregation of front and back We also have segregated supervision and
offices management of our branch network’s front and back
offices. We have a dedicated internal control team to
manage access controls and segregation of duties
among our employees. We prohibit our back office’s
operational and risk management personnel from
participating in sales and marketing activities,
managing customer accounts or handling customer
deposits.
Regular and special audit Our internal audit department and the Compliance
and Risk Management Department schedule regular
and special audits on our brokerage business
department and branch network with respect to their
internal controls, ordinary business operations,
financial and accounting management and
operational performance.
In response to the increasing risks associated with the margin financing and securities
lending business, we:
have established a monitoring system based on Net Capital requirements to strictly
control the scale of our margin financing and securities lending business and to
prevent concentration of business in a single customer or single kind of stock;
perform a credit check on each margin financing and securities lending customer,
assign different credit ratings to different customers based on standardized customer
selection and rating systems and grant credit to customers based on decisions made
by our margin financing and securities lending credit granting management
committee;
determine different financing limits for different customers and set warning notices,
margin call notices and closing notices to ensure that we hold an adequate amount
of collateral from each customer; and
use a mark-to-market system to monitor customer transactions on a real-time basis
and issue margin call notices and closing notices, or impose compulsory liquidation
if our customers fail to cover shortfalls on collaterals or repay the financing granted
after we issue warning notices.
We also have stringent internal control measures that monitor and control the size of our
margin financing and securities lending business. We generally perform the following steps to
determine and control the size of our margin financing and securities lending business:
conducting surveys on customers’ demands and the value of their applicable assets
in accounts with us in order to estimate the potential size of our margin financing
and securities lending business;
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conducting stress tests to assess whether our proposed business size would comply
with the applicable PRC regulatory requirements, especially Net Capital
requirements;
determining the size and required funding for our margin finance and securities
lending business;
submitting the proposed size of our business to our Board for approval; and
monitoring and controlling the size of our margin financing and securities lending
business based on our margin loan balance and the value of securities we lend on a
daily basis.
We also have predetermined parameters in our operating systems when conducting margin
financing and securities lending business to ensure compliance with the PRC regulations: (i)
the business scale of margin financing business for a single customer should not exceed 5% of
our Net Capital; (ii) the business scale of securities lending business for a single customer
should not exceed 5% of our Net Capital; and (iii) the market value we hold for a single kind
of securities should not exceed 20% of its total market value.
Investment Banking Business
We control and manage the risk exposures associated with our investment banking
business through the Internal Review Group, the Quality Control Group and the Compliance
and Risk Management Department, which are generally involved in project approval, on-site
due diligence, documents review, internal review meetings and continuous supervision.
Project approval An internal committee of our investment banking
business holds meetings to discuss whether to
proceed with an underwriting mandate based on its
independent business judgment and submits its
recommendation to our Internal Review Group for
further action.
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On-site due diligence Our Quality Control Group and our Compliance and
Risk Management Department conduct on-site
reviews in connection with each transaction,
primarily including the following procedures:
reviewing due diligence documents and
gathering and analyzing data;
visiting manufacturing facilities and office
buildings; and
attending meetings and interviews with the
issuer’s management and employees,
customers and suppliers.
Documents review Our Compliance and Risk Management Department
conducts preliminary reviews of the major
transaction documents. Our Internal Review Group
then conducts a thorough review of the issuer’s
corporate, legal and financial matters to ensure that
these transaction documents are accurate and
complete, without any material misstatements or
omissions, and comply with the relevant listing
requirements. After receiving the review opinion,
we require our investment banking team in charge
of the particular transaction to examine and address
any queries or recommendations raised by our
Compliance and Risk Management Department and
Internal Review Group.
Internal review meeting Our Internal Review Groups holds meetings to give
opinions and decide whether to approve an
underwriting transaction based on their professional
independent business judgment.
Two of our sponsor representatives in charge of the
transaction will sign the transaction mandate and
bear personal responsibility for our role as sponsor.
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Continuous supervision Based on the PRC regulations on the continuous
supervision of listed companies, we are responsible
for overseeing our listed clients’ compliance with
the CSRC’s requirements, internal controls,
corporate governance, disclosure matters and other
obligations during a post-listing continuous
supervision period. We have established detailed
internal guidelines on the continuous supervision of
our listed investment banking clients. To ensure
strict compliance with the applicable PRC
regulations and our internal guidelines, we have
prepared various documentation templates to
standardize our supervision practices. If any
particular issue is identified during the continuous
supervision period, our internal control teams will
submit a report to our investment banking
department for further action.
Asset Management Business
Our Compliance and Risk Management Department monitors and evaluates our exposure
to potential market risks, operational risks, credit risks and regulatory risks arising from our
asset management business. It cooperates with our risk management staff working for our asset
management business to monitor market risks, operational risks, credit risks and regulatory
risks in order to ensure effective implementation of our entrusted responsibilities, the accuracy
of our disclosure of risk-related information, prudence to develop our business and the
protection of our legal interests and the rights of our investors.
The primary internal control and risk management measures of our asset management
business include:
maintaining segregated asset management accounts at qualified commercial banks
and authorized financial institutions to hold customer funds;
monitoring our daily asset management activities to ensure that the investment
strategy and scope, asset allocation, selection of asset class and concentration level
of each asset management product matches its product descriptions and disclosure
in marketing materials;
maintaining a carefully selected “securities pool” for our investments based on
research recommendations; and
scheduling a quarterly on-site review of our overall asset management activities and
engaging independent accountants to perform special audits.
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In addition, we manage the risks associated with our asset management business by the
following three steps:
Risk control indicators Our asset management department formulates
formulation compliance indices for each product in accordance
with the contracts entered into with our clients and
relevant laws and regulations and implements
measures to prevent losses in the investment-
making process.
Risk control indicators Our risk management staff set thresholds for the
monitoring compliance indicators in the investment and trading
risk management system. We rely on technical
methods to set such thresholds in our system. Our
risk management staff monitors compliance
indicators on a real-time basis to ensure that
non-compliance incidents are discovered early.
Risk control indicators Our risk management staff within our asset
evaluation management business and our Compliance and Risk
Management Department are responsible for
reporting circumstances where the value of relevant
indicators exceed their respective predetermined
thresholds and monitoring the adjustments
conducted by our investment managers.
At the subsidiary level, we have appointed directors, supervisors and senior management
to supervise and monitor the risk management and internal control measures of our asset
management subsidiaries. We require our asset management subsidiaries to establish their own
risk management and internal control systems based on applicable PRC regulations and our
internal policies. We oversee and monitor these subsidiaries’ implementation of our internal
policies and review the effectiveness of their risk management and internal control systems on
a regular basis. We also have a reporting system which requires the compliance officer of each
subsidiary to report its overall risk management and internal controls to us at least twice a year
and to timely notify us of any material risk management issues.
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Proprietary Trading Business
We have established a four-level risk management governance structure to manage the
risks associated with our proprietary trading business, which includes: the Board of Directors,
the investment decision committee, the Compliance and Risk Management Department and the
proprietary trading department.
The Board of Directors Our Board determines the size of our proprietary
trading activities based on PRC regulatory
requirements such as Net Capital requirements, the
size of our assets, liabilities and income, our capital
adequacy and our our business strategy.
Any subsequent increase in the size of our
proprietary trading activities must be approved by
our Board.
Investment decision committee Our investment decision committee:
determines our business strategy with respect
to proprietary trading activities and adjusts our
decision-making procedures and risk
management system;
determines the size and allocation of our
investments in different asset classes or
underlying industries; and
researches major factors affecting our
proprietary trading business, including but not
limited to adverse changes to the securities
markets and our response.
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Compliance and Risk Our Compliance and Risk Management
Management Department Department:
collects trading position data through trading
and settlement systems;
uses a market risk monitoring system based on
risk control indicators, such as VaR, basis
point value and portfolio beta;
monitors the size of our proprietary trading
activities and our risk exposures and ensures
that they are within the limits prescribed by
our Board;
implements a “stop-loss” policy and monitors
our investment portfolio on a daily basis to
limit our potential loss, especially with respect
to high-risk financial products such as stock
index futures; and
monitors and evaluates our hedging activities
to ensure that our risk exposure and losses do
not exceed the predetermined limits.
Proprietary trading department Our proprietary trading department:
manages and adjusts our risk exposure range
within its authorized limits;
closes out a position when the losses incurred
exceed the predetermined maximum loss limit;
establishes the counterparty credit approval
policy and adopts different settlement methods
with counterparties with different credit
ratings to manage counterparty risk; and
develops investment restrictions based on the
rating of credit products.
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In addition, our internal audit department and the Compliance and Risk Management
Department schedule quarterly on-site reviews and special audits of our overall proprietary
trading business with respect to its internal controls, ordinary business operations, financial
and accounting management and the operational performance of our proprietary trading
business.
Direct Investment Business
We conduct our direct investment business primarily through Haitong Capital Investment,
which has established its own investment decision committee to review and approve its
investment decisions. We have appointed several directors, supervisors and senior management
of Haitong Capital Investment to supervise and monitor its risk management and internal
control systems. We oversee and monitor Haitong Capital Investment’s implementation of our
internal policies and review the effectiveness of its risk management and internal control
systems on a regular basis. We also have a reporting system which requires Haitong Capital
Investment to report its overall risk management and internal controls to us at least twice a year
and to notify us on a timely basis of any material risk management issues.
Haitong Capital Investment has established stringent risk management and internal
control systems based on applicable PRC regulations and our general internal policies,
covering investment target selection, negotiation, due diligence review, investment strategy,
contract execution, post-investment management and project exits. For example, Haitong
Capital Investment requires its internal audit managers and compliance officers to participate
in all project approval meetings and financial due diligence interviews as well as to attend the
target company’s board and shareholder meetings in order to closely monitor the target’s
business operations.
The investment decision committee of Haitong Capital Investment manages the risks
associated with direct investment activities by keeping the size of our investments within the
limits authorized by our Board. The investment decision committee is responsible for
reviewing investment plans and strategies relating to medium and long-term investments and
approving decisions for investments valued at less than RMB80 million. The members of the
investment decision committee must reach unanimous agreement to implement the relevant
investment decisions. For any investment valued over RMB80 million, the investment decision
committee recommends such investments to our Board for approval.
The investment decision committee consists of Haitong Capital Investment’s chairman of
the board, Ms. Zhang Saimei, general manager, Mr. Zhang Xiangyang, and chief investment
officer, Ms. Xiong Xumin, all of whom have over ten years of experience in the PRC securities
industry. Among them, the chairman is qualified as a senior economist and served as the
general manager of our derivative products department, strategies department and investment
banking department; the general manager served as the general manager of our Compliance and
Risk Management Department; and the chief investment officer is qualified as a sponsor
representative and served in our derivative products department and investment banking
department.
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Overseas business
Currently, we principally conduct our businesses in Hong Kong and Macau through
Haitong International Securities. The board of directors of Haitong International Securities has
the ultimate responsibility for Haitong International Securities’ internal controls and, through
the audit committee, the board of directors of Haitong International Securities is responsible
for reviewing the effectiveness of its internal control systems.
The audit committee currently comprises three independent non-executive directors of
Haitong International Securities, namely Mr. Man Mo Leung (Chairman of the committee), Mr.
Tsui Hing Chuen, William and Mr. Lau Wai Piu, Bill and one non-executive director, Mr. Ji
Yuguang. The chairman of the audit committee has appropriate professional qualifications and
experience in financial matters. The audit committee meets not less than twice a year to review
the following:
business affairs managed by the executive directors, particularly in relation to
connected transactions and continuing connected transactions, if any;
the interim and annual financial statements before their submission to the board of
directors and the annual general meeting for approval; and
the effectiveness of the internal control and risk management system.
In addition to the audit committee, Haitong International Securities has an independent
internal audit team, which plays a major role in monitoring the corporate governance of
Haitong International Securities and providing objective assurance to the board of directors of
Haitong International Securities that sound internal control systems are maintained and
operated by management. The head of the internal audit team directly reports to the board of
directors of Haitong International Securities and the audit committee on audit matters.
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Haitong International Securities adopts a risk-based approach to evaluate risk levels in a
controlled environment and maintains up-to-date operations manuals with ISO certification.
Haitong International Securities also adopts specific risk management policies and monitoring
systems to manage its risk exposure associated with credit, liquidity, market and IT in its
business operations:
Credit risk Members of the credit committee currently comprise
some of the executive directors and senior executives
of Haitong International Securities and its
subsidiaries. The main responsibility of this
committee is to formulate credit policies and to
manage the asset quality of Haitong International
Securities and its subsidiaries.
The credit control department is responsible for
monitoring securities transactions made on credit and
making margin calls to customers whose trades
exceed their respective limits. Any such excess is
required to be covered within two days from the date
of the deficiency report for securities and the next
day for futures. The deficiency report is monitored
daily by Haitong International Securities’ finance
director and responsible officers.
Liquidity risk Haitong International Securities’ operating units are
subject to various statutory liquidity requirements as
prescribed by the relevant regulatory authorities in
Hong Kong. Haitong International Securities has
established a monitoring system to ensure that it
maintains adequate liquidity to fund its business
commitments and to comply with the rules and
regulations applicable to it. Haitong International
Securities also maintains long-term and other
stand-by banking facilities with banks to meet any
contingencies in its operations.
Market risk Haitong International Securities has adopted detailed
investment policies to limit its proprietary trading,
exposed underwriting commitments and position
exposures.
IT risk Haitong International Securities is able to effectively
monitor the availability and performance of various
IT systems. A vigilant team acts and reports to the
senior management in the event of disruption or other
crisis that affects its IT systems.
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Chinese walls
As a securities firm with a diversified range of businesses, we inevitably face situations
where two or more interests conflict. We recognize the importance of managing such conflicts
of interest in order to protect the interests of our customers and staff. Therefore, we have
established Chinese walls in different business lines to prevent and minimize potential
conflicts of interest by controlling the flow of material non-public information and ensuring
compliance with relevant rules and regulations.
A Chinese wall is a barrier to ensure that material non-public information obtained by one
division of our business regarding listed companies is not released to our other divisions. A
Chinese wall aims to isolate those persons who make investment decisions from those who are
privy to material non-public information which may influence those decisions.
We have developed and implemented reasonable policies and procedures to safeguard
insider information and to prevent improper trading activities. To enforce the Chinese wall
policy, we have established physical segregation and password-protected access between
departments and operational units, including the following:
Brokerage;
Investment banking;
Asset management;
Proprietary trading;
Equity research; and
Legal and compliance.
Our staff engaged in a particular operational activity is prohibited from entering the
premises or office area used to undertake any other operational activities on the other side of
a Chinese wall without prior permission from our senior management.
Segregation of Duties
To minimize the opportunity for collusion and the occurrence of improper trading, duties
and functions within each of our business operations are assigned to and discharged by
different teams of employees. The following is an overview of the allocation of duties within
our brokerage division, our largest business line:
Customer service: We employ a team of customer service personnel responsible for
handling account opening applications and customer enquiries. Policies governing
the opening of customer trading accounts are governed by our internal guidelines;
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Taking trade orders: PRC brokerage customers can place orders by phone, internet
and counter trading systems;
Dealing and broking in securities: Dealing orders placed by brokerage customers are
processed via a direct dealing system, which interfaces with stock exchanges’
trading systems. Hong Kong brokerage customers may also issue deal orders to be
processed by our licensed account executives through our trading system;
Account management: Printing and mailing of customer statements are handled by
staff members of the settlement department. Customers can also obtain a summary
of orders via the Internet. Normally we will mail a summary of orders to our
customers on a regular basis (monthly or yearly). The process is computerized to
minimize time and costs and to maintain customer confidentiality;
Custody of customer assets: We ensure that our customers’ assets are adequately
safeguarded and properly accounted for. We have established procedural guidelines
in accordance with relevant PRC regulations. For example, PRC customers’ money
must be deposited into trust accounts at an authorized financial institution after our
receipt of such monies and no account executive is allowed to handle customer fund
deposits or transfers;
Customer complaints: Complaints from customers are reported to and handled by
our General Compliance Officer and our legal and compliance department.
According to our internal policy, no staff is allowed to handle customer complaints
without first notifying our General Compliance Officer. Upon receipt of a complaint,
the legal and compliance team gather information and conduct independent
investigations. Investigation reports are promptly presented to our Board of
Directors for consideration; and
Our General Compliance Officer ultimately responds to the customer with
investigation results and takes remedial measures as directed by our Board of
Directors.
Conflicts of Interest
Conflicts of interest arise in situations where two or more interests within our business
legitimately exist but are in competition or conflict. Conflict may arise between (i) interests of
our different operating units; (ii) our interests and those of our customers; (iii) interests of
different customers; (iv) our interests and the interests of our staff’s personal activities; or (v)
interests of our staff’s personal activities and those of our customers.
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Our employees’ personal activities include any personal trading, outside directorships and
businesses. The Securities Law states that PRC securities professionals are prohibited from
engaging in personal stock transactions. Our internal policies require that there is an adequate
level of awareness by our staff of the issues relating to conflicts of interest and that our staff
understand the basic principles relating to customer priority, insider dealing, confidentiality,
staff dealing and Chinese walls. In addition, policies emphasize avoidance or minimization of
conflicts of interest. Under these policies, where a conflict cannot be reasonably avoided, staff
must ensure that the conflict is properly disclosed to relevant parties and that approval is
sought from management before any action can be taken. Under all circumstances, staff must
ensure customers are fairly treated and the interests of staff should be subordinated to those of
our customers where any conflict arises between our staff and customers.
Anti-Money Laundering
We are fully committed to establishing and enforcing appropriate policies and procedures
to prevent money laundering and terrorist financing and are compliant with all relevant legal
and regulatory requirements. Money laundering covers a wide range of activities intended to
mask or alter the source of illegally obtained money. Our staff are required to comply with PRC
laws and regulations. When new customers apply to open trading accounts, our staff must
manually check their identities and backgrounds. Staff members who know, suspect or have
reasonable grounds to believe that a customer might have engaged in money laundering
activities must immediately report the details to the General Compliance Officer and our
Compliance and Risk Management Department.
In addition, we have established a risk-based approach in our customer acceptance policy
which aims to identify those types of customers that are likely to pose a higher than average
risk of money laundering and terrorist financing. This approach is based on a customer due
diligence process that takes into account factors such as the customer’s background, the nature
of its business, its origin or residence, associated persons or entities, its structure of ownership
and any other information that may suggest that the customer presents any risk in respect of
money laundering and terrorist financing.
We have never engaged in or knowingly assisted any money laundering activities. For
risks associated with money laundering activities, please see “Risk Factors – Risks Relating to
Our Business and Industry – We may not be able to fully detect money laundering and other
illegal or improper activities in our business operations on a timely basis.”
Risk Management
We have historically been focused on risk prevention and control in line with our prudent
and conservative investment policies. We have developed dedicated systems for our securities
brokerage, investment banking, asset management and proprietary trading businesses. We have
also built sophisticated risk monitoring systems for new businesses development.
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Principal types of risks inherent to our business include market risk, credit risk, liquidity
risk and operational risk. Market risk includes the risk of price volatility, foreign exchange risk
and interest rate risk, and is associated with the possibility of loss or reduction in income due
to partial or overall changes in the securities market. Credit risk occurs when a borrower or
financing counterparty fails to perform its duties. Liquidity risk relates to whether our assets
in the foreseeable future could repay debt without any loss of value. Operational risk includes
risks involving errors, omissions, imperfect internal processes, incomplete information systems
and transaction failure and fraud, all of which can occur in our businesses.
In accordance with the five-level internal control and risk management structure set forth
above, the Compliance and Risk Management Committee, our General Compliance Officer and
our Compliance and Risk Management Department work together in managing and monitoring
these exposures to ensure appropriate measures are implemented in a timely and efficient
manner.
LEGAL AND REGULATORY
Licensing requirements
We conduct our securities business mainly in the PRC and Hong Kong and are, therefore,
subject to the restrictions and regulatory requirements of the PRC and Hong Kong. Our
Directors and our PRC legal advisors, Grandall Law Firm (Shanghai), confirmed that, during
the Track Record Period and up to the Latest Practicable Date, we have complied with the
relevant PRC regulatory requirements and guidelines in all material respects and obtained all
the important consents and licenses necessary for our operations in accordance with the PRC
laws and regulations. To the best knowledge of our Directors after due inquiry, our Directors
confirm that as of the Latest Practicable Date all of our employees and brokers have obtained
the relevant licenses as required for their business activities. Since our A Share offering in July
2007 and up to the Latest Practicable Date, neither our Company nor any of our Directors have
been subject to auditing or administrative penalty by the CSRC, or been criticized or publicly
reprimanded by the Shanghai Stock Exchange for violations of any listing rules or other
applicable rules.
Due to the licensing regimes of the SFC, some of our Hong Kong subsidiaries must obtain
licenses to conduct their businesses in Hong Kong. These subsidiaries have obtained the
relevant licenses and have been in compliance with the relevant regulatory requirements.
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The following table sets forth a summary of the relevant licenses currently held by our
licensed subsidiaries in Hong Kong:
Type 3 Type 6
Type 2 Leveraged Type 4 Type 5 Advising
Type 1 Dealing in foreign Advising Advising on Type 9
Name of the licensed Dealing in futures exchange on on futures corporate Asset
subsidiaries securities contracts trading securities contracts finance management
HFT Investment Management
(HK) Limited
Hai Tong Asset Management
(HK) Limited
Hai Tong Capital (HK)
Limited
Haitong International Asset
Management Limited
Haitong International Capital
Limited
Haitong International
Consultants Limited
Haitong International Futures
Limited
Haitong International
Investment Managers
Limited
Haitong International
Investment Services Limited
Haitong International Research
Limited
Haitong International
Securities Company Limited
Our Directors confirmed that, during the Track Record Period and up to the Latest
Practicable Date, we had complied with the relevant Hong Kong regulatory requirements and
guidelines in all material respects and obtained the permits and licenses necessary for our
operations in accordance with Hong Kong’s laws and regulations.
Legal proceedings
We are a party to a number of legal proceedings arising in the ordinary course of our
business. As of the Latest Practicable Date, we had four interrelated pending legal proceedings,
each with a potential claim amount of RMB5 million or above, and as far as our Directors are
aware, the potential maximum claim amount of these four interrelated proceedings was
approximately RMB26.8 million (excluding interest) in the aggregate. We summarize these
four interrelated pending proceedings below:
Our former branch office in Hubei Province and our Zhongbei Road and Jiangda Road
brokerage branches were defendants in four interrelated legal proceedings in connection with
tort claims arising from a stock trading dispute with an aggregate claim amount of
approximately RMB53.1 million (excluding interest). In March 2009, the Higher People’s
Court of Hubei delivered a final judgment in favor of the plaintiffs and ordered us to pay
approximately RMB26.3 million (excluding interest) to the plaintiffs. We have fulfilled the
court judgment and reflected the claim expenses in our financial statements accordingly.
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Recently, the PRC Supreme People’s Court received a formal protest filed by the PRC Supreme
People’s Procuratorate against the final judgment delivered by the Higher People’s Court of
Hubei in connection with these four interrelated proceedings, citing erroneous application of
the law. After reviewing the merits of the protest, the PRC Supreme People’s Court issued a
summons in November 2011 to the original defendants requiring them to appear in the PRC
Supreme People’s Court. In the event the PRC Supreme People’s Court issues an adverse
judgment against us, we may face an aggregate maximum claim amount of approximately
RMB26.8 million (excluding interest).
As of the Latest Practicable Date, the aggregate outstanding claim or judgment amount
of our pending legal proceedings (including the four material pending proceedings discussed
above and other immaterial proceedings) amounted to approximately RMB27.2 million, which
is less than 1% of the profit attributable to the owners of the Company in 2011. Our Directors
and PRC legal advisors confirmed that, as of the Latest Practicable Date, none of the legal
proceedings to which we were a party, individually or in the aggregate, would have a material
effect on our business, financial condition or results of operations.
Regulatory non-compliances
We are subject to a number of regulatory requirements and guidelines issued by the
regulatory authorities in the PRC, Hong Kong and Macau (including but not limited to the
CSRC, the Shanghai Stock Exchange, the Hong Kong Stock Exchange, the SFC and their
respective local branches and offices (if applicable)).
We or our employees have, from time to time, been involved in incidents of regulatory
non-compliance and received related notices or warnings from the relevant regulatory
authorities. Based on the nature of the cases, we classify the incidents of regulatory
non-compliance committed by us and our employees into the following three categories: (i)
non-compliance incidents that led to administrative penalties; (ii) non-compliance incidents
that led to regulatory measures and the deduction of regulatory points; and (iii) employee
non-compliance incidents.
Our Directors and our PRC legal advisors confirm that the regulatory non-compliance
incidents disclosed in this prospectus are not significant to our business operations and did not
have any material adverse effect on our business, financial condition and results of operations.
Our Directors also confirm that none of our existing Directors or members of our senior
management were involved in any regulatory non-compliance incidents.
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BUSINESS
Non-compliance incident that led to administrative penalties
We set out below the details of our non-compliance incident that led to the administrative
penalties during the Track Record Period and up to the Latest Practicable Date and the primary
remedial measures we adopted:
Brief explanation and
Non-compliance incident our primary remedial measures
In December 2008, the PBOC After our investigation, we found that this incident
Taiyuan Branch imposed an was caused by the introduction of a new PBOC
administrative penalty on our regulation that became effective in 2007 and required
Xinjianlu Branch in Taiyuan, the collection of customer identification information
Shanxi for its failure to obtain in account opening procedures which was not
customer identity information otherwise required by the SAC prior to 2007. We
(such as occupation) in relation promptly revised our account opening procedures and
to agency agreements entered handled our customer account opening in accordance
into for our securities brokerage with this new regulation after 2007. For our
business. This failure required customers who opened their brokerage accounts
prompt remediation and before the new regulation, we attempted to collect all
payment of a fine of their missing identification information. However,
RMB50,000. Two responsible due to our failure to reach some of our existing
officers were also fined a total customers, or their inability to provide necessary
of RMB8,000. information in a timely manner, some customers’
identification information was still missing by the
time the regulator conducted its regulatory
investigation on us.
Immediately after the incident, we reviewed our
account opening policies to ensure that they were
fully compliant with the PBOC requirements. We
have also adopted the following remedial measures:
(i) proactively contacted our customers to obtain
missing information through various channels,
including mailing notices and publishing notices in
the local newspapers; and (ii) suspended all fund
transfers from customers’ securities accounts to bank
accounts if we found that the account holder’s ID
card recorded in our system had expired for more
than three months.
We did not receive any follow-up comments from the
regulator in connection with this incident. As of the
Latest Practicable Date, we have collected the
identification information from substantially all of
our retail brokerage customers and are currently
attempting to obtain the missing information from the
remaining customers.
Our PRC advisors confirmed that, apart from the non-compliance incident disclosed
above, there were no other regulatory non-compliance incidents that led to material monetary
fines or administrative penalties during the Track Record Period and up to the Latest
Practicable Date.
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BUSINESS
Non-compliance incidents that led to regulatory measures and the deduction of regulatory
points
We set out below the details of non-compliance incidents that led to regulatory measures
and the deduction of regulatory points imposed by the CSRC during the Track Record Period
and up to the Latest Practicable Date and the primary remedial measures we adopted in
response to these incidents:
Brief explanation and
Non-compliance incidents our primary remedial measures
In March 2006, our Youhaobei We closed this unauthorized sub-branch when the
Road Branch in Urumqi opened PRC securities market was at an early stage of
a sub-branch to conduct comprehensive regulation and supervision and the
securities brokerage business in CSRC required unauthorized securities brokerage
Karamay City, Xinjiang prior to branches of all PRC securities firms to be closed. In
receiving authorization from the addition, we made proper arrangements with our
CSRC. We received a warning customers affected by the closure of this sub-branch.
letter from the Xinjiang
Securities Regulatory Bureau in We reviewed our internal control procedures on
2008 in relation to our branch opening and strengthened our internal
unauthorized branch-opening measures for the administration of brokerage
incident in 2006. branches in September 2006 and 2009. Our revised
measures require, among other things, our internal
committee to conduct a more comprehensive
approval process and review all necessary approvals
and permits before we open a brokerage branch to
ensure that we are in compliance with the relevant
regulations in the PRC.
Since this incident, we have found no occurrence of
similar incidents nor have we received any similar
warning letter from the regulators. According to our
PRC legal advisors, all the securities brokerage
branches we opened have received the relevant
approvals and permits as of the Latest Practicable
Date.
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BUSINESS
Brief explanation and
Non-compliance incidents our primary remedial measures
In December 2008, the Zhejiang After we were notified by the regulator about this
Securities Regulatory Bureau incident, we reviewed our existing internal control
found our Baiguan Branch in procedures that are designed to (i) prevent our
Shangyu to have violated the brokerage branches from outsourcing their customer
applicable CSRC rules by (i) acquisition function to third-party agents; and (ii)
having opened brokerage require regular reviews of brokerage accounts and
accounts without funds or timely liquidation. Also, we have existing internal
securities; (ii) acquiring policies regulating the qualifications of our sales
customers from third-party personnel. We have found these internal control
agents and sharing commission procedures to be adequate. After our internal
received with those institutions; investigation, we concluded that this incident was
and (iii) recruiting over 20 caused by this brokerage branch’s negligence in
college students without breaching our internal policies.
appropriate qualifications to
engage in sales. In addition, as part of our on-going compliance
practice, we also regularly publicize the qualification
of our securities brokers online to increase
transparency and promote public awareness of our
qualified sales personnel and require our securities
brokers to attend 60 hours of training before they join
our sales team.
We adopted the following remedial measures
immediately after this incident: (i) terminated our
relationship with our third-party sourcing agents; (ii)
dismissed unqualified sales personnel and only
allowed our head office to select and approve
internships for sales personnel; (iii) designated a
special team to continuously monitor and liquidate
dormant brokerage accounts without funds or
securities; (iv) improved our compliance review
system for our brokerage branches; and (v) degraded
the internal rating of Baiguan Branch and publicized
this decision among our Group according to our
disciplinary policy.
We also submitted a report to the Zhejiang Securities
Regulatory Bureau to explain those remedial
measures we adopted.
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BUSINESS
Brief explanation and
Non-compliance incidents our primary remedial measures
In December 2009, our After we were notified by the regulator about this
Youhaobei Road Branch in incident, we reviewed our internal control procedures
Urumqi received a warning and found that they were adequate. After internal
letter from the Xinjiang investigations, we concluded that this incident was
Securities Regulatory Bureau in caused by this brokerage branch’s negligent breach of
connection with the content of our internal policies on publishing marketing
its fund marketing materials, which require a branch manager to draft an
advertisement published in local advertisement and then submit it to the branch
newspapers, which was found to director for approval.
be non-compliant with relevant
fund marketing regulations in We took the following remedial measures
the PRC. immediately after this incident: (i) published a
correction announcement before the actual fund sale,
which did not negatively affect our customers; and
(ii) provided a special training session to all sales
personnel at Youhaobei Road Branch on the
marketing of fund products.
Since this incident and up to the Latest Practicable
Date, we have found no occurrence of similar
incidents nor have we received any similar warning
letters from regulators.
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BUSINESS
Brief explanation and
Non-compliance incidents our primary remedial measures
In April 2010, the Shenzhen After we were notified by the regulator about this
Securities Regulatory Bureau incident, we reviewed our internal control procedures
found our Shenzhen in relation to the administration of non-compliant and
Honglingnan Road Branch to dormant accounts and the monitoring of over-the-
have sold customers’ stocks counter brokerage transactions and found that they
without proper customer consent were adequate. After internal investigations, we
in connection with closing concluded that this incident was caused by this
inactive accounts and failure to brokerage branch’s unauthorized liquidation of
keep certain trading records, approximately 450 accounts with inactive trading
which violated relevant records for more than three years, worth
regulations in the PRC. The approximately RMB0.5 million in total. We recorded
Shenzhen Securities Regulatory the liquidated funds as accounts payable and made
Bureau met our responsible appropriate provisions. According to the policies
officers and urged them to adopted by Shenzhen Honglingnan Road Branch,
rectify the situation. We once the staff at this branch is able to contact those
received a regulatory notice in inactive account holders, those customers are entitled
May 2010. to receive their accounts’ liquidated value or their
current market value, whichever is higher.
Immediately after this incident, we conducted a
comprehensive review of our brokerage accounts and
adopted a series of measures to further strengthen our
supervision over the business activities of our
brokerage branches. We also enhanced our internal
accountability systems. In response to the liquidation
of dormant accounts, we have reserved a special fund
to cover potential customer claims.
Since this incident, this branch has not encountered
any customer dispute over the liquidation of dormant
customers’ accounts up to the Latest Practicable
Date.
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BUSINESS
Brief explanation and
Non-compliance incidents our primary remedial measures
In October 2010, the Shenzhen After our investigation, we found this incident to be
Securities Regulatory Bureau caused by the fact that some of our brokerage
issued a regulatory letter to our customers have, against our prior warnings,
Huafu Road Branch in voluntarily disclosed their transaction passwords to
Shenzhen which identified that their relationship managers and further requested the
we improperly operated managers to execute transactions on their behalf.
customers’ accounts and
employed unqualified personnel After we were notified by the regulator about this
to engage in sales and incident, we reviewed our internal control procedures
marketing, and required this and found them to be adequate. We reminded our
branch to rectify the situation. brokerage customers of the risks of releasing their
account passwords to third parties when they opened
their accounts with us. We have an IT monitoring
system that tracks any multi-account brokerage
transactions executed on the same IP address. Once
the system detects such a transaction, our system will
send a confirmation notice to our customer for due
authorization. In addition, as part of our ongoing
compliance practices, we regularly publicize the
qualification of our securities brokers online to
increase transparency and promote public awareness
of our qualified sales personnel and our requirement
that securities brokers attend 60 hours of training
before they join our sales team.
Immediately after the incident, we adopted the
following remedial measures: (i) promptly formed a
rectification team and a cross-department supervision
team to conduct a thorough review of our branch
network’s operating systems in order to improve our
compliance practices; and (ii) prohibited the
installation of any trading software on employees’
work stations at this branch.
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BUSINESS
Brief explanation and
Non-compliance incidents our primary remedial measures
We submitted a report to the Shenzhen Securities
Regulatory Bureau to explain the remedial measures
we adopted.
According to our disciplinary policy, we degraded the
internal rating of Huafu Road Branch and announced
this decision within our Group.
In addition to the primary remedial actions we adopted immediately after each incident
was reported, we implemented other general remedial and rectification measures to prevent
future occurrence of such incidents and received no follow-up comments from the relevant
regulatory authorities. These measures include, among other things:
prompt revision of our internal policies and procedures;
strict internal inspection and examination; and
enhanced staff training and a strict internal sanction mechanism.
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BUSINESS
Employee non-compliance incidents
We set out below the details of our employee non-compliance incidents in which our
employees received formal warning letters from the regulatory authorities during the Track
Record Period and up to the Latest Practicable Date and the primary remedial measures we
adopted:
Brief explanation and
Non-compliance incidents our primary remedial measures
In June 2009, the Shenzhen The responsible sponsor representatives involved in
Stock Exchange publicly these two incidents carefully considered the issues
reprimanded our two sponsor raised in the reprimand and submitted written reports
representatives for not advising to the Shenzhen Stock Exchange.
Zhejiang Dadongnan Packaging
Co., Ltd. to fulfill its ongoing Although the Shenzhen Stock Exchange’s reprimand
compliance obligations in only applied to the sponsor representatives
connection with the themselves, we adopted a series of remedial measures
misappropriation of funds by to improve our internal control systems for
the controlling shareholders of sponsorship and other investment banking activities.
Zhejiang Dadongnan Packaging These measures include the following: (i) in August
Co., Ltd. and its failure to 2011, we issued detailed internal guidance on
comply with proper vetting continuous supervision of our listed clients. We also
procedures and disclosure prepared various types of documentation templates
obligations. for our sponsorship and other investment banking
activities; (ii) we required our employees to carefully
In September 2010, the study and comply with our internal guidance on
Shenzhen Stock Exchange continuous supervision of listed clients; and (iii) we
publicly reprimanded our two prepared comprehensive training materials for our
sponsor representatives for not listed clients during their two-year supervision
advising Shandong Jining Ruyi periods.
Woolen Textile Co., Ltd. to
fulfill its ongoing compliance
obligations in connection with
its non-compliance with
relevant vetting procedures and
its obligations to disclose daily
transactions by Shandong Jining
Ruyi Woolen Textile Co., Ltd.
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BUSINESS
Brief explanation and
Non-compliance incidents our primary remedial measures
In June 2011, in connection with The responsible sponsor representatives carefully
the follow-on offering of Shanghai considered the issues raised in the warning letter and
Shyndec Pharmaceutical Co., Ltd., submitted explanatory reports to the CSRC.
the CSRC issued a warning letter
to our two sponsor representatives After we were notified by the regulator about this
for their failure to conduct incident, we promptly conducted an internal review.
adequate due diligence on the In March 2011, we withdrew our sponsorship in
issuer’s financial and accounting connection with the follow-on offering of Shanghai
matters. Shyndec Pharmaceutical Co. Ltd.
Although the CSRC’s warning only applied to the
sponsor representatives themselves, we adopted a
series of remedial measures to improve the internal
control system for our sponsorship and investment
banking activities. These measures include the
following: (i) in addition to requiring all of our
sponsor representatives to attend professional
training organized by the SAC, in August 2011, we
provided internal training to all of our investment
banking employees regarding key issues arising from
the sponsorship and other investment banking
activities; (ii) we required our sponsor
representatives to strictly comply with relevant PRC
regulations and our internal rules on sponsorship and
other investment banking activities, particularly
those related to due diligence investigation on the
issuer’s financial and accounting matters; and (iii) we
designated a special team to review for a second time
the documentation prepared by our sponsor
representatives for regulatory approvals, perform
substantive analysis and suggest remedial plans on
existing matters in our sponsorship activities and
conduct on-site inspections, if necessary.
As part of our on-going practice, we review the performance of our sponsor
representatives on a regular basis. We downgraded the performance rating of the responsible
sponsor representatives involved in these incidents and submitted the results to the CSRC. As
of the Latest Practicable Date, we and the relevant sponsor representatives have not received
any follow-up comments from the relevant regulatory authorities in connection with these
incidents.
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BUSINESS
Regulatory inspections
The regulatory authorities, such as the CSRC and the SFC, carry out periodic or ad hoc
inspections, examinations and inquiries in respect of our compliance with the laws, regulations,
guidelines and regulatory requirements applicable to us and our business.
During the Track Record Period and up to the Latest Practicable Date, the CSRC and its
local offices and bureaus carried out routine or ad hoc inspections of our Group covering,
among other things, risk management and internal controls, corporate governance and business
line specific areas, including our securities brokerage business (including the practice and
management of our brokerage branches), futures brokerage business, futures IB business,
margin financing and securities lending business and direct investment business. Certain
inspections, although not resulting in fines or other penalties, have revealed deficiencies and
weaknesses in our business operations, risk management and internal controls, and we took
immediate remedial measures and enhanced our risk management and internal control systems
in response to the CSRC’s recommendations. Recent examples of these inspections are as
follows:
In September 2011, the Shanghai Securities Regulatory Bureau conducted a
comprehensive on-site inspection on our business, including, but not limited to, our
securities and futures brokerage, investment advisory, research report issuance and
proprietary trading businesses, and on November 13, 2011, the bureau provided
recommendations in its regulatory opinion with respect to (i) our internal control
policy regarding the minimum retention period for the records of customer
complaint phone calls; (ii) our investment advisory platform and stock pick text
messaging practice; (iii) our internal control policy for authorizing proprietary
trading of fixed income securities; and (iv) a stop-loss mechanism that should be
established for our proprietary trading of fixed income securities. We took
immediate remedial measures by (i) lengthening our minimum retention period for
the recordings of customer complaint phone calls from two years to five years; (ii)
imposing penalties on the relevant staff and the brokerage branches that violate our
investment advisory and stock pick message policy; designating staff to conduct
monthly review of the stock pick messages posted by each investment advisor on its
online investment advisory board; and requiring each investment advisor to
complete a mandatory stock advisory form after sending stock pick messages to its
clients, an activity which can only be performed by qualified investment advisors;
(iii) strictly following our internal authorization procedures from 2012 onwards for
all of our proprietary trading activities; and (iv) revising our internal control and risk
management system to specifically provide for a stop-loss mechanism for
proprietary trading of fixed income securities. On December 15, 2011, we submitted
a rectification report to the Shanghai Securities Regulatory Bureau, which did not
raise any follow-up comments on our remedial measures nor the rectification report.
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BUSINESS
In August 2011, the Shanghai Securities Regulatory Bureau conducted an on-site
inspection of our direct investment business. Such bureau did not find any instances
of material regulatory non-compliance but provided some recommendations in its
regulatory opinion to address the internal control weaknesses in our direct
investment business with respect to (i) management of conflicts of interest; (ii)
information disclosure practices; and (iii) management of investment risks. We took
immediate remedial measures by (i) reinforcing our internal compliance manual on
conflicts of interest which we required our relevant staff to endorse; (ii) updating the
information on our corporate website with respect to (a) our various management
systems for our direct investment business; (b) our arrangements for preventing
conflicts of interest between Haitong Capital Investment and our Company; and (c)
our complaint and reporting procedures; and (iii) requiring Haitong Capital
Investment to cease its online subscription for IPO and liquidate all shares it bought
immediately and preventing Haitong Capital Investment from conducting similar
transactions in the future. Subsequent to this inspection, we submitted a rectification
report to the Shanghai Securities Regulatory Bureau, which did not raise any
follow-up comments on our remedial measures nor the rectification report.
In 2011, local securities regulatory bureaus conducted ad hoc onsite inspections of
our securities brokerage branches in Shandong, Yunnan and Liaoning provinces, and
issued several regulatory opinions, which provided that (i) adequate security
measures should be implemented on our office computers to monitor brokerage
trading; (ii) certain information regarding the legal representative of an institutional
client was incomplete; (iii) some of our branches in Yunnan province have a high
rate of inactive accounts with little or no balance; (iv) some branches should
enhance their account-opening standards to comply with our internal control policy;
and (v) our branches should confirm the applicable securities commission rate with
each new client upon account opening and file commissions charged on each client
with the SAC. We took immediate remedial measures by (i) creating administrator
accounts for our IT staff and general accounts for our brokerage employees, and
requiring our brokerage employees to strictly operate on pre-installed software and
prohibiting them from installing other software such as those that are securities
trading-related; (ii) immediately following up for the incomplete information on the
legal representative; (iii) we have designated staff to communicate with inactive
accounts holders and cancel those accounts if the holders express no intention for
brokerage trading and allow securities accounts that are not traded for over three
years to go dormant before automatic cancelation; (iv) according to our internal
inspection, the limited account opening information in certain institutional accounts
was due to our branch’s lack of standardized client information tracing system in the
early phase of development and replied primarily on information furnished by
clients themselves, and such branch is enforcing its policy to verify and track client
information to ensure accuracy; and (v) although the Liaoning Securities
Association currently does not require securities branches to provide written
confirmation on commission rate for new clients and we used to provide oral
confirmation, however, going forward, we will file our confirmation letter on
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BUSINESS
commission rate for new clients with the Liaoning Securities Regulatory Bureau and
the Liaoning Securities Association and send such written confirmation to new
clients after approval by local securities authorities. Subsequent to the above
inspections, we submitted rectification reports to the relevant securities regulatory
bureaus in Shandong, Yunnan and Liaoning, which did not raise any follow-up
comments on our remedial measures nor the rectification report.
In 2010 and 2011, the SFC conducted inspections of Haitong International Capital
Limited, Haitong International Consultants Limited, Hai Tong Capital (HK) Limited and Hai
Tong Asset Management (HK) Limited. For the inspection of Haitong International Capital
Limited, no exceptions were noted. For the inspection of Haitong International Consultants
Limited, the SFC raised queries regarding its selling practices, and this subsidiary satisfactorily
responded to the queries. For the inspection of Hai Tong Capital (HK) Limited and Hai Tong
Asset Management (HK) Limited, the SFC raised several recommendations regarding their
internal policies and systems, and they have implemented improvements and remedial
measures in accordance with the SFC’s recommendations. The SFC did not raise any follow-up
comments on these remedial measures adopted by these subsidiaries in Hong Kong.
Our Directors confirm that, except as disclosed in the section entitled “– Legal and
Regulatory – Regulatory non-compliance,” there were no other material regulatory
examination findings or material incidents of regulatory non-compliance during the Track
Record Period and up to the Latest Practicable Date.
MAJOR CLIENTS
We serve a diverse base of institutional and retail clients across a spectrum of sectors. Our
key clients range from large corporations and SME clients to high net worth individuals and
retail customers. Our clients are primarily located in the PRC. We expect to serve more
overseas clients as we seek to further expand our overseas operations.
For each of years ended December 31, 2009, 2010 and 2011, our revenue attributable to
our five largest clients accounted for less than 30% of our total revenue and other income.
To the knowledge of our Directors, none of our directors, supervisors, their respective
associates or any shareholders holding more than 5% of our issued share capital has any
interests in any of our five largest clients as of the Latest Practicable Date.
We have no major suppliers due to the nature of our business.
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BUSINESS
INFORMATION TECHNOLOGY
Our IT system has been an integral part of our operations since our inception. Our IT
system consists of three key components: front office, middle office and back office systems
that generally cover transaction management, customer service and internal management. Our
IT system serves not only as an integral part of our operations, but also our business
development platform. Our IT system utilizes products provided by IBM, HP, CISCO and other
leading IT system providers. We incur IT-related capital expenditures mainly for the purchase
of systems and software. For the years ended December 31, 2009, 2010 and 2011, such
expenditures amounted to RMB132.5 million, RMB192.5 million and RMB167.0 million,
respectively. We believe our well-developed IT system will improve our operational efficiency
and transaction management, customer service and quality of internal management.
Our IT system has three key features that distinguish us from our competitors. On
transaction management, our system is among the best in terms of processing capacity. Our IT
system can process the transactions on a real-time basis in a timely and cost-efficient manner,
which facilitates new businesses development and promotion. In addition, our IT system assists
management to gain a better understanding of our products’ profitability. On customer service,
we are committed to meeting our customer needs through diversified channels, including but
not limited to online transactions, mobile transactions and SMS platforms. Our system is able
to accommodate over 400,000 customers trading online and provide all the necessary
transactions and related information at the same time to support the trading process operating
at full capacity. In addition, the internal risk management modules of our system can identify
risks promptly and obtain detailed risk-related data in order to respond to the risks imposed in
a timely and succinct fashion. Meanwhile, our IT system allows us to standardize our internal
procedures. As such, it facilitates our record-keeping, improves our reliability and enhances
our communication and operational efficiency. Our system also allows us to have a better
understanding of our financial position. We adopt multiple layers of security measures,
including firewalls and digitalized verification and intrusion prevention systems, in order to
achieve our network security. During the Track Record Period, we did not experience any
material malfunctions in our IT system.
COMPETITION
The PRC securities industry is highly competitive. We believe that competition in the
PRC securities industry is based on the following principal factors:
the range of products and services offered;
pricing;
customer service;
network coverage;
marketing and distributing capacities;
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BUSINESS
perceived financial strength; and
brand recognition.
For our securities brokerage business, we compete primarily with other PRC securities
firms, including CITIC Securities International Company Limited, China Galaxy Securities
Co., Ltd., the Guotai Junan Securities Co., Ltd, Guosen Securities Co., Ltd., China Merchants
Securities Company Limited, Everbright Securities Company Limited, and Guangfa Securities
Company Limited, in terms of pricing and the range of products and services offered.
Currently, there are more than 100 registered securities firms in the PRC and intense price
competition in recent years has lowered commission rates for our securities brokerage
business.
For our investment banking business, we compete primarily with other PRC and
Sino-foreign joint venture securities firms as well as PRC commercial banks in terms of brand
recognition, marketing and distribution capacity, service quality, execution capacity, financial
strength and pricing.
For our asset management business, we compete primarily with fund management
companies, banks, insurance companies and other financial institutions in the PRC in terms of
the range of products and services offered, pricing and quality of customer service.
For our direct investment business, we compete primarily with other PRC securities firms
that are qualified to conduct direct investment business, as well as private equity investment
companies qualified for direct investment business.
Some of our competitors may enjoy certain competitive advantages, including greater
financial resources, more sophisticated management experience and advanced IT systems,
wider geographic coverage and the ability to offer more financial products and services than
us.
In addition, with regulatory changes and other factors that contribute to the gradual
relaxation of the PRC securities regulations, more competitors are seeking to enter or expand
in the market. We believe that the securities industry in China is becoming increasingly
competitive. Our failure to maintain a competitive position to compete successfully against our
competitors may materially and adversely affect our business, financial position, results of
operations and prospects.
Please see “Risk Factors – Risks Relating to Our Business and Industry – We face intense
competition and our business could be materially and adversely affected if we are unable to
compete effectively.”
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BUSINESS
EMPLOYEES
As of December 31, 2009, 2010 and 2011, we had 8,050, 7,638 and 7,294 employees who
entered into labor contracts (excluding securities brokers and part-time employees),
respectively. The following table sets forth a breakdown of all our employees with labor
contracts as of December 31, 2011:
Number Percentage
Securities and futures brokerage . . . . . . . . . . . . . . . . . . . 4,823 66.1%
Investment banking . . . . . . . . . . . . . . . . . . . . . . . . . . . 349 4.8%
Asset management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264 3.6%
Proprietary trading. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 0.5%
Direct investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 0.4%
Overseas business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 872 12.0%
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 923 12.6%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,294 100.0%
Our core staff are generally young and well-educated. As of December 31, 2011, most of
our employees are 35 years old or younger, accounting for approximately 62.4% of the total
number of employees. At the same date, we have 5,377 employees holding bachelor’s degrees
or above, accounting for approximately 73.7% of the total number of employees. The
performance of our employees is key to our success. In order to ensure their sustainable
contribution to our business, we offer professional training to our employees on a regular basis.
The table below sets forth the breakdown of educational backgrounds and ages of our
employees as of December 31, 2011:
Item Number Percentage
Educational background . . . . . . Doctor’s degree 101 1.4%
Master’s degree 1,155 15.8%
Bachelor’s degree 4,121 56.5%
Junior college graduate and
below 1,917 26.3%
Total 7,294 100.0%
Age distribution . . . . . . . . . . . 35 or below 4,549 62.4%
36 to 50 2,422 33.2%
51 or above 323 4.4%
Total 7,294 100.0%
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BUSINESS
We have not experienced any strikes or other material labor disturbances that have
interfered with our operations to date and we believe that our management, the labor union and
employees have maintained good relationships with each other. On January 18, 2011, we
entered into a collective labor contract with the labor union representing our employees, which
has an initial term of six months, subject to automatic renewals. The labor contract provides,
among other things, that:
our employees shall in general work not more than eight hours per day and not more
than 40 hours per week, subject to limited circumstances where such restriction is
not suitable due to the nature of an employee’s work;
we will provide our employees paid annual vacation days based on the length of
their employment;
our employees are entitled to receive fixed monthly salaries and performance-based
bonuses;
we are obligated to contribute to employee housing fund and pay for basic social
insurance premiums on a monthly basis;
our employees are entitled to receive additional welfare treatments, such as
supplementary medical insurance and housing subsidies, subject to our annual
economic performance; and
we will provide no less than 40 hours of training annually, which shall include 15
hours of advanced training for securities professionals.
PROPERTIES
Owned Properties
As of December 31, 2011, we owned 92 properties in the PRC with an aggregate gross
floor area of approximately 136,217 square meters, and two properties in Hong Kong with an
aggregate gross floor area of approximately 656 square meters.
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BUSINESS
The following table sets forth the breakdown of our 92 owned properties in the PRC by
provinces and municipalities as of December 31, 2011:
Number of
Provinces and Municipalities Properties
Shanghai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Jiangsu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Guangdong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Shandong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Jilin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Guizhou . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Chongqing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Liaoning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Shaanxi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Beijing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Zhejiang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Hainan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Sichuan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Heilongjiang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Hebei. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Jiangxi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Gansu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Henan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Yunnan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our owned properties are primarily used for business and office purposes, with a range
of gross floor area from approximately 39 square meters to 10,395 square meters. In addition,
we have a small number of owned properties being used for residential and warehouse
purposes, with a range of gross floor areas from approximately 84 square meters to 135 square
meters and a range of gross floor area from approximately 97 square meters to 559 square
meters, respectively.
As of December 31, 2011, among the properties we owned, we have not obtained proper
building ownership certificates and/or land use certificates for 29 properties in the PRC with
a gross floor area of approximately 32,805 square meters, representing 24.1% of the aggregate
gross floor area of our owned properties. Among these properties:
We have obtained the relevant building ownership certificates and administrative
allocated land use rights certificates in respect of nine properties with a gross floor
area of approximately 7,221 square meters, representing 5.3% of the aggregate gross
floor area of the properties that we owned. We have been advised by Grandall Law
Firm (Shanghai), our PRC legal advisors, that we can legally occupy and use the
above properties, but our rights to transfer, lease, mortgage or dispose of such
properties are restricted unless we obtain the granted land use rights certificates by
paying the relevant land use premiums. We currently have not entered any definitive
agreements to transfer, lease, mortgage or dispose of these properties and,
accordingly, we are not required to pay the relevant land use premiums in the near
term. We are unable to ascertain the relevant land use premiums until, and if, we
– 270 –
BUSINESS
apply for rights to transfer, lease, mortgage or dispose of the above properties.
However, we believe that the payment of any such land use premiums, if required,
will not have a material effect on our business or financial condition.
We have obtained the building ownership certificates, but have not obtained the land
use rights certificates in respect of 16 properties with a gross floor area of
approximately 18,642 square meters, representing 13.7% of the aggregate gross
floor area of the properties that we owned. We have been advised by our PRC legal
advisors that we can legally occupy, use and lease the above properties, but our
rights to transfer, mortgage or dispose of such properties are restricted unless we
obtain the relevant land use rights certificates or the approval of the third parties
holding such land use rights certificates. We currently have not entered any
definitive agreements to transfer, mortgage or dispose of these properties and,
accordingly, we are not required to pay the relevant land use premiums in the near
term. We are unable to ascertain the relevant land use premiums until, and if, we
apply for rights to transfer, lease, mortgage or dispose of the above properties.
However, we believe that the payment of any such land use premiums, if required,
will not have a material effect on our business or financial condition. We are in the
process of applying for the relevant land use rights certificates.
We have not obtained the building ownership certificates and land use rights
certificates in respect of four properties with a gross floor area of approximately
6,942 square meters, representing 5.1% of the aggregate gross floor area of the
properties that we owned. While we are unable to ascertain when the relevant land
and property management authorities will grant us the relevant title certificates, we
are using our commercially reasonable efforts to obtain the relevant title certificates
for all of such properties. In the event we are unable to obtain such title certificates
and are required to relocate, we may incur additional relocation costs, which we
believe would not have a material impact on our business or financial condition.
Our Directors believe that the above 29 owned properties with defective titles are not
crucial to, and will not have a material impact on our operations because (i) we have obtained
the relevant valid building ownership certificates and/or land use rights certificates for a
majority of our owned properties, representing 75.9% of the aggregate gross floor area of our
owned properties; (ii) for 25 of the defective owned properties, we have been advised by our
PRC legal advisors that we can legally occupy, use and/or lease the properties and, therefore,
there is no impact on our business or financial condition; (iii) with respect to the remaining
four defective owned properties, if necessary, we would be able to replace such properties with
comparable alternative buildings without any material adverse effect on our operations; and
(iv) a majority of our securities and futures brokerage branches are located on leased
properties.
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BUSINESS
Leased Properties
As of December 31, 2011, we leased 279 properties in the PRC with an aggregate gross
floor area of approximately 252,710 square meters, and 29 properties in Hong Kong and two
properties in Macau with an aggregate gross floor area of approximately 13,772 square meters.
Our leased properties are primarily used for business and office purposes, with a range of gross
floor area from approximately 12 square meters to 5,351 square meters. In addition, as of
December 31, 2011 we have two leased properties being used for residential and warehouse
purposes, with a gross floor area of 583 square meters and 45 square meters, respectively.
The following table sets forth the information relating to our total rental expenses and
average monthly rental expenses for each of the periods indicated:
Year ended December 31,
2009 2010
(RMB in millions)
Total rental expenses . . . . . . . . . . . . . . . . . . . . . . . . 125.0 194.4 234.6
Average monthly rental expenses . . . . . . . . . . . . . . . . 10.4 16.2 19.6
For our leased properties in the PRC, as of December 31, 2011, our landlords had not
obtained proper ownership certificates for 34 buildings with a gross floor area of
approximately 33,509 square meters, representing 13.3% of the aggregate gross floor area of
the buildings we leased. Of these 34 buildings, our landlords of 11 buildings, accounting for
3.0% of the aggregate gross floor area of the buildings we leased, had not agreed to indemnify
us for any potential liabilities we would incur as a result of the title defects. However, we have
been advised by our PRC legal advisors that we will have the right to seek compensation from
the lessors pursuant to the relevant lease agreements or confirmation letters from relevant
lessors. We are of the view that most of these leased properties we occupy can, if necessary,
be replaced by other comparable alternative premises without any material adverse effect on
our business or financial condition.
According to section 6(2) of the Companies Ordinance (Exemption of Companies and
Prospectuses from Compliance with Provisions) Notice, this prospectus is exempted from
compliance with the requirements of section 342(1)(b) of the Companies Ordinance in relation
to paragraph 34(2) of the Third Schedule to the Companies Ordinance, which require a
valuation report with respect to all our company’s interests in land or buildings, for the reason
that as of December 31, 2011, the carrying amount of all the owned properties of our company
represented approximately 0.7% of the value of our total assets and the leased properties are
considered to have no commercial value.
Our Directors confirm that none of our property interests is individually material to us in
terms of income contribution or rental expense. The carrying amount of the value of the most
valuable single property interest we own is approximately RMB74.1 million, accounting for
less than 0.1% of our total assets.
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CONNECTED TRANSACTIONS
EXEMPT CONTINUING CONNECTED TRANSACTIONS
In our ordinary course of business, we have entered into certain continuing transactions
with BNP BE Group on normal commercial terms in respect of provision of supportive services
(such as document translation and information collection) by certain members of the BNP BE
Group to our Group and securities brokerage services and investment consultancy services by
our Group to certain members of the BNP BE Group.
The historical amounts (where available) of such transactions for each of the three
financial years ended December 31, 2009, 2010 and 2011 are RMB142.8 million, RMB154.5
million and RMB122.4 million, respectively.
BNPP IP BE Holding holds 33.00% of the equity interest in Haitong-Fortis PE
Management, a subsidiary of the Company in which the Company holds 67.00% of its equity
interest. BNPP IP BE Holding also holds 49.00% of the equity interest in HFT Investment
Management, a subsidiary of the Company in which the Company holds 51.00% of its equity
interest. Accordingly, upon the listing of our H Shares on the Hong Kong Stock Exchange,
BNPP IP BE Holding will become a Connected Person of the Company under the Hong Kong
Listing Rules and its associates will also become the Company’s Connected Persons under the
Hong Kong Listing Rules. The transactions between the BNP BE Group and our Group will
constitute continuing connected transaction under the Hong Kong Listing Rules.
Based on the above, the members of the BNP BE Group will be Connected Persons at the
level of the Company’s subsidiaries rather than at the level of the Company. The relevant
percentage ratios in respect of HFT Investment Management and Haitong-Fortis PE
Management as described under Rule 14A.31(9) of the Hong Kong Listing Rules are less than
10% for each of the three financial years ended December 31, 2009, 2010 and 2011. Pursuant
to Rule 14A.31(9) of the Hong Kong Listing Rules, the transactions between the BNP BE
Group and our Group are exempt from the reporting, announcement and independent
shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules.
– 273 –
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
OVERVIEW
Our Board currently consists of 17 Directors, comprising two executive Directors, nine
non-executive Directors and six independent non-executive Directors. The Directors were all
elected by our Shareholders at the shareholders’ meetings for a term of three years, which is
renewable upon re-election and re-appointment.
Our Supervisory Committee currently consists of 11 Supervisors. Except for the four
employee representative Supervisors elected by the workers’ congress, other Supervisors were
elected by our Shareholders at the shareholders’ meeting for a term of three years, which is
renewable upon re-election and re-appointment.
Save as disclosed in this section, each of the Directors, Supervisors and senior
management personnel has not been a director of any public company the securities of which
are listed on any securities market in Hong Kong or overseas in the three years immediately
preceding the date of this prospectus.
Save as disclosed in this section, none of our Directors are engaged in any businesses
which compete or are likely to compete, either directly or indirectly, with our business under
Rule 8.10(2). The Director(s) who have conflict of interest in certain matters shall abstain from
voting on the resolutions in relation to such matters at the board meeting pursuant to the
Articles of Association of the Company and the relevant PRC and Hong Kong laws and
regulations.
Directors
The following table sets forth information regarding our Directors. All of our Directors
meet the qualification requirements under relevant PRC laws and regulations and the Hong
Kong Listing Rules for their respective positions.
Name Age Position
Mr. Wang Kaiguo (sW ) 53 Executive Director and Chairman
Mr. Li Mingshan (gNf \ ) 59 Executive Director and General Manager
Mr. Qian Shizheng (“\"N e? ) 59 Non-executive Director and Vice Chairman
Mr. Zhuang Guowei (W … ) 57 Non-executive Director
Mr. Zhou Donghui (Thgq ) 42 Non-executive Director
Mr. He Jianyong (OUPeR 49 Non-executive Director
Mr. Zhang Jianwei (_5úPI ) 57 Non-executive Director
Mr. Xu Chao (_on ) 56 Non-executive Director
Mr. Wang Hongxiang (s;ye ) 56 Non-executive Director
Mr. Li Gewei (gN ) 44 Non-executive Director
Mr. Feng Huang (qL ) 41 Non-executive Director
Mr. Xia Bin (Y e ) 60 Independent Non-executive Director
Mr. Chen Qiwei (–st&PI ) 60 Independent Non-executive Director
Mr. Zhang Huiquan (_5àl ) 44 Independent Non-executive Director
Mr. Zhang Ming (_5 ) 53 Independent Non-executive Director
Mr. Dai Genyou (b4h9g ) 62 Independent Non-executive Director
Mr. Liu Chee Ming (R‰×eO ) 61 Independent Non-executive Director
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DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Executive Directors
Mr. Wang Kaiguo (sW ), aged 53, serves as our Chairman and an executive Director.
Mr. Wang joined our Company in February 1995 as deputy general manager and has been our
Chairman since May 1998. He was appointed as our Director on August 23, 1996. He has over
15 years of management experience in securities industry. Mr. Wang obtained a bachelor’s
degree in economics from Jilin University in July 1984, a master’s degree in economics from
Jilin University in July 1987, and a doctor’s degree in economics from Xiamen University in
July 1990. Mr. Wang is a senior economist recognized by Economics and Accounting Senior
Professional and Technical Title Evaluating Committee* (}og | R } \ imbSwRU
[ YTág ) of Bank of Communications Co., Ltd. in December 1997. Mr. Wang previously
served in various positions in Research Institute of National State-owned Assets
Administration Bureau* (W [ g u\"{t \ x b@ ) from July 1990 to February 1995,
including deputy head of this bureau, mainly in charge of policy research in relation to
state-owned asset management and internal management. He was also director of policy
research office of policy and regulation department of the same bureau from March 1992 to
February 1994, mainly in charge of SOE(s) reform and policy research. Mr. Wang was deputy
general manager of our Company from February 1995 to November 1997 mainly in charge of
investment banking business and financial management, secretary of Communist Party of
China (“CPC”) party group of our Company from November 1997 to December 1998 and
general manager of our Company from November 1997 to May 2001. Mr. Wang has been
secretary of CPC party committee of our Company since December 1998, director of the
Shanghai Stock Exchange since April 1999 and vice president of SAC since July 2002. In
addition, Mr. Wang was a non-executive director of Shanghai Shimao Co., Ltd. (N mwN
Ng – QlS ) from October 2000 to February 2009 (a company listed on the Shanghai Stock
Exchange and its stock code is 600823). Mr. Wang has been a non-executive director of
Shenzhen Development Bank Co., Ltd. (mW3v|ULNg – QlS ) (a company listed on the
Shenzhen Stock Exchange and its stock code is 000001) since June 2006 and an independent
non-executive director of Shanghai Chlor-Alkali Chemical Co., Ltd. (N mwl/S ] g –
QlS ) (a company listed on the Shanghai Stock Exchange and its stock code is 600618) since
December 2009.
Mr. Li Mingshan (gNf \ ), aged 59, serves as our General Manager and an executive
Director. Mr. Li joined our Company in May 2001 and has been our General Manager since
then. He has been our Director since November 28, 2002. He is fully in charge of the overall
management of our operations. He has around 20 years of management experience in securities
industry. Mr. Li graduated from East China Normal University as a post-graduate with a major
in global economics in May 1998 and obtained a master’s degree in business administration
from Asia International Open University (Macau) in September 2000. Mr. Li is a senior
economist recognized by Shanghai Professional Qualification Evaluation Centre* (N mw^ Nw
h
charge of safety and security. Mr. Li was previously vice general manager of Shanghai Shenyin
Securities Co., Ltd. (N mwu3’IR8QlS , predecessor of Shenyin & Wanguo Securities Co., Ltd.
(u3’,W R8Ng – QlS )) from January 1993 to June 1996 and vice general manager of
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DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Shenyin & Wanguo Securities Co., Ltd. from June 1996 to March 1998, mainly in charge of
brokerage business. Mr. Li was also deputy general manager of the Shanghai Stock Exchange
from March 1998 to May 2001 mainly in charge of communication, trading system and
membership management. Mr. Li was a non-executive director and chairman of Haitong
International Securities from January 2010 to April 2011 and also chairman of Haitong
International Holdings from August 2010 to March 2011. Mr. Li has been deputy secretary of
CPC party committee of our Company since March 2002 and a director of Fullgoal Fund
Management since 2005.
Non-executive Directors
Mr. Qian Shizheng (“\"N e? ), aged 59, serves as our Vice Chairman and a non-executive
Director. Mr. Qian has been our Director and our Vice Chairman since May 30, 2006. Mr. Qian
obtained a bachelor’s degree in economics from Shanghai University of Finance and
Economics in July 1983, and a doctor’s degree in management from Fudan University in July
2001. Mr. Qian lectured in accounting department of Fudan University from September 1983
to December 1997. Mr. Qian joined SIIC in January 1998 and has been vice president since
then mainly in charge of financial management. He has been an executive director and vice
president of Shanghai Industrial Holdings Limited (N mw[imc§g – QlS ) (a company listed
on the Hong Kong Stock Exchange and its stock code is 00363), which is an affiliate of
Shanghai Shangshi 1, since January 2002 (mainly in charge of financial management), an
independent non-executive director of Lonking Holdings Limited (N-W c§g – QlS ) (a
company listed on the Hong Kong Stock Exchange and its stock code is 03339) since February
2005, an independent non-executive director of Zoomlion Heavy Industry Science &
Technology Development Co., Ltd. (N-oybvUNg – QlS ) (a company listed on
both the Shenzhen Stock Exchange and the Hong Kong Stock Exchange and its stock code is
000157 and 01157 respectively) since July 2010 and an executive director of Shanghai
Industrial Urban Development Group Limited (N mw[imW^ | W g – QlS ) (a company
listed on the Hong Kong Stock Exchange and its stock code is 00563) since July 2010.
Mr. Zhuang Guowei (W … ), aged 57, serves as a non-executive Director. Mr. Zhuang
has been our Director since July 16, 2007. Mr. Zhuang obtained a bachelor’s degree in
economics from Party School of the Central Committee of the CPC* (N-QqN-Y.èh!Qcxb )
in December 1994, graduated from Shanghai Academy of Social Sciences as a postgraduate in
economics in January 1996, and obtained a master’s degree in business administration from
Arizona State University in May 2009. Mr. Zhuang is a registered manager* (;Qt ) of
Chinese Registered Career Manager (N-W Qwim}t N” ) recognized by China Enterprises
Evaluation Association (N-W O imUPùSTg ) in 2005. Mr. Zhuang previously served in various
positions in Shanghai Wusi Farm* (N mw^ N”VX4 ) and Shanghai NGS (Group) Wusi
Corporation* (N mwUF–W N”V~QlS ) from July 1984 to August 1999, including general
manager and deputy secretary of its CPC party committee, mainly in charge of management
* For identification purpose only
1
Shanghai Shangshi held 2.94% shareholding in our Company prior to the Global Offering as of the Latest
Practicable Date.
– 276 –
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
and operations. He was manager of asset operation department of Shanghai NGS (Group)
Corporation (N mw^ UF (–W )~QlS ) from August 1999 to April 2001 and was deputy
general manager of the same company from April 2001 to August 2006, mainly in charge of
corporate management and land and asset management. He was deputy chairman of Shanghai
Urban Agro-Business Co., Ltd. (N mw^ ^ Fy>Ng – QlS ) from June 2001 to February
2003 and chairman of Shanghai HaiBo Co., Ltd. (N mwmwSZNg – QlS ) (a company listed on
the Shanghai Stock Exchange and its stock code is 600708) from February 2004 to April 2009.
In addition, Mr. Zhuang has been vice president of Bright Food (Group) Co., Ltd.2 (QIf T
(–W )g – QlS ) since August 2006 (mainly in charge of corporate management and land and
asset management), chairman of Bright Dairy & Food Co., Ltd. (QIf NsimNg – QlS ) (a
company listed on the Shanghai Stock Exchange and its stock code is 600597) since April
2010, a director of Shanghai HaiBo Co., Ltd. since April 2009 and chairman of NGS Real
Estate (Group) Co., Ltd* (UFb?W0u\" (–W )Ng – QlS ) since December 2011.
Mr. Zhou Donghui (Thgq ), aged 42, serves as a non-executive Director. Mr. Zhou has
been our Director since May 8, 2009. He has over ten years of financial management
experience. Mr. Zhou graduated with a major in accounting from Adult Education College* (b
N”eYxb ) of Fudan University in July 2001. Mr. Zhou is a senior accountant recognized by
State Tobacco Monopoly Administration of PRC* (N-W W [ YI \ ) in December 2007.
Mr. Zhou previously served in various positions in the finance and price department of
Shanghai Tobacco (Group) Company* (N mwqYI(–W )QlS ) (predecessor of Shanghai
Tobacco (Group) Co., Ltd* (N mwqYI(–W )g – QlS )) from July 1991 to October 2000,
including deputy section chief of finance section and deputy section chief of fund and price
section. Mr. Zhou was also deputy manager of finance department of China Tobacco Shanghai
Import & Export Co., Ltd.* (N-W qYIN mw2QúSg – QlS ) from October 2000 to August
2003, manager of that department from August 2003 to October 2008 and was deputy director
of investment management division of Shanghai Tobacco (Group) Company from October
2008 to May 2011. Mr. Zhou has been deputy director of finance management division of
Shanghai Tobacco (Group) Co., Ltd. since May 2011 and a non-executive director of Orient
Securities Company Limited (gqeIR8Ng – QlS ) since May 2009. As Orient Securities
Company Limited is mainly engaged in, among others, securities underwriting, proprietary
trading, investment consultation, financial advisory, enterprise mergers and acquisitions and
asset management, it competes or is likely to compete, either directly or indirectly, with some
aspects of the business of the Company.
2
Bright Food (Group) Co., Ltd. held 5.87% shareholding in our Company prior to the Global Offering as of the
Latest Practicable Date.
– 277 –
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Mr. He Jianyong (OUPeR), aged 49, serves as a non-executive Director. Mr. He has been
our Director since September 16, 2011. Mr. He obtained a bachelor’s degree in economics from
Northeast Finance Institute in July 1986 and graduated from Liaoning University in December
1999 as a postgraduate (part time) with a major in accounting. Mr. He previously served in
various positions in Liaoning Energy Development Corporation* (w nvQlS ) from
August 1986 to December 1989, including assistant accountant of the finance department and
deputy manager of the energy-efficient product distribution department, mainly in charge of
power plant investment, budget auditing, financing and marketing of energy-saving products.
Mr. He worked with the Provincial “San Liao” Poverty Aid Taskforce at Kazuo County in
Liaoning Province* (w e?U# N bvO\ ) from December 1989 to
December 1990 and served as head of the finance department of Liaoning Energy and Materials
Company* (nriQlS ) from December 1990 to July 1995. He was deputy manager of
Liaoning Energy Efficiency and Thermal Electricity Group Company* (q––W Ql
S ) from July 1997 to January 1999, mainly in charge of operation management and financing.
He was deputy general manager and then executive deputy general manager of Liaoning
Energy Corporation* (nQlS ) from January 1999 to December 2003, mainly in
charge of operation management and financing. He joined Liaoning Energy Investment
(Group) Co., Ltd. 3 (nb (–W )g – QlS ) in December 2003 and served in
various positions including general manager and vice chairman, and is currently chairman of
this company, mainly in charge of the overall management of operation.
Mr. Zhang Jianwei (_5úPI ), aged 57, serves as a non-executive Director. Mr. Zhang has
been our Director since November 28, 2002. He has nine years of management experience in
securities industry. Mr. Zhang obtained a junior college degree in industrial economic
management from Fudan University in July 1986 and also graduated with a major in enterprise
management from Fudan University (Evening School) in July 1995, respectively. He also
obtained a master’s degree in business administration from China Europe International
Business School in May 1999. Mr. Zhang is a senior economist recognized by Shanghai
Economics (Circulation) Senior Professional and Technical Title Qualification Evaluating
Committee* (N mw^ } |R (mA W ) \ imbSwRNwh
mwNENQlS from July 1994 to December 2002, including general manager of industry division
and assistant to general manager, mainly in charge of external equity investment. Mr. Zhang
has been deputy general manager of Shanghai Jiushi Corporation Co., Ltd. since December
2002 mainly in charge of foreign investment, asset management and real estate investment, a
non-executive director of Shenyin & Wanguo Securities Co., Ltd. (u3’,W R8Ng – Ql
S ) since January 2002, a director of Shanghai International Trust Corp., Ltd. (N mwW – ábX
g – QlS ) since June 2005, a director of Shenergy Company Limited (u3Ng – QlS ) (a
company listed on the Shanghai Stock Exchange and its stock code is 600642) since May 2008,
a director of Shanghai Highly (Group) Co., Ltd. (N mwmwzNg – QlS ) (a company listed on
3
Liaoning Energy Investment (Group) Co., Ltd. held 1.93% shareholding in our Company prior to the Global
Offering as of the Latest Practicable Date.
4
Shanghai Jiushi Corporation Co., Ltd. held 2.95% shareholding in our Company prior to the Global Offering as
of the Latest Practicable Date.
– 278 –
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
the Shanghai Stock Exchange and its stock code is 600619) since May 2008 and a supervisor
of China Pacific Insurance Group Co., Ltd. (Y*^sm O–“W g – QlS ) (a company listed
on both the Hong Kong Stock Exchange and the Shanghai Stock Exchange and its stock code
is 02601 and 601601 respectively) since February 2011. As Shenyin & Wanguo Securities Co.,
Ltd. is mainly engaged in, among others, securities brokerage, securities investment advisory,
financial advisory related to securities trading and investment, proprietary trading, securities
underwriting and sponsoring, asset management, futures IB business and margin financing and
securities lending business, it competes or is likely to compete, either directly or indirectly,
with some aspects of the business of the Company.
Mr. Xu Chao (_on ), aged 56, serves as a non-executive Director. Mr. Xu has been our
Director since May 16, 2011. Mr. Xu graduated with a major in Marxism-Leninism theory from
Cadre Training College of Shanghai Municipal Party School (Junior College)* (N mw^ Yèh!
^ \ Oy (Y’\ )) in July 1985 and obtained a master’s degree in business administration from
China Europe International Business School in April 2000. Mr. Xu is a senior economist
recognized by Shanghai Economics Senior Professional and Technical Title Qualification
Evaluating Committee* (N mw^ } |R } \ imbSwRNwh<éYTág ) in
December 2009. Mr. Xu successively served as deputy secretary of CPC party branch, secretary
of CPC party branch and deputy director of reform office of Shanghai Turbine Works* (N mw
l}*j_à ) from 1986 to June 1994, mainly in charge of administrative management. He was
director of financial division, head of financial department and chief financial officer of
Shanghai Turbine Co., Ltd.* (N mwl}*j_g – QlS ) from August 1996 to October 2004 mainly
in charge of financial management, and vice president of the same company from October 2004
to October 2006 mainly in charge of financial management. He joined Shanghai Electric
Capital Management Co., Ltd.* 5 (N mw–l#u\"{t g – QlS ) in October 2006 and served in
various positions including chief financial officer from March 2007 to October 2011 and vice
president of the same company since May 2008, mainly in charge of production management
and financial management. He was head of financial budget department of Shanghai Electric
(Group) Corporation* 5 (N mw–l# (–W )~QlS ) from October 2010 to October 2011. He has
also been the executive director and legal representative of Shanghai Electrical Industrial
Investment Co., Ltd.* 5 (N mw–l#[imQlS ) since May 2010, a non-executive director of
Orient Securities Company Limited (gqeIR8Ng – QlS ) since March 2011, chairman of
supervisory committee of Shanghai Prime Machinery Co., Ltd. (N mw–Q*j_hNg – QlS )
(a company listed on the Hong Kong Stock Exchange and its stock code is 02345) since May
2010, vice chairman of Shanghai Highly (Group) Co., Ltd (N mwmwzW )Ng – QlS )
since June 2011 and chairman of supervisory committee of Shanghai Automation
Instrumentation Co., Ltd (N mwêRS Q “ g – QlS ) (a company listed on the Shanghai
Stock Exchange and its stock code is 600848) since June 2011. As Orient Securities Company
Limited is mainly engaged in, among others, securities underwriting, proprietary trading,
investment consultation, financial advisory, enterprise mergers and acquisitions and asset
management, it competes or is likely to compete, either directly or indirectly, with some
aspects of the business of the Company.
5
Shanghai Electric Capital Management Co., Ltd. and Shanghai Electrical Industrial Investment Co., Ltd. are
affiliates of Shanghai Electric (Group) Corporation* (N mw–l# (–W )~QlS ), which held 4.77% shareholding in
our Company prior to the Global Offering as of the Latest Practicable Date.
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DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Mr. Wang Hongxiang (s;ye ), aged 56, serves as a non-executive Director. Mr. Wang
has been our Director since May 16, 2011. He has over 20 years of finance and accounting
working experience since he graduated from university. Mr. Wang obtained a bachelor’s degree
in accounting from Xiamen University in July 1983 and an EMBA degree from Shanghai
University of Finance and Economics in June 2006. Mr. Wang is a senior accountant
recognized by Shanghai Accounting Senior Professional and Technical Title Qualification
Evaluating Committee* (N mw^ g | R } \ imbSwRNwh
number of years. Mr. Wang has been deputy chief accountant of Shenergy Group Company
Limited 6 (u3 (–W )g – QlS ) mainly in charge of financial work since December 1998.
Mr. Li Gewei (gN ), aged 44, serves as a non-executive Director. Mr. Li has been our
Director since May 16, 2011. Mr. Li obtained a bachelor’s degree in science from Lanzhou
University in June 1989. Mr. Li is an economist recognized by Professional and Technical Title
Qualifications Evaluating Committee of Nankai District, Tianjin* (Y)m%^ SWS imbSNw
h
stock code is 600480) from April 2010 to January 2012, mainly in charge of investment
management. Mr. Li has been an executive director of New World Strategic Investment Limited
(e°N uL{Vuebg – QlS ) since June 2003, vice general manager of Tibet Linzhi Fuxi Jewels
& Gold Co,. Ltd.* (‰g—yysà[Lg – QlS ) since October 2010, and executive vice
chairman of Shenzhen Sunlong Communication Co., Ltd. (mW3^ g – QlS ) since
March 2006, in charge of investment management for all of these three companies. Mr. Li has
been an independent non-executive director of Orient Group Incorporation (gqeW g –
QlS ) (a company listed on Shanghai Stock Exchange and its stock code is 600811) since June
2008. As an independent non-executive director of Sichuan Direction Photo-electricity Co.,
Ltd. (V]eT QI–Ng – QlS ) from April 2002 to April 2007, Mr. Li was held responsible,
and received a warning letter from CSRC in February 2006, for such company’s failure to
disclose balances of related parties transactions in accordance with applicable regulations in its
interim reports and annual reports for 2003 and 2004.
Mr. Feng Huang (qL ), aged 41, serves as a non-executive Director. Mr. Feng has been
our Director since May 16, 2011. Mr. Feng obtained a bachelor’s degree in hotel management
from Shanghai Jiao Tong University in July 1993, and a master’s degree in business
administration from Webster University in November 1998. Mr. Feng is an economist
recognized by Ministry of Personnel of PRC in November 2001, and an in-house legal counsel
recognized by Ministry of Personnel, Ministry of Justice and State-owned Assets Supervision
and Administration Commission of PRC in October 2007. Mr. Feng joined SIIC Investment
6
Shenergy Group Company Limited held 4.11% shareholding in our Company prior to the Global Offering as of
the Latest Practicable Date.
7
Tibet Linzhi Fuxi Jewels & Gold Co., Ltd. held 0.56% shareholding in our Company prior to the Global Offering
as of the Latest Practicable Date.
– 280 –
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
(Shanghai) Co., Ltd. 8 (N [ b (N mw)g – QlS ) in January 1999 and served in various
positions, and has been vice president since June 2010 mainly in charge of investment and asset
management. He has been a director and president of Shanghai SIIC Investment Management
Consulting Co., Ltd.* 8 (N mwN [ bt g – QlS ) since August 2007 mainly in charge
of operations, a director of Shanghai Lujiazui Finance & Trade Zone United Development Co.,
Ltd.* (N mw–xV4‘f S@oT v|Ug – QlS ) since July 2004, vice chairman of Shanghai
Qixiang Qingchen New Materials Co., Ltd.* (N mwYG`óRfhe°gPeNg – QlS ) since
December 2007, chairman of Shanghai Zhendong Auto Service Company* (N mwc/gql}g R
g – QlS ) since September 2008 and a director of Shanghai Information Investment Inc. (N
mw^ Oá`obNg – QlS ) since June 2011.
Independent Non-executive Directors
Mr. Xia Bin (Y e ), aged 60, serves as an independent non-executive Director. Mr. Xia
has been our Director since May 30, 2006. He has over 28 years of management experience in
banking and securities industry. Mr. Xia obtained a master’s degree in economics from the
Graduate School of PBOC in December 1984. Mr. Xia is a researcher recognized by PBOC
Research Senior Professional and Technical Title Evaluating Committee* (N-W N”l ’ x zv
| R } \ imbSwRUéYTág ) in November 1997. Mr. Xia served as director and deputy
head of financial research institute of PBOC mainly in charge of research on macroeconomic
and financial policy from January 1982 to March 1993 and from March 1993 to July 1993,
respectively. He served as director of trading department of CSRC from July 1993 to October
1993 mainly in charge of management of secondary market, the Shanghai Stock Exchange and
the Shenzhen Stock Exchange, general manager of the Shenzhen Stock Exchange from July
1993 to October 1993 mainly in charge of the overall management of the daily operation and
marketing of the exchange, deputy director of policy research office of PBOC from October
1996 to September 1998 mainly in charge of macro-policy research and drafting major
financial regulations and director of non-bank institution department of PBOC from August
1998 to September 2002 mainly in charge of supervision of non-bank financial institutions. Mr.
Xia has been head of Institute of Finance of Development Research Centre of State Council
since September 2002. Mr. Xia has been an independent non-executive director of Tsinghua
Tongfang Co., Ltd. (n T eNg – QlS ) (a company listed on the Shanghai Stock
Exchange and its stock code is 600100) since May 2006. Mr. Xia has been a supervisor of
China Everbright Bank Co., Ltd. (N-W QIY’’LNg – QlS ) (a company listed on the
Shanghai Stock Exchange and its stock code is 601818) since September 2006.
Mr. Chen Qiwei (–st&PI ), aged 60, serves as an independent non-executive Director. Mr.
Chen has been our Director since July 16, 2007. Mr. Chen obtained a bachelor’s degree in
economics from East China Normal University in September 1982 and a doctor’s degree in
economics from East China Normal University in October 1988. Mr. Chen is a professor
recognized by the Teachers’ Senior Professional and Technical Title Evaluating Committee of
Shanghai Jiao Tong University* (N mwN¤ Y’[xeY^ \ imbSwRNwh
8
SIIC Investment (Shanghai) Co., Ltd. and SIIC Investment Management Consulting Co., Ltd. are affiliates of
Shanghai Shangshi.
– 281 –
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Economics & Management, Shanghai Jiao Tong University (N mwN¤ Y’[xl}o { [
– ) since August 1997, chairman of Shanghai Asia Business Development Group Co., Ltd.* (N
mwNUFv|UW g – QlS ) since March 2004, an independent non-executive director of
Shanghai Oriental Pearl (Group) Co., Ltd. 9 (N mwgqef sà (–W )Ng – QlS ) (a company
listed on the Shanghai Stock Exchange and its stock code is 600832) since June 2008, an
independent non-executive director of Guangzhou Development Industry (Holdings) Co., Ltd.
(^v|Uimc§W g – QlS ) (a company listed on the Shanghai Stock Exchange and
its stock code is 600098) since July 2009, a director of China Entrepreneurs Forum (N-W O im
[ X ) and a rotating chairman of New Shanghai Businessman Federation (e°nìUFoT g )
since December 2008.
Mr. Zhang Huiquan (_5àl ), aged 44, serves as an independent non-executive Director.
Mr. Zhang has been our Director since July 16, 2007. He has around 15 years of working
experience in legal compliance. Mr. Zhang obtained a bachelor’s degree in law from Nanjing
Institute of Politics of the People’s Liberation Army* (N-W N”l ‰ e>SWNel[xb ) in July
1990 and a master’s degree in economic law from Peking University in July 2002. Mr. Zhang
was granted the Certificate of PRC Lawyer by the PRC Ministry of Justice in September 1995.
Mr. Zhang was previously an officer of political department of People’s Court of Jingshan
District, Beijing (S N fo\qS@N”l l–b ) from October 1996 to March 2000 and a director of
research office and judge of the same court from April 2000 to December 2002. Mr. Zhang has
been a lawyer of Union Best Partner (S NV _ b@ ) since December 2002.
Mr. Zhang Ming (_5 ), aged 53, serves as an independent non-executive Director. Mr.
Zhang has been our Director since May 5, 2008. He has over 25 years of working experience
in relation to accounting. Mr. Zhang obtained a bachelor’s degree in accounting, a master’s
degree in accounting and a doctor’s degree in economics from the accounting department of
Shanghai University of Finance and Economics in June 1983, June 1988 and January 1996,
respectively. Mr. Zhang lectured in Shanghai University of Finance and Economics since
graduation in 1983 and has successively been deputy director, professor and doctoral
supervisor of the accounting college of the same university. Mr. Zhang has been an independent
non-executive director of Shanghai Shenda Co., Ltd. (N mwu3TNg – QlS ) (a company
listed on the Shanghai Stock Exchange and its stock code is 600626) since May 2010, and an
independent non-executive director of SGSB Group Co., Ltd. (N ] u3 (–W )Ng – QlS )
(a company listed on the Shanghai Stock Exchange and its stock code is 600843) since June
2009.
Mr. Dai Genyou (b4h9g ), aged 62, serves as an independent non-executive Director. Mr.
Dai has been our Director since May 16, 2011. He has around 35 years of working experience
in financial industry including over 25 years of management experience. Mr. Dai graduated
with a major in political economics from Anhui Labor University (predecessor of Anhui
University) in September 1977. Mr. Dai is a senior economist recognized by PBOC in 1989.
He was granted a special allowance by the State Council in October 2000. Mr. Dai previously
served in various positions in PBOC. He successively served as vice president of Anqing
9
Shanghai Oriental Pearl (Group) Co., Ltd. held 1.84% shareholding in our Company prior to the Global Offering
as of the Latest Practicable Date.
– 282 –
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Branch of PBOC, director of the first economic analysis division of research and investigation
department of PBOC, and head and deputy director of economic analysis division of survey and
statistics department of PBOC from October 1983 to February 1993. He held a position at the
finance and trade group of the Leading Group for Financial and Economic Affairs of the CPC
Central Committee* (N-Y. \ \ } l[D ) from February 1993 to November 1997
and was a deputy leader thereof since September 1994 and concurrently was deputy director
and inspector of survey and statistics department of PBOC. He was head of monetary policy
department and secretary-general of monetary policy committee of PBOC from November
1997 to November 2003, director of credit information system bureau of PBOC from
November 2003 to April 2004, and director of credit information center of PBOC from April
2004 to March 2010. Mr. Dai has been an independent non-executive director of Zhangjiang
High-Tech Park Development Co., Ltd. (N mw_5l_ybW S@vNg – QlS ) (a company
listed on the Shanghai Stock Exchange and its stock code is 600895) since April 2010.
Mr. Liu Chee Ming (R‰×eO ), aged 61, serves as an independent non-executive Director.
Mr. Liu has been our Director since September 16, 2011. Mr. Liu obtained a bachelor’s degree
in business administration from National University of Singapore in July 1976. He has been a
member of the Takeovers Appeal Committee under the Hong Kong SFC (n/IR8Sg
v[YTág e6üN YTág ) since May 1995, and deputy chairman of the Takeovers and
Mergers Panel since April 2008, the duties include reviewing mergers and acquisition cases and
dealing with relevant appeals. In addition, he established the Platinum Holdings Company
Limited (v~c§g – QlS ) in April 1996 and oversees the stock broking, corporate finance
and asset management businesses. He has been an independent non-executive director of Kader
Holdings Company Limited (TW g – QlS ) (a company listed on the Hong Kong Stock
Exchange and its stock code is 00180) since June 1998, an independent non-executive director
of CIMC Raffles Offshore (Singapore) Limited (N-–OyXmwm ] z (e°RWa )g – QlS ) since
December 2005, and an independent non-executive director of StarHub Ltd (f Tg – QlS ) (a
company listed on the Singapore Exchange and its stock code is STH SP) since August 2004.
On March 14, 2012, the Board passed a resolution that the appointment of Mr. Zhu
Xiaogang as a non-executive Director in replacement of Mr. Zhou Donghui will be submitted
to both holders of our A Shares and holders of our H Shares for approval at the next annual
general meeting of our Company expected to be convened by June 2012. Such appointment is
subject to approvals from both holders of our A Shares and holders of our H Shares. After the
appointment of Mr. Zhu Xiaogang is approved at such annual general meeting, such
appointment will be submitted to the CSRC for approval. Except for (i) the approvals from both
holders of our A Shares and holders of our H Shares, on the assumption that the Global
Offering is completed on April 27, 2012, and (ii) the approval from the CSRC, the appointment
of Mr. Zhu Xiaogang is not subject to any other condition. The detailed biography of Mr. Zhu
Xiaogang will be included in the circular to be despatched by June 2012 to both holders of our
A Shares and holders of our H Shares, on the assumption that the Global Offering is completed
on April 27, 2012, for the purpose of such annual general meeting.
Save as disclosed above, there are no other matters that need to be brought to the attention
of the Shareholders of the Company in connection with the appointment of our Directors and
there is no other information relating to our Directors that should be disclosed pursuant to Rule
13.51(2) of the Hong Kong Listing Rules.
– 283 –
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Supervisors
The following table sets forth information regarding our Supervisors. Our Supervisors all
meet the qualification requirements under relevant PRC laws and regulations and the Hong
Kong Listing Rules for their respective positions.
Name Age Position
Mr. Wang Yimin (svl ) 60 Chairman of Supervisory Committee,
Employee Supervisor
Mr. Yang Qingzhong (iJav_à ) 55 Vice Chairman of Supervisory
Committee, Employee Supervisor
Mr. Yuan Lingcai ( bM ) 51 Supervisor
Mr. Dong Xiaochun (c f% ) 47 Supervisor
Mr. Wu Zhilin (T3 ) 60 Supervisor
Ms. Jin Yanping (‘q ) 56 Supervisor
Mr. Xu Qi (1YG) 49 Supervisor
Mr. Xing Jianhua (ú ) 52 Supervisor
Mr. Wang Yugui (ss ) 60 Supervisor
Ms. Qiu Xiaping (NY ) 51 Employee Supervisor
Mr. Du Hongbo (g\m*l ) 49 Employee Supervisor
Mr. Wang Yimin (svl ), aged 60, serves as our employee Supervisor and our
Chairman of Supervisory Committee. Mr. Wang joined our Company in January 2010 and was
appointed as our Supervisor on April 7, 2010. He has around 20 years of experience as a
director, supervisor and senior management of securities companies. Mr. Wang graduated with
a major in economics by correspondence from Fudan University (undergraduate) in July 1992,
and obtained a master’s degree in economics and a master’s degree in business administration
from Shanghai University of Finance and Economics and China Europe International Business
School in January 1997 and in April 2000 respectively, and a doctor’s degree in management
from Tongji University in November 2001. Mr. Wang is a senior economist recognized by
China People’s Construction Bank (predecessor of China Construction Bank) in February 1993.
Mr. Wang served in various positions in China Construction Bank (Shanghai Branch) from
September 1979 to September 1990, including section chief and deputy division chief, mainly
in charge of planning, statistics, capital and project review. Mr. Wang served as vice president
of China Construction Bank (Shanghai Pudong Branch) mainly in charge of planning and credit
from September 1990 to October 1992, an executive director and deputy general manager of
Guotai Securities Co., Ltd. (W lIR8g – QlS ) (predecessor of Guotai Jun’an Securities Co.,
Ltd. (W lT [ R8Ng – QlS )) mainly in charge of operation and management from
October 1992 to August 1999, chairman of supervisory committee and secretary of discipline
inspection commission of Guotai Jun’an Securities Co., Ltd. from August 1999 to September
2004, mainly in charge of the chairing of the supervisory committee and the discipline
inspection commission, and chairman of Orient Securities Company Limited (gqeIR8Ng
– QlS ) and secretary of CPC party committee from September 2004 to January 2010 mainly
in charge of the chairing of the Board of Directors and the CPC party committee. Mr. Wang has
also been a member of the CPC party committee of our Company since January 2010.
– 284 –
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Mr. Yang Qingzhong (iJav_à ), aged 55, serves as our employee Supervisor and our Vice
Chairman of Supervisory Committee. Mr. Yang joined our Company in 1998 and was appointed
as our Supervisor on May 21, 2004. He has around 13 years of working experience in securities
industry. Mr. Yang obtained a bachelor’s degree in economic management from Party School
of the Central Committee of CPC in December 1995 and graduated as a postgraduate with a
major in management science and engineering from Shanghai University in April 2001. Mr.
Yang is a senior political officer recognized by Shanghai Senior Professional and Technical
Titles of Enterprise Personnel of Political Work Qualification Evaluating Committee* (N mw^
O im` ` e?l]O\N”Tá \ imwRNwh
August 1998. He served in various positions in our Company, including deputy director of CPC
party committee office and the member of discipline inspection committee from August 1998
to November 2002 and deputy chief of organization department of our CPC party committee
from August 1998 to August 2003 and general manager of our training center from May 2003
to April 2005. Mr. Yang has been the director of our department of party-masses relationship
since November 2002, the general manager of our human resources development department
since August 2003, the head of our organization department of the CPC party committee since
August 2003 and the secretary of our discipline inspection commission since October 2008.
Mr. Yuan Lingcai ( bM ), aged 51, serves as a Supervisor. Mr. Yuan joined our
Company on May 16, 2011 and has been our Supervisor since then. He has around 30 years of
working experience in finance. Mr. Yuan graduated with a major in accounting from China
Central Radio and Television University in July 2003. Mr. Yuan is a senior accountant
recognized by Shanghai Accounting Senior Professional and Technical Title Qualification
Evaluating Committee* (N mw^ g | R } \ imbSwRNwh<éYTág ) in March
2003. Mr. Yuan was manager of finance department of Shanghai Hardware Machinery
Corporation Metal Material Company* (N mwN”j_hQlS‘lSeQlS ) from August 1981
to October 1995, manager of finance department and chief financial officer in Hardware
Company of Shanghai Friendship (Group) Co., Ltd.* (SW N mwN”QlS ) from November
1995 to October 1999, assistant to the director of audit and supervision department of Shanghai
Friendship (Group) Co., Ltd. (N mwS (–W )g – QlS ) from October 1999 to August 2000
mainly in charge of internal auditing and manager of finance department of Haomeijia
Decoration Co., Ltd. under Friendship Group* (SW Y}obg – QlS ) from August
2000 to December 2001. Mr. Yuan was a supervisor of Shanghai SIIC Investment Management
Consulting Co., Ltd. (N mwN [ bt T¨bg – QlS ) from August 2010 to March 2012. Mr.
Yuan has been working at SIIC Investment (Shanghai) Co., Ltd. (N [ b (N mw)g – QlS )
since January 2002 and is currently the general manager of the planning and finance
department and chief finance officer of the company. He has also been a director of Shanghai
SIIC Zhentai Chemical Co., Ltd. (N mw[imc/lS ] g – QlS ) since March 2007 mainly in
charge of accounting and financial management, and a director of Shanghai SIIC Investment
Management Consulting Co., Ltd. (N mwN [ bt T¨bg – QlS ) since March 2012.
Mr. Dong Xiaochun (c f% ), aged 47, serves as a Supervisor. Mr. Dong joined our
Company on July 16, 2007 and has been our Supervisor since then. He has over 20 years of
working experience in finance and over four years of experience as supervisor. Mr. Dong
– 285 –
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
graduated with a major in accounting from Shanghai TV University in July 1989 and obtained
a master’s degree in business administration from Shanghai Jiao Tong University in July 2000.
Mr. Dong is a senior accountant recognized by Shanghai Accounting Senior Professional and
Technical Title Qualification Evaluating Committee* (N mw^ g | R } \ imbSwRNw
h<éYTág ) in April 2001. Mr. Dong served as chief financial officer and secretary to the
board of Hualian Supermarket Co., Ltd. (o g – QlS ) from October 1992 to August
2004 mainly in charge of financial management and securities management, chief financial
officer of department store division of Shanghai Bailian Group Co., Ltd. (formerly known as
Bailian Group (v~oW )) from August 2004 to April 2006 mainly in charge of financial
management and a director of Shanghai Bailian Group Co., Ltd. (N mwv~oW g – QlS )
(a company then listed on the Shanghai Stock Exchange until August 2011 and its stock code
was 600631) from April 2010 to April 2011. Mr. Dong was secretary to the board and chief
financial officer of Shanghai Bailian Group Co., Ltd. from April 2006 to September 2011
mainly in charge of securities management, and he is now secretary to the board and chief
financial officer of Shanghai Friendship Group Incorporated Company 10 (N mwSW g
– QlS ) (a company listed on the Shanghai Stock Exchange and its stock code is 600827)
mainly in charge of financial management.
Mr. Wu Zhilin (T3 ), aged 60, serves as a Supervisor. Mr. Wu joined our Company
on May 19, 2010 and has been our Supervisor since then. He has around 35 years of working
experience in media industry. Mr. Wu graduated with a major in Chinese literature from
Shanghai Education College* (N mweYxb ) in July 1986. Mr. Wu is a senior editor
recognized by Shanghai Journalism Senior Professional and Technical Title Qualification
Evaluating Committee* (N mw^ e°R } \ imbSwRNwh<éYTág ) in January
1996. Mr. Wu served in various positions in Jiefang Daily (‰e>eX1 ) from October 1973 to
November 1994, which include editorial committee member and director of literature
department, mainly in charge of news reporting and editing. Mr. Wu was deputy chief editor
of People’s Daily East China Branch (N”l eX1y>gqR y> ) and deputy chief editor of Wenhui
Paper (eS/X1 ) from November 1994 to May 1998 and from May 1998 to July 2008,
respectively, mainly in charge of news reporting and editing. Mr. Wu has been a member of
CPC party committee of Wenhui-Xinmin United Press Group 11 (eS/e°l T X1im–W ) since
July 2008, secretary of the CPC party committee and deputy chief editor of Xinmin Evening
News (e°l fZX1 ) since July 2008 mainly in charge of the overall operation of the newspaper
group and the chairman of supervisory committee of Shanghai Oriental Sports Media Co., Ltd.
(N mwgqPZg – QlS ) since February 2010.
Ms. Jin Yanping (‘q ), aged 56, serves as a Supervisor. Ms. Jin joined our Company
on July 16, 2007 and has been our Supervisor since then. She has over 25 years of working
experience including over four years of experience as supervisor. Ms. Jin obtained a bachelor’s
degree in literature from Shanghai University of Technology in October 1982. Ms. Jin is a
10
Shanghai Friendship Group Incorporated Company held 2.61% shareholding in our Company prior to the Global
Offering as of the Latest Practicable Date.
11
Wenhui-Xinmin United Press Group held 2.38% shareholding in our Company prior to the Global Offering as of
the Latest Practicable Date.
– 286 –
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
senior political officer recognized by Propaganda Department of the CPC Shanghai
Committee* (N mw^ Y[Pè ) in May 1992. Ms. Jin was previously member of CPC party
committee and deputy director of CPC party committee office of Shanghai Foreign Trade
Corporation* (N mw\ Y f ~ lS ) from February 1986 to December 1987. Ms. Jin was
previously secretary of CPC general branch of Shanghai Overseas Company* (N mwmwY QlS
from January 1988 to December 1990. Ms. Jin also served as deputy secretary of CPC party
committee and deputy general manager of Shanghai Advertising Co., Ltd. (N mw^TJg – QlS )
from December 1990 to December 1994 mainly in charge of human resources. Ms. Jin was
Shanghai office’s executive vice director and secretary of CPC general branch of SIIC from
January 1995 to October 1998, head of the research office of Shanghai Lansheng (Group) Co.,
Ltd. (N mw-u (–W )g – QlS ) from October 1998 to March 2001 and manager of the general
corporate business department of Shanghai Lansheng (Group) Co., Ltd. from March 2001 to
June 2003. Ms. Jin has been assistant to president of Shanghai Lansheng (Group) Co., Ltd.
since October 1998, general manager of investment management department of the same
company since June 2003, a director of Shanghai Lansheng Corporation 12 (N mw-u g –
QlS ) (a company listed on the Shanghai Stock Exchange and its stock code is 600826) since
May 2003, vice chairman of Soochow Asset Management Co., Ltd. (gqT3Wú‘t g – QlS )
since April 2004 and chairman of supervisory committee of Shanghai CP Guojian Pharma Co.,
Ltd. (N mwN-OáW Pe…imNg – QlS ) since February 2011.
Mr. Xu Qi (1YG), aged 49, serves as a Supervisor. Mr. Xu joined our Company on July
16, 2007 and has been our Supervisor since then. He has around 20 years of extensive working
experience in finance and accounting and over four years of experience as supervisor. Mr. Xu
graduated with a major in economic management (junior college course) from Shanghai
Normal University in July 1988. He graduated from East China Normal University as a
postgraduate with a major in international enterprise management in November 1997. Mr. Xu
is an accountant recognized by Leading Working Group for Shanghai Professional Title
Reform* (N mw^ z1e9—iO\ \ \ } ) in July 1992. Mr. Xu was awarded China’s
outstanding CFO of 2005 by Selection Committee of Annual Figure of China CFO* (N-WCFO
^ ^ ”riUxYTág ) and Xinlicai Magazine* (e°t > ) in March 2006. He was a
Chinese registered career manager (N-W Qwim}t N” ) recognized by China Enterprise
Evaluation Association (N-W O imUPùSTg ) in July 2006. He was a senior member of the
Chinese Enterprise Operation and Management Talent Bank* (N-W O im}q{t N”bM^b Tá
( )) recognized by National Talent Service Centre under the Ministry of Human Resources
(N”NèQhW N”bMmARN-_ ) in September 2006. He was also awarded the Annual Figure of
China Chief Financial Officer in November 2006 recognized by Organizing Committee of
China CFO International Summit* (N-WCFOW – g } Yg ) and China CFO Magazine* (N-
W~ ^ > ). He is a qualified professional director and qualified director and
supervisor (Senior) recognized by China Institute of Directors* (N-W NSTg ) and Chinese
Director and Supervisor Certification Experts Committee* (N-W imcvNhg ) in May 2007. He was a senior international finance manager recognized by China
Association of Chief Financial Officers (N-W ~ ^ Tg ), Ministry of Labor and Social
Security (N-W RRTyg O–è ) and International Financial Management Association (W –
12
Shanghai Lansheng Corporation held 2.32% shareholding in our Company prior to the Global Offering as of the
Latest Practicable Date.
– 287 –
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
) in November 2007. Mr. Xu served in various positions in Shanghai Chlor-
Alkali Chemical Co., Ltd. (N mwl/S ] g – QlS ) (a company listed on the Shanghai
Stock Exchange and its stock code is 600618) from April 1988 to June 2002, including deputy
manager of asset operation department and deputy manager of asset finance department. He
also served as deputy manager of asset finance department of Shanghai Tianyuan Group Co.,
Ltd. (N mwY)SW g – QlS ) from March 1996 to April 1997 mainly in charge of financial
management. Mr. Xu was also manager of planning and finance department and vice chief
financial officer of Shanghai Oriental Pearl (Group) Co., Ltd. (N mwgqef sà (–W )Ng – Ql
S ) (a company listed on the Shanghai Stock Exchange and its stock code is 600832) from July
2002 to March 2003 and March 2003 to March 2004, respectively. Mr. Xu has been chief
financial officer of Shanghai Oriental Pearl (Group) Co., Ltd. since March 2004.
Mr. Xing Jianhua (ú ), aged 52, serves as a Supervisor. Mr. Xing joined our
Company on November 28, 2002 and has been our Supervisor since then. He has over four
years of experience as supervisor. Mr. Xing obtained a bachelor’s degree in economics from
East China Normal University in December 1992. Mr. Xing is a senior accountant recognized
by Shanghai Accounting Senior Professional and Technical Title Evaluating Committee* (N mw
^ g | R } \ imbSwRNwh
November 1986 to July 1989, and deputy director of finance department of Shanghai Fertilizer
United Co., Ltd.* (N mw^ S T QlS ) from July 1989 to April 1993. Mr. Xing was deputy
general accountant of Shanghai Rubber Belt Co., Ltd. (N mw6Ng – QlS ) from April
1993 to April 1995 and director and deputy general manager of the same company from April
1995 to July 1996 mainly in charge of strategic planning, asset operation and financial work.
Mr. Xing was also manager of asset department of Shanghai Huayi (Group) Company (N mw
(–W )QlS ) from July 1996 to April 2001 mainly in charge of property management,
enterprise reform and asset operation. He successively served as deputy director and director
of finance department of Orient International (Holding) Co., Ltd. 13 (gqeW – (–W )g – QlS )
from April 2001 to November 2003. He has been director of asset operation department of the
same company mainly in charge of asset management and asset operation since April 2002. Mr.
Xing was director of Orient International Enterprise Ltd.* 14 (gqeW – uimNg – QlS ) (a
company listed on the Shanghai Stock Exchange and its stock code is 600278) from April 2008
to April 2011. He has been deputy chief economist of Orient International (Holding) Co., Ltd.
since February 2009 mainly in charge of asset management and asset operation, vice chairman
of Shanghai Orient International Asset Management & Administration Co., Ltd. (N mwgqeW
– u\"}q{t g – QlS ) since April 2007 and a director of Shanghai Silk (Group) Co., Ltd.
(N mw}r (–W )g – QlS ) since January 2003.
Mr. Wang Yugui (ss ), aged 60, serves as a Supervisor. Mr. Wang joined our
Company on May 16, 2011 and has been our Supervisor since then. He has around 30 years of
financial working experience. Mr. Wang graduated with a major in English from Beijing
13
Orient International (Holding) Co., Ltd. held 0.95% shareholding in our Company prior to the Global Offering
as of the Latest Practicable Date.
14
Orient International Enterprise Ltd. held 0.36% shareholding in our Company prior to the Global Offering as of
the Latest Practicable Date.
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Second Foreign Language Institute in February 1977. Mr. Wang is a senior economist
recognized by Certification Committee of Specialized Technical Post of the Ministry of
Communications* (N¤ \ imbSwRUéYTág ) in November 1994. Mr. Wang has been
general manager of China Shipowners Mutual Assurance Association (N-W gqN’OSTg )
since February 1993 in charge of shipowners’ mutual assurance and relevant work, and a
non-executive director of China Minsheng Banking Corp., Ltd. (a company listed on both the
Shanghai Stock Exchange and the Hong Kong Stock Exchange and its stock code is 600016 and
01988 respectively) since December 1995.
Ms. Qiu Xiaping (NY ), aged 51, serves as our employee Supervisor. Ms. Qiu joined
our Company in November 1994 and has been our Supervisor since July 16, 2007. She has
around 30 years of working experience in banking and securities industry and over four years
of experience as supervisor. Ms. Qiu graduated with a major in finance from Shanghai TV
University (junior college degree) in July 1982 and obtained a bachelor’s degree in law from
Correspondence Institute of Party School of Central Committee of the CPC* (N-QqN-Y.èh!Q
cxb ) in December 2005. She graduated from Shanghai Academy of Social Sciences as a
postgraduate with a major in economics in January 2002, and a master’s degree in business
administration from Washington International University in July 2003. Ms. Qiu is an
accountant recognized by Industrial and Commercial Bank of China in September 1992. She
was an officer of Yangpu branch of Industrial and Commercial Bank of China from August
1980 to August 1992 and worked at Pudong branch of the same bank from March 1993 to
August 1993. She also worked at Dongfang Road branch of Huaxia Securities Co., Ltd. from
August 1993 to November 1994 mainly in charge of the branch’s finance work. She was an
officer of our Company from November 1994 to August 1996, section chief of finance and
accounting department from August 1996 to April 1998. Ms. Qiu was assistant to general
manager and has been deputy general manager of our planning and finance department from
April 1998 to July 2000 and since July 2000, respectively. Ms. Qiu has been a director of
Haitong Futures since October 2005, a director of Haitong Capital Investment since October
2008, a supervisor of Fullgoal Fund Management since October 2008 and a supervisor of
Haitong Jihe Management since November 2010.
Mr. Du Hongbo (g\m*l ), aged 49, serves as our employee Supervisor. Mr. Du joined our
Company in March 2002 and has been our Supervisor since May 16, 2011. He has around 15
years of working experience in securities industry. Mr. Du obtained a bachelor’s degree in
industrial automation from Huazhong Institute of Technology (N-]xb ) in July 1984. Mr.
Du is an engineer recognized by Wuhan Personnel Bureau in December 1992. Mr. Du
successively worked at Wuhan Computer Application Institute* (kfo\"^ { _ u(vx zv
b@ ), Wuhan Branch of Stone Group Corp.* (V – W kfo\"R QlS ) and Wuhan Software
Research Center* (kfo\"Nx zvN-_ ) from August 1984 to August 1996 mainly in charge of
computer application, development and research. Mr. Du worked at information technology
department of Guotai Jun’an Securities Co., Ltd. (W lT [ R8Ng – QlS ) from August
1996 to March 2002 mainly in charge of information systems development and operation
management. He was assistant to general manager of the website management department and
brokerage business department of our Company from March 2002 to May 2005 and deputy
general manager of risk control headquarters of our Company from May 2005 to March 2011.
Mr. Du has been our general manager of compliance and risk management headquarters since
March 2011 mainly in charge of compliance management and risk control.
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DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Senior Management
The following table sets forth information regarding our senior management of the
Company. Our senior management all meet the qualification requirements under the relevant
PRC laws and regulations for their respective positions. Our personnel are responsible for the
day-to-day management of the Company’s business.
Name Age Position
Mr. Li Mingshan (gNf \ ) 59 General Manager
Mr. Shen Degao (l ) 59 Deputy General Manager
Mr. Ji Yuguang (T [ I ) 54 Deputy General Manager
Mr. Ren Peng (No ) 49 Deputy General Manager
Mr. Wu Bin (T3e ) 39 Deputy General Manager
Mr. Li Xunlei (gN÷ ) 48 Deputy General Manager
Mr. Hiroki Miyazato ([U_f ) 46 Deputy General Manager
Mr. Jin Xiaobin (‘fe ) 57 Secretary to the Board
Mr. Wang Jianye (súim ) 51 General Compliance Officer and
Chief Risk Control Executive
Mr. Li Chuqian (gNy RM 55 Chief Financial Officer
Mr. Li Mingshan (gNf \ ), aged 59, is our General Manager. Please see “– Overview –
Executive Directors” in this prospectus for his biography.
Mr. Shen Degao (l ), aged 59, joined our Company in September 1991 and has been
our Deputy General Manager since December 1991. He has over 20 years of management
experience in securities industry. Mr. Shen graduated from the People’s Liberation Army Air
Force Political Science College* (‰e>zze?l[xb ) with a major in economic management
in July 1999 and obtained a master’s degree in business administration from Asia International
Open University (Macau) in March 2002. Mr. Shen is an economist recognized by Appraisal
Committee of Intermediate Professional Technical Titles* (N-} \ imbSwRUéYTág ) in
the Bank of Communications (Shanghai Branch) in December 1992. Mr. Shen served in various
positions in the People’s Liberation Army Navy (N-W N”l ‰ e>mw ) from March 1968 to
September 1989. He was a discipline inspector (section chief level) of Bank of
Communications (Shanghai Branch) from March 1990 to September 1991. Mr. Shen served in
various positions in our Company, including office director from September 1991 to June 1994,
member of the CPC party group from June 1994 to December 1998 and secretary of the
discipline inspection committee from May 2006 to October 2008. Mr. Shen has been our deputy
secretary of CPC party committee since December 1998.
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DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Mr. Ji Yuguang (T [ I ), aged 54, joined our Company in November 1995 and has been
our Deputy General Manager since November 1997. He is mainly in charge of proprietary
trading and international business. He has around 25 years of working experience in banking
and securities industry including over 15 years of management experience. Mr. Ji obtained a
bachelor’s degree in economics from Beijing Finance and Commerce College in July 1983 and
graduated with a major in economy management as a postgraduate from Party School of
Central Committee of the CPC (N-QqN-Y.èh! ) in June 1999. Mr. Ji is a senior economist
recognized by Senior Professional and Technical Title Evaluating Committee* ( \ imwR
[ YTág ) of the Bank of Communications in April 1994. Mr. Ji was an officer of Finance
Department of Beijing Planning Commission* (S N YU ) from August 1983 to
November 1988. Mr. Ji served in various positions in Bank of Communications (Beijing
Branch) from November 1988 to November 1995, including deputy manager and manager of
securities trading department of the same branch. He also served as leading officer and general
manager of Beijing Langjiayuan Branch of Haitong Securities Company Limited from
November 1995 to November 1997. Mr. Ji served as chairman of Jilin Investment Fund from
December 2010 to May 2011. Mr. Ji has been a non-executive director of Haitong International
Securities since January 2010 and chairman of board of directors of Haitong International
Securities since March 2011, a director of Haitong International Holdings since August 2010
and chairman of board of directors of Haitong International Holdings since March 2011.
Mr. Ren Peng (No ), aged 49, joined our Company in March 1996 and has been our
Deputy General Manager since November 1997. He is mainly in charge of investment banking
and direct investment businesses. He has around 30 years of working experience in banking
and securities industry including over 15 years of management experience. Mr. Ren graduated
with a major in finance from Fudan University in January 2004 and obtained a master’s degree
in business administration from China Europe International Business School in July 2006. Mr.
Ren is an economist recognized by the Medium-leveled Professional and Technical Title
Evaluating Committee* (N-} \ imbSwRUéYTág ) of Bank of Communications
(Hangzhou Branch) in July 1989. Mr. Ren served in several managerial positions in the Xihu
Office of the Industrial and Commercial Bank of China from June 1982 to February 1988 and
served in various positions in Bank of Communications (Hangzhou Branch) from March 1988
to March 1996 including head of saving business and manager of securities department, mainly
in charge of daily operations. In addition, Mr. Ren was manager of Hangzhou branch of
Haitong Securities Company Limited from March 1996 to November 1997 mainly in charge of
daily operations. Mr. Ren was a director of Haitong Capital Investment from October 2008 to
August 2011. He has been a director of China-Belgium Fund since March 2011 and chairman
of Jilin Investment Fund since May 2011 mainly in charge of strategies implementation.
Mr. Wu Bin (T3e ), aged 39, joined our Company in July 1998 and has been our Deputy
General Manager since March 2012. He is mainly in charge of asset management business, the
Company’s strategy development and information technology (“IT”). He has around 14 years
of working experience in the securities industry including over ten years of management
experience. Mr. Wu obtained a bachelor’s degree in law from East China Normal University in
July 1995, a master’s degree in economic law from East China College of Politics and Law in
July 1998 and a doctor’s degree in economics from Fudan University in June 2003. Mr. Wu
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DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
obtained the lawyer qualification certificate of China which is recognized by the Ministry of
Justice of the PRC (N-N”l QqTW Slè ) in April 1997 and is an economist recognized by
PRC Ministry of Personnel (N-N”l QqTW N”Nè ) in November 2000. Mr. Wu served in
various positions in our Company including a project manager in the investment bank
department from July 1998 to March 2001, deputy section chief and section chief of the general
manager office from March 2001 to October 2003, assistant to general manager in the
international business division from October 2003 to May 2005, deputy director in the general
manager office from May 2005 to January 2007, chief compliance director from July 2007 to
August 2010, director of compliance office and general manager of compliance department
from October 2007 to March 2011 during which time he was working part-time as an inspector
assistant in the Shanghai municipal government from January 2010 to January 2011. Mr. Wu
has been the director of our general manager office since January 2007, a non-executive
director of Haitong International Securities since January 2010, a director of Haitong
International Holdings since August 2010 and the director of strategic development and IT
management committee and the head of preparatory group of Haitong Asset Management
Company* (mw u\"{t QlS ) since March 2011.
Mr. Li Xunlei (gN÷ ), aged 48, joined our Company in October 2011 and has been our
Deputy General Manager and Chief Economist since March 2012. He is mainly in charge of
research and institutional business. He has around 15 years of working experience in securities
industry, including over ten years of management experience. Mr. Li obtained a bachelor’s
degree and a master’s degree in economics from Shanghai University of Finance and
Economics in July 1985 and in July 1991 respectively. Mr. Li was a librarian and assistant
researcher of Institute of Economics and Finance in Shanghai University of Finance and
Economics from July 1985 to September 1996. Mr. Li was deputy director of research institute
of Jun’an Securities Co., Ltd. (T [ R8g – QlS ) from September 1996 to August 1999,
mainly in charge of research business. He was deputy director of the research institute, director
of the research institute and general manager of sales and trading department, assistant to
president and chief economist in Guotai Junan Securities Co., Ltd. (W lT [ R8g – QlS )
from August 1999 to October 2011, mainly in charge of research and institutional business.
Mr. Hiroki Miyazato ([U_f ), aged 46, joined our Company in May 2009 and has
been our Deputy General Manager since March 2012. He is mainly in charge of securities
investment. He has around 20 years of working and management experience in banking and
securities industry. Mr. Miyazato obtained a bachelor’s degree in science from Fudan
University in July 1986 and obtained a master’s degree in biophysics and biochemistry from
University of Tokyo in March 1993. Mr. Miyazato was a manager in fixed income department
of Credit Suisse First Boston (currently known as Credit Suisse Group AG) from April 1993
to March 1994, mainly in charge of Japanese government bond and Euro-yen bond trading and
investment in the Asia-Pacific region. He was head of Asia department of Tokyo branch of
Deutsche Genossenschaftsbank AG (currently known as Deutsche Zentral-Genossenschaftbank
AG) from April 1994 to March 1998, mainly in charge of European government bond trading
and investment in the Asia-Pacific region. Mr. Miyazato was the global market investment
manager of proprietary investment department of Tokyo branch of J.P. Morgan from April 1998
to September 1999, mainly in charge of the company’s capital operation. Mr. Miyazato was a
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DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
fund manager of global strategic asset management, a senior fund manager of alternative
investment, general manager of the China Investment Department and president of the Greater
China area of Nikko (Citi) Asset Management Co., Ltd. from October 1999 to March 2009,
mainly in charge of investment and management. He was also a director and the shareholder
representative of Rongtong Fund Management Co., Ltd. ( Wú‘t g – QlS ) from April
2007 to April 2009. He was general manager of international business department,
commissioner of international business coordination committee and commissioner of strategic
development and IT management committee of our Company from May 2009 to March 2012,
mainly in charge of expanding international business.
Mr. Jin Xiaobin (‘fe ), aged 57, joined our Company in August 1998 and has been our
Secretary to the Board since May 2005 and the deputy director of our investment banking
committee since March 2010. He is mainly in charge of the office of the Board and office of
Supervisory Committee. He mainly assists in the management of investment banking business.
He has 13 years of management experience in securities industry. Mr. Jin obtained a bachelor’s
degree in political education from Shanghai Second Institute of Education (N mw{,NeYxb )
in July 1988, a master’s degree in economics from Fudan University in July 1993, a doctor’s
degree in economics from Fudan University in January 1997 and a postdoctoral degree in
finance from Shanghai University of Finance and Economics in July 1999. Mr. Jin has been a
deputy researcher (deputy professor level) recognized by Shanghai University of Finance and
Economics since June 1998 and has been an expert with special allowance from the State
Council since June 2002. Mr. Jin worked in the People’s Liberation Army Navy (N-W N”l ‰
e>mw ) from December 1972 to March 1998. Mr. Jin has served in various positions in our
Company and subsidiaries including deputy general manager of research and development
center from December 1998 to March 2000, head of research institute from March 2000 to
August 2004, general manager of brokerage business headquarters from May 2003 to March
2005, general manager of M&A financing department from January 2007 to March 2008, and
chairman and legal representative of Haitong Jihe Management from June 2010 to May 2011,
mainly in charge of private equity direct equity investment. He was deputy director member of
analysts committee of SAC from July 2000 to June 2011. Mr. Jin has been assistant to our
general manager since July 2003, secretary to the Board of Directors of our Company since
May 2005, the deputy director of investment banking commission of our Company since March
2010, mainly providing assistance in the management of equity financing department, debt
financing department and M&A financing department. He has been a professional evaluation
expert of securities companies in SAC since January 2011, and leader of preparation team of
Liaoning New Resource and Low Carbon Industry Investment Fund* (e°nTONxu\"im
bWú‘ ) since June 2011.
Mr. Wang Jianye (súim ), aged 51, joined our Company in August 1994 and has been
our General Compliance Officer since July 2010 and our Chief Risk Control Executive since
May 2011. He is mainly in charge of compliance and risk management headquarters. He has
around 25 years of working experience in banking and securities industry including over 15
years of management experience. Mr. Wang graduated with a major in finance from Shaanxi
Institute of Finance and Economics (junior college degree) in June 1984 and graduated with a
major in money and banking from Graduate School of Xiamen University in January 1994. Mr.
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DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Wang is a senior economist recognized by PBOC in July 1993. Mr. Wang was successively
deputy director-level clerk* (RoN;NyTá ), trainee deputy director, deputy director of education
department of financial administration division of PBOC Inner Mongolia Branch from August
1984 to August 1990, deputy director of Financial Administration Division of PBOC Inner
Mongolia Branch from August 1990 to May 1992, deputy general manager of the securities
department of Inner Mongolia Securities Company* (QgSêlS@IR8QlS ) from May 1992
to March 1993 and deputy general manager of the same company from March 1993 to July
1994 mainly in charge of securities brokerage and underwriting services. Mr. Wang previously
served in various positions in our Company including head of trading department from August
1994 to March 1996, deputy general manager of business management headquarters from
March 1996 to September 1998, and general manager of integrated business management
headquarters from September 1998 to August 2004. Mr. Wang was assistant to general manager
of our Company from June 2001 to February 2011, general manager of brokerage business
headquarters from March 2005 to June 2006 and general manager of risk control headquarters
from October 2008 to March 2011, and was successively in charge of integrated business
management headquarters, brokerage business headquarters, I.T. department, brokerage
operations center, sales and transactions headquarters, customer asset management department
and risk control department.
Mr. Li Chuqian (gNy RM aged 55, joined our Company in August 1994 and has been our
Chief Financial Officer and general manager of planning and finance department since July
2007. He is mainly in charge of planning and finance department and assists in the management
of equity management department. He has around 25 years of working experience in financial
management including over 15 years of financial experience in securities industry. Mr. Li
obtained a bachelor’s degree in engineering from Hefei University of Technology in September
1982 and a master’s degree in economics from Zhongnan University of Economics
(predecessor of Zhongnan University of Economics and Law) in October 1988. Mr. Li is an
accountant recognized by the PRC Ministry of Finance in December 1992 and a senior
economist recognized by Job Title Qualification Evaluating Committee in the Department of
Finance of Anhui Province* ([w ? j_wz1YTág ) in April 1993. Mr. Li was
previously deputy director clerk of Central Enterprise Department of Anhui Provincial
Department of Finance* ([w ? N-O ) from July 1988 to August 1991 and section
chief of Anhui Provincial State-owned Assets Supervision and Administration Bureau ([w
W g u\"{t \ ) from August 1991 to July 1994 mainly in charge of management of
state-owned assets of Anhui provincial business agriculture and forestry and administrative
institutions. Mr. Li served in various positions in our Company including head of planning and
finance department from August 1994 to March 1996, deputy general manager of finance and
accounting department from March 1996 to April 1998, general manager of finance and
accounting department from April 1998 to July 2001, deputy chief financial officer and general
manager of finance and accounting department from July 2001 to July 2007. Mr. Li has been
chief supervisor of HFT Investment Management since April 2003, a director of Haitong-Fortis
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DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
PE Management since June 2010, and a director of Shanghai Jielong Industry Group
Corporation Limited (N mwuLim–W g – QlS ) (a company listed on the Shanghai
Stock Exchange and its stock code is 600836) from May 2006 to May 2009.
Joint Company Secretaries
Mr. Jin Xiaobin (‘fe ), one of our joint company secretaries, is also a member of our
senior management. Please see “– Overview – Senior Management” in this prospectus for his
biography.
Ms. Mok Mingwai (f ag ), aged 40, was appointed as our joint company secretary on
November 8, 2011. She has over 15 years of professional and in-house experience in the
company’s secretarial field. Ms. Mok is a fellow member of the Hong Kong Institute of
Chartered Secretaries and the Institute of Chartered Secretaries and Administrators in the
United Kingdom. Ms. Mok worked in the Corporate Services Division of KPMG from August
1994 to April 2002 in Hong Kong. She subsequently worked for various commercial and
professional organizations during the period from April 2002 to March 2008. Ms. Mok acted
as the company secretary from March 2008 to December 2010 for a group with two listed
companies, namely HKC (Holdings) Limited (n/^ú- (c§ )g – QlS ) (a company listed on
the Hong Kong Stock Exchange and its stock code is 00190) and Hong Kong Energy
(Holdings) Limited (now known as China Renewable Energy Investment Limited (N-W Qu
nbg – QlS )) (a company listed on the Hong Kong Stock Exchange and its stock code is
00987). Ms. Mok is currently an associate director of KCS Hong Kong Limited, a corporate
secretarial and accounting services provider in Hong Kong. She currently acts as the joint
company secretary of Shanghai Pharmaceuticals Holding Co., Ltd. (N mw‘W g – Ql
S ) (a company listed on the Hong Kong Stock Exchange and its stock code is 02607), Huaneng
Renewables Corporation Limited (e°nNg – QlS ) (a company listed on the Hong
Kong Stock Exchange and its stock code is 00958) and China Hanking Holdings Limited (N-
W scg – QlS ) (a company listed on the Hong Kong Stock Exchange and its stock code
is 03788), and also acts as the sole company secretary of Hongguo International Holdings
Limited (;W W – § – QlS ) (a company listed on the Hong Kong Stock Exchange and its
stock code is 01028) and Tenfu (Cayman) Holdings Company Limited (Y)y (fü )c§g – Ql
S ) (a company listed on the Hong Kong Stock Exchange and its stock code is 06868).
BOARD COMMITTEES
The Board delegates certain responsibilities to various dedicated committees. In
accordance with relevant PRC laws, regulations, the Articles of Association, and the Hong
Kong Listing Rules, we have formed four board committees, namely: the audit committee, the
nomination, remuneration and assessment committee, the development strategy and investment
management committee and the compliance and risk control committee.
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DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Audit Committee
We have established an audit committee with written terms of reference in compliance
with Rule 3.21 of the Hong Kong Listing Rules and paragraph C3 of the HKSE Corporate
Governance Code. The audit committee consists of seven Directors: Mr. Zhou Donghui, Mr. Xu
Chao, Mr. Wang Hongxiang, all of whom are non-executive Directors, and Mr. Zhang Huiquan,
Mr. Zhang Ming, Mr. Dai Genyou and Mr. Chen Qiwei, all of whom are independent
non-executive Directors. Mr. Zhang Ming, who has the appropriate professional qualifications,
currently serves as the chairman of the audit committee. The primary duties of the audit
committee are to review and supervise our financial reporting process, which include, among
others:
to propose the appointment or removal of the external auditor of the Company and
to review and supervise the independence and objectivity of the external auditors
and the effectiveness of the audit process;
to discuss with the external auditor on the nature and scope of the audit work prior
to the commencement of the audit work;
to oversee the Company’s internal audit system and its implementation;
to be in charge of communication between the internal auditors and external auditors
and meet the external auditor at least twice a year;
to review the Company’s financial information and disclosure thereof, and to review,
where necessary, any major related party transactions;
to review the internal control systems of the Company and its subsidiaries and
branches from the perspective of appropriateness, reasonableness and effectiveness
as well as implementation, and make recommendations on the pursuit of
accountability of responsible persons;
to review the arrangements for employees to raise concerns about financial reporting
improprieties;
to make recommendations on performance assessment of internal auditors in
discharging their responsibilities; and
to review the regular and interim audit reports submitted by the internal audit
departments of the Company.
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DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Nomination, Remuneration and Assessment Committee
We have established a nomination, remuneration and assessment committee with written
terms of reference in compliance with paragraph B1 of the HKSE Corporate Governance Code.
The nomination, remuneration and assessment committee consists of seven Directors: Mr. Qian
Shizheng, Mr. He Jianyong, Mr. Li Gewei, all of whom are non-executive Directors, Mr. Zhang
Ming, Mr. Liu Chee Ming, Mr. Dai Genyou and Mr. Xia Bin, all of whom are independent
non-executive Directors. Mr. Xia Bin currently serves as the chairman of the nomination,
remuneration and assessment committee. The primary duties of the nomination, remuneration
and assessment committee are to formulate the nomination procedures and standards for
candidates for Directors, evaluate the performance of Directors and senior management, make
recommendations on the remuneration package of our Directors and senior management, and
evaluate and make recommendations on employee benefit arrangements, which include, among
others:
to consider and make recommendation on the selection criteria and procedures
applicable to directors and management;
to carry out extensive search for qualified candidates of directors and management
and to consider and make recommendation on the same;
to review the structure, size and composition of the board of directors at least
annually to complement the Company’s corporate strategy; where necessary, to seek
professional advice to perform its responsibilities;
to study the performance assessment criteria for directors and management, and to
propose the performance assessment system, competitive remuneration package, and
the incentive scheme of stock or stock options based on and financial performance
and the executive liability insurances in each case based on the characteristics of the
financial and securities industry and the job responsibilities of the directors and
management as well as the remuneration of the same position in other relevant
enterprises;
to establish the policies on remuneration, including without limitation the
performance assessment criteria and procedures and the main evolution system,
major plans and policies related to reward and punishment;
based on the result of the Audit Committee’s annual audit, review the performance
of the Company’s directors and management, conduct annual performance
assessment of the directors and management, and make recommendations; and
to consider and discuss the Company’s remuneration reform plan, and to oversee the
implementation of the Company’s remuneration system.
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DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Development Strategy and Investment Management Committee
Our development strategy and investment management committee consists of five
Directors: Mr. Wang Kaiguo, an executive director, Mr. Qian Shizheng, Mr. Zhuang Guowei,
Mr. Zhang Jianwei, all of whom are non-executive Directors, and Mr. Chen Qiwei, an
independent non-executive Director. Mr. Wang Kaiguo currently serves as the chairman of this
committee. The primary duties of this committee are to conduct studies and submit proposals
regarding our mid-to-long-term development strategies and planning of the Company, which
include, among others:
to study and make suggestions to the financing plans of major investment
transactions which the Articles of Association of the Company has required to be
approved by the Board of Directors;
to conduct feasibility study and make suggestions to the major capital operation,
asset management, mergers and acquisitions which the Articles of Association of the
Company has required to be approved by the Board of Directors;
to study and make suggestions to major issues affecting the development of the
Company; and
to conduct inspection and supervision to the implementation of the above matters.
Compliance and Risk Control Committee
The compliance and risk control committee consists of five Directors: Mr. Li Mingshan,
an executive director, Mr. Zhou Donghui, Mr. Feng Huang, all of whom are non-executive
Directors, and Mr. Zhang Huiquan and Mr. Dai Genyou, both of whom are independent
non-executive Directors. Mr. Zhang Huiquan currently serves as the chairman of the
compliance and risk control committee. The primary duties of this committee are to review the
Company’s compliance operation and risk controls, formulate compliance management
policies, review the work report of the General Compliance Officer, diagnose and complete the
internal control system, review and monitor the compliance management system, and perform
other duties and responsibilities as assigned by our Board, which include, among others:
to formulate compliance management policies and to regularly or irregularly review
the work report of the General Compliance Officer and make suggestions to the
improvement of the compliance management;
to review and monitor the feasibility, rationality, effectiveness and implementation
of the compliance management system of the Company;
to formulate the overall risk management policies and to review and monitor the
Company’s identification and evaluation of the various existing and potential risks
and completeness and effectiveness of the Company’s risk control system;
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DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
to review and monitor the management of the Company to the risk parameter,
formulate the risk control principles and the limitations of major risks for the
Company;
to review and supervise the implementation of the internal control system and
provide guidance to the same; and
to provide evaluation to the business authorization and operation risks, investment
risks, financial risks and morality risks, and provide timely guidance to strengthen
and improve the risk controls.
CORPORATE GOVERNANCE
Our Directors are aware that, effective from April 1, 2012, the recommended best practice
of arranging appropriate insurance cover in respect of legal actions against directors has been
upgraded to a code provision in the HKSE Corporate Governance Code. Our Directors are also
aware that, upon Listing, we are expected to comply with, but may choose to deviate from such
code provision. However, such deviation shall be carefully considered and reasons for such
deviation shall be given in the interim report and the annual report of the relevant period. While
we are committed to achieving high standards of corporate governance and to complying with
the code provisions as set out in the HKSE Corporate Governance Code, we are advised by our
PRC legal advisors, Grandall Law Firm (Shanghai), that insurance cover in respect of legal
actions against directors shall be approved at general meeting under the SSE Corporate
Governance Index. Upon careful consideration, our Directors decided to delay the compliance
with such code provision and submit the relevant insurance plans for our Shareholders’
approval at our next annual general meeting, which is expected to be held by June 2012 for the
following reasons: (i) the deviation from such code provision will be for a short period of time
of less than three months, taking into consideration that our Listing Date is expected to be on
Friday, April 27, 2012 and our annual general meeting is expected to be held by June 2012; and
(ii) to convene an extraordinary general meeting approximately two months before our annual
general meeting solely to approve such insurance plans would incur undue administrative cost
on the part of our Company and be unduly burdensome for the Company.
Save as disclosed in the above paragraph, we will comply with all other code provisions
set out in the HKSE Corporate Governance Code.
COMPENSATION OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
We offer our executive Directors, Supervisors and senior management personnel, who are
also employees of our Company, various compensation in the form of salaries, bonuses, social
security plans, housing provident fund plans and other benefits. Our independent non-
executive Directors and external Supervisors receive compensation based on their
responsibilities (including being members or chairmen of Board committees). Total
compensation paid to the Directors, Supervisors and senior management for the three years
ended December 31, 2009, 2010 and 2011 were approximately RMB19,683,000,
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DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
RMB21,495,000, and RMB24,347,000, respectively. As required by PRC regulations, we
participate in various defined pension schemes for our employees, including those organized
by provincial or municipal governments as well as supplemental pension schemes. The
employees covered by such schemes include our Directors, Supervisors and senior
management personnel. The Company did not contribute any other benefits as post-
employment benefits for the Directors, Supervisors and senior management for the three years
ended December 31, 2009, 2010 and 2011 except the pension scheme. The aggregate amount
of compensation the Company paid to the five highest paid individual employees during the
years ended December 31, 2009, 2010 and 2011 were approximately RMB40,563,000,
RMB24,829,000, and RMB36,299,000, respectively.
No remuneration was paid by our Group, or was receivable by our Directors or the five
highest paid individuals as an inducement to join, or upon joining, us or as compensation for
loss of office in 2009, 2010 and 2011. Furthermore, none of our Directors had waived any
remuneration during the same period.
Under the existing arrangements currently in force, the aggregate remuneration
(excluding the discretionary bonuses) paid/payable to and benefits-in-kind receivable by the
Directors (including nine independent non-executive Directors), Supervisors and senior
management personnel in respect of the year ending December 31, 2012 will be approximately
RMB13,348,285 (including RMB720,000 to be received by the independent non-executive
Directors).
JOINT COMPLIANCE ADVISORS
The Company has agreed to appoint Haitong International Capital Limited and BOCOM
International (Asia) Limited to be its joint compliance advisors upon listing in compliance with
Rules 3A.19 and 19A.05 of the Hong Kong Listing Rules. The Company has entered into a
compliance advisor’s agreement with the joint compliance advisors prior to the Listing Date,
the material terms of which are as follows:
(a) the Company will appoint Haitong International Capital Limited and BOCOM
International (Asia) Limited as the joint compliance advisors for the purpose of
Rules 3A.19 and 19A.05 of the Hong Kong Listing Rules for a period commencing
on the Listing Date and ending on the date on which the Company complies with
Rule 13.46 of the Hong Kong Listing Rules in respect of the financial results of the
Company for the first full financial year commencing after the Listing Date, or until
the agreement is terminated, whichever is earlier;
(b) the joint compliance advisors will provide us with certain services, including
providing us with proper guidance and advice as to compliance with the
requirements under the Hong Kong Listing Rules and applicable laws, rules, codes
and guidelines and provide advice to the Company on the continuing requirements
under the Hong Kong Listing Rules and applicable laws and regulations;
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DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
(c) the joint compliance advisors will, as soon as reasonably practicable, inform us of
any amendment or supplement to the Hong Kong Listing Rules announced by the
Hong Kong Stock Exchange from time to time, and of any amendment or
supplement to the applicable laws and guidelines; and
(d) the joint compliance advisors will serve as a principal channel of communication of
the Company with the Hong Kong Stock Exchange.
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SHARE CAPITAL
SHARE CAPITAL
This section presents certain information regarding our share capital prior to the
completion of the Global Offering and after the completion of the Global Offering.
Before Global Offering
As of the Latest Practicable Date, the share capital of our Company was approximately
RMB8,227,821,180 comprising 8,227,821,180 A Shares with a par value of RMB1.00 each.
Approximate
percentage of
Number of issued share
Shares capital
(%)
A Shares in issue 8,227,821,180 100.0
Upon Completion of Global Offering
Immediately following the completion of the Global Offering, assuming that the
Over-allotment Option is not exercised, the share capital of our Company would be as follows:
Approximate
percentage of
Number of issued share
Shares capital
(%)
A Shares in issue 8,104,881,180 85.70
H Shares – total 1,352,340,000 14.30
H Shares to be issued under the Global Offering 1,229,400,000 13.00
H Shares to be converted from A Shares and
transferred to the NSSF 122,940,000 1.30
Total number of Shares 9,457,221,180 100.00
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SHARE CAPITAL
Immediately following the completion of the Global Offering, assuming the Over-
allotment Option is exercised in full, the share capital of our Company would be as follows:
Approximate
percentage of
Number of issued share
Shares capital
(%)
A Shares in issue 8,086,440,180 83.87
H Shares – total 1,555,191,000 16.13
H Shares to be issued under the Global Offering 1,413,810,000 14.66
H Shares to be converted from A Shares and
transferred to the NSSF 141,381,000 1.47
Total number of Shares 9,641,631,180 100.00
According to the Articles of Association, we have two classes of Shares, (i) domestic
listed Shares, namely A Shares (Shares issued and subscribed for in RMB to investors within
the PRC and listed in the PRC); and (ii) overseas listed Shares, namely H Shares (Shares to be
issued and subscribed for in HK dollars to overseas investors and listed in Hong Kong). A
Shares and H Shares are all ordinary Shares in the share capital of our Company. However,
apart from certain QDII in the PRC, H Shares generally cannot be subscribed for by or traded
between legal or natural persons of the PRC. A Shares can only be subscribed for by and traded
between legal or natural persons of the PRC, QFII approved by CSRC or qualified foreign
strategic investors and must be traded in RMB. As required by the Company Law, the A Shares
held by the Directors, Supervisors and senior management are subject to transfer restrictions.
As of the Latest Practicable Date, none of our Directors, Supervisors or senior management has
any Shares in our Company.
Shareholders holding different classes of Shares are considered as different classes of
Shareholders. Our Company has two classes of Shareholders, namely holders of A Shares and
holders of H Shares. The rights conferred on any class of Shareholders may not be varied or
abrogated unless approved by a special resolution of Shareholders’ general meeting and by
holders of Shares of that class at a separate meeting conducted in accordance with the Articles
of Association. The circumstances which shall be deemed to be a variation or abrogation of the
rights of a class are listed in Appendix V to this prospectus. However, the procedures for
approval by separate classes of Shareholders shall not apply (i) where we issue, upon approval
by a special resolution of the Shareholders in a general meeting, either separately or
concurrently once every 12 months, not more than 20% of each of our then existing issued A
Shares and H Shares, (ii) where our plan to issue A Shares and H Shares at the time of our
establishment is implemented within 15 months from the date of approval of CSRC and (iii)
where the transfer of A Shares for listing and trading on an overseas stock exchange has been
approved by the authorized securities regulatory authorities of the State Council. Please see “–
Share Capital – Transfer of our Company’s A Shares for Listing and Trading on the Hong Kong
Stock Exchange as H Shares” below for more details.
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SHARE CAPITAL
The differences between the A Shares and H Shares, including provisions on class rights,
the dispatch of notices and financial reports to Shareholders, dispute resolution, registration of
Shares on different branches of the register of Shareholders, the method of share transfer and
appointment of dividend receiving agents are set out in the Articles of Association and
summarized in Appendix V to this prospectus. A Shares and H Shares will however rank pari
passu with each other in all other respects and, in particular, will rank equally for all dividends
or distributions declared, paid or made after the date in this prospectus. The holders of our A
Shares and H Shares are equally entitled to our distributable profits accumulated prior to the
Listing. For further information on this special dividend, please see “Financial Information –
Dividend Policy” in this prospectus. All dividends in respect of the H Shares are to be
calculated in RMB and paid by us in Hong Kong dollars whereas all dividends in respect of
A Shares are to be paid by us in RMB. In addition to cash, dividends may be distributed in the
form of Shares. For holders of H Shares, dividends in the form of Shares will be distributed
in the form of additional H Shares. For holders of A Shares, dividends in the form of Shares
will be distributed in the form of additional A Shares.
Transfer of our Company’s A Shares for Listing and Trading on the Hong Kong Stock
Exchange as H Shares
A Shares and H Shares are generally neither interchangeable nor fungible, and the market
prices of our A Shares and H Shares may be different after the Global Offering.
However, if any holder of our A Shares is to transfer its A Shares to overseas investors
for listing and trading on the Hong Kong Stock Exchange, such transfer and conversion will
need to be approved by the relevant PRC regulatory authorities, including the CSRC, as well
as go through the relevant methodology and procedure as disclosed below:
(1) the holder of A Shares is to obtain the requisite approval of the CSRC or the
authorized securities approval authorities of the State Council for the transfer of all
or part of its A Shares into H Shares;
(2) the holder of A Shares is to issue to us a removal request in respect of a specified
number of the Shares attaching the relevant documents of title;
(3) subject to obtaining the approval of the Board, we would then issue a notice to the
H Share Registrar with instructions that, with effect from a specified date, our H
Share Registrar is to issue the relevant holder with H Share certificates for such
specified number of H Shares;
(4) such specified number of A Shares to be transferred to H Shares are then
re-registered on the H Share register maintained in Hong Kong on the condition that:
(a) our H Share Registrar lodges with the Hong Kong Stock Exchange a letter
confirming the proper entry of the relevant H Shares on the H Share register
and the due dispatch of H Share certificate; and
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SHARE CAPITAL
(b) the admission of the H Shares (converted from A Shares) to trade in Hong
Kong will comply with the Listing Rules and the General Rules of CCASS and
the CCASS Operational Procedures in force from time to time;
(5) upon completion of the transfer and conversion, the shareholding of the relevant
holder of A Shares in our A Share register will be reduced by such number of A
Shares transferred and the number of H Shares registered will correspondingly be
increased by the same number of H Shares; and
(6) we will comply with the Listing Rules to inform our Shareholders and the public by
way of an announcement of such fact not less than three days prior to the proposed
effective date.
Approval from holders of A Shares regarding the Global Offering
Approval from holders of A Shares is required for our Company to issue H Shares and
seek the listing of H Shares on the Hong Kong Stock Exchange. Such approval was obtained
by us at the Shareholders’ general meeting of our Company held on May 16, 2011 and is subject
to the following conditions:
(1) Size of the offer
The proposed number of H Shares to be offered shall not exceed 13% of the total
enlarged issued share capital after the issue of H Shares assuming the Over-allotment
Option is not exercised and the Over-allotment Option shall not exceed 15% of the Shares
initially available under the Global Offering if fully exercised.
(2) Method of offering
The method of offering shall be by way of international offering to institutional
investors and public offer for subscription in Hong Kong.
(3) Target investors
The H Shares shall be issued to professional institutions, enterprises, individual
investors and the public.
(4) Price determination basis
The issue price of the H Shares will be determined after due consideration of the
interests of existing Shareholders of our Company, according to international practice,
through the demands for orders and bookbuilding process, subject to the domestic and
overseas capital market conditions and by reference to the valuation level of comparable
companies in domestic and overseas markets.
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SHARE CAPITAL
(5) Validity period
The issue of H Shares and listing of H Shares on the Hong Kong Stock Exchange
shall be completed within 18 months from the date when the Shareholders’ general
meeting was held on May 16, 2011.
There is no other approved offering plans for any other shares except the Global
Offering.
Transfer of the State-owned Shares to the NSSF
According to the Interim Measures of the State Council on the Management of Reducing
State-owned Shares and Raising Social Security Funds issued by the State Council and the
relevant approvals of SASAC on the transfer of state-owned shares, the 20 entities obliged to
reduce our shares under the scheme for reducing state-owned shares have undertaken to reduce
a number of state-owned A Shares, which in aggregate are equivalent to 10% of the total
number of Offer Shares, and accordingly 122,940,000 A Shares before the exercise of the
Over-allotment Option or 141,381,000 A Shares after the full exercise of the Over-allotment
Option will be converted into H Shares and transferred to NSSF.
The A Shares as described above will be converted into H Shares on a one-for-one basis
and such H Shares converted will not constitute part of the Offer Shares but will be considered
as part of the Shares to be held by public investors for the purpose of Rule 8.08 of the Listing
Rules. Neither our Company nor these state-owned Shareholders will receive any proceeds
from the transfer of H Shares to NSSF or any subsequent disposal of such H Shares by NSSF.
They have already submitted an application to the SASAC and issued an undertaking letter
regarding the transfer of the state-owned Shares. Such conversion and holding of H Shares by
NSSF in relation to the Global Offering has been approved by the relevant authorities including
CSRC on November 17, 2011 1.
Public Float Requirements
Rules 8.08(1)(a) and (b) of the Hong Kong Listing Rules require that there must be an
open market in the securities for which listing is sought and for a sufficient public float of an
issuer’s listed securities to be maintained. This normally means that (i) at least 25% of the
issuer’s total issued share capital must at all times be held by the public; and (ii) where an
issuer has more than one class of securities apart from the class of securities for which listing
1
SASAC issued the approval on the transfer of A Shares to NSSF on October 9, 2011 on the condition that the
Over-allotment Option is exercised in full and that up to 1,413,810,000 H Shares are issued. If the amount of H
Shares issued is less than said 1,413,810,000 H Shares, the number of A Shares transferred by the state-owned
Shareholders will decrease accordingly. According to the letter issued by NSSF on October 11, 2011, the NSSF
agreed, among other things, that it will hold the Shares to be transferred by the State-owned Shareholders as
approved by SASAC and that it entrusts us to apply to CSRC for the conversion of transferable Shares held by
the State-owned Shareholders into H Shares when we submit a listing application to CSRC, and that registration
be made with the corporate investor account maintained by the NSSF with HKSCC with respect to such converted
Shares.
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SHARE CAPITAL
is sought, the total securities of the issuer held by the public (on all regulated market(s)
including the Hong Kong Stock Exchange) at the time of listing must be at least 25% of the
issuer’s total issued share capital. However, the class of securities for which listing is sought
must not be less than 15% of the issuer’s total issued share capital and must have an expected
market capitalization at the time of listing of not less than HK$50 million.
We have applied to the Hong Kong Stock Exchange for, and the Hong Kong Stock
Exchange has granted to us, a waiver from strict compliance with the requirements under Rule
8.08(1) of the Hong Kong Listing Rules to allow a minimum public float for the H shares to
be the higher of (i) 10% of the total issued Shares or (ii) such a percentage of H Shares held
by the public immediately after completion of the Global Offering, as increased by the H
Shares which may be issued upon the exercise of the Over-allotment Option and the transfer
and conversion of the relevant state-owned shares into H Shares pursuant to the PRC
regulations on reduction of state-owned shares.
The above waiver is subject to the condition that we will make appropriate disclosure of
the lower prescribed percentage of public float of H Shares and confirm sufficiency of public
float of H Shares in successive annual reports after Listing. In the event that the public float
percentage falls below the minimum percentage prescribed by the Hong Kong Stock Exchange,
we will take appropriate steps to ensure that the minimum percentage of public float prescribed
by the Hong Kong Stock Exchange is complied with.
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CORNERSTONE INVESTORS
THE CORNERSTONE PLACING
We have entered into cornerstone placing agreements with the following investors (the
“Cornerstone Investors”, each a “Cornerstone Investor”), pursuant to which the
Cornerstone Investors have agreed to subscribe at the Offer Price for such number of Offer
Shares (rounded down to the nearest whole board lot of 400 H Shares) that may be purchased
for an aggregate amount of US$577.0 million (the “Cornerstone Placing”). Assuming an Offer
Price of HK$10.83 (being the mid-point of the indicative Offer Price range stated in this
prospectus), the total number of H Shares to be subscribed for by the Cornerstone Investors
would be 413,749,200, representing approximately (i) 4.29% of the Shares in issue upon the
completion of the Global Offering, assuming that the Over-allotment Option is fully exercised;
or (ii) 4.37% of the Shares in issue upon completion of the Global Offering, assuming that the
Over-allotment Option is not exercised.
Each of the Cornerstone Investors is an independent third party, is independent with each
other, is not our connected person, and is not an existing shareholder of our Company. Details
of the actual number of Offer Shares to be allocated to the Cornerstone Investors will be
disclosed in the allotment results announcement to be issued by our Company on or around
April 26, 2012.
The Cornerstone Placing forms part of the International Offering. The Offer Shares to be
subscribed for by the Cornerstone Investors will rank pari passu in all respects with the other
fully paid H Shares in issue and will be counted towards the public float of our Company. None
of the Cornerstone Investors will subscribe for any Offer Shares under the Global Offering
(other than and pursuant to the respective cornerstone placing agreements). Upon the
completion of the Global Offering, none of the Cornerstone Investors will have any board
representation in our Company, nor will any of the Cornerstone Investors become our
substantial shareholder. The Offer Shares to be subscribed for by the Cornerstone Investors will
not be affected by any reallocation of the Offer Shares between the International Offering and
the Hong Kong Public Offering described in “Structure of the Global Offering – The Hong
Kong Public Offer”.
CORNERSTONE INVESTORS
We have entered into cornerstone investment agreements with each of the following
Cornerstone Investors in respect of the Cornerstone Placing. The information about our
Cornerstone Investors set forth below has been provided by the Cornerstone Investors in
connection with the Cornerstone Placing:
Albertson
Albertson Capital Limited (“Albertson”) has agreed to subscribe for such number of H
Shares (rounded down to the nearest whole board lot of 400 H Shares) which may be purchased
for US$15.0 million at the Offer Price. Assuming an Offer Price of HK$10.83, being the
mid-point of the Offer Price range set out in this prospectus, the total number of H shares that
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CORNERSTONE INVESTORS
Albertson would subscribe for would be 10,756,000, representing (i) approximately 0.11% of
the Shares in issue immediately following the completion of the Global Offering assuming that
the Over-allotment Option is fully exercised, or, (ii) approximately 0.11% of the Shares in issue
immediately following the completion of the Global Offering, assuming that the Over-
allotment Option is not exercised.
Established in 2006, Albertson primarily focuses in investing in PRC companies listed on
the Stock Exchange and acted as anchor investors in certain initial public offering of PRC
companies. It has also partnered with a financial institution to manage its portfolio in China A
share market. Currently, the value of the securities portfolio of Albertson is more than US$500
million.
D. E. Shaw
D. E. Shaw Valence International, INC. (“D. E. Shaw”) has agreed to subscribe for such
number of H Shares (rounded down to the nearest whole board lot of 400 H Shares) which may
be purchased for US$100.0 million at the Offer Price. Assuming an Offer Price of HK$10.83,
being the mid-point of the Offer Price range set out in this prospectus, the total number of H
shares that D. E. Shaw would subscribe for would be 71,707,200, representing (i)
approximately 0.74% of the Shares in issue immediately following the completion of the
Global Offering assuming that the Over-allotment Option is fully exercised, or, (ii)
approximately 0.76% of the Shares in issue immediately following the completion of the
Global Offering, assuming that the Over-allotment Option is not exercised.
D. E. Shaw is a member of the D. E. Shaw group. The D. E. Shaw group is a global
investment and technology development firm with more than 1,100 employees; approximately
US$26 billion in aggregate investment and committed capital as of March 1, 2012; and offices
in North America, Europe, and Asia. Since its organization in 1988, the firm has a significant
presence in many of the world’s capital markets, investing in a wide range of companies and
financial instruments within both the major industrialized nations and a number of emerging
markets. Its activities range from the deployment of investment strategies based on either
mathematical models or human expertise to the acquisition of existing companies and the
financing or development of new ones.
KGI Finance
KGI Finance Ltd (“KGI Finance”) has agreed to subscribe for such number of H Shares
(rounded down to the nearest whole board lot of 400 H Shares) which may be purchased for
US$30.0 million at the Offer Price. Assuming an Offer Price of HK$10.83, being the mid-point
of the Offer Price range set out in this prospectus, the total number of H Shares that KGI
Finance would subscribe for would be 21,512,000, representing (i) approximately 0.22% of the
Shares in issue immediately following the completion of the Global Offering assuming that the
Over-allotment Option is fully exercised, or, (ii) approximately 0.23% of the Shares in issue
immediately following the completion of the Global Offering assuming that the Over-allotment
Option is not exercised.
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CORNERSTONE INVESTORS
KGI Finance is a wholly owned subsidiary and an investment arm of the KGI Securities
(Hong Kong) group (“KGI”). KGI is a financial services group focusing on Hong Kong and
the Asia-Pacific region. It provides a fully functional platform of investment products and
services, including securities, futures and options, asset management, derivatives, fixed
income, wealth management and corporate finance. KGI has been a major securities and
futures brokerage firm in Hong Kong for over ten years, KGI has more than 700 staff and seven
offices in Hong Kong, two representative offices in the PRC and an office in Singapore.
Subsequent to the subscription of H Shares by KGI Finance, KGI Finance will arrange a
loan of up to US$15.0 million with a tenure of one-year from The Hongkong and Shanghai
Banking Corporation Limited (“HSBC”), one of the Joint Bookrunners on normal commercial
terms after arm’s length negotiations. All of the H Shares to be subscribed for by KGI Finance
will be charged to HSBC as security for such recourse loan. Pursuant to the financing
arrangements with HSBC, KGI Finance may be required to repay the loan before its maturity
following the occurrence of certain customary events of default and top-up clause has been
incorporated so that top-up security must be provided immediately in accordance with any
notice or call for top-up security which may be made by HSBC from time to time. Further,
HSBC will have the right to enforce its security interest in the H Shares subject to such charge
at any time from and inclusive of the Listing Date upon the occurrence of certain customary
events of default.
Leading Investment
Leading Investment and Securities Co., Ltd. (“Leading Investment”) has agreed to
subscribe for such number of H Shares (rounded down to the nearest whole board lot of 400
H Shares) which may be purchased for US$20.0 million at the Offer Price. Assuming an Offer
Price of HK$10.83, being the mid-point of the Offer Price range set out in this prospectus, the
total number of H shares that Leading Investment would subscribe for would be 14,341,200,
representing (i) approximately 0.15% of the Shares in issue immediately following the
completion of the Global Offering assuming that the Over-allotment Option is fully exercised,
or, (ii) approximately 0.15% of the Shares in issue immediately following the completion of
the Global Offering, assuming that the Over-allotment Option is not exercised.
Leading Investment is a registered securities firm in Korea which provides various
financial services including securities brokerages services, dealings services and investment
banking services. Currently, Leading Investment is being managed by IWL Partners LLC, a
private equity firm established in Korea. IWL Partners LLC holds 53.1% ownership of Leading
Investment through itself and its PE fund under management.
Oman Investment Fund
The Oman Investment Fund has agreed to subscribe for such number of H Shares
(rounded down to the nearest whole board lot of 400 H Shares) which may be purchased for
US$30.0 million at the Offer Price. Assuming an Offer Price of HK$10.83, being the mid-point
of the Offer Price range set out in this prospectus, the total number of H Shares that Oman
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CORNERSTONE INVESTORS
Investment Fund would subscribe for would be 21,512,000, representing (i) approximately
0.22% of the Shares in issue immediately following the completion of the Global Offering
assuming that the Over-allotment Option is fully exercised, or, (ii) approximately 0.23% of the
Shares in issue immediately following the completion of the Global Offering assuming that the
Over-allotment Option is not exercised.
Oman Investment Fund is a Sovereign Wealth Fund of the Government of Oman
responsible for investment in public equity, private equity and real estate opportunities
globally.
PAG
PAGAC Horseshoe Holding I SARL (“PAG”) has agreed to subscribe for such number of
H Shares (rounded down to the nearest whole board lot of 400 H Shares) which may be
purchased for US$300.0 million at the Offer Price. Assuming an Offer Price of HK$10.83,
being the mid-point of the Offer Price range set out in this prospectus, the total number of H
Shares that PAG would subscribe for would be 215,121,600, representing (i) approximately
2.23% of the Shares in issue immediately following the completion of the Global Offering
assuming that the Over-allotment Option is fully exercised, or, (ii) approximately 2.27% of the
Shares in issue immediately following the completion of the Global Offering assuming that the
Over-allotment Option is not exercised.
PAG is a private limited liability company incorporated in Luxembourg which is
indirectly wholly-owned by PAG Asia I LP, an exempted limited partnership registered in the
Cayman Islands. PAG Asia I LP is an investment fund managed by PAG Asia Capital Limited
(“PAG Capital”) and its affiliates. PAG Capital is a private equity firm which focuses on
investments in China and other regions across Asia.
To finance the subscription of H Shares by PAG, PAG is obtaining a medium-term loan
(with recourse to the borrower) from a syndicate of lenders arranged by ICBC International
Securities Limited (including its affiliates, “ICBCIS”) for an amount equal to the Hong Kong
dollar equivalent of US$150 million. The loan is on normal commercial terms after arm’s
length negotiations. All of the H Shares to be subscribed for by PAG will be charged to the
lenders as security for such loan. Pursuant to the financing arrangements, PAG may be required
to repay the loan before its maturity following the occurrence of certain customary events of
default. The lenders will have the right to enforce its security interest in the H Shares subject
to such charge at any time from and including the Listing Date upon the occurrence of certain
customary events of default, save that the lenders agree with PAG not to exercise any
enforcement right over the collateral shares until after the date falling six months after the
Listing Date.
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CORNERSTONE INVESTORS
Progress Investment Management
Progress Investment Management Company (BVI) Limited (“Progress Investment
Management”) has agreed to subscribe for such number of H Shares (rounded down to the
nearest whole board lot of 400 H Shares) which may be purchased for US$15.0 million at the
Offer Price. Assuming an Offer Price of HK$10.83, being the mid-point of the Offer Price
range set out in this prospectus, the total number of H Shares that Progress Investment
Management would subscribe for would be 10,756,000, representing (i) approximately 0.11%
of the Shares in issue immediately following the completion of the Global Offering assuming
that the Over-allotment Option is fully exercised, or, (ii) approximately 0.11% of the Shares in
issue immediately following the completion of the Global Offering assuming that the
Over-allotment Option is not exercised.
Progress Investment Management is a company incorporated in the British Virgin Islands.
It is a company beneficially owned by Mr. David Shou-Yeh Wong, the Chairman and a
controlling shareholder of DSFH (as defined below).
SBI
SBI Holdings Inc. (“SBI”) has agreed to subscribe for such number of H Shares (rounded
down to the nearest whole board lot of 400 H Shares) which may be purchased for US$30.0
million at the Offer Price. Assuming an Offer Price of HK$10.83, being the mid-point of the
Offer Price range set out in this prospectus, the total number of H Shares that SBI would
subscribe for would be 21,512,000, representing (i) approximately 0.22% of the Shares in issue
immediately following the completion of the Global Offering assuming that the Over-allotment
Option is fully exercised, or, (ii) approximately 0.23% of the Shares in issue immediately
following the completion of the Global Offering assuming that the Over-allotment Option is
not exercised.
SBI is an Internet-based financial group based in Japan, offering a broad range of
financial products and services to its customers. SBI started in 1999 as a venture capital
business principally investing in internet-related companies and has since expanded its
businesses to include a wide range of Japanese and overseas funds in its asset management
business, Japan’s leading online securities company, as well as additional online financial
services, housing and real estate and other businesses. SBI’s shares have been listed on the
Tokyo Stock Exchange and the Osaka Securities Exchange since 2002 and its Hong Kong
depositary receipts have been listed on Hong Kong Stock Exchange since 2011.
Sumitomo Mitsui Trust Bank (a successor to Chuo Mitsui Trust)
On March 30, 2012, The Chuo Mitsui Trust and Banking Co., Ltd. (“Chuo Mitsui Trust”)
entered into a cornerstone placing agreement pursuant to which the parties to such agreement
agreed that Sumitomo Mitsui Trust Bank, Ltd. (“Sumitomo Mitsui Trust Bank”), as a
successor to Chuo Mitsui Trust as a result of the merger described below, will subscribe for
such number of H Shares (rounded down to the nearest whole board lot of 400 H Shares) which
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CORNERSTONE INVESTORS
may be purchased for US$12.0 million at the Offer Price. Assuming an Offer Price of
HK$10.83, being the mid-point of the Offer Price range set out in this prospectus, the total
number of H shares that Sumitomo Mitsui Trust Bank would subscribe for would be 8,604,800,
representing (i) approximately 0.09% of the Shares in issue immediately following the
completion of the Global Offering assuming that the Over-allotment Option is fully exercised,
or, (ii) approximately 0.09% of the Shares in issue immediately following the completion of
the Global Offering, assuming that the Over-allotment Option is not exercised.
Sumitomo Mitsui Trust Bank, created through the merger among Chuo Mitsui Trust, Chuo
Mitsui Asset Trust and Banking Co., Ltd. and The Sumitomo Trust and Banking Co., Ltd. on
April 1, 2012, is a company incorporated in Japan and one of the wholly-owned subsidiaries
of Sumitomo Mitsui Trust Holdings, Inc. (“Sumitomo Mitsui Trust Holdings”). The shares of
Sumitomo Mitsui Trust Holdings are listed on the Tokyo and Nagoya Stock Exchanges and the
Osaka Securities Exchange (stock code: 8309). Sumitomo Mitsui Trust group, as the largest
trust bank group in Japan, provides retail and wholesale banking services, asset management
and administration services, and also operates real estate related businesses.
Toyo Securities
Toyo Securities Company Limited (“Toyo Securities”) has agreed to subscribe for such
number of H Shares (rounded down to the nearest whole board lot of 400 H Shares) which may
be purchased for US$10.0 million at the Offer Price. Assuming an Offer Price of HK$10.83,
being the mid-point of the Offer Price range set out in this prospectus, the total number of H
Shares that Toyo Securities would subscribe for would be 7,170,400, representing (i)
approximately 0.07% of the Shares in issue immediately following the completion of the
Global Offering assuming that the Over-allotment Option is fully exercised, or, (ii)
approximately 0.08% of the Shares in issue immediately following the completion of the
Global Offering assuming that the Over-allotment Option is not exercised.
Toyo Securities is one of the securities companies incorporated in Japan with its shares
listed on the Tokyo Stock Exchange and Osaka Securities Exchange (stock code: 8614). Toyo
Securities is primarily engaged in the provision of securities-related services, including the
trading (such as the trading of securities listed on the PRC stock exchanges), trading agency,
underwriting, sale and public offering of securities, as well as other financial products-related
trading businesses.
World Prosper (wholly owned by DSFH)
World Prosper Limited (“World Prosper”) has agreed to subscribe for such number of H
Shares (rounded down to the nearest whole board lot of 400 H Shares) which may be purchased
for US$15.0 million at the Offer Price. Assuming an Offer Price of HK$10.83, being the
mid-point of the Offer Price range set out in this prospectus, the total number of H shares that
World Prosper would subscribe for would be 10,756,000, representing (i) approximately 0.11%
of the Shares in issue immediately following the completion of the Global Offering assuming
that the Over-allotment Option is fully exercised, or, (ii) approximately 0.11% of the Shares in
issue immediately following the completion of the Global Offering, assuming that the
Over-allotment Option is not exercised.
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CORNERSTONE INVESTORS
World Prosper is a company incorporated in Hong Kong. It is a wholly-owned subsidiary
of Dah Sing Financial Holdings Limited (“DSFH”). DSFH’s shares are listed on the Hong
Kong Stock Exchange (stock code: 440). DSFH, through its holding in the subsidiaries
operating or investing in the banking, life and general insurance, investment, and related
financial services, is active in the Hong Kong, Macau and the PRC markets. DSFH’s principal
and wholly-owned insurance subsidiaries include Dah Sing Life Assurance Company Limited
(“DSLA”), and Dah Sing Insurance Company (1976) Limited, both of which operate mainly in
Hong Kong. DSLA has a 10.70% interest in Great Wall Life Insurance Company Limited, a life
insurance company incorporated and operating in the PRC. DSFH’s principal banking
subsidiary is Dah Sing Bank, Limited (“DSB”), a licensed bank incorporated and operating in
Hong Kong active in the commercial and retail banking businesses. DSB operates its banking
businesses in Macau and the PRC through its two wholly-owned banking subsidiaries, Banco
Comercial de Macau, S.A. and Dah Sing Bank (China) Limited, which are authorized to carry
on banking business under the respective banking regulations of Macau and the PRC.
CONDITIONS PRECEDENT
The subscription obligation of each Cornerstone Investor is subject to, among other
things, the following conditions precedent:
(1) the Hong Kong Underwriting Agreement and the International Underwriting
Agreement having been entered into and having become effective and unconditional
and not having been terminated (in accordance with their respective original terms
or as subsequently waived or varied by agreement of the parties thereto) by no later
than the time and date as specified or as subsequently waived or varied by agreement
of the parties thereto in such agreements; and
(2) the Listing Committee having granted the listing of, and permission to deal in, the
H Shares and such approval or permission not having been revoked.
RESTRICTIONS ON DISPOSALS BY THE CORNERSTONE INVESTORS
Each of the Cornerstone Investors has agreed that, without the prior written consent of the
Company, the Joint Sponsors and the Joint Global Coordinators, it will not, whether directly
or indirectly, at any time during a period of six months starting from and inclusive of the
Listing Date, dispose of (as defined in the relevant cornerstone investment agreement) any of
the H Shares subscribed for by it pursuant to the relevant cornerstone investment agreement.
Each Cornerstone Investor may transfer the H Shares so subscribed in certain limited
circumstances, such as transfer to a wholly-owned subsidiary of such Cornerstone Investor,
provided that such wholly-owned subsidiary agrees to be subject to the restrictions on disposals
imposed on such Cornerstone Investor. Certain of our Cornerstone Investors, including KGI
Finance and PAG, may pledge to potential lenders in aggregate up to 297,584,800 H Shares out
of the total number of H Shares of 308,340,800 that they intend to subscribe in the Global
Offering, assuming an Offer Price of HK$10.83 per H Share.
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FINANCIAL INFORMATION
The following discussion and analysis should be read in conjunction with our
consolidated financial statements included in “Appendix I – Accountants’ Report,”
together with the accompanying notes. The consolidated financial statements have been
prepared in accordance with IFRS.
The following discussion and analysis contains forward-looking statements that
involve risks and uncertainties. These statements are based on assumptions and
analysis made by us in light of our experience and perception of historical trends,
current conditions and expected future developments, as well as other factors we
believe are appropriate under the circumstances. However, our actual results may
differ significantly from those projected in the forward-looking statements. Factors
that might cause future results to differ significantly from those projected in the
forward-looking statements include, but are not limited to, those discussed in “Risk
Factors” and “Forward-Looking Statements” and elsewhere in this prospectus.
OVERVIEW
We are a leading full-service securities firm in the PRC with an integrated business
platform, extensive branch network and substantial customer base. We have established
prudent operating strategies and are the only major PRC securities firm founded in the 1980s
that remains in operation under the same brand without receiving government-backed capital
injections or being the target of a successful acquisition. Leveraging our integrated business
platform, we provide a comprehensive range of financial products and services, and primarily
focus on five principal business lines in the PRC, comprising securities and futures brokerage
(including margin financing and securities lending), investment banking, asset management,
proprietary trading and direct investment. We have gained leading market positions across
multiple business lines in the PRC securities industry. We also provide a variety of securities
products and services overseas.
Our five principal business lines in the PRC include:
Securities and futures brokerage. We engage in the trading of equities, bonds, funds
and warrants, as well as futures on behalf of our customers, and also provide margin
financing and securities lending and investment advisory services.
Investment banking. We provide corporate finance services, including equity
underwriting, debt underwriting and financial advisory services to our institutional
clients.
Asset management. We offer traditional asset management products and services
through our Company and HFT Investment Management. We operate our private
equity asset management business through Haitong-Fortis PE Management, Haitong
Jihe Management and Haitong Chuangxin Management.
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FINANCIAL INFORMATION
Proprietary trading. We engage in the trading of equities, bonds, funds, derivatives
and other financial products for our own account.
Direct investment. We make direct equity investments in private companies and earn
capital gains by exiting from these private equity investments through IPOs or share
sales, or by receiving dividends from these portfolio companies. In addition, we
invest in private equity funds with our own capital.
We conduct our overseas business primarily through our Hong Kong-based subsidiary,
Haitong International Holdings. Haitong International Securities, a subsidiary of Haitong
International Holdings, is a leading full-service securities firm in Hong Kong. Haitong
International Securities provides securities and futures brokerage, corporate finance and
advisory services, asset management services and other securities products and services to a
broad range of retail customers and institutional clients in Hong Kong and overseas.
As of December 31, 2009, 2010 and 2011, we had total assets of RMB120,730.2 million,
RMB115,413.1 million and RMB98,977.0 million, respectively, and total equity of
RMB44,518.6 million, RMB45,616.8 million and RMB46,610.7 million, respectively. For the
years ended December 31, 2009, 2010 and 2011, our total revenue and other income was
RMB11,315.8 million, RMB11,304.9 million and RMB10,860.4 million, respectively, and our
profit for the year was RMB4,661.7 million, RMB3,868.2 million and RMB3,282.0 million,
respectively.
BASIS OF PRESENTATION
The financial information has been prepared in accordance with IFRS and includes
applicable disclosures required by the Rules Governing the Listing of Securities in the Stock
Exchange and the Hong Kong Companies Ordinance. The financial information has been
prepared on a historical cost basis except for certain financial instruments which are measured
at fair values, as explained in the accounting policies set out below. Historical cost is generally
based on the fair value of the consideration given in exchange for goods.
The financial information incorporates our financial statements and the financial
statements of entities controlled by us or our subsidiaries. Control is achieved where we have
the power to govern the financial and operating policies of an entity so as to obtain benefits
from its activities. Where necessary, we make adjustments to the financial statements of our
subsidiaries to bring their accounting policies in line with those used by our other members.
All intra-group transactions, balances, income and expenses are eliminated in full on
consolidation. We acquired Taifook Securities (currently renamed as Haitong International
Securities) in December 2009 and have consolidated its income statements into our
consolidated income statements since January 1, 2010 and its statements of financial position
into our consolidated statements of financial position since December 31, 2009.
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FINANCIAL INFORMATION
FACTORS AFFECTING OUR RESULTS OF OPERATIONS
The following factors are the principal factors that have affected, and we expect will
continue to affect, our business, financial condition, results of operations and prospects.
Economic and Market Conditions
Our financial performance is highly dependent on the business environment in which we
operate. A favorable business environment is generally characterized by, among other factors,
high GDP growth, liquid and efficient capital markets, reasonable levels of inflation, high
investor confidence, stable geopolitical conditions and strong business earnings. Unfavorable
or uncertain economic and market conditions can be characterized by:
declines in economic growth, business activities or investor confidence;
decreases in the availability of, or increases in the cost of, credit and capital;
significant increases in inflation, interest rates, exchange rate volatility or
commodity prices;
outbreaks of hostilities or other geopolitical instability;
natural disasters or pandemics; or
a combination of these or other factors.
For example, the tightening monetary policy and high inflation in the PRC, global
economic uncertainties and the euro zone sovereign debt crisis have resulted in adverse market
conditions and increased volatility in the PRC and overseas securities markets during the
second half of 2011. For example, the CSI 300 Index and the Hang Seng Index decreased from
3,044.1 and 22,398.1 as of June 30, 2011, respectively, to 2,345.7 and 18,434.4 as of December
31, 2011, respectively, representing a decline of approximately 22.9% and 17.7%, respectively.
As a result, (i) our stocks and funds brokerage trading volume declined by 21.8% in 2011
compared to 2010, which, in turn, reduced our brokerage commission and fee income; (ii) we
recorded a net investment gain of RMB342.1 million in our proprietary trading business in the
PRC during the second half of 2011 compared to a net investment gain of RMB802.7 million
during the first half of 2011; and (iii) we recognized an impairment loss of RMB540.4 million
on our available-for-sale investments in 2011.
Our businesses and profitability have been and may continue to be adversely affected by
market conditions in many ways, including the following:
Our securities and futures brokerage business depends heavily on trading volume.
Unfavorable market conditions can adversely affect investor sentiment and trading
volume, resulting in reduced brokerage commission and fee income.
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FINANCIAL INFORMATION
Our investment banking business depends on the size and number of capital raising
and financial advisory transactions in which we participate. Unfavorable economic
conditions and other adverse geopolitical conditions may negatively impact investor
confidence and corporate finance activities, resulting in significant declines in the
size and number of capital raising and financial advisory transactions, which could
have an adverse effect on the revenue and profitability of our investment banking
business.
We receive asset management fees based on the value of our customers’ portfolios
or their investment in funds managed by us. In addition, we also provide private
equity fund management, collective asset management and targeted asset
management schemes for which we may also earn performance fees. Market
volatility and adverse economic conditions may reduce our AUM or affect the
performance of the assets or funds we manage, which could adversely affect our
ability to earn management fees and performance fees.
We have net long trading positions in equity securities, fixed income securities and
derivatives as part of our proprietary trading business. Because nearly all of these
investing and trading positions are marked-to-market, declines in fair values directly
impact our earnings and/or capital position, unless we have effectively hedged our
exposure to such declines. In certain cases, it may not be possible or economical for
us to completely hedge such exposures. Sudden declines and significant volatility in
asset prices may substantially curtail market trading. The inability to value or sell
our trading assets reduces our ability to limit losses in such positions, which may
require us to maintain additional capital and increase our funding costs.
In addition, while the CSI 300 Index and the average daily stocks trading volume in the
PRC recovered during the first quarter of 2012 compared to the fourth quarter of 2011, which
had a positive impact on our securities and futures brokerage and proprietary trading
businesses, they still represented substantial declines from the CSI 300 Index of 3,223.3 as of
March 31, 2011 and the average daily stocks trading volume in the PRC of RMB233.7 billion
for the first quarter of 2011. We cannot assure you that the market conditions will continue to
improve for the remainder of 2012 or beyond.
Competition
The PRC securities industry is highly competitive and we face intense competition in
most of our business lines.
For our securities brokerage business, we compete primarily with other PRC
securities firms in terms of pricing and the range of products and services offered.
Currently, there are more than 100 registered securities firms in the PRC, and
intense price competition in recent years has lowered commission rates for our
securities brokerage business.
For our investment banking business, we compete primarily with other PRC and
Sino-foreign joint venture securities firms as well as PRC commercial banks in
terms of brand recognition, marketing and distribution capability, service quality,
execution capability, financial strength and pricing.
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FINANCIAL INFORMATION
For our asset management business, we compete primarily with fund management
companies, banks, insurance companies and other financial institutions in the PRC
in terms of the range of products and services offered, pricing and quality of
customer service.
For our direct investment business, we compete primarily with other PRC securities
firms that are qualified to conduct direct investment business, as well as private
equity firms in the PRC.
In addition, with regulatory changes and other factors that contribute to the gradual easing
of PRC securities regulations, more competitors are seeking to enter or expand in the market.
Market share
We believe that our business volume, a major factor affecting our revenue, depends in part
on our ability to maintain or increase our current market share in each of our principal business
lines.
To differentiate ourselves from our competitors and maintain or increase our market
share, we have to maintain our competitive strengths, such as our leading market positions
across multiple business lines, strategically located branch network, substantial and stable
customer base, reputation as a pioneer in the PRC securities industry for offering new
businesses, effective risk management and internal control systems, as well as our experienced
and stable management team. Our ability to maintain these strengths will allow us to offer
customized, comprehensive and differentiated financial products and services to our customers.
If we fail to maintain our competitive strengths, we may lose our current market share in our
principal business lines and our revenue may decrease, which may have a negative impact on
our business, financial condition and results of operations.
Pricing
The pricing of our products and services has been a principal factor affecting our
business, financial condition and results of operations. In the PRC securities market, the
pricing of our products and services, particularly in our securities brokerage business, has been
largely driven by market competition.
Our brokerage commission and fee income from stocks and funds accounted for a
substantial portion of our revenue and other income and is primarily influenced by brokerage
commission rates and trading volume. For the years ended December 31, 2009, 2010 and 2011,
our average securities brokerage commission rate in the PRC was 0.147%, 0.118% and 0.100%,
respectively. Consistent with industry trends, intensified price competition in the securities
brokerage business with other PRC securities firms has resulted in reduced brokerage
commission rates in the PRC and may force us to charge lower rates in order to stay
competitive going forward. Please see “Risk Factors – Risks Relating to Our Business and
Industry – We face intense competition and our business could be materially and adversely
affected if we are unable to compete effectively.”
We will continue to monitor the pricing of our products and services in relation to our
competitors and adjust our commission rates and fee structures to enhance our competitiveness
while maintaining our profitability.
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FINANCIAL INFORMATION
Product Mix and Offering
We are a full-service securities firm with five principal business lines in the PRC, which
include securities and futures brokerage, investment banking, asset management, proprietary
trading and direct investment. Our operating margins vary across different business segments
as well as different products and services within each business segment. Our product mix and
changes to such mix due to our business strategy, market conditions, customer demand and
other factors may affect our revenue and profitability over time.
Commission and fee income from our securities and futures brokerage business in the
PRC accounted for a substantial portion of our total revenue and other income, and as a result,
our profitability depends largely on the operating margin and profit contribution from this
segment. While we expect our commission and fee income from the securities and futures
brokerage business to increase and continue to be a major source of our revenue in the future,
we also expect to increase the revenue contribution from other businesses with relatively
higher profit margins, such as margin financing and securities lending, as well as direct
investment, all of which we believe have high growth potential due to the gradual relaxation
of PRC securities regulations.
With a view to maximizing our revenue and profitability, we intend to regularly monitor
and adjust our product mix across our principal business lines and further expand our product
offerings. We believe that our comprehensive offering of financial products and services and
our first-mover advantage in offering new products and services have allowed us to respond to
changes in market conditions, regulatory regimes and customer demand in a timely manner.
Regulatory Environment
Our results of operations, financial condition and prospects are subject to regulatory
developments in the PRC and economic measures undertaken by the PRC government. In
particular, we believe that our ability to expand our business and broaden the scope of our
product and service offerings in the PRC has been, and will continue to be materially affected
by changes in the policies, laws and regulations governing the PRC securities industry,
including the extent to which we can engage in certain businesses or adopt certain business
models and fee structures.
The regulatory regime of the PRC securities industry has been evolving, and the CSRC
and other regulatory authorities are committed to the gradual relaxation of PRC securities
regulations and broadening the scope of new products and services that securities firms can
offer. For example, the CSRC launched the pilot program for the margin financing and
securities lending business in early 2010, which has significantly benefited our securities
brokerage business. We believe other developments in the PRC securities industry, such as the
growth of stock index futures and potential launch of the International Board and New OTC
Board, will allow us to further expand and diversify our business and revenue streams as well
as maximize our profitability.
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FINANCIAL INFORMATION
In addition, new legislation, changes in rules, or changes in the interpretation or
enforcement of existing rules and regulations may also limit the scope of our businesses, affect
our business practices, increase our capital requirements and impose additional costs on our
operations, which could directly affect our future operations and profitability.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
We have identified certain accounting policies and estimates significant to the preparation
of our financial information in accordance with IFRS. The Accountants’ Report in Appendix I
to this prospectus sets forth these significant accounting policies in note 3, which are important
for an understanding of our financial condition and results of operations.
Some of our accounting policies involve subjective assumptions, estimates and judgments
that are discussed in note 4 of the Accountants’ Report in Appendix I to this prospectus. In the
application of our accounting policies, our management is required to make estimates and
assumptions about the carrying amounts of assets and liabilities that are not readily apparent
from other sources. Our estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from
these estimates. Our estimates and underlying assumptions are reviewed by our management
on an ongoing basis.
Our management has identified below the accounting policies, estimates and judgments
that they believe are critical to the preparation of our financial information.
Significant Accounting Policies
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and
represents amounts receivable for services provided in the normal course of business. Revenue
is recognized when it is probable that the economic benefits will flow to us and when revenue
can be measured reliably, on the following basis:
Commission income from our brokerage business is recorded as income on a trade
date basis, and handling fee income from our brokerage business is recognized when
services are provided by us;
Underwriting and sponsors fees are recognized as income in accordance with the
terms of the underwriting agreement or deal mandate when the relevant significant
acts have been completed;
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FINANCIAL INFORMATION
Interest income from a financial asset is accrued on a time basis using the effective
interest method, by reference to the principal outstanding and at the effective
interest rate applicable, which is the rate that exactly discounts the estimated future
cash receipts through the expected life of the financial asset to that asset’s net
carrying amount on initial recognition;
Financial advisory and consultancy fee income are recognized when the relevant
transactions have been arranged or the relevant services have been rendered; and
Asset management fee income is recognized when management services are
provided in accordance with the management contracts.
Financial instruments
Financial assets and financial liabilities are recognized in our consolidated statement of
financial position when a group entity becomes a party to the contractual provisions of the
instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction
costs that are directly attributable to the acquisition or issue of financial assets and financial
liabilities (other than financial assets or financial liabilities at fair value through profit or loss)
are added to or deducted from the fair value of the financial assets or financial liabilities, as
appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of
financial assets or financial liabilities at fair value through profit or loss are recognized
immediately in profit or loss.
Financial assets
Financial assets can be classified as financial assets at fair value through profit or loss,
loans and receivables, held-to-maturity investments and available-for-sale investments. Our
financial assets are classified into one of the three categories, including financial assets at fair
value through profit or loss, loans and receivables and available-for-sale investments. The
classification depends on the nature and purpose of the financial assets and is determined at the
time of initial recognition. All regular way purchases or sales of financial assets are recognized
and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales
of financial assets that require delivery of assets within the time frame established by
regulation or convention in the marketplace.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss represent financial assets held for
trading.
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FINANCIAL INFORMATION
A financial asset is classified as held for trading if:
it has been acquired principally for the purpose of selling in the near future;
it is a part of an identified portfolio of financial instruments that we manage and has
a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.
Financial assets at fair value through profit or loss are measured at fair value, with
changes in fair value arising from re-measurement recognized directly in profit or loss in the
period in which they arise. The net gain or loss recognized in profit or loss includes any
dividend or interest earned on the financial assets.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. Subsequent to initial recognition, loans and
receivables (including advances to customers, accounts receivable, amount due from a
subsidiary, bond investments, financial assets held under resale agreements, clearing settlement
funds, bank balances and cash, pledged bank deposits, restricted bank deposits, deposits and
other receivables), are carried at amortized cost using the effective interest method, less any
identified impairment losses (see accounting policy on impairment loss on financial assets
below).
Available-for-sale investments
Available-for-sale investments are non-derivatives that are either designated or not
classified as financial assets at fair value through profit or loss, loans and receivables or
held-to-maturity financial assets.
Available-for-sale investments are measured at fair value at the end of the reporting
period. Changes in fair value are recognized in other comprehensive income and accumulated
in the investment revaluation reserve, until the financial asset is disposed of or is determined
to be impaired, at which time the cumulative gain or loss previously accumulated in the
investment revaluation reserve is reclassified to profit or loss (see accounting policy on
impairment loss on financial assets below).
For available-for-sale equity investments that do not have a quoted market price in an
active market and whose fair value cannot be reliably measured and derivatives that are linked
to and must be settled by delivery of such unquoted equity instruments, they are measured at
cost less any identified impairment losses at the end of the reporting period (see accounting
policy on impairment loss on financial assets below).
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FINANCIAL INFORMATION
Impairment of financial assets
Financial assets, other than those at fair value through profit or loss, are assessed for
indicators of impairment at the end of the reporting period. Financial assets are impaired where
there is objective evidence that, as a result of one or more events that occurred after the initial
recognition of the financial asset, the estimated future cash flows of the financial assets have
been affected.
For an available-for-sale equity investment, a significant or prolonged decline in the fair
value of that investment below its cost is considered to be objective evidence of impairment.
For all other financial assets, objective evidence of impairment could include:
significant financial difficulty of the issuer or counterparty;
breach of contract, such as default or delinquency in interest and principal
payments;
it becoming probable that the borrower will enter bankruptcy or financial re-
organization; or
the disappearance of an active market for that financial asset because of financial
difficulties.
For certain categories of financial assets, such as advances to customers and accounts
receivable, assets that are assessed not to be impaired individually are subsequently assessed
for impairment on a collective basis. Objective evidence of impairment for a portfolio of
receivables could include our past experience of collecting payments and observable changes
in national or local economic conditions that correlate with default on receivables.
For financial assets carried at amortized cost, the amount of the impairment loss
recognized is the difference between the asset’s carrying amount and the present value of the
estimated future cash flows discounted at the financial asset’s original effective interest rate.
For financial assets carried at cost, the amount of the impairment loss is measured as the
difference between the asset’s carrying amount and the present value of the estimated future
cash flows discounted at the current market rate of return for a similar financial asset. Such
impairment loss will not be reversed in subsequent periods.
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FINANCIAL INFORMATION
The carrying amount of the financial asset is reduced by the impairment loss directly for
all financial assets with the exception of advances to customers, accounts receivable and other
receivables, where the carrying amount is reduced through the use of an allowance account.
Changes in the carrying amount of the allowance account are recognized in profit or loss. When
an advance to customers, an account receivable or a receivable is considered uncollectible, it
is written off against the allowance account. Subsequent recoveries of amounts previously
written off are credited to profit or loss.
When an available-for-sale financial asset is considered to be impaired, cumulative gains
or losses previously recognized in other comprehensive income are reclassified to profit or loss
in the period in which the impairment takes place.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of
impairment loss decreases and the decrease can be related objectively to an event occurring
after the impairment losses were recognized, the previously recognized impairment loss is
reversed through profit or loss to the extent that the carrying amount of the asset at the date
the impairment is reversed does not exceed what the amortized cost would have been had the
impairment not been recognized.
Impairment losses on available-for-sale equity investments will not be reversed through
profit or loss in subsequent periods. Any increase in fair value subsequent to impairment loss
is recognized directly in other comprehensive income and accumulated in the investment
revaluation reserve. For available-for-sale debt investments, impairment losses are
subsequently reversed through profit or loss if an increase in the fair value of the investment
can be objectively related to an event occurring after the recognition of the impairment loss.
Financial liabilities and equity instruments
Financial liabilities and equity instruments issued by a group entity are classified as either
financial liabilities or as equity in accordance with the substance of the contractual
arrangements entered into and the definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual interest in our assets after
deducting all of its liabilities. Our financial liabilities are generally classified into other
financial liabilities.
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FINANCIAL INFORMATION
Other financial liabilities
Other financial liabilities including borrowings, accounts payable to brokerage clients,
financial assets sold under repurchase agreements, other payables and amount due to a
subsidiary are subsequently measured at amortized cost, using the effective interest method.
Equity instruments
Equity instruments issued by us are recorded at the proceeds received, net of direct issue
costs.
Effective interest method
The effective interest method is a method of calculating the amortized cost of a financial
asset or liability and of allocating interest income or expense over the relevant period. The
effective interest rate is the rate that exactly discounts estimated future cash receipts (including
all fees paid or received that form an integral part of the effective interest rate, transaction costs
and other premiums or discounts) or payments (including all fees and points paid or received
that form an integral part of the effective interest rate, transaction costs and other premiums
or discounts) through the expected life of the financial asset or liability, or, where appropriate,
a shorter period to the net carrying amount of the financial asset or liability on initial
recognition. When the difference between the effective interest rate and the contract rate is
insignificant, interest income or expense will be calculated using the contract interest rate.
Interest income is recognized on an effective interest basis for debt instruments other than
those financial assets classified as fair value through profit or loss, of which interest income
is included in net gains or losses. Interest expense is recognized on an effective interest basis.
Derivative financial instruments
Derivatives are initially recognized at fair value at the date a derivative contract is entered
into and are subsequently re-measured to their fair value at the end of the reporting period. The
resulting gain or loss is recognized in profit or loss immediately unless the derivative is
designated and effective as a hedging instrument, in which event the timing of the recognition
in profit or loss depends on the nature of the hedge relationship.
Financial assets sold under repurchase agreements and financial assets held under resale
agreements
Financial assets sold under repurchase agreements continue to be recognized, which do
not result in derecognition of the financial assets, and are recorded as “available-for-sale
investments” or “financial assets held for trading.” The corresponding liability is included in
“financial assets sold under repurchase agreements.” Financial assets held under agreements to
resell are recorded as “financial assets held under resale agreements” as appropriate. Financial
assets sold under repurchase agreements and financial assets held under resale agreements are
initially measured at fair value and are subsequently measured at amortized cost using the
effective interest method.
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FINANCIAL INFORMATION
Securities lending
We lend investment securities to clients and the cash collaterals balance required under
the securities lending agreements and the interest arisen from these agreements are classified
as “accounts payable to brokerage clients.” For those securities we lent to client that do not
result in the derecognition of financial assets, they are included in “available-for-sale
investments.”
Derecognition
We derecognize a financial asset only when the contractual rights to the cash flows from
the asset expire, or when it transfers the financial asset and substantially all the risks and
rewards of ownership of the asset to another entity. If we neither transfer nor retain
substantially all the risks and rewards of ownership and continues to control the transferred
asset, we continue to recognize the asset to the extent of its continuing involvement and
recognizes an associated liability. If we retain substantially all the risks and rewards of
ownership of a transferred financial asset, we continue to recognize the financial asset and also
recognizes a collateralized borrowing for the proceeds received.
On derecognition of a financial asset in its entirety, the difference between the asset’s
carrying amount and the sum of the consideration received and receivable and the cumulative
gain or loss that had been recognized in other comprehensive income and accumulated in
equity is recognized in profit or loss.
On derecognition of a financial asset other than in its entirety (e.g. when we retain an
option to repurchase part of a transferred asset or retain a residual interest that does not result
in the retention of substantially all the risks and rewards of ownership and we retain control),
we allocate the previous carrying amount of the financial asset between the part it continues
to recognize under continuing involvement, and the part it no longer recognizes on the basis
of the relative fair values of those parts on the date of the transfer. The difference between the
carrying amount allocated to the part that is no longer recognized and the sum of the
consideration received for the part no longer recognized and any cumulative gain or loss
allocated to it that had been recognized in other comprehensive income is recognized in profit
or loss. A cumulative gain or loss that had been recognized in other comprehensive income is
allocated between the part that continues to be recognized and the part that is no longer
recognized on the basis of the relative fair values of those parts.
Financial liabilities are derecognized when the obligation specified in the relevant
contract is discharged, canceled or expires. The difference between the carrying amount of the
financial liability derecognized and the consideration paid and payable is recognized in profit
or loss.
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FINANCIAL INFORMATION
Significant Accounting Estimates and Judgments
Impairment of advances to customers
We review our advances to customers to assess impairment on a periodic basis. In
determining whether an impairment loss should be recognized in profit or loss, we make
judgments as to whether there is any observable data indicating that there is an objective
evidence of impairment that will have a measurable decrease in the estimated future cash flows
from a portfolio of advances. Moreover, we also review the value of the securities collateral
received from our customers in determining the impairment. The methodology and
assumptions used for estimating both the amount and timing of future cash flows are reviewed
regularly to reduce any differences between loss estimates and actual loss experience.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of
the cash-generating units to which goodwill has been allocated. The value in use calculation
requires us to estimate the future cash flows expected to arise from the cash-generating unit and
a suitable discount rate in order to calculate the present value. Where the actual future cash
flows are less than expected, a material impairment loss may arise. Details of the recoverable
amount calculation are disclosed in note 20 of the Accountants’ Report in Appendix I to this
prospectus.
Impairment of available-for-sale investments
The determination of whether an available-for-sale investment is impaired requires
significant judgment. For listed available-for-sale equity investments, a significant or
prolonged decline in fair value below cost is considered to be objective evidence of
impairment. Judgment is required when determining whether a decline in fair value has been
significant or prolonged. In making this judgment, we evaluate the duration and extent to which
the fair value of an investment is less than its cost. In assessing whether it is prolonged, the
decline is evaluated against the period in which the fair value of the asset has been below its
original cost at initial recognition. In assessing whether it is significant, the decline in fair
value is evaluated against the original cost of the asset at initial recognition. We also take into
account other factors, such as the historical data on market volatility and the price of the
specific investment, significant changes in technology, markets, economics or the law, as well
as industry and sector performance and the financial information regarding the investee that
provides evidence that the cost of the equity securities may not be recovered. Judgment is also
required to determine whether historical performance remains representative of current and
future economic conditions.
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FINANCIAL INFORMATION
Fair value of available-for-sale investments with restriction on disposal
For available-for-sale investments that are subject to a legally enforceable restriction that
prevents us from disposing them within the specified period, the fair value of these securities
are made based on quoted market rates adjusted for specific features of the instrument. The
estimation of fair value of these instruments includes some assumptions not supported by
observable market prices or rates.
Income taxes
There are certain transactions and activities for which the ultimate tax determination is
uncertain during the ordinary course of business. Where the final tax outcome of these matters
is different from the amounts that were initially estimated, such differences will impact the
current income tax and deferred income tax in the period during which such a determination
is made.
No deferred tax asset has been recognized on the tax losses arising from our subsidiaries
in Hong Kong due to the unpredictability of future profit streams. The reliability of the
deferred tax asset mainly depends on whether sufficient future profits or taxable temporary
differences will be available in the future. In cases where the actual profits generated are more
than expected, a material deferred tax asset would be recognized in profit or loss for the period.
For details of our tax losses, please see note 14 of the Accountants’ Report in Appendix I to
this prospectus.
PRINCIPAL COMPONENTS OF CONSOLIDATED INCOME STATEMENTS
Revenue and other income
Our revenue and other income primarily consists of commission and fee income, interest
income, net investment gains and other income and gains.
Commission and fee income
Our commission and fee income mainly consists of (i) commission and fee income on
securities and futures brokerage; (ii) underwriting and sponsors fees; (iii) consultancy and
financial advisory fees; and (iv) asset management fees.
We generate commission and fee income on securities and futures brokerage by trading
equities, bonds, funds and warrants, as well as futures on behalf of our customers.
We generate underwriting and sponsors fees and consultancy and financial advisory fees
in our investment banking business by providing equity and debt underwriting, as well as
financial advisory services.
We also generate asset management fees, including performance fees, in our asset
management business by managing our customers’ assets and investment portfolios.
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FINANCIAL INFORMATION
Interest income
Our interest income mainly includes (i) bank interest income from our own deposits and
deposits we hold on behalf of our clients; (ii) interest income from margin financing and
securities lending; and (iii) interest income from financial assets held under resale agreements.
We generally achieve an interest yield above the prevailing bank deposit interest rates in
the PRC through effective treasury management. For example, in order to manage our liquidity,
we enter into short-term resale agreements with counterparties (such as banks and other
financial institutions), under which we are entitled to receive interest income by purchasing
financial assets (such as bonds and notes) from the counterparty and agreeing to resell such
assets back to the counterparty at a predetermined price on the maturity date of the resale
agreement. Please see “– Liquidity and Capital Resources – Assets and Liabilities – Current
assets and liabilities.”
Net investment gains
Our net investment gains include (i) net gains from financial instruments held for trading
and (ii) net realized gains from available-for-sale investments.
Our net gains from financial instruments held for trading mainly consist of (i) net gains
or losses from disposal of these financial instruments; (ii) fair value change of these financial
instruments; and (iii) dividends and interest income from these financial instruments.
Our net realized gains from available-for-sale investments mainly consist of (i) dividends
and interest income from these investments; and (ii) net gains or losses from disposal of these
investments. Net gains or losses from the disposal of available-for-sale investments primarily
represent investment returns from our exits from private equity investments, participation in
follow-on offerings and engagement in other trading and market-making activities. As a
securities firm, we make private equity investments, participate in follow-on offerings and
engage in other types of trading of available-for-sale investments, which form part of our
normal course of business, and therefore net gains from these transactions are accounted for as
net investment gains.
Other income and gains
Our other income and gains primarily include government grants. We receive our
government grants which primarily include local government subsidies intended to support our
business operations. As our government grants are non-recurring in nature, we cannot assure
you that we will continue to receive them. Our other income and gains also includes net foreign
exchange gains.
Total expenses
Our total expenses include staff costs, commission to account executives, brokerage
transaction fees and other services expenses, depreciation and amortization, interest expenses
and other expenses (including impairment losses).
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FINANCIAL INFORMATION
Staff costs
Our staff costs primarily include salaries, bonuses and allowances, and other welfare
benefits paid to our employees. Historically, staff costs have been the largest component of our
operating expenses and accounted for 41.2%, 41.0% and 35.0% of our total expenses for the
years ended December 31, 2009, 2010 and 2011, respectively.
Commission to account executives
Our commission to account executives refers to the performance-based commissions we
pay to our licensed brokers, which represents a certain percentage of the brokerage commission
and fee income that our licensed brokers generate.
Brokerage transaction fees and other services expenses
Our brokerage transaction fees and other services expenses primarily include securities
dealing expenses charged by stock exchanges and other authorized institutions for our use of
their transaction and settlement systems.
Depreciation and amortization
Our depreciation and amortization relates primarily to depreciation of our property and
equipment and amortization of our intangible assets.
Interest expenses
Our interest expenses primarily include (i) interest expenses on deposits we hold on
behalf of our customers; (ii) interest expenses on our borrowings; and (iii) interest expenses
from repurchase transactions.
While we earn interest income on deposits we hold on behalf of our customers, we also
pay interest expenses on such deposits to our customers with reference to prevailing benchmark
interest rates announced by the PBOC.
In order to manage our liquidity, we enter into short-term repurchase agreements with
counterparties (such as banks and other financial institutions), under which we incur interest
expenses by selling our financial assets (such as bonds and notes) to the counterparty and
agreeing to repurchase such assets at a predetermined price on the maturity date of the
repurchase agreement. Please see “– Liquidity and Capital Resources – Assets and Liabilities
– Current assets and liabilities.”
Other expenses
Our other expenses primarily include rental expenses, administrative expenses,
impairment losses and business tax and surcharges.
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FINANCIAL INFORMATION
Income tax expense
We are subject to income tax on an entity basis on profits arising in or derived from the
jurisdictions in which members of our Group are domiciled and operate. During the Track
Record Period, our PRC subsidiaries were subject to an EIT rate of 25.0% in accordance with
the EIT law that became effective on January 1, 2008. Assessable profit from our branches
located in Shenzhen and Haikou was subject to an EIT rate of 20.0%, 22.0% and 24.0%,
respectively, for the years ended December 31, 2009, 2010 and 2011. Our Hong Kong
subsidiaries were subject to a 16.5% tax on their assessable profit during the Track Record
Period. Our effective income tax rate was 22.1%, 22.5% and 23.7% for the years ended
December 31, 2009, 2010 and 2011, respectively.
RESULTS OF OPERATIONS
The following table sets forth our summary results of operations for the periods indicated:
Year ended December 31,
2009 2010
(RMB in millions)
Revenue
Commission and fee income . . . . . . . . . . . . 8,753.4 8,384.1 6,566.8
Interest income . . . . . . . . . . . . . . . . . . . . 1,407.0 1,647.0 2,553.2
Net investment gains . . . . . . . . . . . . . . . . . 888.1 1,077.8 1,506.9
Total revenue . . . . . . . . . . . . . . . . . . . . . . . 11,048.5 11,108.9 10,626.9
Other income and gains . . . . . . . . . . . . . . . . 267.3 196.0 233.5
Total revenue and other income . . . . . . . . . . 11,315.8 11,304.9 10,860.4
Total expenses . . . . . . . . . . . . . . . . . . . . . . (5,400.0) (6,393.4) (6,633.1)
5,915.8 4,911.5 4,227.3
Share of results of associates . . . . . . . . . . . . . 66.0 78.2 72.9
Profit before income tax . . . . . . . . . . . . . . . 5,981.8 4,989.7 4,300.2
Income tax expense . . . . . . . . . . . . . . . . . . . (1,320.1) (1,121.5) (1,018.2)
Profit for the year . . . . . . . . . . . . . . . . . . . 4,661.7 3,868.2 3,282.0
Attributable to the owners of the Company . . . 4,548.2 3,686.3 3,103.0
Attributable to non-controlling interests . . . . . 113.5 181.9 179.0
The following discussion compares the major components of our operating results for the
years ended December 31, 2009, 2010 and 2011.
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FINANCIAL INFORMATION
Revenue and other income
The following table sets forth the breakdown of our total revenue and other income for
the periods indicated:
Year ended December 31,
2009 2010
(RMB in millions)
Commission and fee income. . . . . . . . . . . . . . 8,753.4 8,384.1 6,566.8
Interest income . . . . . . . . . . . . . . . . . . . . . . 1,407.0 1,647.0 2,553.2
Net investment gains . . . . . . . . . . . . . . . . . . 888.1 1,077.8 1,506.9
Other income and gains . . . . . . . . . . . . . . . . 267.3 196.0 233.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,315.8 11,304.9 10,860.4
2011 compared to 2010
Our total revenue and other income decreased by 3.9% to RMB10,860.4 million in 2011
compared to RMB11,304.9 million in 2010, due primarily to a decrease in our commission and
fee income, which was partially offset by an increase in our interest income and net investment
gains.
2010 compared to 2009
We acquired a controlling interest in Taifook Securities (currently renamed as Haitong
International Securities) in December 2009. We have consolidated the results of Haitong
International Securities into our consolidated income statements since January 2010.
Our revenue and other income decreased slightly to RMB11,304.9 million in 2010
compared to RMB11,315.8 million in 2009, due primarily to a decrease in our commission and
fee income, which was partially offset by an increase in our interest income and net investment
gains.
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FINANCIAL INFORMATION
Commission and fee income
The following table sets forth our commission and fee income for the periods indicated:
Year ended December 31,
2009 2010
(RMB in millions)
Commission and fee income on
securities brokerage . . . . . . . . . . . . . . . . . 7,264.4 5,938.7 3,934.0
Commission and fee income on
futures brokerage . . . . . . . . . . . . . . . . . . . 144.8 392.7 393.1
Consultancy and financial advisory fees . . . . . . 151.1 274.8 283.1
Underwriting and sponsors fees. . . . . . . . . . . . 449.4 1,039.2 960.0
Asset management fees . . . . . . . . . . . . . . . . . 743.7 714.8 985.8
Commission on bullion contracts . . . . . . . . . . . – 7.6 8.0
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . – 16.3 2.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,753.4 8,384.1 6,566.8
2011 compared to 2010
Our commission and fee income decreased by 21.7% to RMB6,566.8 million in 2011
compared to RMB8,384.1 million in 2010, due primarily to a decrease in our commission and
fee income on securities brokerage. Our commission and fee income on securities brokerage
decreased by 33.8% to RMB3,934.0 million in 2011 compared to RMB5,938.7 million in 2010.
This decrease was mainly attributable to (i) lower trading volume in our stocks and funds
brokerage business that resulted from the weak performance of the securities markets in the
second half of 2011; and (ii) lower commission rates for securities brokerage in the PRC due
to the increased number of securities brokerage branches in the PRC and the resulting price
competition. However, this decrease was partially offset by a 37.9%, or RMB271.0 million,
increase in our asset management fees due primarily to the higher performance fees we
received. The China-Belgium Fund exited several investments and achieved higher investment
gains in 2011 compared to 2010, and we, as the fund manager of the China-Belgium Fund,
received higher performance fees as a result.
2010 compared to 2009
Our commission and fee income decreased by 4.2% to RMB8,384.1 million in 2010
compared to RMB8,753.4 million in 2009, due primarily to a decrease in our commission and
fee income on securities brokerage. Our commission and fee income on securities brokerage
decreased by 18.2% to RMB5,938.7 million in 2010 compared to RMB7,264.4 million in 2009.
The decrease was mainly attributable to the lower commission rates for securities brokerage in
the PRC due to the increased number of securities brokerage branches in the PRC and the
resulting price competition. However, the decrease in our commission and fee income on
securities brokerage in the PRC was partially offset by (i) a 119.7%, or RMB595.7 million,
increase in our revenue and other income from our investment banking business in the PRC,
due primarily to the increase in the value of equity securities underwritten by us, which
increased to RMB49,657.7 million in 2010 compared to RMB7,530.4 million in 2009; (ii) a
90.4%, or RMB129.8 million, increase in our commission and fee income on futures brokerage
– 334 –
FINANCIAL INFORMATION
in the PRC, due to significant business growth; and (iii) a significant increase in our
commission and fee income from our overseas business, due to our acquisition of a controlling
interest in Taifook Securities in December 2009.
Interest income
The following table sets forth our interest income for the periods indicated:
Year ended December 31,
2009 2010
(RMB in millions)
Bank interest income . . . . . . . . . . . . . . . . . . 1,359.6 1,399.6 1,944.0
Interest income from advances to customers . . . 8.6 219.0 522.8
Interest income from financial assets held under
resale agreements . . . . . . . . . . . . . . . . . . . 0.8 27.8 83.7
Interest income from held-to-maturity financial
assets . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 – –
Interest income from other bond investments . . . 33.6 – –
Other interest income . . . . . . . . . . . . . . . . . . – 0.6 2.7
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,407.0 1,647.0 2,553.2
2011 compared to 2010
Our interest income increased by 55.0% to RMB2,553.2 million in 2011 compared to
RMB1,647.0 million in 2010, due primarily to the increase in (i) bank interest income; (ii)
interest income from advances to customers; and (iii) interest income from financial assets held
under resale agreements.
Our bank interest income (including our own deposits and deposits we hold on behalf of
our customers) increased by 38.9% to RMB1,944.0 million in 2011 compared to RMB1,399.6
million in 2010. This increase was mainly attributable to (i) our effective treasury management
measures, which led to the increased return on funds; and (ii) higher prevailing market interest
rates in the PRC due to increases in benchmark interest rates announced by the PBOC in 2011.
Our interest income from advances to customers increased by 138.7% to RMB522.8
million in 2011 compared to RMB219.0 million in 2010. This increase was mainly attributable
to the rapid development of our margin financing and securities lending business and the
resulting significant increase in our average margin loan balance.
Our interest income from financial assets held under resale agreements increased
significantly by 201.1% to RMB83.7 million in 2011 compared to RMB27.8 million in 2010
due primarily to more resale transactions we conducted to manage our liquidity and enhance
our return on liquid funds.
2010 compared to 2009
Our interest income increased by 17.1% to RMB1,647.0 million in 2010 compared to
RMB1,407.0 million in 2009, due primarily to an RMB210.4 million increase in interest
– 335 –
FINANCIAL INFORMATION
income from advances to customers. Our margin financing and securities lending business in
the PRC has grown rapidly since its launch in March 2010, which resulted in a significant
increase in our average margin loan balance. We acquired a controlling interest in Taifook
Securities (currently renamed as Haitong International Securities) in December 2009. We have
consolidated the interest income from the margin financing and securities lending business of
Haitong International Securities into our consolidated income statements since January 2010.
Net investment gains
The following table sets forth our investment gains for the periods indicated:
Year ended December 31,
2009 2010
(RMB in millions)
Net realized gains from available-for-sale
investments. . . . . . . . . . . . . . . . . . . . . . . 211.4 596.2 754.0
Net gains from financial instruments
held for trading and derivatives . . . . . . . . . . 950.8 378.0 1,226.8
Fair value change of financial instruments
held for trading and derivatives . . . . . . . . . . (274.1) 103.6 (473.9)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 888.1 1,077.8 1,506.9
2011 compared to 2010
Our net investment gains increased by 39.8% to RMB1,506.9 million in 2011 compared
to RMB1,077.8 million in 2010, due primarily to a RMB848.8 million increase in our net gains
from financial instruments held for trading and derivatives and a RMB157.8 million increase
in our net realized gains from available-for-sale investments that resulted from our prudent
trading and hedging strategy amidst market volatility. However, such increase was partially
offset by a decrease in the fair value change of our financial instruments held for trading and
derivatives that resulted from adverse market conditions and increased volatility in the
securities markets in the second half of 2011.
2010 compared to 2009
Our net investment gains increased by 21.4% to RMB1,077.8 million in 2010 compared
to RMB888.1 million in 2009, due primarily to (i) an increase in net realized gains from
available-for-sale investments in our proprietary trading business; (ii) an increase in our
investment gains that resulted from our first exit from a private equity investment in the second
half of 2010; and (iii) an increase in the fair value change of our financial instruments held for
trading and derivatives. This increase was partially offset by a decrease in our net gains from
financial instruments held for trading and derivatives, due primarily to unfavorable market
conditions in 2010.
Other incomes and gains
2011 compared to 2010
Our other income and gains increased by 19.1% to RMB233.5 million in 2011 compared
to RMB196.0 million in 2010, due primarily to an increase in our foreign exchange gains.
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FINANCIAL INFORMATION
2010 compared to 2009
Our other income and gains decreased by 26.7% to RMB196.0 million in 2010 compared
to RMB267.3 million in 2009. We recorded gains of RMB43.0 million from the disposal of
other bond investments held by Haitong International Holdings in 2009 which did not recur in
2010.
Total expenses
The following table sets forth the breakdown of our total expenses for the periods
indicated:
Year ended December 31,
2009 2010
(RMB in millions)
Staff costs . . . . . . . . . . . . . . . . . . . . . . . . (2,225.0) (2,619.7) (2,320.0)
Commission to account executives . . . . . . . . . . (51.1) (278.6) (297.5)
Brokerage transaction fees and other
services expenses . . . . . . . . . . . . . . . . . . . (947.1) (897.2) (746.7)
Depreciation and amortization . . . . . . . . . . . . (236.9) (288.5) (300.0)
Interest expenses . . . . . . . . . . . . . . . . . . . . . (245.1) (281.5) (459.8)
Other expenses . . . . . . . . . . . . . . . . . . . . . . (1,694.8) (2,027.9) (2,509.1)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,400.0) (6,393.4) (6,633.1)
2011 compared to 2010
Our total expenses increased by 3.7% to RMB6,633.1 million in 2011 from RMB6,393.4
million in 2010, due primarily to an increase in the impairment losses we recognized on our
available-for-sale investments as well as an increase in our interest expenses. Disregarding the
impairment loss we recognized on our available-for-sale investments, our total expenses would
have decreased by 4.7% from 2010.
2010 compared to 2009
Our total expenses increased by 18.4% to RMB6,393.4 million in 2010 compared to
RMB5,400.0 million in 2009, due primarily to the increases in our commission to account
executives, staff costs and other expenses.
Staff costs
2011 compared to 2010
Our staff costs decreased by 11.4% to RMB2,320.0 million in 2011 compared to
RMB2,619.7 million in 2010, due primarily to a decrease in our performance-based bonus that
resulted from adverse market conditions and increased volatility in the PRC securities markets.
Our staff costs as a percentage of our total revenue and other income decreased to 21.4% in
2011 compared to 23.2% in 2010.
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FINANCIAL INFORMATION
2010 compared to 2009
Our staff costs increased by 17.7% to RMB2,619.7 million in 2010 compared to
RMB2,225.0 million in 2009, due primarily to (i) our acquisition of a controlling interest in
Taifook Securities in December 2009 and the resulting consolidation of its staff costs into our
consolidated income statements since January 2010; (ii) increased staff costs in our futures
brokerage business in the PRC due to our rapid business growth; and (iii) an increase in our
employee headcount to support our business expansion. Our staff costs as a percentage of our
total revenue and other income increased to 23.2% in 2010 compared to 19.7% in 2009.
Commission to account executives
2011 compared to 2010
Our commission to account executives increased by 6.8% to RMB297.5 million in 2011
compared to RMB278.6 million in 2010, due primarily to the increased number of the licensed
brokers of our Company and the resulting increase in the commission we paid to these brokers.
2010 compared to 2009
Our commission to account executives increased significantly to RMB278.6 million in
2010 compared to RMB51.1 million in 2009, due primarily to (i) our acquisition of a
controlling interest in Taifook Securities in December 2009 and the resulting consolidation of
its commission to account executives into our consolidated income statements since January
2010; (ii) increased trading volume of our futures brokerage business in the PRC; and (iii) an
increase in the number of our licensed brokers.
Brokerage transaction fees and other services expenses
2011 compared to 2010
Our brokerage transaction fees and other services expenses decreased by 16.8% to
RMB746.7 million in 2011 compared to RMB897.2 million in 2010, due primarily to the lower
trading volume of our stocks and funds brokerage business in 2011.
2010 compared to 2009
Our brokerage transaction fees and other services expenses decreased by 5.3% to
RMB897.2 million in 2010 compared to RMB947.1 million in 2009, due primarily to a decline
in the trading volume of our securities brokerage business in 2010 that largely resulted from
unfavorable market conditions.
Depreciation and amortization
2011 compared to 2010
Our depreciation and amortization increased by 4.0% to RMB300.0 million in 2011
compared to RMB288.5 million in 2010 due primarily to the investment in IT infrastructure
and the slight increase in our investments in fixed assets.
– 338 –
FINANCIAL INFORMATION
2010 compared to 2009
Our depreciation and amortization increased by 21.8% to RMB288.5 million in 2010
compared to RMB236.9 million in 2009 because we opened additional securities brokerage
branches and relocated certain existing branches in 2010 to optimize our nationwide branch
network.
Interest expenses
The following table sets forth the breakdown of our interest expenses for the periods
indicated:
Year ended December 31,
2009 2010
(RMB in millions)
Interest on borrowings wholly repayable within
five years:
– Bank loans and overdrafts . . . . . . . . . . . . 6.5 22.8 25.3
– Deposit taken from other financial
institutions . . . . . . . . . . . . . . . . . . . . – – 13.4
– Financial assets sold under
repurchase agreements . . . . . . . . . . . . . 55.0 54.0 209.2
– Accounts payable to brokerage clients . . . . 183.6 198.8 209.0
– Others . . . . . . . . . . . . . . . . . . . . . . . . – 5.9 2.9
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245.1 281.5 459.8
2011 compared to 2010
Our interest expenses increased by 63.3% to RMB459.8 million in 2011 compared to
RMB281.5 million in 2010, due primarily to an increase in our interest expenses arising from
repurchase transactions.
2010 compared to 2009
Our interest expenses increased by 14.9% to RMB281.5 million in 2010 compared to
RMB245.1 million in 2009, due primarily to our acquisition of a controlling interest in Taifook
Securities in December 2009 and the resulting consolidation of its interest expenses into our
consolidated income statements since January 2010.
Other expenses
2011 compared to 2010
Our other expenses increased by 23.7% to RMB2,509.1 million in 2011 compared to
RMB2,027.9 million in 2010, due primarily to an increase of RMB540.4 million in impairment
losses we recognized on our available-for-sale investments that resulted from adverse market
conditions and increased volatility in the securities markets in the second half of 2011.
– 339 –
FINANCIAL INFORMATION
2010 compared to 2009
Our other expenses increased by 19.7% to RMB2,027.9 million in 2010 compared to
RMB1,694.8 million in 2009, due primarily to (i) our acquisition of a controlling interest in
Taifook Securities in December 2009; (ii) an increase in expenses such as travel and meeting
expenses that resulted from our business growth; (iii) increased relocation and rental expenses
that resulted from the relocation or addition of 37 securities brokerage branches in 2010; and
(iv) increased costs we incurred to strengthen our customer service.
Profit before income tax
2011 compared to 2010
Our profit before income tax decreased by 13.8% to RMB4,300.2 million in 2011
compared to RMB4,989.7 million in 2010.
2010 compared to 2009
Our profit before income tax decreased by 16.6% to RMB4,989.7 million in 2010
compared to RMB5,981.8 million in 2009.
Income tax expense
The following table sets forth our profit before tax, income tax expense and effective tax
rate for the periods indicated:
Year ended December 31,
2009 2010
(RMB in millions, except percentages)
Profit before income tax . . . . . . . . . . . . . . . . 5,981.8 4,989.7 4,300.2
Income tax expense . . . . . . . . . . . . . . . . . . 1,320.1 1,121.5 1,018.2
Effective tax rate . . . . . . . . . . . . . . . . . . . . 22.1% 22.5% 23.7%
2011 compared to 2010
Our income tax expense decreased by 9.2% to RMB1,018.2 million in 2011 compared to
RMB1,121.5 million in 2010, due primarily to the decrease in our taxable income. Our
effective tax rate increased to 23.7% in 2011 compared to 22.5% in 2010 due primarily to the
increase in our expenses not deductible for tax purposes, partially offset by the increase in our
income not taxable for tax purpose.
2010 compared to 2009
Our income tax expense decreased by 15.0% to RMB1,121.5 million in 2010 compared
to RMB1,320.1 million in 2009, due primarily to a decrease in our taxable income. Our
effective tax rate remained relatively stable in 2009 and 2010 at 22.1% and 22.5%,
respectively.
– 340 –
FINANCIAL INFORMATION
Net profit and net margin
The following table sets forth the key measurements of our profitability:
Year ended December 31,
2009 2010
(RMB in millions, except percentages)
Operating profit (1) . . . . . . . . . . . . . . . . . . . . 5,648.5 4,715.5 3,993.8
Operating margin (2) . . . . . . . . . . . . . . . . . . 51.1% 42.4% 37.6%
Adjusted operating margin (3) . . . . . . . . . . . . 57.6% 48.9% 43.8%
Net profit . . . . . . . . . . . . . . . . . . . . . . . . . 4,661.7 3,868.2 3,282.0
Net margin (4) . . . . . . . . . . . . . . . . . . . . . 42.2% 34.8% 30.9%
Adjusted net margin (5) . . . . . . . . . . . . . . . . 47.5% 40.1% 36.0%
(1) Operating profit = total revenue total expenses
(2) Operating margin = (total revenue total expenses)/total revenue
(3) Adjusted operating margin = (total revenue total expenses)/(total revenue commission to account
executives brokerage transaction fees and other services expenses interest expenses).
Adjusted operating margin is presented here because we believe that, after excluding (i) commission to
account executives, (ii) brokerage transaction fees and other services expenses and (iii) interest
expenses, such measurement provides a meaningful indicator of our results of operations that is more
comparable to other PRC listed securities companies due to different presentation requirements from the
CSRC. Prospective investors should be aware that adjusted operating margin presented in this
prospectus may not be comparable to other similarly titled measures reported by other comparable
companies, due to different calculation methods or assumptions.
(4) Net margin = profit for the year/total revenue
(5) Adjusted net margin = (net profit for the year)/(total revenue commission to account executives
brokerage transaction fees and other services expenses interest expenses). Adjusted net margin is not
a standard measurement under IFRS, but we present it here because we believe that, after excluding (i)
commission to account executives, (ii) brokerage transaction fees and other services expenses and (iii)
interest expenses, such measurement provides a meaningful indicator of our results of operations.
Prospective investors should be aware that adjusted net margin presented in this prospectus may not be
comparable to other similarly titled measures reported by other comparable companies, due to different
calculation methods or assumptions.
2011 compared to 2010
Our net profit decreased by 15.2% to RMB3,282.0 million in 2011 compared to
RMB3,868.2 million in 2010. Our net margin decreased to 30.9% in 2011 compared to 34.8%
in 2010. This increase was mainly due to (i) the decrease in our stocks and funds brokerage
trading volume due to the adverse market conditions in the second half of 2011 and the
decrease in our average securities brokerage commission rate, which resulted in the decrease
in our securities brokerage commission and fee income; and (ii) the impairment losses we
recognized on our available-for-sale investments that resulted from adverse market conditions
and increased volatility in the securities markets in the second half of 2011, partially offset by
(i) the increase in interest income due to our effective treasury management measures and
expanded margin financing and securities lending business; and (ii) higher performance fees
we received from our asset management business.
– 341 –
FINANCIAL INFORMATION
2010 compared to 2009
Our net profit decreased by 17.0% to RMB3,868.2 million in 2010 compared to
RMB4,661.7 million in 2009. Our net margin decreased to 34.8% in 2010 compared to 42.2%
in 2009, due primarily to (i) the lower commission rates for our securities brokerage business
that resulted from the intensified price competition in the PRC securities markets; (ii) the
consolidation of Taifook Securities into our income statements since January 2010 that has a
relatively lower net margin compared to our businesses in the PRC; and (iii) increased
expenses that resulted from our continuous efforts to optimize our branch network and
strengthen our marketing capabilities.
SUMMARY SEGMENT RESULTS
A business segment is a group of assets and operations engaged in providing products or
services that are subject to risks and returns that are different from those of other business
segments. Geographically, we divide our business into two main areas: (i) the PRC and
(ii) overseas. For our business in the PRC, we generate our revenue primarily from our five
principal business lines: securities and futures brokerage, investment banking, asset
management, proprietary trading, and direct investment. The following discussion of our
segment revenue and other income, segment expenses and segment results include our
inter-segment revenue and inter-segment expenses.
The following table sets forth our segment revenue and other income (including
inter-segment revenue) for the periods indicated:
Year ended December 31,
2009 2010
(RMB in (RMB in (RMB in
millions) % millions) % millions) %
PRC business
Securities and futures
brokerage . . . . . . . . . 7,897.1 69.8 6,454.2 57.1 4,816.2 44.4
Investment banking . . . . . 497.6 4.4 1,093.3 9.7 1,069.4 9.8
Asset management . . . . . 879.3 7.8 868.9 7.7 1,092.4 10.1
Proprietary trading . . . . . 804.8 7.1 779.8 6.9 1,144.8 10.5
Direct investment . . . . . . 52.1 0.5 106.0 0.9 55.1 0.5
Headquarters and others . . 1,657.3 14.6 1,834.0 16.2 2,651.4 24.4
Overseas business . . . . . . 197.2 1.7 905.0 8.0 954.5 8.8
Inter-segment elimination . . (669.6) (5.9) (736.3) (6.5) (923.4) (8.5)
Total . . . . . . . . . . . . . . 11,315.8 100.0 11,304.9 100.0 10,860.4 100.0
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FINANCIAL INFORMATION
The following table sets forth our segment expenses (including inter-segment expenses)
for the periods indicated:
Year ended December 31,
2009 2010
(RMB in (RMB in (RMB in
millions) % millions) % millions) %
PRC business
Securities and futures
brokerage . . . . . . . . . 3,337.3 61.8 3,438.6 53.8 2,943.7 44.4
Investment banking . . . . . 224.2 4.2 511.7 8.0 520.1 7.8
Asset management . . . . . 514.1 9.5 530.2 8.3 662.8 10.0
Proprietary trading . . . . . 92.1 1.7 82.2 1.3 655.5 9.9
Direct investment . . . . . . 15.5 0.3 24.0 0.4 17.5 0.3
Headquarters and others . . 1,746.2 32.3 1,761.9 27.6 1,654.3 24.9
Overseas business . . . . . . 87.6 1.6 726.2 11.3 833.6 12.6
Inter-segment elimination . . (617.0) (11.4) (681.4) (10.7) (654.4) (9.9)
Total . . . . . . . . . . . . . . . 5,400.0 100.0 6,393.4 100.0 6,633.1 100.0
The following table sets forth our segment results for the periods indicated. Our segment
results are calculated as our segment revenue and other income (including inter-segment
revenue) less segment expenses (including inter-segment expenses):
Year ended December 31,
2009 2010
(RMB in (RMB in (RMB in
millions) % millions) % millions) %
PRC business
Securities and futures
brokerage . . . . . . . . . 4,559.8 77.1 3,015.6 61.4 1,872.5 44.3
Investment banking . . . . . 273.4 4.6 581.6 11.8 549.3 13.0
Asset management . . . . . 365.3 6.2 338.7 6.9 429.6 10.2
Proprietary trading . . . . . 712.7 12.0 697.6 14.2 489.3 11.6
Direct investment . . . . . . 36.6 0.6 82.0 1.7 37.6 0.9
Headquarters and others . . (88.9) (1.5) 72.1 1.5 997.1 23.6
Overseas business . . . . . . 109.6 1.9 178.8 3.6 120.9 2.9
Inter-segment elimination . . (52.6) (0.9) (54.8) (1.1) (269.0) (6.5)
Total . . . . . . . . . . . . . . 5,915.9 100.0 4,911.6 100.0 4,227.3 100.0
– 343 –
FINANCIAL INFORMATION
The following table sets forth our segment margin for the periods indicated. Our segment
margin is calculated as our segment results (including inter-segment results) divided by
segment revenue and other income (including inter-segment revenue):
Year ended December 31,
2009 2010
PRC business
Securities and futures brokerage . . . . . . . . . . . . . . 57.7% 46.7% 38.9%
Investment banking . . . . . . . . . . . . . . . . . . . . . . 54.9% 53.2% 51.4%
Asset management . . . . . . . . . . . . . . . . . . . . . . 41.5% 39.0% 39.3%
Proprietary trading . . . . . . . . . . . . . . . . . . . . . . 88.6% 89.5% 42.7%
Direct investment . . . . . . . . . . . . . . . . . . . . . . . 70.3% 77.4% 68.3%
Headquarters and others . . . . . . . . . . . . . . . . . . . (5.4%) 3.9% 37.6%
Overseas business . . . . . . . . . . . . . . . . . . . . . . . 55.6% 19.8% 12.7%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52.3% 43.4% 38.9%
PRC business
Securities and futures brokerage
Segment revenue and other income from our securities and futures brokerage business
mainly includes commission and fee income on securities and futures brokerage and interest
income from margin financing and securities lending. Segment expenses mainly include rental
expenses, depreciation and amortization, staff costs and other general expenses, as well as
expenses that are directly correlated to our brokerage trading volume and commission and fee
income, such as commission to account executives and brokerage transaction fees and other
services expenses.
2011 compared to 2010
Segment results decreased by 37.9% to RMB1,872.5 million in 2011 compared to
RMB3,015.6 million in 2010, due primarily to a 25.4%, or RMB1,638.0 million, decrease in
our segment revenue and other income during the period. This decrease was mainly attributable
to the decrease in our segment commission and fee income as a result of lower trading volume
in our stocks and funds brokerage business that resulted from the weak performance of the PRC
securities markets in the second half of 2011 and lower commission rates we charged for
securities brokerage due to intense price competition in the PRC securities industry. Our stocks
and funds brokerage trading volume for stocks and funds decreased by 21.8% from
RMB4,476.8 billion in 2010 to RMB3,502.9 billion in 2011 while our average securities
brokerage commission rate decreased from 0.118% in 2010 to 0.100% in 2011. However, the
decrease in our segment revenue and other income was partially offset by a significant increase
in our segment interest income, due primarily to the significant growth of our margin financing
and securities lending business and the resulting increase in our average margin loan balance.
As a result, our segment margin decreased to 38.9% in 2011 compared to 46.7% in 2010.
– 344 –
FINANCIAL INFORMATION
2010 compared to 2009
Segment results decreased by 33.9% to RMB3,015.6 million in 2010 compared to
RMB4,559.8 million in 2009, due primarily to the following:
(i) a 18.3% decrease in our segment revenue and other income, from RMB7,897.1
million in 2009 to RMB6,454.2 million in 2010, which resulted from a 21.8% or
RMB1,576.9 million decrease in our segment commission and fee income. The
decrease in our segment commission and fee income was mainly due to the lower
commission rates we charged for securities brokerage in the PRC in response to the
increased number of securities brokerage branches in the PRC and the resulting
price competition. Our average securities brokerage commission rate for stocks and
funds decreased from 0.147% in 2009 to 0.118% in 2010. However, the decrease in
our segment commission and fee income was partially offset by a 21.5%, or
RMB135.6 million, increase in our segment interest income, due primarily to the
launch of our margin financing and securities lending business in March 2010 and
higher prevailing market interest rates in the PRC; and
(ii) a 3.0% increase in our segment expenses that mainly resulted from our relocation
and addition of securities brokerage branches in 2010 in order to optimize our
branch network and strengthen our marketing capabilities.
As a result, our segment margin decreased to 46.7% in 2010 compared to 57.7% in 2009.
Investment banking
Segment revenue and other income in our investment banking business mainly includes
underwriting and sponsors fees as well as consultancy and financial advisory fees. Segment
expenses mainly include expenses associated with our underwriting activities and salaries we
pay to our professional staff, sales personnel and sponsor representatives.
2011 compared to 2010
Segment results decreased by 5.6% to RMB549.3 million in 2011 compared to RMB581.6
million in 2010, due primarily to a RMB23.9 million decrease in our segment revenue and
other income during the period that resulted from our decreased underwriting and sponsors
fees. Our underwriting and sponsors fees decreased by 6.6%, or RMB65.7 million, due
primarily to the decrease in the number and value of equity offerings underwritten by us,
partially offset by an increase in average rates for underwriting and sponsors fees and an
increase in the value of debt offerings underwritten by us.
As a result, our segment margin decreased to 51.4% in 2011 compared to 53.2% in 2010.
2010 compared to 2009
Segment results increased significantly to RMB581.6 million in 2010 compared to
RMB273.4 million in 2009, due primarily to a significant increase in our segment revenue and
other income from RMB497.6 million in 2009 to RMB1,093.3 million in 2010, which resulted
– 345 –
FINANCIAL INFORMATION
from a significant increase in our equity underwriting fees. This increase is mainly attributable
to our ability to secure more mandates to underwrite equity offerings, in particular offerings
on the SME Board and the ChiNext Board which generally enjoy higher underwriting fee rates
and the resulting increase in our market share in equity underwriting in 2010. We acted as the
lead underwriter for 26 equity offerings in 2010 compared to ten in 2009, with the total value
of equity securities we underwrote increasing from RMB7.5 billion to RMB49.7 billion during
the period.
However, our segment expenses also increased significantly, outpacing the growth in our
segment revenue and other income. As a result, our segment margin decreased to 53.2% in
2010 compared to 54.9% in 2009.
Asset management
Segment revenue and other income in our asset management business primarily includes
asset management fees and performance fees we receive for managing funds and investments
for our customers, as well as investment consultancy fees. Segment expenses primarily include
marketing and maintenance fees of funds, staff costs, such as salaries paid to our professional
staff and marketing personnel, as well as performance-based commissions.
2011 compared to 2010
Segment results increased by 26.8% to RMB429.6 million in 2011 compared to
RMB338.7 million in 2010, due primarily to a 25.7%, or RMB223.5 million, increase in our
segment revenue and other income, which primarily resulted from (i) higher performance fees
we received from the China-Belgium Fund that we managed; and (ii) increased management
fees from our private equity asset management subsidiaries, Haitong Jihe Management and
Haitong Chuangxin Management, which commenced operations in 2011.
As a result, our segment margin increased to 39.3% in 2011 compared to 39.0% in 2010.
2010 compared to 2009
Segment results decreased by 7.3% to RMB338.7 million in 2010 compared to RMB365.3
million in 2009, due primarily to (i) a 1.2%, or RMB10.4 million, decrease in our segment
revenue and other income; and (ii) a 3.2%, or RMB16.1 million, increase in our segment
expenses. The decrease in our segment revenue and other income is mainly attributable to (i) a
decrease in performance fees we received from the China-Belgium Fund that we managed; and
(ii) a decrease in performance fees from our collective asset management schemes in the PRC
amid unfavorable market conditions in 2010.
As a result, our segment margin decreased to 39.0% in 2010 compared to 41.5% in 2009.
Proprietary trading
Segment revenue and other income in our proprietary trading business includes net gains
from financial instruments held for trading and derivatives and net realized gains from
available-for-sale investments. Our segment expenses primarily include business tax and
surcharges, salaries we pay to our professional staff and impairment losses.
– 346 –
FINANCIAL INFORMATION
2011 compared to 2010
Segment results decreased by 29.9% to RMB489.3 million in 2011 compared to
RMB697.6 million in 2010, due primarily to a RMB573.3 million increase in our segment
expenses, which was mainly attributable to the impairment losses we recognized on our
available-for-sale investments that resulted from adverse market conditions and increased
volatility in the securities markets in the second half of 2011. Such decrease was partially
offset by an increase in our net realized gains from available-for-sale investments and
derivatives.
As a result, our segment margin decreased to 42.7% in 2011 compared to 89.5% in 2010.
2010 compared to 2009
Segment results decreased by 2.1% to RMB697.6 million in 2010 compared to RMB712.7
million in 2009, due primarily to a 3.1%, or RMB25.0 million, decrease in our segment revenue
and other income. This decrease is mainly attributable to the unfavorable market conditions in
2010 which adversely impacted our equity investment portfolio and resulted in a decrease in
our net gains from financial instruments held for trading. However, benefiting from our net
realized gains from available-for-sale investments from shares we purchased in previous
participation in follow-on offerings, effective and flexible fixed income trading strategies and
the successful launch of our stock index futures business, our segment revenue and other
income only decreased by 3.1%, compared with a 12.5% decrease in the CSI 300 Index, during
the same period.
The decrease in our segment revenue and other income was partially offset by a 10.7%
decrease in our segment expenses. As a result, our segment margin remained relatively stable
at 88.6% and 89.5% in 2009 and 2010, respectively.
Direct investment
Segment revenue and other income in our direct investment segment mainly includes
gains or losses from the disposal of our private equity investments and interest income from
our unutilized capital. Segment expenses mainly include salaries and performance-based
commissions we pay to our professional staff.
2011 compared to 2010
Segment results decreased by 54.1% to RMB37.6 million in 2011 compared to RMB82.0
million in 2010, due primarily to (i) no exits from direct investments in 2011; and (ii) the
decrease in our interest income due to a decline in our capital that resulted from our
deployment of additional capital to private equity investments in 2011. However, this decrease
was partially offset by a 27.1%, or RMB6.5 million, decrease in our segment expenses in 2011.
As a result, our segment margin decreased to 68.3% in 2011 compared to 77.4% in 2010.
– 347 –
FINANCIAL INFORMATION
2010 compared to 2009
Segment results increased significantly to RMB82.0 million in 2010 compared to
RMB36.6 million in 2009 with segment margins increasing from 70.3% to 77.4%, due
primarily to a 103.6%, or RMB53.9 million, increase in our segment revenue and other income
that resulted from our first exit from a private equity investment in the second half of 2010.
As a result, our segment margin increased to 77.4% in 2010 compared to 70.3% in 2009.
Headquarters and others
Revenue and other income in our headquarters and others segment mainly includes
interest income from our own bank deposits, deposits we hold on behalf of our customers and
our treasury management activities, dividends and other investment gains as well as
government grants. Please see “– Liquidity and Capital Resources” for details on the treasury
management activities at our headquarters. Segment expenses mainly include administrative
expenses related to the management function of our headquarters, including depreciation and
amortization, rental expenses, staff costs and other expenses.
2011 compared to 2010
Segment results increased significantly to RMB997.1 million in 2011 compared to
RMB72.1 million in 2010, due primarily to a 44.6%, or RMB817.4 million, increase in our
segment revenue and other income, and a decrease in our costs and expenses. The increase in
our segment revenue and other income was mainly attributable to (i) an increase in our interest
income as a result of our effective treasury management measures and higher prevailing market
interest rates in the PRC pursuant to increases in benchmark interest rates announced by the
PBOC during the period; and (ii) an increase in net realized gains from available-for-sale
investments as we timely responded to the changing market conditions and captured market
opportunities.
As a result, our segment margin increased to 37.6% in 2011 compared to 3.9% in 2010.
2010 compared to 2009
Our segment results amounted to RMB72.1 million in 2010, representing segment
margins of 3.9%, compared to a loss of RMB88.9 million in 2009 because the increase in our
segment revenue and other income outweighed the increase in our segment expenses. Our
segment revenue and other income increased by 10.7% to RMB1,834.0 million compared to
RMB1,657.3 million in 2009, due primarily to an RMB173.5 million increase in our segment
net investment gains from money market instruments that reflected our effective treasury
management measures.
– 348 –
FINANCIAL INFORMATION
Overseas business
Segment revenue and other income in our overseas business mainly includes commission
and fee income from our securities and futures brokerage business, interest income from
margin financing and securities lending business, corporate finance and advisory fees and
foreign exchange gains generated by Haitong International Holdings. Segment expenses
mainly include commissions to account executives, staff costs and other expenses incurred by
Haitong International Holdings.
2011 compared to 2010
Segment results decreased to RMB120.9 million in 2011 compared to RMB178.8 million
in 2010, due primarily to (i) a 14.8%, or RMB107.4 million, increase in our segment expenses
that reflected the impairment losses we recognized on our available-for-sale investments amid
adverse market conditions in the second half of 2011; and (ii) the decrease in our securities
brokerage commission and fee income as a result of adverse market conditions in the second
half of 2011, partially offset by (i) the increase in interest income from our margin financing
and securities lending business; (ii) an increase in our financial advisory and consultancy fee
income; and (iii) an increase in our asset management fees.
As a result, our segment margin decreased to 12.7% in 2011 compared to 19.8% in 2010.
2010 compared to 2009
Segment results increased significantly to RMB178.8 million in 2010 compared to
RMB109.6 million in 2009, due primarily to an RMB707.8 million increase in our segment
revenue and other income, from RMB197.2 million to RMB905.0 million during the period.
This is mainly attributable to our acquisition of a controlling interest in Taifook Securities in
December 2009. We have consolidated the results of Haitong International Securities in our
consolidated income statements since January 2010, which also contributed to a decrease in our
segment margin to 19.8% in 2010 compared to 55.6% in 2009.
LIQUIDITY AND CAPITAL RESOURCES
We have in the past funded our working capital and other capital requirements primarily
from cash flow from operations, equity financing, repurchase transactions and short-term
borrowings. Historically, long-term borrowings have not been a major source of capital.
We have a comprehensive budgeting system that forecasts our cash flow and cash balance
and estimates our liquidity needs for business expansion and other investments. We have also
established stringent treasury management measures based on our Net Capital and other
regulatory risk control indices, which require stress tests on overall liquidity and other
financial indices before we make any capital investments.
– 349 –
FINANCIAL INFORMATION
To manage our liquidity while improving yields on surplus cash, in addition to bank
deposits and inter-bank borrowings, we actively manage our liquid assets through money
market and bond market operations by investing in liquid financial instruments with low risk,
such as fixed income securities and financial assets held under resale agreements. We also seek
to diversify our source and type of financing to meet various liquidity needs in our operations.
Currently, we derive short-term financing for our PRC operations primarily from bond
repurchase transactions in the interbank market or through stock exchanges.
As of December 31, 2011, we had aggregate cash and cash equivalents of RMB17,267.1
million, consisting primarily of bank balances and cash (excluding pledged bank deposits,
fixed deposits, and restricted bank deposits), clearing settlement funds and time deposits on our
own account that can be withdrawn on demand. In addition, as a securities firm, we hold a
substantial amount of liquid financial instruments to manage our liquidity and capital, such as
financial instruments held for trading and financial assets held under resale agreements. As of
December 31, 2011, we had proceeds from repurchase transactions of RMB9,524.5 million. In
addition, we had financial assets available for resale transactions of RMB605.9 million as of
December 31, 2011, which we can quickly trade with counterparties to increase our working
capital and meet other liquidity requirements from time to time. At the same time, we had total
borrowings of RMB2,520.7 million, all of which are either repayable on demand or due within
one year. Most of our borrowings are denominated in Hong Kong dollars, which Haitong
International Securities incurred to primarily fund its margin financing and securities lending
business.
Taking into account the financial resources available to us, including our existing cash
and cash equivalents, net proceeds from this Global Offering, cash flow from operations and
available facilities, our Directors believe that our Group has sufficient working capital for its
present requirements for at least the next 12 months from the date of this prospectus.
The following discussion of liquidity and capital resources principally focuses on our
consolidated statements of cash flows, assets and liabilities, indebtedness and our capital
commitments.
– 350 –
FINANCIAL INFORMATION
Cash Flow
The following table sets forth a selected summary of our consolidated statements of cash
flow for the periods indicated:
For the year ended December 31,
2009 2010
Net cash flows from operating activities . . . . . . 7,522.6 (10,500.6) 7,123.8
Net cash flows from investing activities . . . . . . (3,297.1) (1,536.6) (3,861.5)
Net cash flows from financing activities . . . . . . (578.1) (1,106.9) (1,711.0)
Net (decrease) increase of cash and cash
equivalent . . . . . . . . . . . . . . . . . . . . . . . 3,647.4 (13,144.1) 1,551.3
Cash and cash equivalent at the beginning of
the year . . . . . . . . . . . . . . . . . . . . . . . . . 25,290.5 28,931.9 15,777.1
Effect of foreign exchange rate changes . . . . . . (6.0) (10.7) (61.3)
Cash and cash equivalent at the end of the year . 28,931.9 15,777.1 17,267.1
Net cash flows from operating activities
Our cash flows from operating activities consist primarily of cash generated or paid in
relation to our commission-based securities business (such as brokerage, underwriting and
financial advisory services), margin financing and securities lending business, trading of
financial instruments held for trading, as well as resale and repurchase transactions. Net cash
flows from operating activities reflect (i) profit before tax adjusted for non-cash and
non-operating items, such as depreciation and amortization and impairment allowance; (ii) the
effects of changes in working capital such as increase or decrease in accounts and other
payables, cash held on behalf of clients, advances to customers, financial instruments held for
trading, and financial assets held under resale agreements or sold under repurchase agreements;
and (iii) other cash items such as income tax paid.
In 2011, we had net cash inflows from operating activities of RMB7,123.8 million which
was mainly due to the positive effects of changes in our working capital and our profit before
tax of RMB4,300.2 million. The positive effects of changes in working capital primarily
reflected (i) a RMB9,524.5 million increase in our financial assets sold under repurchase
agreements; and (ii) a RMB1,514.1 million decrease in financial assets held under resale
agreements to manage our liquidity. These cash inflows were partially offset by a RMB5,587.0
million increase in our financial instruments held for trading that reflected our investment
decisions.
– 351 –
FINANCIAL INFORMATION
In 2010, we had net cash outflows from operating activities of RMB10,500.6 million
since the negative effects of changes in working capital exceeded our profit before tax of
RMB4,989.7 million. The negative effects of changes in working capital primarily reflected the
following:
(i) an RMB5,821.5 million decrease in financial assets sold under repurchase
agreements because we repurchased our financial assets pursuant to our repurchase
agreements;
(ii) an RMB3,906.1 million increase in advances to customers, due primarily to our
launch of margin financing and securities lending business in the PRC and the
growth of our margin financing business overseas after our acquisition of a
controlling interest in Taifook Securities in December 2009;
(iii) an RMB2,121.3 million increase in our financial instruments held for trading that
reflected our investment decisions; and
(iv) an RMB2,120.0 million increase in financial assets held under resale agreements,
due primarily to our increased interbank lending activities for managing our
liquidity.
In 2009, we had net cash inflows from operating activities of RMB7,522.6 million, which
was mainly due to the positive effects of changes in our working capital and our profit before
tax of RMB5,981.8 million. The positive effects of changes in working capital primarily
reflected the proceeds of RMB5,211.5 million from our repurchase transactions, partially offset
by an RMB3,084.5 million increase in our financial instruments held for trading that reflected
our investment decisions.
We believe that we have strong ability to generate cash flows from operating activities
during the Track Record Period and our operating cash flows before the changes in working
capital amounted to RMB6,141.9 million, RMB4,883.2 million and RMB4,676.5 million,
respectively, for the years ended December 31, 2009, 2010 and 2011. In addition, we had net
current assets of RMB41,376.9 million, RMB40,696.3 million and RMB40,519.7 million as of
December 31, 2009, 2010 and 2011, which proved to be sufficient to our working capital
requirements during the Track Record Period.
Net cash flows from investing activities
Our cash outflows from investing activities consist primarily of our acquisition of
interests in our associates and our purchase of property and equipment as well as financial
assets. Our cash inflows from investing activities consist primarily of the dividends we receive
from associates and the disposal of our property and equipment, interests in associates and
financial assets.
– 352 –
FINANCIAL INFORMATION
In 2011, our net cash used in investing activities was RMB3,861.5 million, which was
mainly attributable to (i) an RMB3,047.8 million increase in our available-for-sale investments
that reflected our investment decisions; (ii) payments of RMB370.0 million for the equity
interest in a newly formed associated company; and (iii) payments of RMB366.3 million for
the purchases of property and equipment to support our business expansion in 2011.
In 2010, our net cash used in investing activities was RMB1,536.6 million, which was
mainly attributable to (i) a RMB936.1 million increase in our available-for-sale investments
that reflected our investment decisions; (ii) payments of RMB300.0 million for the equity
interests in newly formed associated companies; and (iii) payments of RMB368.8 million for
purchases of property and equipment to support our business expansion in 2010.
In 2009, our net cash used in investing activities was RMB3,297.1 million, which was
mainly attributable to (i) an RMB3,314.2 million increase in available-for-sale investments that
reflected our investment decisions; (ii) a payment of RMB1,238.5 million for the acquisition
of Taifook Securities in 2009; and (iii) payments of RMB240.8 million for purchases of
property and equipment to support our business expansion in 2009. These cash outflows were
partially offset by cash inflows of RMB1,406.0 million from the proceeds from other
investments such as the disposal of certain held-to-maturity financial assets in 2009.
Net cash flows from financing activities
Our cash outflows from financing activities consist primarily of the dividends we pay to
our shareholders and the non-controlling shareholders of our subsidiaries, an increase in
pledged bank deposits and repayment of borrowings. Our cash inflows from financing
activities consist primarily of new borrowings we raise.
In 2011, our net cash used in financing activities was RMB1,711.0 million, which was
mainly attributable to (i) dividends of RMB1,329.1 million we paid to our shareholders and the
non-controlling shareholders of our subsidiaries; and (ii) an RMB417.9 million repayment of
borrowings. These cash outflows were partially offset by the proceeds of RMB368.4 million
from the issuance of shares of our subsidiaries.
In 2010, our net cash used in financing activities was RMB1,106.9 million, which was
mainly attributable to (i) dividends of RMB1,736.6 million we paid to our shareholders and the
non-controlling shareholders of our subsidiaries; and (ii) an RMB1,158.3 million increase in
our pledged bank deposits for corporate finance purposes. These cash outflows were partially
offset by the proceeds of RMB1,845.7 million from borrowings we raised (net of interest paid)
in 2010.
In 2009, our net cash used in financing activities was RMB578.1 million, which was
mainly attributable to dividends of RMB873.3 million we paid to our shareholders and the
non-controlling shareholders of our subsidiaries, partially offset by the proceeds of RMB435.4
million from borrowings we raised (net of interest paid) in 2009.
– 353 –
FINANCIAL INFORMATION
Assets and Liabilities
To ensure appropriate cash liquidity management and capital allocation, we actively
monitor the scale and composition of our balance sheet and seek to maintain a balance sheet
with high liquidity. Given the highly liquid nature of our business, most of our balance sheet
consists of current assets and liabilities.
Current assets and liabilities
The following table sets forth a summary of our current assets and liabilities as of the
dates indicated:
As of December 31, As of
February 29,
2009 2010 2011
(unaudited)
(RMB in millions)
Current assets
Advances to customers . . . . . . . . . 2,035.0 5,814.5 6,462.7 6,199.1
Accounts receivable . . . . . . . . . . . 677.1 980.2 872.6 965.5
Other receivables and prepayments . 358.5 447.5 740.3 1,125.1
Available-for-sale investments . . . . 5,778.4 5,060.8 6,826.6 8,479.9
Financial assets held under resale
agreements . . . . . . . . . . . . . . . – 2,120.0 605.9 800.0
Financial assets at fair value through
profit or loss . . . . . . . . . . . . . . 12,896.7 15,018.1 20,605.1 19,066.0
Deposits with exchanges . . . . . . . . 1,375.0 2,373.4 2,177.8 2,591.7
Clearing settlement funds . . . . . . . 5,749.1 20,424.7 3,952.0 3,120.3
Bank balances and cash . . . . . . . . 88,246.9 58,057.3 50,571.0 56,323.3
Total current assets . . . . . . . . . . 117,116.7 110,296.5 92,814.0 98,670.9
Current Liabilities
Borrowings . . . . . . . . . . . . . . . . 1,076.6 2,922.3 2,520.7 2,647.0
Deposit taken from other financial
institutions . . . . . . . . . . . . . . . – – – 500.0
Accounts payable to brokerage
clients . . . . . . . . . . . . . . . . . 66,580.2 63,682.3 38,013.8 38,371.7
Other payables and accruals . . . . . . 1,870.9 2,523.4 1,819.1 1,518.2
Provisions . . . . . . . . . . . . . . . . . 8.8 6.9 0.2 0.2
Tax liabilities . . . . . . . . . . . . . . . 381.8 465.3 416.0 146.5
Financial liabilities at fair value
through profit and loss . . . . . . . – – – 122.6
Financial assets sold under
repurchase agreements . . . . . . . . 5,821.5 – 9,524.5 13,853.9
Total current liabilities . . . . . . . . 75,739.8 69,600.2 52,294.3 57,160.1
Net current assets . . . . . . . . . . . 41,376.9 40,696.3 40,519.7 41,510.8
Our current assets mainly include bank balances and cash (including cash held on behalf
of customers), clearing settlement funds, financial instruments held for trading, available-for-
sale investments and advances to customers. Our current liabilities mainly include accounts
payable to brokerage customers, which are primarily repayable at our customers’ request, and
financial assets sold under repurchase agreements. Customer deposits in our brokerage
– 354 –
FINANCIAL INFORMATION
business form a major component of our current assets and current liabilities. In current assets,
our customer deposits are reflected in bank balances and cash and clearing settlement funds
whereas in current liabilities, customer deposits are reflected under accounts payable to
brokerage customers. Customer deposits held by us fluctuate based on our customers’ trading
activities, market conditions and other external factors beyond our control. As a result,
customer deposits in our brokerage business are not a meaningful indicator of our financial
condition or operating performance. Please see “– Liquidity and Capital Resources – Assets
and Liabilities Adjusted assets and liabilities” below for a summary of our assets and
liabilities excluding customer deposits in our brokerage business.
Our net current assets, the difference between total current assets and current liabilities,
remained positive during the Track Record Period.
As of February 29, 2012, our net current assets increased to RMB41,510.8 million
compared to RMB40,519.7 million as of December 31, 2011. The increase in our current assets
was due primarily to a RMB5,752.3 million increase in our bank balances and cash that
resulted from our investment gains and increased treasury management activities in 2012. On
the other hand, the increase in our current liabilities was due primarily to a RMB4,329.4
million increase in our financial assets sold under repurchase agreements and a RMB500.0
million increase in our deposit taken from other financial institutions, both of which reflected
our treasury management activities to increase financial leverage through increased repurchase
transactions.
As of December 31, 2011, our net current assets decreased slightly to RMB40,519.7
million compared to RMB40,696.3 million as of December 31, 2010, because the decrease in
our total current assets was greater than the decrease in our total current liabilities. The
decrease in our current assets was due primarily to (i) a RMB23,959.0 million decrease in bank
balances and cash and clearing settlement funds that resulted from the decrease in our cash held
on behalf of our customers; and (ii) a RMB1,514.1 million decrease in financial assets held
under resale agreements. The decrease in current assets are partially offset by the increase in
financial instruments held for trading, available-for-sale investments, other receivables and
prepayments and advances to customers. On the other hand, the decrease in our current
liabilities is due primarily to an RMB25,668.5 million decrease in our accounts payable to
brokerage clients in 2011 as a result of the decrease in cash held on behalf of our customers.
The decrease was partially offset by an RMB9,524.5 million increase in our financial assets
sold under repurchase agreements.
As of December 31, 2010, our net current assets decreased slightly to RMB40,696.3
million compared to RMB41,376.9 million as of December 31, 2009, because the decrease in
our total current assets was greater than the decrease in our total current liabilities. The
decrease in current assets was due primarily to an RMB30,189.6 million decrease in bank
balances and cash, as a result of an increase in our investments in the PRC securities markets
and the growth of our margin financing and securities lending in 2010. However, the decrease
in bank balances and cash was partially offset by the increase in clearing settlement funds,
financial instruments held for trading, financial assets held under resale agreements and
advances to customers. On the other hand, the decrease in our current liabilities was due
primarily to our repurchase of financial assets we sold under repurchase agreements of
RMB5,821.5 million in 2010, partially offset by an RMB1,845.7 million increase in
borrowings as a result of our acquisition of a controlling interest in Taifook Securities in 2010
and our assumption of its debts.
– 355 –
FINANCIAL INFORMATION
We hold financial assets sold under repurchase agreements and financial assets held under
resale agreements mainly to manage our liquidity and achieve higher yields on our financial
assets through financial leverage. Because resale or repurchase transactions are important
measures to manage our liquidity and we adjust the balance of our financial assets sold under
repurchase agreements and financial assets held under resale agreements from time to time, the
amount of such financial instruments we hold could fluctuate significantly during any given
period. These financial instruments are short-term in nature and can be quickly liquidated in
the near term to increase our working capital and meet other liquidity requirements from time
to time. For a detailed discussion of our resale or repurchase transactions, please see “–
Principal Components of Consolidated Income Statements – Revenue and other income.”
The significant fluctuations in our financial assets held under resale agreements were due
primarily to the market conditions and our use of capital, which reflected our efforts to achieve
higher yields on capital compared to the prevailing deposit interest rates.
The significant fluctuations in our financial assets sold under repurchase agreements were
due primarily to our investment decisions to increase our trading of fixed income securities in
light of rising market interest rates. For example, the fixed income securities we held for
trading purpose increased from RMB6.3 billion as of December 31, 2009 to RMB9.0 billion
as of December 31, 2010 and further to RMB14.8 billion as of December 31, 2011. When our
capital position changes and short-term trading opportunities emerge, we can generate returns
from the difference between short-term investment gains and interest expenses on proceeds
from repurchase transactions by using our fixed income securities in repurchase transactions
through the securities market or interbank market. In addition, our business activities may
require a significant amount of short-term funds, such as when we subscribe for new shares in
IPOs and underwrite debt securities, and we can generally increase our liquidity through
repurchase transactions at a relatively low cost.
Adjusted current assets and liabilities
Client deposits held by us fluctuate based on our customers’ trading activities, market
conditions and other external factors that are beyond our control. In the following table, we
have adjusted our current assets and liabilities to exclude our assets held on behalf of clients
and accounts payable to brokerage customers to provide more meaningful indicators of our
financial condition.
As of December 31, As of
February 29,
2009 2010 2011
(RMB in millions)
Adjusted current assets(1) . . . . . . . . . . . 50,536.5 46,614.2 54,800.2 60,299.2 (3)
Adjusted current liabilities (2) . . . . . . . . . 9,159.6 5,917.9 14,280.5 18,788.4 (3)
(1) Adjusted current assets equal total current assets less accounts payable to brokerage clients
(2) Adjusted current liabilities equal total current liabilities less accounts payable to brokerage clients
(3) Derived from unaudited financial figures
– 356 –
FINANCIAL INFORMATION
Non-current assets and liabilities
The following table sets forth a summary of our non-current assets and liabilities as of the
periods indicated:
As of December 31,
2009 2010
(RMB in millions)
Non-current assets
Property and equipment . . . . . . . . . . . . . . . . 1,136.2 1,201.2 1,177.1
Investment properties . . . . . . . . . . . . . . . . . . 104.1 100.6 93.5
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . 697.1 673.9 642.3
Other intangible assets . . . . . . . . . . . . . . . . . 263.8 289.7 308.0
Investments in associates. . . . . . . . . . . . . . . . 215.7 543.3 926.1
Available-for-sale investments . . . . . . . . . . . . 870.1 1,877.5 1,933.6
Deferred tax assets . . . . . . . . . . . . . . . . . . . 57.0 61.6 513.1
Restricted bank deposits . . . . . . . . . . . . . . . . 184.8 260.8 326.7
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 84.7 108.0 242.6
Total non-current assets . . . . . . . . . . . . . . . 3,613.5 5,116.6 6,163.0
Total non-current liabilities . . . . . . . . . . . . . 471.8 196.1 72.0
Our non-current assets mainly include investments in associates, property and equipment
and available-for-sale investments. Our investments in associates and available-for-sale
investments are primarily in the form of equity investments. Investments in associates are
strategic principal investments of the Company. We classify equity investments that we do not
expect to sell within one year due to transfer restrictions as available-for-sale investments
under non-current assets. Our property and equipment mainly consist of properties used to
carry out our business, including our branch network. Our non-current assets increased from
RMB3,613.5 million as of December 31, 2009 to RMB5,116.6 million as of December 31, 2010
and further to RMB6,163.0 million as of December 31, 2011. The increase in our non-current
assets from 2009 to 2010 mainly reflected the increases in our available-for-sale investments
and our investments in associates. The increase in our non-current assets from 2010 to 2011
primarily reflected the increase in our investments in associates and our deferred tax assets.
Our non-current liabilities mainly include deferred tax liabilities, which reflect the
temporary differences that will result in taxable expenses in future years. As of December 31,
2011, our non-current liabilities amounted to RMB72.0 million.
– 357 –
FINANCIAL INFORMATION
Borrowings
As of February 29, 2012, being the Latest Practicable date for the purpose of the
indebtedness statement, we had total borrowings of RMB2,647.0 million. The following table
sets forth the breakdown of our borrowings as of the dates indicated:
As of December 31, As of
February 29,
2009 2010 2011
(unaudited)
(RMB in millions)
Secured borrowings
Bank overdrafts . . . . . . . . . . . . – 11.8 – 70.3
Bank loans . . . . . . . . . . . . . . . 724.4 2,060.1 1,741.4 1,840.0
Unsecured borrowings
Bank loans . . . . . . . . . . . . . . . 132.1 765.3 779.3 736.7
Other loans . . . . . . . . . . . . . . . 220.1 85.1 – –
1,076.6 2,922.3 2,520.7 2,647.0
We entered into a short-term bridge loan of approximately RMB437.4 million for the
acquisition of Taifook Securities in 2009.
Since the acquisition of Taifook Securities, we have started to incur short-term bank
borrowings in Hong Kong primarily to fund our overseas margin financing and securities
lending business. A majority of our borrowings are secured and some of our bank overdrafts
and bank loans were secured by:
listed shares held by us as security for advances to customers of RMB485.5 million,
RMB2,767.2 million and RMB1,705.7 million as of December 31, 2009, 2010 and
2011, respectively; and
our short-term deposits placed by our Hong Kong subsidiaries at financial
institutions.
As of February 29, 2012, our borrowings are either repayable on demand or due within
one year and primarily denominated in Hong Kong dollars and incurred by our Hong Kong
subsidiaries.
Except as disclosed above, and apart from intra-group liabilities, we did not have, as of
February 29, 2012, any outstanding mortgages, charges, debentures, other debt capital (issued
or agreed to be issued), liabilities under acceptance or other similar indebtedness, hire purchase
and finance lease commitments, any guarantees or other material contingent liabilities.
– 358 –
FINANCIAL INFORMATION
CAPITAL EXPENDITURES
Our capital expenditures principally comprise expenditures for the purchase of property,
plant, equipment and intangibles assets. The following table sets forth our capital expenditures
for the periods indicated:
Year ended December 31,
2009 2010
(RMB in millions)
Purchase of property, equipment and
intangible assets. . . . . . . . . . . . . . . . . . . . 240.8 368.8 366.3
Our capital expenditures were RMB240.8 million, RMB368.8 million and RMB366.3
million for the years ended December 31, 2009, 2010 and 2011, respectively. During those
periods, we incurred capital expenditures primarily for purchases of property and equipment to
expand our branch network and in connection with business acquisitions. The substantial
increase in our capital expenditures in 2010 was mainly attributable to the renovation of 22
brokerage branches and relocation of 14 brokerage branches in the PRC.
As of February 29, 2012, we estimated that our capital expenditures for the year ending
December 31, 2012 will be approximately RMB414.2 million, which we will use to upgrade
the trading facilities and client terminal in our server room, to purchase the properties for the
business operation of our branches and to procure and develop IT system softwares.
COMMITMENTS AND CONTINGENT LIABILITIES
Capital commitments
The following table below sets forth our capital commitments for acquisition of property
and equipment as of the dates indicated:
As of December 31, As of
February 29,
2009 2010 2011
(unaudited)
(RMB in millions)
Contracted but not provided for: . . . 0.7 9.2 22.0 21.1
We have funded a substantial portion of our capital commitments by cash flow from our
operating activities. Historically, our capital commitments were mainly attributable to the
purchase of property and equipment for expanding our branch network and, as we grow, we
expect to continue to incur capital commitments to support our business expansion.
As of February 29, 2012, our capital commitments of RMB21.1 million were primarily
associated with the renovation of our brokerage branches in the PRC and the purchase and
development of IT system softwares.
– 359 –
FINANCIAL INFORMATION
Operating lease commitments
We lease some of our office properties from third parties under non-cancelable operating
leases. The following table sets forth our future minimum lease payments payable under
non-cancelable operating leases as of the dates indicated:
As of December 31, As of
February 29,
2009 2010 2011 2012
(unaudited)
(RMB in millions)
Within one year . . . . . . . . . . . . . 47.6 170.2 210.0 176.4
In the second to fifth year inclusive 224.0 275.3 344.5 333.5
Over five years. . . . . . . . . . . . . . 41.1 101.6 59.6 45.6
312.7 547.1 614.1 555.5
We also rent some of our properties to third parties under non-cancelable operating leases.
The following table sets forth our future minimum lease payments receivable under
non-cancelable operating leases as of the dates indicated:
As of December 31, As of
February 29,
2009 2010 2011 2012
(unaudited)
(RMB in millions)
Within one year . . . . . . . . . . . . . 6.4 6.0 9.9 8.1
In the second to fifth year, inclusive 19.8 13.7 19.0 18.0
26.2 19.7 28.9 26.1
Contingent liabilities
As of February 29, 2012, we were not involved in any material legal, arbitration or
administrative proceedings that, if adversely determined, we expect would materially and
adversely affect our financial position and results of operations, although there can be no
assurance that this will be the case in the future.
As of February 29, 2012, we did not have any guarantees, mortgages, charges, or other
material contingent liabilities.
OFF-BALANCE SHEET ARRANGEMENTS
As of the Latest Practicable Date, we did not have any outstanding, off-balance sheet
guarantees or foreign currency forward contracts.
– 360 –
FINANCIAL INFORMATION
CAPITAL ADEQUACY AND RISK CONTROL INDICATOR
According to the Risk Control Indicator Measures, we have established a dynamic Net
Capital monitoring mechanism to comply with statutory Net Capital requirements and other
regulatory standards for capital adequacy. In addition, we also need to maintain a minimum
amount of Net Capital to conduct our margin financing and securities lending, asset
management and underwriting businesses. As of December 31, 2009, 2010 and 2011, we were
in compliance with all of our capital adequacy and risk control indicator requirements.
According to the SAC, as of December 31, 2011, our Net Capital amounted to RMB31.3
billion, the second highest among PRC securities companies (1).
The following table sets forth our Net Capital and key regulatory risk control indicators
that we prepared in accordance with PRC GAAP and relevant PRC regulatory requirements as
of the dates indicated. During the Track Record Period, our Net Capital and key risk control
indicators have far exceeded or stayed well within the required levels, as applicable.
Minimum/
As of December 31,
Warning Maximum
2009 2010 2011 level (1) level
Net Capital (2) (RMB in
millions) . . . . . . . . . . . . . 34,390.9 32,459.5 31,342.6 >240.0 >200.0
Net assets/total risk capital
reserves (3) (%) . . . . . . . . . 779.2% 571.7% 527.7% >120.0% >100.0%
Net Capital/net assets (%) . . . 79.8% 74.0% 70.1% >48.0% >40.0%
Net Capital/total liabilities (4)
(%) . . . . . . . . . . . . . . . 440.9% 1,232.5% 282.8% >9.6% >8.0%
Net asset/total liabilities (%) . . 552.3% 1,665.0% 403.2% >24.0% >20.0%
Value of equity securities and
derivatives held/Net Capital
(%) . . . . . . . . . . . . . . . 25.3% 26.9% 38.1% <80.0% <100.0%
Value of fixed income
securities held/Net Capital
(%) . . . . . . . . . . . . . . . . 29.5% 36.3% 60.4% <400.0% <500.0%
(1) The warning level is set by the CSRC according to the Risk Control Indicator Measures. If a risk control
indicator is required to stay above a minimum level, the warning level is 120% of the minimum
requirement, and if a risk control indicator is required to stay below a maximum level, the warning level
is 80% of the maximum requirement.
(2) Net Capital equals net assets minus risk adjustments of financial assets minus risk adjustments of other
assets and contingent liabilities plus/minus other adjustments determined or authorized by the CSRC.
(3) Risk capital reserve is a statutory reserve for PRC securities firms to cover any loss that securities firms
may incur in their ordinary course of business and setting up of subsidiaries and branches. Such reserve
is calculated based on a securities firm’s Net Capital.
(4) Total liabilities exclude the accounts payable to our brokerage clients.
(1) The 2011 data from the SAC was based on the preliminary results of PRC securities firms.
– 361 –
FINANCIAL INFORMATION
In addition to the risk control indicators mentioned above, the Risk Control Indicator
Measures require us to comply with the following requirements when we engage in proprietary
trading: (i) the cost of holding one kind of equity securities should not exceed 30% of our Net
Capital; and (ii) the market value of one kind of equity securities we hold should not exceed
5% of its total market value, except for owing to underwriting activities or otherwise approved
by the CSRC. Meanwhile, when conducting margin financing and securities lending activities,
we need to comply with the following requirements: (i) the value of margin financing granted
to a single customer should not exceed 5% of our Net Capital; (ii) the value of securities lent
to a single customer should not exceed 5% of our Net Capital; and (iii) the market value of one
kind of securities we hold should not exceed 20% of its total market value. We closely monitor
all risk control indicators when conducting our proprietary trading and margin financing and
securities lending businesses. During the Track Record Period, we did not have any
non-compliances with these risk control indicators nor have we received any warnings or
penalties from the CSRC.
QUANTITATIVE AND QUALITATIVE ANALYSIS OF MARKET RISK
Market risk is the risk that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in economic environment. Market risk comprises five types
of risks: credit risk, liquidity risk, price risk, interest rate risk and currency risk.
Credit risk
We are exposed to credit risk, which is the risk that a counterparty will be unable to pay
amounts in full when due. The following table sets forth our maximum credit risk exposure,
being the carrying amount of the respective recognized financial assets before the effect of
mitigation through the use of collateral:
As of December 31,
2009 2010
(RMB in millions)
Advances to customers . . . . . . . . . . . . . . . . . 2,035.0 5,814.5 6,462.7
Accounts receivable . . . . . . . . . . . . . . . . . . . 677.1 980.2 872.6
Other receivables . . . . . . . . . . . . . . . . . . . . 358.5 447.5 692.0
Available-for-sale debt investments . . . . . . . . . 110.9 278.5 507.7
Financial assets held under resale agreements . . . – 2,120.0 605.9
Financial assets at fair value through
profit or loss . . . . . . . . . . . . . . . . . . . . . . 6,528.1 8,978.2 14,910.7
Deposits with exchanges . . . . . . . . . . . . . . . . 1,375.0 2,373.4 2,177.8
Clearing settlement funds . . . . . . . . . . . . . . . 5,749.1 20,424.7 3,952.0
Bank balances and cash . . . . . . . . . . . . . . . . 88,246.9 58,057.3 50,571.0
Restricted bank deposits . . . . . . . . . . . . . . . . 184.8 260.8 326.7
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 60.2 84.0 219.1
Maximum credit exposure . . . . . . . . . . . . . . 105,325.6 99,819.1 81,298.2
Credit exposures arise principally from investments in debt securities, advances to
customers, accounts receivable, clearing settlement funds and bank balances which are
included in our asset portfolios.
– 362 –
FINANCIAL INFORMATION
Credit exposure arising from investments in debt securities include downgrading of credit
rating of the debt securities and/or of its underlying issuers and default of payments by the
issuers. We have implemented a policy of not investing in any debt securities rated by reputable
credit rating agency at a rating below A-3 and BBB for short-term tenor and for medium to
long-term tenor, respectively. Our management also closely monitors the credit ratings of
respective debt securities on a regular basis and the financial soundness of the underlying
issuers.
We provide customers with margin financing for securities transactions and securities
lending to customers, which are secured by customers’ securities or deposits held as collateral.
Our management has delegated a team responsible for determination of credit limits, credit
approvals and other monitoring procedures to ensure that follow-up action is taken to recover
overdue debts. Each customer has a maximum credit limit based on the quality of collateral
held and the financial background of the customer. In addition, we review the recoverable
amount of each individual at the end of the reporting period to ensure that adequate impairment
losses are made for irrecoverable amounts. Margin calls are made when the trades of margin
customers exceed their respective limits. Any such excess is required to be made good within
the next trading day. Failure to meet margin calls may result in the liquidation of the customer’s
positions.
We seek to maintain tight control over our outstanding accounts receivable in order to
minimize credit risk. Overdue balances are regularly monitored by our management. Accounts
receivable from cash customers which are neither past due nor impaired represent unsettled
customer trades on various securities exchanges transacted on the last two business days prior
to the respective reporting date. Such receivable balances are neither past due nor impaired as
they are within the normal market convention.
Accounts receivable from cash customers which are past due but not impaired represent
customer trades on various securities exchanges which are unsettled beyond the settlement
date. When the cash customers fail to settle on settlement date, we have the right to force-sell
the collateral underlying the securities transactions. The outstanding accounts receivable from
cash customers as of December 31, 2009, 2010 and 2011 are considered not to be impaired after
taking into consideration the recoverability from collateral. Collateral held against such
receivables are publicly traded securities.
The credit risk on liquid funds is limited because the counterparties are banks with high
credit ratings assigned by international credit-rating agencies.
Other than concentration of credit risk on liquid funds which are deposited with several
banks with high credit ratings, our major credit exposures are with counterparties domiciled in
the PRC as of December 31, 2009, 2010 and 2011.
Liquidity risk
Liquidity risk is the risk that we will encounter difficulty in meeting obligations
associated with our financial liabilities. Prudent liquidity risk management includes
maintaining sufficient cash, the availability of funding from the market in the capacity of a
financial institution, and the ability to close out market positions. As part of the measures to
safeguard liquidity, we have maintained substantial long-term and other stand-by banking
facilities, diversifying the funding sources and spacing out the maturity dates.
– 363 –
FINANCIAL INFORMATION
As of February 29, 2012, we had RMB4,981.5 million of unutilized banking facilities.
Undiscounted cash flows by contractual maturities
The table below presents our cash flows payable under non-derivative financial liabilities
held for managing liquidity risk by remaining contractual maturities at the reporting date. The
amounts disclosed in the table are the contractual undiscounted cash flows. The table includes
both interest and principal cash flows.
As of December 31, 2009
Less than 3 months to
On demand 3 months 1 year Total
(RMB in millions)
Borrowings . . . . . . . . . . . . . . . . 220.1 856.6 – 1,076.7
Accounts payable to brokerage
clients . . . . . . . . . . . . . . . . . . 66,510.3 69.9 – 66,580.2
Other payables . . . . . . . . . . . . . . 759.5 – 14.7 774.2
Financial assets sold under
repurchase agreements . . . . . . . . – 5,822.6 – 5,822.6
67,489.9 6,749.1 14.7 74,253.7
As of December 31, 2010
Less than 3 months to
On demand 3 months 1 year Total
(RMB in millions)
Borrowings . . . . . . . . . . . . . . . . 96.9 2,826.3 – 2,923.2
Accounts payable to brokerage
clients . . . . . . . . . . . . . . . . . . 63,462.1 110.3 109.9 63,682.3
Other payables . . . . . . . . . . . . . . 1,307.6 – 17.9 1,325.5
64,866.6 2,936.6 127.8 67,931.0
As of December 31, 2011
Less than 3 months to
On demand 3 months 1 year Total
(RMB in millions)
Borrowings . . . . . . . . . . . . . . . . 2,075.2 447.9 – 2,523.1
Accounts payable to brokerage
clients . . . . . . . . . . . . . . . . . . 36,972.2 203.6 838.0 38,013.8
Other payables . . . . . . . . . . . . . . 674.5 – 11.9 686.4
Financial assets sold under
repurchase agreements . . . . . . . . – 9,532.0 – 9,532.0
39,721.9 10,183.5 849.9 50,755.3
– 364 –
FINANCIAL INFORMATION
Price risk
Price risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate as a result of changes in market prices (other than those arising from interest rate risk
or foreign exchange risk), whether caused by factors specific to an individual investment, its
issuer, or all factors affecting equity instruments traded in the market.
We are exposed to price risk arising from individual investments classified as financial
assets held for trading and available-for-sale investments. Our directors manage the exposure
by closely monitoring the portfolio of investments and may hedge exposure by entering into
derivatives contracts. Price risk exposures are measured using value-at-risk (VaR) at company
level.
There has been no change to our exposure to market risks or the manner in which we
manage and measure the risk.
VaR analysis
The VaR risk measure estimates the potential loss over a given holding period for a
specified confidence level. The VaR methodology is a statistically defined, probability-based
approach that takes into account market volatilities as well as risk diversification by
recognizing offsetting positions and correlations between products and markets. Risks can be
measured consistently across all markets and products, and risk measures can be aggregated to
arrive at a single risk number. The one-day 95% VaR number used by us reflects the 95%
probability that the daily loss will not exceed the reported VaR.
– 365 –
FINANCIAL INFORMATION
We employ VaR methodologies to calculate month end risk numbers which include the
historical approach.
Historical VaR As of December 31,
(95%, one-day)
by risk type 2009 2010
(RMB in millions)
Total VaR exposure . . . . . . . . . . . . . . . . . . . 409.0 175.0 166.0
Average
Historical VaR
Year ended December 31,
(95%, one-day)
by risk type 2009 2010
(RMB in millions)
Total VaR exposure . . . . . . . . . . . . . . . . . . . 231.0 223.0 154.0
Minimum
Historical VaR
Year ended December 31,
(95%, one-day)
by risk type 2009 2010
(RMB in millions)
Total VaR exposure . . . . . . . . . . . . . . . . . . . 73.0 173.0 116.0
Maximum
Historical VaR
Year ended December 31,
(95%, one-day)
by risk type 2009 2010
(RMB in millions)
Total VaR exposure . . . . . . . . . . . . . . . . . . . 438.0 278.0 185.0
– 366 –
FINANCIAL INFORMATION
Assuming other factors remain unchanged, our subsidiaries have utilized the effect of
security price variation on net profit and investment revaluation reserve within the period to
manage and analyze the price risk, instead of VaR methodology. When reporting internally to
the key management on our price risk, our management estimates that reasonable possible
change in price is 10%. If the prices of the respective equity instruments had been 10% higher
or lower, and held other variables constant, the impacts to our profit for the year and
investment revaluation reserve are as follows:
Year ended December 31,
2009 2010
(RMB in thousands)
Profit for the year
Increase by 10% . . . . . . . . . . . . . . . . . . . . . 3,695 5,692 22,936
Decrease by 10% . . . . . . . . . . . . . . . . . . . . (3,695) (5,692) (27,304)
Investment revaluation reserve
Increase by 10% . . . . . . . . . . . . . . . . . . . . . 2,704 14,357 23,932
Decrease by 10% . . . . . . . . . . . . . . . . . . . . (2,704) (14,357) (19,564)
In the above analysis, we also consider the case of an available-for-sale equity investment
that a reasonably possible downward fall in the equity price would lead the investment to be
impaired, the effect of loss would be shown as affecting profit or loss and the cumulative
gain/loss previously recognized in investment revaluation reserve would be reclassified to
profit or loss, but an equivalent upward shift in the equity price would be shown as affecting
investment revaluation reserve.
In the case that an available-for-sale equity investment that has already been impaired, a
reasonably possible downward fall in the equity price may continue to be recognized in profit
or loss but an equivalent upward shift in the equity price would be shown as affecting
investment revaluation reserve.
In our management’s opinion, the sensitivity analysis does not represent inherent price
risk as the year end exposure does not reflect the exposure during the year.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market interest rates.
Our exposure to interest rate risk relates primarily to our bank deposits, advances to
customers, amount due from or to a subsidiary, clearing settlement funds, debt securities,
accounts payable to brokerage clients and borrowings. Our management actively monitors our
net interest rate exposure through setting limits on the level of mismatch of interest rate
repricing and duration gap and aims to maintain an interest rate spread such that we are always
in a net interest-bearing asset position and derive net interest income.
Fluctuations of the prevailing rate quoted by the PBOC and Hong Kong Inter-bank
Offered Rate are the major sources of our cash flow interest rate risk.
– 367 –
FINANCIAL INFORMATION
Sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to interest rates
for variable rate financial assets and liabilities. The analysis is prepared assuming the financial
instruments outstanding at the end of the reporting period were outstanding for the whole year.
A 50 basis point increase or decrease is used when reporting interest rate risk internally to key
management personnel and represents management’s assessment of the reasonably possible
change in interest rates.
If interest rates had been 50 basis points higher/lower and all other variables were held
constant, our:
Profit for the years ended December 31, 2009, 2010 and 2011 would
decrease/increase by RMB18.2 million, RMB42.5 million and RMB142.0 million,
respectively. This is mainly attributable to our exposure to interest rates on our bank
balances, accounts payable to brokerage clients and investments in debt securities;
and
Investment revaluation reserve for the years ended December 31, 2009, 2010 and
2011 would decrease/increase by RMB3.2 million, RMB5.5 million and RMB9.5
million, respectively, mainly as a result of the changes in the fair value of
available-for-sale bond investments.
Currency risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument
will fluctuate as a result of changes in foreign exchange rates.
Our currency risk arises principally from our leveraged foreign exchange business carried
out through Haitong International Securities. We hedge a majority of our client trades in our
leveraged foreign exchange business back-to-back with external counterparties, such that we
are not exposed to significant foreign currency risk.
Our other amounts of financial assets and liabilities are substantially denominated in the
functional currency of the respective entity within us, except that as of December 31, 2011, our
Hong Kong subsidiaries, whose functional currency is HK dollars, have significant monetary
assets denominated in Renminbi due to the additional capital we funded to our Hong Kong
subsidiaries in connection with the expansion of our overseas business.
Sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to foreign
exchange rates for financial assets and liabilities denominated in Renminbi for our Hong Kong
subsidiaries. The analysis is prepared assuming the financial instruments outstanding at
December 31, 2011 were outstanding for the whole year. When reporting to the management
on the currency risk, we will adopt a 50 basis points increase or decrease for sensitivity
analysis, while considering the reasonably possible change in Renminbi/HK dollars.
– 368 –
FINANCIAL INFORMATION
If the Renminbi strengthened/weakened against the HK dollar by 5% with all other
variables being held constant, our profit for the year ended December 31, 2011 would
increase/decrease by RMB103.9 million.
DIVIDEND POLICY
After the completion of the Global Offering, we may distribute dividends in the form of
cash or by other means that we consider appropriate. Any proposed distribution of dividends
shall be formulated by our Board and will be subject to our Shareholders’ approval. A decision
to declare or to pay any dividends in the future, and the amount of any dividends, will depend
on a number of factors, including our results of operations, cash flows, financial condition,
capital adequacy ratio, payments by our subsidiaries of cash dividends to us, business
prospects, statutory, regulatory and contractual restrictions on our declaration and payment of
dividends and other factors that our Board may consider important.
According to the applicable PRC laws and our Articles of Association, we will pay
dividends out of our profit after tax only after we have made the following allocations:
recovery of accumulated losses, if any;
allocations to the general risk reserve of not less than 10% of our profit after tax;
allocations to the statutory reserve equivalent to 10% of our profit after tax, and,
when the statutory reserve reaches and is maintained at or above 50% of our
registered capital, no further allocations to this statutory reserve will be required;
allocations to the transaction risk reserve of not less than 10% of our profit after tax;
and
allocations, if any, to a discretionary common reserve fund that are approved by our
Shareholders in a Shareholders’ meeting.
In accordance with our Articles of Association: (i) dividends may be paid only out of
distributable profits as determined under PRC GAAP or IFRS, whichever is lower; (ii) any
distributable profits that are not distributed in any given year will be retained and become
available for distribution in subsequent years; and (iii) aggregate cash dividends distributed by
us could not be less than 30% of our average annual distributable profits in any three
consecutive fiscal years.
In 2009 and 2010, we declared cash dividends of RMB1,645.6 million and RMB1,234.2
million, respectively, representing a dividend of RMB0.20 and RMB0.15 per share,
respectively. With respect to cash dividends for 2011, our Board has proposed, pending
Shareholders’ approval at the forthcoming annual general meeting, that a cash dividend of
RMB0.15 per share, or a total of RMB1,234.2 million based on the number of our A Shares in
issue as of December 31, 2011, be distributed to holders of our A Shares, but not to the holders
of our H Shares. Any unpaid 2011 distributable profits shall be accrued as part of our
distributable profits to be considered for the next distribution to our Shareholders.
– 369 –
FINANCIAL INFORMATION
UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS
The following unaudited pro forma adjusted consolidated net tangible assets have been
prepared to show the effect of the Global Offering on the audited consolidated net tangible
assets as of December 31, 2011 as if the Global Offering had taken place on December 31,
2011.
Audited
consolidated Unaudited
net pro forma
tangible adjusted
assets consolidated
attributable net
to equity tangible
holders of Estimated assets
our net attributable
Company proceeds to equity Unaudited pro forma
as of from the holders of adjusted consolidated net
December Global the tangible assets per
31, 2011(1) Offering(2) Company(3) Share(4)
(RMB in millions) RMB HK$(5)
Based on offer price of HK$10.48
for each Offer Share . . . . . . . . 44,129.3 10,030.8 54,160.1 5.73 7.06
Based on offer price of HK$11.18
for each Offer Share . . . . . . . . . 44,129.3 10,704.7 54,834.0 5.80 7.15
(1) The audited consolidated net tangible assets attributable to equity holders of the Company as of
December 31, 2011 is compiled based on the Accountants’ Report set out in Appendix I to the
prospectus, which is based on the audited consolidated net assets attributable to equity holders of the
Company as of December 31, 2011 of approximately RMB45,042.4 million with an adjustment for
goodwill and other intangible assets attributable to owners of the Company as of December 31, 2011.
(2) The estimated net proceeds from the Global Offering are based on the offer price of HK$10.48 per share
and HK$11.18 per share after deduction of the underwriting fees and other related expenses payable by
the Company, and do not take into account any shares which may be issued upon the exercise of the
over-allotment option for the Global Offering.
(3) The unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the
owners of the Company does not take into account the effect of the profit for the period from and
including January 1, 2012 to the date immediately preceding the date of the Global Offering. In
particular, the unaudited pro forma adjusted consolidated net tangible assets of the Group attributable
to owners of the Company has not taken into account the dividend of RMB0.15 per share to our existing
shareholders as at December 31, 2011, equivalent to approximately RMB1,234.2 million in aggregate,
proposed by our directors on March 14, 2012. Had the effect been given to the distribution of such
dividend, the unaudited pro forma adjusted consolidated net tangible assets attributable to the equity
holders of the Company per share would have been HK$6.90 or RMB5.60 based on the offer price of
HK$10.48 per share and HK$6.99 or RMB5.67 based on the offer price of HK$11.18 per share.
(4) The unaudited pro forma adjusted consolidated net tangible assets of the Group per share is calculated
after the adjustments referred to in note 2 above and on the basis that 9,457,221,180 shares are issued
and outstanding following the completion of the Global Offering and assuming that the over-allotment
option for the Global Offering is not exercised. If the over-allotment option for the Global Offering is
exercised in full, these per share values would increase.
(5) The translation of Renminbi into Hong Kong dollars has been made at the rate of RMB0.8115 to
HK$1.00, the PBOC rate prevailing on April 9, 2012. No representation is made that the Hong Kong
dollar amounts have been, could have been or could be converted to Renminbi, or vice versa, at that rate
or at any other rates or at all.
– 370 –
FINANCIAL INFORMATION
DISTRIBUTABLE RESERVES
As of December 31, 2011, we had reserves of RMB8,318.5 million available for
distribution to the shareholders of our Company.
DISCLOSURE REQUIRED UNDER THE HONG KONG LISTING RULES
Our Directors have confirmed that they are not aware of any circumstances that would
give rise to a disclosure requirement under Rules 13.13 to Rules 13.19 of the Hong Kong
Listing Rules.
As a company listed on the Shanghai Stock Exchange, we are required to publish our
quarterly (for the first and third quarters of each year), interim (for the first six months of each
year) and annual reports with respect to our A Shares on the Shanghai Stock Exchange within
one month, two months and four months, respectively, of the end of the relevant reporting
period. We will disclose the same information in both English and Chinese in Hong Kong
simultaneously under 13.09(2) of the Hong Kong Listing Rules. Our annual and interim
financial statements for A Shares and H Shares will be prepared based on PRC GAAP and
IFRS, respectively. Our quarterly financial statements will be prepared based on PRC GAAP
for A Shares.
NO MATERIAL ADVERSE CHANGE
Our Directors have confirmed that, up to the date of this prospectus, there has been no
material adverse change in our financial or trading position since December 31, 2011, being the
date of our latest audited consolidated financial results.
– 371 –
FUTURE PLANS AND USE OF PROCEEDS
FUTURE PLANS
Please see “Business – Business Strategies” in this prospectus for a detailed discussion
of our future plans.
USE OF PROCEEDS
Assuming an Offer Price of HK$10.83 per H Share (being the mid-point of the stated
range of the Offer Price of between HK$10.48 and HK$11.18 per H Share), we estimate that
we will receive net proceeds of approximately HK$12,776.1 million from the Global Offering
after deducting the underwriting commissions and other estimated expenses if the Over-
allotment Option is not exercised.
In line with our strategies, we intend to use the net proceeds from the Global Offering for
the following purposes and in the amounts set out below:
approximately 35.0%, or HK$4,471.7 million, will be used for strategic acquisitions
of overseas securities firms and/or further expansion of our overseas securities
business. For overseas acquisitions, we seek potential targets with: (i) meaningful
presence in local markets; (ii) complementary business and synergies with our
business; (iii) a controlling interest available for acquisition; and (iv)
complementary customer base, distribution network and professional expertise with
us. As of the Latest Practicable Date, the Directors confirmed that we have not
identified any overseas acquisition targets;
approximately 20.0%, or HK$2,555.2 million, will be used to expand our margin
financing and securities lending business in order to capture future business
opportunities arising from its rapid growth in the PRC and to strengthen our market
leading position;
approximately 20.0%, or HK$2,555.2 million, will be used to develop our
alternative financial products investment business and other new businesses as
permitted by the PRC regulatory authorities;
approximately 15.0%, or HK$1,916.4 million, will be used for capital contributions
to Haitong Capital Investment and the expansion of our direct investment and
private equity funds management businesses; and
approximately 10.0%, or HK$1,277.6 million, will be used for working capital and
general corporate purposes.
If the Over-allotment Option is exercised in full, we estimate that the additional net
proceeds will be approximately HK$1,927.1 million, after deducting the underwriting
commissions and other estimated expenses, assuming an Offer Price of HK$10.83 per H Share
(being the mid-point of the stated range of the Offer Price of between HK$10.48 and HK$11.18
per H Share). We intend to use all the additional net proceeds proportionately as earmarked
above.
– 372 –
FUTURE PLANS AND USE OF PROCEEDS
The allocation of the proceeds used for the above will be adjusted in the event that the
Offer Price is fixed at a higher or lower level compared to the mid-point of the estimated Offer
Price range. If the Offer Price is fixed at HK$11.18 per H Share, being the high end of the
stated Offer Share range, our net proceeds will be (i) increased by approximately HK$415.2
million, assuming the Over-allotment Option is not exercised; and (ii) increased by
approximately HK$477.5 million, assuming the Over-allotment Option is exercised in full. In
such circumstances, we presently intend to use such additional proceeds to increase the net
proceeds applied for the same purposes as set out above on a pro rata basis. If the Offer Price
is fixed at HK$10.48 per H Share, being the low end of the stated Offer Share range, our net
proceeds will be (i) decreased by approximately HK$415.2 million, assuming the Over-
allotment Option is not exercised; and (ii) decreased by approximately HK$477.5 million,
assuming the Over-allotment Option is exercised in full. In such circumstances, we presently
intend to reduce the net proceeds applied for the same purposes as set out above on a pro rata
basis.
To the extent that the net proceeds of the Global Offering are not immediately required
for the above purposes, our Directors currently intend that such proceeds will be placed in
short-term interest-bearing instruments such as bank deposits or money market funds with
licensed banks or financial institutions.
– 373 –
UNDERWRITING
HONG KONG UNDERWRITERS
The Hong Kong Underwriters are:
Joint Lead Managers
Haitong International Securities Company Limited
J.P. Morgan Securities (Asia Pacific) Limited
Credit Suisse (Hong Kong) Limited
Deutsche Bank AG, Hong Kong Branch
Citigroup Global Markets Asia Limited
UBS AG, Hong Kong Branch
The Hongkong and Shanghai Banking Corporation Limited
Nomura International (Hong Kong) Limited
Standard Chartered Securities (Hong Kong) Limited
BOCOM International Securities Limited
BNP Paribas Capital (Asia Pacific) Limited
BOCI Asia Limited
CCB International Capital Limited
China Everbright Securities (HK) Limited
Samsung Securities (Asia) Limited
Co-Lead Managers
Shenyin Wanguo Capital (H.K.) Limited
Celestial Capital Limited
Oriental Patron Securities Limited
Sanfull Securities Limited
Sun Hung Kai International Limited
UNDERWRITING ARRANGEMENTS AND EXPENSES
Hong Kong Public Offering
Hong Kong Underwriting Agreement
The Hong Kong Underwriting Agreement was entered into on April 16, 2012. Pursuant to
the Hong Kong Underwriting Agreement, we are offering the Hong Kong Offer Shares for
subscription by the public in Hong Kong on the terms and subject to the conditions in this
prospectus and the Application Forms at the Offer Price. Subject to the Listing Committee of
the Hong Kong Stock Exchange granting listing of, and permission to deal in, the H Shares to
be offered pursuant to the Global Offering as mentioned herein (including any additional H
Shares which may be issued pursuant to the exercise of the Over-allotment Option), and to
certain other conditions set out in the Hong Kong Underwriting Agreement, the Hong Kong
Underwriters have agreed severally and not jointly to subscribe or procure subscribers for the
– 374 –
UNDERWRITING
Hong Kong Offer Shares which are being offered but are not taken up under the Hong Kong
Public Offering on the terms and subject to the conditions in this prospectus, the Application
Forms and the Hong Kong Underwriting Agreement.
The Hong Kong Underwriting Agreement is conditional upon and subject to the
International Underwriting Agreement having been signed and becoming unconditional and not
having been terminated in accordance with its terms.
Grounds for Termination
The obligations of the Hong Kong Underwriters to subscribe or procure subscribers for
the Hong Kong Offer Shares under the Hong Kong Underwriting Agreement are subject to
termination, if, at any time prior to 8:00 a.m. on the day that trading in the H Shares
commences on the Hong Kong Stock Exchange:
(i) there develops, occurs, exists or comes into force:
(a) any new law or regulation or any change in existing law or regulation, or any
change in the interpretation or application thereof by any court or other
competent authority in or affecting Hong Kong, China, the United States or
United Kingdom or the European Union (or any member thereof) or Japan
(each a “Relevant Jurisdiction”); or
(b) any change or development involving a prospective change or development, or
any event or series of events likely to result in or representing a change or
development, or prospective change or development, in local, national,
regional or international financial, political, military, industrial, economic,
currency market, fiscal or regulatory or market conditions (including, without
limitation, conditions in stock and bond markets, money and foreign exchange
markets and inter-bank markets, a change in the system under which the value
of the Hong Kong currency is linked to that of the currency of the United States
or a devaluation of the Hong Kong dollars or an appreciation of the Renminbi
against any foreign currencies) in or affecting any Relevant Jurisdiction;
(c) any event or series of events in the nature of force majeure (including, without
limitation, acts of government, strikes, lock-outs, fire, explosion, flooding,
civil commotion, acts of war, acts of terrorism (whether or not responsibility
has been claimed), acts of God) in or affecting any Relevant Jurisdiction; or
– 375 –
UNDERWRITING
(d) any local, national, regional or international outbreak or escalation of
hostilities (whether or not war is or has been declared) or other state of
emergency or calamity or crisis in or affecting any Relevant Jurisdiction; or
(e) (A) any suspension or limitation on trading in shares or securities generally on
the Stock Exchange, the New York Stock Exchange, the NASDAQ Global
Market, the London Stock Exchange, the Shanghai Stock Exchange or the
Tokyo Stock Exchange or (B) a general moratorium on commercial banking
activities in New York, London, Hong Kong, Japan, China declared by the
relevant authorities, or a material disruption in commercial banking activities
or foreign exchange trading or securities settlement or clearance services in or
affecting any Relevant Jurisdiction; or
(f) any (A) material change or prospective material change in exchange controls,
currency exchange rates or foreign investment regulations, or (B) any change
or prospective change in taxation in any Relevant Jurisdiction adversely
affecting an investment in the H Shares; or
(g) any material litigation or claim being threatened or instigated against or any
material contravention of the Companies Ordinance, SFO, the PRC Company
Law or any of the Listing Rules by any member of the Group; or
(h) a governmental or regulatory prohibition on the Company for whatever reason
from allotting or selling the H Shares (including the Over-allotment Option
Shares) pursuant to the terms of the Global Offering,
and which, in any such case and in the sole and absolute opinion of the Joint Global
Coordinators (for themselves and on behalf of the other Hong Kong Underwriters):
(A) is or will be materially adverse to, or materially and prejudicially, affects, the
assets, business, results of operations, financial or trading position, or prospects of
the Company and its subsidiaries taken as a whole; or (B) has or will have a material
adverse effect on the success of the Global Offering or make it impracticable, for
any material part of the Hong Kong Underwriting Agreement, the Hong Kong Public
Offering or the Global Offering to be performed or implemented as envisaged; or
(C) makes or will make it impracticable to proceed with the Hong Kong Public
Offering and/or the Global Offering or the delivery of the Offer Shares on the terms
and in the manner contemplated by this prospectus, the Application Forms, and the
formal notice; or
– 376 –
UNDERWRITING
(ii) there has come to the notice of the Joint Global Coordinators or any of the Hong
Kong Underwriters after the date of the Hong Kong Underwriting Agreement:
(a) that any statement contained in this prospectus, the Application Forms, the
formal notice and any announcements in the agreed form issued by the
Company in connection with the Hong Kong Public Offering (including any
supplement or amendment thereto) was or has become untrue, incorrect or
misleading in any material respect; or
(b) any matter has arisen or has been discovered which would, had it arisen
immediately before the date of this prospectus, not having been disclosed in
this prospectus, constitutes a material omission therefrom; or
(c) any of the representations and warranties given by the Company in the Hong
Kong Underwriting Agreement as applicable, is (or would when repeated be)
untrue, incorrect or misleading in any material respect; or
(d) any event, act or omission which gives or is likely to give rise to any liability
of the Company pursuant to the indemnities given by the Company under the
Hong Kong Underwriting Agreement which liability has a material adverse
effect on the business or financial or trading position of the Company and its
subsidiaries, taken as a whole; or
(e) any material breach of any of the obligations of the Company under the Hong
Kong Underwriting Agreement; or
(f) any material adverse change or prospective material adverse change or
development in the assets, business, results of operations, in the financial or
trading position or prospects of the Company and its subsidiaries, taken as a
whole,
then the Joint Global Coordinators may (for themselves and on behalf of the other
Hong Kong Underwriters), in their sole and absolute discretion (and in the case of
(i) above, after consultation with the Company, where practicable) and upon giving
notice in writing to the Company, terminate the Hong Kong Underwriting
Agreement with immediate effect.
Rule 10.08 of the Listing Rules
Pursuant to Rule 10.08 of the Listing Rules, the Company will not, at any time within six
months from the Listing Date, issue any Shares or other securities convertible into equity
securities of the Company or enter into any agreement or arrangement to issue such shares or
securities (whether or not such issue of shares or securities will be completed within six months
from the Listing Date), except pursuant to the Global Offering or for the circumstances
prescribed by Rule 10.08 of the Listing Rules.
– 377 –
UNDERWRITING
Undertakings to the Hong Kong Underwriters
We have, pursuant to the Hong Kong Underwriting Agreement, undertaken to each of the
Joint Global Coordinators, the Joint Bookrunners, the Joint Sponsors, the Joint Lead Managers
and the Hong Kong Underwriters that except pursuant to the Global Offering (including the
Over-allotment Option), at any time after the date of the Hong Kong Underwriting Agreement
up to and including the date falling six months after the date on which dealings in the H Shares
commence on the Hong Kong Stock Exchange, we will not, without the Joint Global
Coordinators’ prior written consent (subject to the requirements of the Listing Rules):
(a) offer, accept subscription for, pledge, lend, assign, mortgage, charge, allot, issue,
sell, contract to allot, issue or sell, sell any option or contract to purchase, purchase
any option or contract to sell, grant or agree to grant any option, right or warrant to
purchase or subscribe for, lend or otherwise transfer or dispose of, either directly or
indirectly, or repurchase, any share capital of our Company or any securities
convertible into or exercisable or exchangeable for or that represent the right to
receive, or interests in, such share capital or any derivatives with the shares of our
Company as underlying securities; or
(b) enter into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the share capital of our
Company or securities or any interest therein; or
(c) enter into any transaction with the same economic effect as any transaction
described in (a) or (b) above,
whether any of the foregoing transactions described in (a) to (c) above is to be settled by
delivery of share capital of our Company or such other securities, in cash or otherwise or
publicly disclose that our Company will or may enter into any transaction described above. Our
Company further agrees that, in the event of an issue or disposal of any H Shares or any interest
therein after the date falling six months from the date on which dealings in the H Shares
commence on the Hong Kong Stock Exchange, it will take all reasonable steps to ensure that
such an issue or disposal will not, and no other act of our Company will, create a disorderly
or false market for any Shares or other securities of our Company.
Indemnity
We have agreed to indemnify the Joint Global Coordinators, the Joint Bookrunners, the
Joint Sponsors, the Joint Lead Managers and the Hong Kong Underwriters for certain losses
which they may suffer, including, among other matters, losses arising from the performance of
their obligations under the Hong Kong Underwriting Agreement.
– 378 –
UNDERWRITING
Commission and Expenses
According to the Hong Kong Underwriting Agreement, the Hong Kong Underwriters will
receive an underwriting commission of 2.0% of the aggregate Offer Price payable for the Hong
Kong Offer Shares initially offered under the Hong Kong Public Offering. For unsubscribed
Hong Kong Offer Shares reallocated to the International Offering, we will pay an underwriting
commission at the rate applicable to the International Offering and such commission will be
paid to the International Underwriters (but not the Hong Kong Underwriters). We may also pay
in our discretion an incentive fee of up to 1.5% of the aggregate Offer Price payable for the
Hong Kong Offer Shares initially offered under the Hong Kong Public Offering to any Hong
Kong Underwriters.
The aggregate commissions and the maximum incentive fee (if any), together with the
listing fees, SFC transaction levy, the Hong Kong Stock Exchange fee and other expenses of
us relating to the Global Offering are estimated to amount to HK$538.3 million (assuming an
Offer Price of HK$10.83 per Offer Share, which is the mid-point of our indicative price range
for the Global Offering, and the Over-allotment Option is not exercised) in total.
Hong Kong Underwriters’ interests in our Company
Save for the obligations of the Hong Kong Underwriters under the Hong Kong
Underwriting Agreement and as disclosed in this prospectus, none of the Hong Kong
Underwriters has any shareholding interests in our Company or any other member of our Group
or any right (whether legally enforceable or not) to subscribe for or to nominate persons to
subscribe for securities in our Company or any member of our Group.
Other Services to our Company
Certain of the Joint Global Coordinators, the Hong Kong Underwriters or their respective
affiliates have, from time to time, provided and expect to provide in the future investment
banking and other services to our Company and our respective affiliates, for which such Joint
Global Coordinators, Hong Kong Underwriters or their respective affiliates have received or
will receive customary fees and commissions.
The International Offering
In connection with the International Offering, it is expected that we will enter into the
International Underwriting Agreement with, among others, the International Underwriters on
or about April 20, 2012. Under the International Underwriting Agreement, the International
Underwriters would, subject to certain conditions, severally and not jointly, agree to procure
subscribers to subscribe for, or failing which to subscribe for themselves, their respective
applicable proportions of the International Offering Shares being offered pursuant to the
International Offering which are not taken up under the International Offering.
– 379 –
UNDERWRITING
We will grant to the International Underwriters the Over-allotment Option, exercisable by
the Joint Global Coordinators on behalf of the International Underwriters during the 30-day
period from the last day for the lodging of applications under the Hong Kong Public Offering,
to require us to issue up to an aggregate of 184,410,000 additional H shares, representing 15%
of the H shares initially available under the Global Offering, at the Offer Price, among others,
to cover over-allocations in the International Offering, if any.
Over-allotment and Stabilization
Stabilization is a practice used by underwriters in some markets to facilitate the
distribution of securities. To stabilize, the underwriters may bid for, or purchase, the securities
in the secondary market, during a specified period of time, to retard and, if possible, prevent,
any decline in the market price of the securities below the offer price. In Hong Kong and
certain other jurisdictions, the price at which stabilization is effected is not permitted to exceed
the offer price.
In connection with the Global Offering, the Stabilizing Manager or any person acting for
them, on behalf of the Underwriters, may over-allocate or effect short sales or any other
stabilizing transactions with a view to stabilizing or maintaining the market price of the H
Shares at a level higher than that which might otherwise prevail in the open market. Short sales
involve the sale by the Stabilizing Manager of a greater number of H Shares than the
Underwriters are required to purchase in the Global Offering. “Covered” short sales are sales
made in an amount not greater than the Over-allotment Option. The Stabilizing Manager may
close out the covered short position by either exercising the Over-allotment Option to purchase
additional H Shares or purchasing H Shares in the open market. In determining the source of
the H Shares to close out the covered short position, the Stabilizing Manager will consider,
among others, the price of H Shares in the open market as compared to the price at which they
may purchase additional H Shares pursuant to the Over-allotment Option. Stabilizing
transactions consist of certain bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the H Shares while the Global Offering is in progress.
Any market purchases of the H Shares may be effected on any stock exchange, including the
Hong Kong Stock Exchange, any over-the-counter market or otherwise, provided that they are
made in compliance with all applicable laws and regulatory requirements. However, there is no
obligation on the Stabilizing Manager or any person acting for it to conduct any such
stabilizing activity, which if commenced, will be done at the absolute discretion of the
Stabilizing Manager and may be discontinued at any time. Any such stabilizing activity is
required to be brought to an end within 30 days of the last day for the lodging of applications
under the Hong Kong Public Offering. The number of the H Shares that may be over-allocated
will not exceed the number of the H Shares that may be sold under the Over-allotment Option,
namely, 184,410,000 H Shares, which is 15% of the number of Offer Shares initially available
under the Global Offering, in the event that the whole or part of the Over-allotment Option is
exercised.
– 380 –
UNDERWRITING
In Hong Kong, stabilizing activities must be carried out in accordance with the Securities
and Futures (Price Stabilizing) Rules. Stabilizing actions permitted pursuant to the Securities
and Futures (Price Stabilizing) Rules include:
(a) over-allocation for the purpose of preventing or minimizing any reduction in the
market price;
(b) selling or agreeing to sell the H Shares so as to establish a short position in them for
the purpose of preventing or minimizing any deduction in the market price;
(c) subscribing, or agreeing to subscribe, for the H Shares pursuant to the Over-
allotment Option in order to close out any position established under (a) or (b)
above;
(d) purchasing, or agreeing to purchase, the H Shares for the sole purpose of preventing
or minimizing any reduction in the market price;
(e) selling the H Shares to liquidate a long position held as a result of those purchases;
and
(f) offering or attempting to do anything described in (b), (c), (d) and (e) above.
Stabilizing actions by the Stabilizing Manager, or any person acting for it, will be entered
into in accordance with the laws, rules and regulations in place in Hong Kong on stabilization.
As a result of effecting transactions to stabilize or maintain the market price of the H
Shares, the Stabilizing Manager, or any person acting for it, may maintain a long position in
the H Shares. The size of the long position, and the period for which the Stabilizing Manager,
or any person acting for it, will maintain the long position is at the discretion of the Stabilizing
Manager and is uncertain. In the event that the Stabilizing Manager liquidates this long
position by making sales in the open market, this may lead to a decline in the market price of
the H Shares.
Stabilizing action by the Stabilizing Manager, or any person acting for it, is not permitted
to support the price of the H Shares for longer than the stabilizing period, which begins on the
day on which trading of the H Shares commences on the Hong Kong Stock Exchange and ends
on the thirtieth day after the last day for the lodging of applications under the Hong Kong
Public Offering. The stabilizing period is expected to end on May 20, 2012. As a result, demand
for the H Shares, and their market price, may fall after the end of the stabilizing period. These
activities by the Stabilizing Manager may stabilize, maintain or otherwise affect the market
price of the H Shares. As a result, the price of the H Shares may be higher than the price that
otherwise may exist in the open market. Any stabilizing action taken by the Stabilizing
Manager, or any person acting for it, may not necessarily result in the market price of the H
Shares staying at or above the Offer Price either during or after the stabilizing period. Bids for
or market purchases of the H Shares by the Stabilizing Manager, or any person acting for it,
may be made at a price at or below the Offer Price and therefore at or below the price paid for
the H Shares by purchasers. A public announcement in compliance with the Securities and
Futures (Price Stabilizing) Rules will be made within seven days of the expiration of the
stabilizing period.
– 381 –
UNDERWRITING
Sponsors’ Independence
Haitong International Capital Limited, being one of the Joint Sponsors, is one of our
subsidiaries. It is not an independent sponsor according to the independence criteria applicable
to sponsors set out in Rule 3.07 of the Listing Rules.
Apart from Haitong International Capital Limited, the other Joint Sponsor satisfies the
independence criteria applicable to sponsors set out in Rule 3.07 of the Listing Rules.
– 382 –
STRUCTURE OF THE GLOBAL OFFERING
THE GLOBAL OFFERING
This prospectus is published in connection with the Hong Kong Public Offering as part
of the Global Offering. The Global Offering consists of (subject to the Over-allotment Option):
(a) the Hong Kong Public Offering of 61,470,000 H Shares (subject to adjustment as
mentioned below) in Hong Kong as described below under “The Hong Kong Public
Offering”; and
(b) the International Offering of an aggregate of 1,167,930,000 H Shares (subject to
adjustment and the Over-allotment Option as mentioned below) outside the United
States (including to professional and institutional investors within Hong Kong) in
offshore transactions in reliance on Regulation S, and in the United States to QIBs
in reliance on Rule 144A.
Investors may apply for the H Shares under the Hong Kong Public Offering or indicate
an interest, if qualified to do so, for the H Shares under the International Offering, but may not
do both.
Our Company has obtained the requisite PRC governmental approvals, including the
approval of the CSRC, in respect of the Global Offering.
The number of H Shares to be offered under the Hong Kong Public Offer and the
International Offering respectively may be subject to reallocation as described in the
subsection entitled “The Hong Kong Public Offering – Reallocation” below.
THE HONG KONG PUBLIC OFFERING
Number of H Shares initially offered
We are initially offering 61,470,000 H Shares at the Offer Price, representing
approximately 5% of the H Shares initially available under the Global Offering, for
subscription by the public in Hong Kong. Subject to the reallocation of Offer Shares between
the International Offering and the Hong Kong Public Offering, the number of H Shares initially
offered under the Hong Kong Public Offering will represent approximately 0.65% of our
Company’s enlarged issued share capital immediately after completion of the Global Offering,
assuming that the Over-allotment Option is not exercised.
The Hong Kong Public Offering is open to members of the public in Hong Kong as well
as to institutional and professional investors. Professional investors generally include brokers,
dealers, companies (including fund managers) whose ordinary business involves dealing in
shares and other securities and corporate entities which regularly invest in shares and other
securities.
Completion of the Hong Kong Public Offering is subject to the conditions as set out in
the subsection below entitled “Conditions of the Global Offering.”
– 383 –
STRUCTURE OF THE GLOBAL OFFERING
Allocation
Allocation of H Shares to investors under the Hong Kong Public Offering will be based
solely on the level of valid applications received under the Hong Kong Public Offering. The
basis of allocation may vary, depending on the number of Hong Kong Offer Shares validly
applied for by applicants. The allocation of Hong Kong Offer Shares could, where appropriate,
consist of balloting, which would mean that some applicants may receive a higher allocation
than others who have applied for the same number of Hong Kong Offer Shares, and those
applicants who are not successful in the ballot may not receive any Hong Kong Offer Shares.
The total number of Hong Kong Offer Shares available under the Hong Kong Public
Offering will initially be divided into two pools for allocation purposes as follows:
Pool A: The Offer Shares in Pool A (being an aggregate of 30,735,200 shares) will
be allocated on an equitable basis to applicants who have applied for Offer Shares
with a total subscription amount (excluding brokerage, SFC transaction levy and the
Hong Kong Stock Exchange trading fee) of HK$5 million or less; and
Pool B: The Offer Shares in Pool B (being an aggregate of 30,734,800 shares) will
be allocated on an equitable basis to applicants who have applied for Offer Shares
with a total subscription amount (excluding brokerage, SFC transaction levy and the
Hong Kong Stock Exchange trading fee) of more than HK$5 million and up to the
value of Pool B.
Applicants should be aware that applications in Pool A and Pool B are likely to receive
different allocation ratios. If Hong Kong Offer Shares in one pool (but not both pools) are
under-subscribed, the surplus Hong Kong Offer Shares will be transferred to the other pool to
satisfy demand in that other pool and be allocated accordingly.
Applicants can only receive an allocation of Hong Kong Offer Shares from either Pool A
or Pool B but not from both pools. Multiple or suspected multiple applications and any
application for more than 30,734,800 Offer Shares will be rejected.
Reallocation
Paragraph 4.2 of the Practice Note 18 of the Listing Rules requires a clawback mechanism
to be put in place which would have the effect of increasing the number of Hong Kong Offer
Shares to certain percentages of the total number of Offer Shares offered in the Global Offering
if certain prescribed total demand levels are reached. An application has been made for, and the
Hong Kong Stock Exchange has granted, a waiver from strict compliance with Paragraph 4.2
of Practice Note 18 of the Listing Rules such that:
61,470,000 Offer Shares, representing approximately 5% of the total number of the
Offer Shares, are initially available in the Hong Kong Public Offering;
– 384 –
STRUCTURE OF THE GLOBAL OFFERING
If the number of the Offer Shares validly applied for under the Hong Kong Public
Offering represents 15 times or more but less than 50 times the number of the Offer
Shares initially available for subscription under the Hong Kong Public Offering,
then the number of Offer Shares to be reallocated to the Hong Kong Public Offering
from the International Offering will be increased so that the total number of the
Offer Shares available under the Hong Kong Public Offering will be 92,205,000
Offer Shares, representing approximately 7.5% of the Offer Shares initially
available under the Global Offering;
If the number of Offer Shares validly applied for under the Hong Kong Public
Offering represents 50 times or more but less than 100 times the number of the Offer
Shares initially available for subscription under the Hong Kong Public Offering,
then the number of Offer Shares to be reallocated to the Hong Kong Public Offering
from the International Offering will be increased so that the total number of the
Offer Shares available under the Hong Kong Public Offering will be 122,940,000
Offer Shares, representing approximately 10% of the Offer Shares initially available
under the Global Offering; and
If the number of the Offer Shares validly applied for under the Hong Kong Public
Offering represents 100 times or more the number of the Offer Shares initially
available for subscription under the Hong Kong Public Offering, then the number of
Offer Shares to be reallocated to the Hong Kong Public Offering from the
International Offering will be increased, so that the total number of the Offer Shares
available under the Hong Kong Public Offering will be 245,880,000 Offer Shares,
representing approximately 20% of the Offer Shares initially available under the
Global Offering.
The Offer Shares to be offered in the Hong Kong Public Offering and the International
Offering may, in certain circumstances, be reallocated as between these offerings at the
discretion of the Joint Global Coordinators. Subject to the foregoing paragraph, the Joint
Global Coordinators may in their discretion reallocate H Shares from the International Offering
to the Hong Kong Public Offering to satisfy valid applications under the Hong Kong Public
Offering. In addition, if the Hong Kong Public Offering is not fully subscribed, the Joint Global
Coordinators will have the discretion (but shall not be under any obligation) to reallocate to the
International Offering all or any unsubscribed Hong Kong Offer Shares in such amounts as
they deem appropriate.
References in this prospectus to applications, Application Forms, application monies or
to the procedure for application relate solely to the Hong Kong Public Offering.
– 385 –
STRUCTURE OF THE GLOBAL OFFERING
THE INTERNATIONAL OFFERING
Number of H Shares initially offered
Subject to the reallocation as described above, the number of H Shares to be initially
offered under the International Offering will be 1,167,930,000 H Shares, representing
approximately 95% of the Offer Shares under the Global Offering. Subject to the reallocation
of the Offer Shares between the International Offering and the Hong Kong Public Offering, the
number of H Shares initially offered under the International Offering will represent
approximately 12.35% of our Company’s enlarged issued share capital immediately after
completion of the Global Offering, assuming that the Over-allotment Option is not exercised.
Allocation
Pursuant to the International Offering, the International Offering Shares will be
conditionally placed on behalf of our Company by the International Underwriters or through
selling agents appointed by them. International Offering Shares will be selectively placed with
certain professional and institutional investors and other investors anticipated to have a
sizeable demand for such Offer Shares in Hong Kong, Europe and other jurisdictions outside
the United States in offshore transactions in reliance on Regulation S and in the United States
to QIBs as defined in Rule 144A. The International Offering is subject to the Hong Kong Public
Offering being unconditional.
Allocation of Offer Shares pursuant to the International Offering will be effected in
accordance with the “book-building” process described in the paragraph headed “Pricing and
Allocation” below and based on a number of factors, including the level and timing of demand,
total size of the relevant investor’s invested assets or equity assets in the relevant sector and
whether or not it is expected that the relevant investor is likely to buy further, and/or hold or
sell, H Shares after the listing of the H Shares on the Hong Kong Stock Exchange. Such
allocation is intended to result in a distribution of H Shares on a basis which would lead to the
establishment of a solid shareholder base which would be to our benefit and to that of the
shareholders as a whole.
The Joint Global Coordinators (on behalf of the Underwriters) may require any investor
who has been offered Offer Shares under the International Offering, and who has made an
application under the Hong Kong Public Offering, to provide sufficient information to the Joint
Global Coordinators so as to allow them to identify the relevant applications under the Hong
Kong Public Offering and to ensure that they are excluded from any application of Offer Shares
under the Hong Kong Public Offering.
– 386 –
STRUCTURE OF THE GLOBAL OFFERING
PRICING AND ALLOCATION
Determining the Offer Price
The International Underwriters are soliciting from prospective investors indications of
interest in acquiring the H Shares in the International Offering. Prospective investors will be
required to specify the number of H Shares under the International Offering they would be
prepared to acquire either at different prices or at a particular price. This process, known as
“book-building,” is expected to continue up to, and to cease on or around, the last day for
lodging applications under the Hong Kong Public Offering.
Pricing for the Offer Shares for the purpose of the various offerings under the Global
Offering will be fixed on the Price Determination Date, which is expected to be on or around
Friday, April 20, 2012 and in any event on or before Tuesday, April 24, 2012, by agreement
between the Joint Global Coordinators, on behalf of the Underwriters, and our Company and
the number of Offer Shares to be allocated under the various offerings will be determined
shortly thereafter.
Offer price range
The Offer Price will be not more than HK$11.18 per H Share and is expected to be not
less than HK$10.48 per H Share, unless otherwise announced not later than the morning of the
last day for lodging applications under the Hong Kong Public Offering, as further explained
below. Prospective investors should be aware that the Offer Price to be determined on the Price
Determination Date may be, but is not expected to be, lower than the indicative Offer Price
range stated in this prospectus.
Price payable on application
Applicants for Hong Kong Offer Shares under the Hong Kong Public Offering are
required to pay, on application, the maximum Offer Price of HK$11.18 for each Hong Kong
Offer Share (plus 1% brokerage, 0.003% SFC transaction levy, and 0.005% Hong Kong Stock
Exchange trading fee). If the Offer Price is less than HK$11.18, appropriate refund payments
(including the brokerage, SFC transaction levy and the Hong Kong Stock Exchange trading fee
attributable to the surplus application monies, without any interest) will be made to successful
applications.
If, for any reason, our Company and the Joint Global Coordinators (on behalf of the
Underwriters) are unable to reach agreement on the Offer Price on or before Tuesday, April 24,
2012, the Global Offering will not proceed and will lapse.
Reduction in indicative offer price range and/or number of Offer Shares
The Joint Global Coordinators, on behalf of the Underwriters, may where considered
appropriate, based on the level of interest expressed by prospective institutional, professional
and other investors during the book-building process, reduce the indicative Offer Price range
– 387 –
STRUCTURE OF THE GLOBAL OFFERING
and/or the number of Offer Shares below those stated in this prospectus at any time on or prior
to the morning of the last day for lodging applications under the Hong Kong Public Offering.
In such a case, we will, as soon as practicable following the decision to make such reduction,
and in any event not later than the morning of the last day for lodging applications under the
Hong Kong Public Offering, cause to be published in the South China Morning Post (in
English) and the Hong Kong Economic Times (in Chinese) and posted on the website of the
Hong Kong Stock Exchange (www.hkexnews.hk) and on the website of our Company
(www.htsec.com) notices of the reduction. Upon issue of such a notice, the revised indicative
Offer Price range and/or number of Offer Shares will be final and conclusive and the Offer
Price, if agreed upon by the Joint Global Coordinators, on behalf of the Underwriters, and our
Company, will be fixed within such revised range. Such notice will also include confirmation
or revision, as appropriate, of the working capital statement and the Global Offering statistics
as currently set out in this prospectus, and any other financial information which may change
materially as a result of such reduction.
Before submitting applications for Hong Kong Offer Shares, applicants should have
regard to the possibility that any announcement of a reduction in the indicative offer price
range and/or number of Offer Shares may not be made until the day which is the last day for
lodging applications under the Hong Kong Public Offering. Applicants under the Hong Kong
Public Offering should note that in no circumstances can applications be withdrawn once
submitted, even if the indicative Offer Price range and/or number of Offer Shares is so reduced.
In the absence of any such announcement so published, the number of Offer Shares will not be
reduced and/or the Offer Price, if agreed upon by the Joint Global Coordinators, on behalf of
the Underwriters, and our Company, will under no circumstances be set outside the Offer Price
range as stated in this prospectus.
In the event of a reduction in the number of Offer Shares, the Joint Global Coordinators
may, at their discretion, reallocate the number of Offer Shares to be offered in the Hong Kong
Public Offering and the International Offering, provided that the number of Offer Shares
comprised in the Hong Kong Public Offering shall not be less than 5% of the total number of
Offer Shares available under the Global Offering (assuming the Over-allotment Option is not
exercised). The Offer Shares to be offered in the Hong Kong Public Offering and the Offer
Shares to be offered in the International Offering may, in certain circumstances, be reallocated
between these offerings at the discretion of the Joint Global Coordinators.
Announcement of Offer Price and basis of allocations
The final Offer Price, the level of indications of interest in the Global Offering, the level
of applications and the basis of allotment of the Hong Kong Offer Shares are expected to be
announced on Thursday, April 26, 2012 in the South China Morning Post (in English) and the
Hong Kong Economic Times (in Chinese) and to be posted on the website of the Hong Kong
Stock Exchange (www.hkexnews.hk) and on the website of our Company (www.htsec.com).
– 388 –
STRUCTURE OF THE GLOBAL OFFERING
UNDERWRITING
The Hong Kong Public Offering is fully underwritten by the Hong Kong Underwriters
under the terms of the Hong Kong Underwriting Agreement and is subject to our Company and
the Joint Global Coordinators, on behalf of the Underwriters, agreeing on the Offer Price.
We expect to enter into the International Underwriting Agreement relating to the
International Offering on the Price Determination Date.
These underwriting arrangements, and the Underwriting Agreements, are summarized in
the section entitled “Underwriting” in this prospectus.
CONDITIONS OF THE GLOBAL OFFERING
Acceptance of all applications for the Offer Shares will be conditional on:
the Listing Committee of the Hong Kong Stock Exchange granting listing of, and
permission to deal in, the H Shares to be issued pursuant to the Global Offering
(including the additional H Shares which may be made available pursuant to the
exercise of the Over-allotment Option) (subject only to allotment);
the Offer Price having been duly agreed between us and the Joint Global
Coordinators (on behalf of the Underwriters);
the execution and delivery of the International Underwriting Agreement on or
around the Price Determination Date; and
the obligations of the Hong Kong Underwriters under the Hong Kong Underwriting
Agreement and the obligations of the International Underwriters under the
International Underwriting Agreement becoming and remaining unconditional and
not having been terminated in accordance with the terms of the respective
agreements, in each case on or before the dates and times specified in the Hong
Kong Underwriting Agreement or the International Underwriting Agreement (unless
and to the extent such conditions are validly waived on or before such dates and
times) and in any event not later than the date which is 30 days after the date of this
prospectus.
If, for any reason, the Offer Price is not agreed between our Company and the Joint
Global Coordinators (on behalf of the Underwriters) on or before Tuesday, April 24, 2012, the
Global Offering will not proceed and will lapse.
The consummation of each of the Hong Kong Public Offering and the International
Offering is conditional upon, among others, the other offering becoming unconditional and not
having been terminated in accordance with their respective terms.
– 389 –
STRUCTURE OF THE GLOBAL OFFERING
If the above conditions are not fulfilled or waived prior to the dates and times specified,
the Global Offering will lapse and the Hong Kong Stock Exchange will be notified
immediately. Notice of the lapse of the Hong Kong Public Offering will be published by us in
the South China Morning Post (in English) and the Hong Kong Economic Times (in Chinese)
on the next day following such lapse. In such eventuality, all application monies will be
returned, without interest, on the terms set out in the subsection entitled “How to Apply for the
Hong Kong Offer Shares – Despatch/Collection of H Share Certificates and Refund Monies”
in this prospectus. In the meantime, all application monies will be held in separate bank
account(s) with the receiving bankers or other bank(s) in Hong Kong licensed under the
Banking Ordinance (Chapter 155 of the Laws of Hong Kong) (as amended).
H Share certificates for the Offer Shares will only become valid certificates of title at 8:00
a.m. on Friday, April 27, 2012, provided that (a) the Global Offering has become unconditional
in all respects and (b) the right of termination as described in the subsection entitled
“Underwriting – Underwriting Arrangements and Expenses – Hong Kong Public Offering –
Hong Kong Underwriting Agreement – Grounds for Termination” in this prospectus has not
been exercised.
H SHARES WILL BE ELIGIBLE FOR CCASS
All necessary arrangements have been made enabling the H Shares to be admitted into the
Central Clearing and Settlement System, or CCASS, established and operated by the Hong
Kong Securities Clearing Company Limited, or HKSCC.
If the Hong Kong Stock Exchange grants the listing of, and permission to deal in, the H
Shares and our Company complies with the stock admission requirements of HKSCC, the H
Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement
in CCASS with effect from the date of commencement of dealings in the H Shares on the Hong
Kong Stock Exchange or any other date HKSCC chooses. Settlement of transactions between
participants of the Hong Kong Stock Exchange is required to take place in CCASS on the
second business day after any trading day.
All activities under CCASS are subject to the General Rules of CCASS and CCASS
Operational Procedures in effect from time to time.
DEALING ARRANGEMENTS
Assuming that the Hong Kong Public Offering becomes unconditional at or before 8:00
a.m. in Hong Kong on Friday, April 27, 2012, it is expected that dealings in the H Shares on
the Hong Kong Stock Exchange will commence at 9:00 a.m. on Friday, April 27, 2012.
The H Shares will be traded in board lots of 400 H Shares each.
– 390 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
WHO CAN APPLY FOR THE HONG KONG OFFER SHARES
You can apply for Hong Kong Offer Shares if you or any person(s) for whose benefit you
are applying, are an individual, and:
18 years of age or older and have a Hong Kong address.
If the applicant is a firm, the application must be in the names of the individual members,
not the firm’s name. If the applicant is a body corporate, the Application Form must be signed
by a duly authorized officer, who must state his or her representative capacity.
If an application is made by a person duly authorized under a valid power of attorney, the
Joint Global Coordinators (or their respective agents and nominees) may accept it at their
discretion, and subject to any conditions they think fit, including production of evidence of the
authority of the attorney.
The number of joint applicants may not exceed four.
If you wish to apply for Hong Kong Offer Shares online through the White Form eIPO
service (www.eipo.com.hk), you must also:
have a valid Hong Kong identity card number; and
be willing to provide a valid e-mail address and a contact telephone number.
You may apply by means of the White Form eIPO service only if you are an individual
applicant. Corporations or joint applicants may not apply by means of White Form eIPO.
We, the Joint Global Coordinators and the designated White Form eIPO Service
Provider, in their capacity as our agents, have full discretion to reject or accept any application,
in full or in part, without assigning any reason.
The Hong Kong Offer Shares are not available to existing beneficial owners of Shares, the
Directors, Supervisors or chief executive or their representative(s), any of our other Connected
Persons or persons who will become our connected persons immediately upon completion of
the Global Offering, a United States person (as defined in Regulation S under the U.S.
Securities Act), or a legal or natural person (except qualified domestic institutional investors)
of the PRC (other than Hong Kong, Macau and Taiwan), a person inside the United States (as
defined in Regulation S under the U.S. Securities Act) when completing and submitting the
Application Form and not a person described in paragraph (h)(3) of Rule 902 of Regulation S
under the Securities Act.
You may apply for Hong Kong Offer Shares under the Hong Kong Public Offering or
indicate an interest for International Offer Shares under the International Offering, but may not
do both.
– 391 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
CHANNELS OF APPLYING FOR THE HONG KONG OFFER SHARES
There are four channels to make an application for the Hong Kong Offer Shares:
You may apply for the Hong Kong Offer Shares by using a WHITE Application Form.
Use a WHITE Application Form if you want the H Shares to be issued in your own name;
Instead of using a WHITE Application Form, you may apply for the Hong Kong Offer
Shares by means of White Form eIPO by submitting applications online through the
designated website of the White Form eIPO Service Provider at www.eipo.com.hk. Use
White Form eIPO if you want the H Shares to be issued in your own name;
You may apply for the Hong Kong Offer Shares by using a YELLOW Application Form.
Use a YELLOW Application Form if you want the Hong Kong Offer Shares to be issued in
the name of HKSCC Nominees and deposited directly into CCASS for credit to your CCASS
Investor Participant stock account or your designated CCASS Participant’s stock account; or
Instead of using a YELLOW Application Form, you may give electronic application
instructions to HKSCC to cause HKSCC Nominees to apply for the Hong Kong Offer Shares
on your behalf via CCASS.
Except where you are a nominee and provide the required information in your application,
you or your joint applicant(s) or you and your joint applicant(s) may not make more than one
application (whether individually or jointly) by applying on a WHITE or YELLOW
Application Form or applying online through White Form eIPO service or by giving
electronic application instructions to HKSCC.
WHERE TO COLLECT THE PROSPECTUS AND APPLICATION FORMS
You can collect a WHITE Application Form and a prospectus during normal business
hours from 9:00 a.m. on Tuesday, April 17, 2012 till 12:00 noon on Friday, April 20, 2012
from:
Any of the following addresses of the Hong Kong Underwriters:
(a) Haitong International 25th Floor, New World Tower
Securities Company Limited 16-18 Queen’s Road Central
Central
Hong Kong
– 392 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
(b) J.P. Morgan Securities 28th Floor, Chater House
(Asia Pacific) Limited 8 Connaught Road Central
Central
Hong Kong
(c) Credit Suisse (Hong Kong) Level 88, International Commerce Centre
Limited 1 Austin Road West
Kowloon
Hong Kong
(d) Deutsche Bank AG, Hong Kong Level 52, International Commerce Centre
Branch 1 Austin Road West
Kowloon
Hong Kong
(e) Citigroup Global Markets Asia 50th Floor, Citibank Tower, Citibank Plaza
Limited 3 Garden Road
Central
Hong Kong
(f) UBS AG, Hong Kong Branch 52/F Two International Finance Centre
8 Finance Street
Central
Hong Kong
(g) The Hongkong and Shanghai 1 Queen’s Road Central
Banking Corporation Limited Hong Kong
(h) Nomura International (Hong 30/F Two International Finance Centre
Kong) Limited 8 Finance Street
Central
Hong Kong
(i) Standard Chartered Securities 15/F, Two International Finance Centre
(Hong Kong) Limited 8 Finance Street
Central
Hong Kong
(j) BOCOM International 9/F, Man Yee Building
Securities Limited 68 Des Voeux Road Central
Hong Kong
– 393 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
(k) BNP Paribas Capital (Asia Suite 6415, 64th Floor
Pacific) Limited Two International Finance Centre
8 Finance Street
Central
Hong Kong
(l) BOCI Asia Limited 26th Floor, Bank of China Tower
1 Garden Road
Hong Kong
(m) CCB International Capital 34th Floor, Two Pacific Place
Limited 88 Queensway
Admiralty
Hong Kong
(n) China Everbright Securities 17/F, Far East Finance Centre
(HK) Limited 16 Harcourt Road
Hong Kong
(o) Samsung Securities (Asia) Suite 4511 Two International Finance Centre
Limited 8 Finance Street
Central
Hong Kong
(p) Shenyin Wanguo Capital (H.K.) 28/F., Citibank Tower
Limited Citibank Plaza
3 Garden Road
Central, Hong Kong
(q) Celestial Capital Limited 9/F, Low Block
Grand Millennium Plaza
181 Queen’s Road Central
Hong Kong
(r) Oriental Patron Securities 27/F Two Exchange Square
Limited 8 Connaught Place
Central, Hong Kong
– 394 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
(s) Sanfull Securities Limited Suite 2001-6, 20/F, Cosco Tower
183 Queen’s Road Central
Hong Kong
(t) Sun Hung Kai International 42/F, The Lee Gardens
Limited 33 Hysan Avenue
Causeway Bay, Hong Kong
or any of the following branches of:
(a) The Hongkong and Shanghai Banking Corporation Limited
Branch Name Address
Hong Kong Hong Kong Office Level 3, 1 Queen’s Road Central
North Point Branch G/F, Winner House
306-316 King’s Road, North Point
Des Voeux Road China Insurance Group Bldg
Central Branch 141 Des Voeux Road Central
Hopewell Centre Shops 2A, 2/F, Hopewell Centre
Branch 183 Queen’s Road East, Wan Chai
Kowloon Kwun Tong Branch No. 1, Yue Man Square
Kwun Tong
Mong Kok Branch Basement & U/G
673 Nathan Road, Mong Kok
Tsim Sha Tsui Basement & 1/F
Branch 82-84 Nathan Road, Tsim Sha Tsui
New Territories Shatin Plaza Branch Shop 49, Level 1, Shatin Plaza
21-27 Sha Tin Centre Street
Sha Tin
– 395 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
(b) Standard Chartered Bank (Hong Kong) Limited
Branch Name Address
Kowloon Telford Gardens Shop P9-12, Telford Centre
Branch Telford Gardens, Tai Yip Street
Kwun Tong
New Territories Tsuen Wan Branch Shop C, G/F & 1/F, Jade Plaza
298 Sha Tsui Road, Tsuen Wan
(c) Bank of China (Hong Kong) Limited
Branch Name Address
Kowloon Hoi Yuen Road 55 Hoi Yuen Road, Kwun Tong
Branch
New Territories Tuen Mun San Hui G13-G14 Eldo Court
Branch Heung Sze Wui Road, Tuen Mun
(d) China Construction Bank (Asia) Corporation Limited
Branch Name Address
Hong Kong Causeway Bay Plaza G/F, Causeway Bay Plaza 1
Branch Causeway Bay
New Territories Shatin Plaza Branch Shop 5, Level 1, Shatin Plaza,
Shatin
(e) Bank of Communications Co., Ltd. Hong Kong Branch
Branch Name Address
Hong Kong Hong Kong Branch 20 Pedder Street, Central
Kowloon Cheung Sha Wan Unit G04, Cheung Sha Wan Plaza
Plaza Sub-Branch 833 Cheung Sha Wan Road
– 396 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
(f) The Bank of East Asia, Limited
Branch Name Address
Hong Kong Main Branch 10 Des Voeux Road Central, HK
Wanchai Branch Shop A-C, G/F, Easey Commercial
Building, 253-261 Hennessy Road
Wanchai
Chai Wan Branch 345 Chai Wan Road
You can collect a YELLOW Application Form and a prospectus during normal business
hours from 9:00 a.m. on Tuesday, April 17, 2012 until 12:00 noon on Friday, April 20, 2012
from the Depository Counter of HKSCC at 2nd Floor, Infinitus Plaza, 199 Des Voeux Road
Central, Hong Kong.
Your stockbroker may also have Application Forms and this prospectus available.
HOW TO APPLY USING A WHITE OR YELLOW APPLICATION FORM
(a) Obtain an Application Form as described in the subsection above entitled “Where to
Collect the Prospectus and Application Forms.”
(b) Complete the Application Form in English using blue or black ink, and sign it. There
are detailed instructions on each Application Form. You should read these
instructions carefully. If you do not follow the instructions, your application may be
rejected and returned by ordinary post together with the accompanying check(s) or
banker’s cashier order(s) to you (or the first-named applicant in the case of joint
applicants) at your own risk at the address given on the Application Form.
(c) Each Application Form must be accompanied by payment, in the form of either one
check or one banker’s cashier order. You should read the detailed instructions set out
on the Application Form carefully, as an application is liable to be rejected if the
check or banker’s cashier order does not meet the requirements set out on the
Application Form.
(d) Lodge the Application Form in one of the special collection boxes by the time and
at one of the locations as described in the subsection above entitled “Where to
Collect the Prospectus and Application Forms.”
(e) Check and banker’s cashier order should be crossed “Account Payee Only” and
made payable to “HSBC Nominees (Hong Kong) Limited – Haitong Securities
Public Offer.”
– 397 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
You should note that by completing and submitting a WHITE or YELLOW Application
Form, among others:
(a) you agree with our Company and each of the Shareholders, and our Company agrees
with each of the Shareholders, to observe and comply with PRC laws, the
Companies Ordinance and the Articles of Association;
(b) you confirm that you have only relied on the information and representations
contained in this prospectus in making your application and will not rely on any
other information or representations save as set out in any supplement to this
prospectus;
(c) you agree that none of our Company, the Joint Sponsors, the Joint Global
Coordinators, the Joint Bookrunners, the Joint Lead Managers, the Underwriters,
their respective directors, officers, employees, partners, agents, advisors and any
other parties involved in the Global Offering is or will be liable for any information
and representations not contained in this prospectus (and any supplement thereto);
(d) you undertake and confirm that you (if the application is made for your benefit) or
the person(s) for whose benefit you have made the application have not applied for
or taken up, or indicated an interest for, and will not apply for or take up, or indicate
an interest for, any International Offering Share nor otherwise participated in the
International Offering; and
(e) you agree to disclose to our Company, and/or our H Share Registrar, receiving
bankers, the Joint Sponsors, the Joint Global Coordinators, the Joint Bookrunners,
the Joint Lead Managers, the Underwriters and their respective advisors and agents
any personal data which they require about you and the person(s) for whose benefit
you have made the application.
In order for an application made on a YELLOW Application Form to be valid:
You, as the applicant(s), must complete the Application Form as indicated below and sign
on the first page of the Application Form. Only written signatures will be accepted.
(a) If the application is made through a designated CCASS Participant (other than a
CCASS Investor Participant):
(i) the designated CCASS Participant must endorse the Application Form with its
company chop (bearing its company name) and insert its participant I.D. in the
appropriate box in the Application Form.
– 398 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
(b) If the application is made by an individual CCASS Investor Participant:
(i) the Application Form must contain the CCASS Investor Participant’s full name and
Hong Kong Identity Card number; and
(ii) the CCASS Investor Participant must insert its participant I.D. in the appropriate
box in the Application Form.
(c) If the application is made by a joint individual CCASS Investor Participant:
(i) the Application Form must contain all joint CCASS Investor Participants’ full names
and the Hong Kong Identity Card numbers of all joint CCASS Investor Participants;
and
(ii) the participant I.D. must be inserted in the appropriate box in the Application Form.
(d) If the application is made by a corporate CCASS Investor Participant:
(i) the Application Form must contain your company name and the Hong Kong business
registration number; and
(ii) the participant I.D. and company chop (bearing its company name) must be inserted
in the appropriate box in the Application Form.
Incorrect or omission of details of the CCASS Participant or (including participant I.D.
and/or company chop bearing the Company name) or other similar matters may render your
application invalid.
If your application is made through a duly authorized attorney, we and the Joint Sponsors,
the Joint Global Coordinators, the Joint Bookrunners, the Joint Lead Managers, the
Underwriters and their respective agents or nominees as our agents may accept it at our
discretion, and subject to any conditions we think fit, including evidence of the authority of
your attorney. We and the Joint Global Coordinators, in their capacity as our agents, will have
full discretion to reject or accept any application, in full or in part, without assigning any
reason.
APPLYING THROUGH WHITE FORM eIPO SERVICE
General
(a) If you are an individual and meet the criteria set out above in the subsection entitled
“Who can apply for the Hong Kong Offer Shares,” you may apply through White
Form eIPO service by submitting an application through designated website at
www.eipo.com.hk. If you apply through White Form eIPO service, the H Shares
will be issued in your own name.
– 399 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
(b) Detailed instructions for application through the White Form eIPO service are set
out on the designated website at www.eipo.com.hk. You should read these
instructions carefully. If you do not follow the instructions, your application may be
rejected by the designated White Form eIPO Service Provider and may not be
submitted to our Company.
(c) In addition to the terms and conditions set out in this prospectus, the designated
White Form eIPO Service Provider may impose additional terms and conditions
upon you for the use of the White Form eIPO service. Such terms and conditions
are set out on the designated website at www.eipo.com.hk. You will be required to
read, understand and agree to such terms and conditions in full prior to making any
application.
(d) By submitting an application to the designated White Form eIPO Service Provider
through the White Form eIPO service (www.eipo.com.hk), you are deemed to have
authorized the designated White Form eIPO Service Provider to transfer the details
of your application to our Company and our H Share Registrar.
(e) You may submit an application through the White Form eIPO service in respect of
a minimum of 400 Hong Kong Offer Shares. Each electronic application
instruction in respect of more than 400 Hong Kong Offer Shares must be in one of
the numbers set out in the table in the Application Forms, or as otherwise specified
on the designated website at www.eipo.com.hk.
(f) You may submit your application to the designated White Form eIPO Service
Provider through the designated website at www.eipo.com.hk from 9:00 a.m. on
Tuesday, April 17, 2012 until 11:30 a.m. on Friday, April 20, 2012 or such later time
as described under the subsection entitled “Effect of Bad Weather on the Opening
of the Application Lists” below (24 hours daily, except on the last application day).
The latest time for completing full payment of application monies in respect of such
applications will be 12:00 noon on Friday, April 20, 2012 the last application day,
or, if the application lists are not open on that day, then by the time and date stated
in the subsection entitled “Effect of Bad Weather on the Opening of the Application
Lists” below.
(g) You will not be permitted to submit your application to the designated White Form
eIPO Service Provider through the designated website at www.eipo.com.hk after
11:30 a.m. on the last day for submitting applications. If you have already submitted
your application and obtained an application reference number from the website
prior to 11:30 a.m., you will be permitted to continue the application process (by
completing payment of application monies) until 12:00 noon on the last day for
submitting applications, when the application lists close. If you do not make
complete payment of the application monies (including any related fees) on or
before 12:00 noon on Friday, April 20, 2012, or such later time as described under
the subsection entitled “Effect of Bad Weather on the Opening of the Application
– 400 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
Lists” below, the designated White Form eIPO Service Provider will reject your
application and your application monies will be returned to you in the manner
described in the designated website at www.eipo.com.hk.
(h) Warning: The application for Hong Kong Offer Shares through the White Form
eIPO service (www.eipo.com.hk) is only a facility provided by the designated
White Form eIPO Service Provider to public investors. Our Company, the
Directors, the Joint Sponsors, the Joint Global Coordinators, the Joint Bookrunners,
the Joint Lead Managers, the Underwriters and the White Form eIPO Service
Provider take no responsibility for such applications, and provide no assurance that
applications through the White Form eIPO service (www.eipo.com.hk) will be
submitted to our Company or that you will be allotted any Hong Kong Offer Shares.
Environmental Protection
The obvious advantage of White Form eIPO is to save the use of papers via the
self-serviced and electronic application process. Computershare Hong Kong Investor Services
Limited being the designated White Form eIPO Service Provider will contribute HK$2.00 for
each “HAITONG SECURITIES CO., LTD.” White Form eIPO application submitted via
www.eipo.com.hk to support the funding of “Source of DongJiang – Hong Kong Forest”
project initiated by Friends of the Earth (HK).
Please note that Internet services may have capacity limitations and/or be subject to
service interruptions from time to time. To ensure that you can submit your applications
through the White Form eIPO service (www.eipo.com.hk), you are advised not to wait until
the last day for submitting applications in the Hong Kong Public Offering to submit your
electronic application instructions. In the event that you have problems connecting to the
designated website for the White Form eIPO service (www.eipo.com.hk), you should submit
a WHITE Application Form. However, once you have submitted electronic application
instructions and completed payment in full using the application reference number provided
to you on the designated website, you will be deemed to have made an actual application and
should not submit a WHITE Application Form. Please see “– How Many Applications May Be
Made”.
Additional information
For the purposes of allocating Hong Kong Offer Shares, each applicant giving electronic
application instructions through White Form eIPO service to the White Form eIPO Service
Provider through the designated website at www.eipo.com.hk will be treated as an applicant.
If your payment of application monies is insufficient, or in excess of the required amount,
having regard to the number of Hong Kong Offer Shares for which you have applied, or if your
application is otherwise rejected by the designated White Form eIPO Service Provider, the
designated White Form eIPO Service Provider may adopt alternative arrangements for the
refund of monies to you. Please refer to the additional information provided by the designated
White Form eIPO Service Provider on the designated website at www.eipo.com.hk.
– 401 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
APPLYING BY GIVING ELECTRONIC APPLICATION INSTRUCTIONS TO
HKSCC VIA CCASS
General
CCASS Participants may give electronic application instructions to HKSCC to apply
for the Hong Kong Offer Shares and to arrange payment of the monies due on application and
payment of refunds. This will be in accordance with their participant agreements with HKSCC
and the General Rules of CCASS and the CCASS Operational Procedures.
If you are a CCASS Investor Participant, you may give electronic application
instructions through the CCASS Phone System by calling +852 2979 7888 or through the
CCASS Internet System (https://ip.ccass.com) (under the procedures contained in HKSCC’s
“An Operating Guide for Investor Participants” in effect from time to time). HKSCC can also
input electronic application instructions for you if you go to:
Hong Kong Securities Clearing Company Limited
Customer Service Counter
2nd Floor, Infinitus Plaza
199 Des Voeux Road Central
Hong Kong
and complete an input request form. Prospectuses are available for collection from the above
address.
If you are not a CCASS Investor Participant, you may instruct your broker or custodian
who is a CCASS Clearing Participant or a CCASS Custodian Participant to give electronic
application instructions via CCASS terminals to apply for the Hong Kong Offer Shares on
your behalf.
You are deemed to have authorized HKSCC and/or HKSCC Nominees to transfer the
details of your application, whether submitted by you or through your broker or custodian, to
our Company, the Joint Sponsors, the Joint Global Coordinators, the Joint Bookrunners, the
Joint Lead Managers, the Underwriters and the H Share Registrar.
Giving electronic application instructions to HKSCC to apply for Hong Kong Offer
Shares by HKSCC Nominees on your behalf
Where a WHITE Application Form is signed by HKSCC Nominees on behalf of persons
who have given electronic application instructions to apply for the Hong Kong Offer Shares:
(i) HKSCC Nominees is only acting as a nominee for those persons and shall not be
liable for any breach of the terms and conditions of the WHITE Application Form
or this prospectus;
(ii) HKSCC Nominees does the following things, among others, on behalf of each such
person:
– 402 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
agrees that the Hong Kong Offer Shares to be allotted shall be issued in the
name of HKSCC Nominees and deposited directly into CCASS for the credit
of the stock account of the CCASS Participant who has inputted electronic
application instructions on that person’s behalf or that person’s CCASS
Investor Participant stock account;
undertakes and agrees to accept the Hong Kong Offer Shares in respect of
which that person has given electronic application instructions or any lesser
number;
undertakes and confirms that person has not indicated an interest for, applied
for or taken up or indicated an interest for, any Offer Shares under the
International Offering nor otherwise participated in the International Offering;
(if the electronic application instructions are given for that person’s own
benefit) declares that only one set of electronic application instructions has
been given for that person’s benefit;
(if that person is an agent for another person) declares that person has only
given one set of electronic application instructions for the benefit of that
other person and that person is duly authorized to give those instructions as
that other person’s agent;
understands that the above declaration will be relied upon by our Company, the
Directors, the Joint Sponsors, the Joint Global Coordinators, the Joint
Bookrunners, the Joint Lead Managers and the Underwriters in deciding
whether or not to make any allotment of the Hong Kong Offer Shares in respect
of the electronic application instructions given by that person and that person
may be prosecuted if he makes a false declaration;
authorizes our Company to place the name of HKSCC Nominees on our
register of members as the holder of the Hong Kong Offer Shares allotted in
respect of that person’s electronic application instructions and to send share
certificate(s) and/or refund monies in accordance with the arrangements
separately agreed between us and HKSCC;
confirms that person has read the terms and conditions and application
procedures set out in this prospectus and agrees to be bound by them;
confirms that person has only relied on the information and representations in
this prospectus in giving that person’s electronic application instructions or
instructing that person’s broker or custodian to give electronic application
instructions on that person’s behalf save as set out in any supplement to this
prospectus;
– 403 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
agrees that our Company, the Joint Sponsors, the Joint Global Coordinators,
the Joint Bookrunners, the Joint Lead Managers, the Underwriters, their
respective directors, officers, employees, partners, agents, advisors and any
other parties involved in the Global Offering are liable only for the information
and representations contained in this prospectus and any supplement thereto;
agrees to disclose that person’s personal data to our Company, the H Share
Registrar, the receiving bankers, the Joint Sponsors, the Joint Global
Coordinators, the Joint Bookrunners, the Joint Lead Managers, the
Underwriters and/or their respective agents and any information which they
may require about that person;
agrees (without prejudice to any other rights which that person may have) that
once the application of HKSCC Nominees has been accepted, the application
cannot be rescinded for innocent misrepresentation;
agrees that any application made by HKSCC Nominees on behalf of that person
pursuant to electronic application instructions given by that person cannot be
revoked on or before the fifth day after the time of the opening of the
application lists (excluding for this purpose any day which is not a business
day), such agreement to take effect as a collateral contract with us and to
become binding when that person gives the instructions and such collateral
contract to be in consideration of our Company agreeing that we will not offer
any Hong Kong Offer Shares to any person on or before the fifth day after the
time of the opening of the application lists (excluding for this purpose any day
which is not a business day), except by means of one of the procedures referred
to in this prospectus. However, HKSCC Nominees may revoke the application
on or before the fifth day after the time of the opening of the application lists
(excluding for this purpose any day which is not a business day) if a person
responsible for this prospectus under Section 40 of the Companies Ordinance
gives a public notice under that section which excludes or limits the
responsibility of that person for this prospectus;
agrees that once the application of HKSCC Nominees is accepted, neither that
application nor that person’s electronic application instructions can be
revoked, and that acceptance of that application will be evidenced by the
announcement of the results of the Hong Kong Public Offering published by
our Company;
agrees to the arrangements, undertakings, warranties representations and
declarations specified in the participant agreement between that person and
HKSCC, read with the General Rules of CCASS and the CCASS Operational
Procedures, in respect of the giving of electronic application instructions
relating to Hong Kong Offer Shares;
– 404 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
agrees with our Company, for ourselves and for the benefit of each of the
Shareholders (and so that we will be deemed by our acceptance in whole or in
part of the application by HKSCC Nominees to have agreed, for ourselves and
on behalf of each of the Shareholders, with each CCASS Participant giving
electronic application instructions) to observe and comply with the Company
Law, the Companies Ordinance and the Articles of Association;
agrees with our Company, for itself and for the benefit of each shareholder of
our Company and each director, supervisor, manager and other senior officer
of our Company (and so that our Company will be deemed by its acceptance
in whole or in part of this application to have agreed, for itself and on behalf
of each shareholder of our Company and each director, supervisor, manager
and other senior officer of our Company, with each CCASS Participant giving
electronic application instructions):
(a) to refer all differences and claims arising from the Articles of Association
of our Company or any rights or obligations conferred or imposed by the
Company Law or other relevant laws and administrative regulations
concerning the affairs of our Company to arbitration in accordance with
the Articles of Association of our Company;
(b) that any award made in such arbitration shall be final and conclusive; and
(c) that the arbitration tribunal may conduct hearings in open sessions and
publish its award;
agrees with our Company (for ourselves and for the benefit of each shareholder
of our Company) that H shares in our Company are freely transferable by their
holders;
authorizes our Company to enter into a contract on its behalf with each director
and officer of our Company whereby each such director and officer undertakes
to observe and comply with his obligations to shareholders stipulated in the
Articles of Association of our Company; and
agrees that that person’s application, any acceptance of it and the resulting
contract will be governed by and construed in accordance with the laws of
Hong Kong.
– 405 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
Effect of giving electronic application instructions to HKSCC via CCASS
By giving electronic application instructions to HKSCC or instructing your broker or
custodian who is a CCASS Clearing Participant or a CCASS Custodian Participant to give such
instructions to HKSCC, you (and, if you are joint applicants, each of you jointly and severally)
are deemed to have done the following things. Neither HKSCC nor HKSCC Nominees shall be
liable to our Company or any other person in respect of the things mentioned below:
instructed and authorized HKSCC to cause HKSCC Nominees (acting as nominee
for the relevant CCASS Participants) to apply for the Hong Kong Offer Shares on
your behalf;
instructed and authorized HKSCC to arrange payment of the maximum offer price,
brokerage, SFC transaction levy and Hong Kong Stock Exchange trading fee by
debiting your designated bank account and, in the case of a wholly or partially
unsuccessful application and/or if the Offer Price is less than the offer price per H
Share initially paid on application, refund of the application monies, in each case
including brokerage, SFC transaction levy and Hong Kong Stock Exchange trading
fee, by crediting your designated bank account; and
instructed and authorized HKSCC to cause HKSCC Nominees to do on your behalf
all the things which it is stated in the WHITE Application Form.
Multiple Applications
If you are suspected of having made multiple applications or if more than one application
is made for your benefit, the number of Hong Kong Offer Shares applied for by HKSCC
Nominees will be automatically reduced by the number of Hong Kong Offer Shares in respect
of which you have given such instructions and/or in respect of which such instructions have
been given for your benefit. Any electronic application instructions to make an application
for the Hong Kong Offer Shares given by you or for your benefit to HKSCC shall be deemed
to be an actual application for the purposes of considering whether multiple applications have
been made.
Minimum Subscription Amount and Permitted numbers
You may give or cause your broker or custodian who is a CCASS Clearing Participant or
a CCASS Custodian Participant to give electronic application instructions in respect of a
minimum of 400 Hong Kong Offer Shares. Each electronic application instruction in respect
of more than 400 Hong Kong Offer Shares must be in one of the numbers set out in the table
in the WHITE and YELLOW Application Forms. No application for any other number of
Hong Kong Offer Shares will be considered and any such application is liable to be rejected.
– 406 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
Allocation of the Hong Kong Offer Shares
For the purposes of allocating the Hong Kong Offer Shares, HKSCC Nominees will not
be treated as an applicant. Instead, each CCASS Participant who gives electronic application
instructions or each person for whose benefit each such instructions is given will be treated
as an applicant.
Timing for Inputting electronic application instructions to HKSCC via CCASS
CCASS Clearing/Custodian Participants can input electronic application instructions at
the following times on the following dates:
Tuesday, April 17, 2012 – 9:00 a.m. to 8:30 p.m. (1)
Wednesday, April 18, 2012 – 8:00 a.m. to 8:30 p.m. (1)
Thursday, April 19, 2012 – 8:00 a.m. to 8:30 p.m. (1)
Friday, April 20, 2012 – 8:00 a.m. (1) to 12:00 noon
(1)
These times are subject to change as HKSCC may determine from time to time with prior notification to
CCASS Clearing/Custodian Participants.
CCASS Investor Participants can input electronic application instructions from 9:00
a.m. on Tuesday, April 17, 2012 until 12:00 noon on Friday, April 20, 2012 (24 hours daily,
except the last application day).
The latest time for inputting electronic application instructions will be 12:00 noon on
Friday, April 20, 2012, the last application day, or if the application lists are not open on that
day, by the time and date stated in the subsection entitled “Effect of Bad Weather Conditions
on the Opening of the Application Lists” below.
Section 40 of the Companies Ordinance
For the avoidance of doubt, our Company and all other parties involved in the preparation
of this prospectus acknowledge that each CCASS Participant who gives or causes to give
electronic application instructions is a person who may be entitled to compensation under
Section 40 of the Companies Ordinance (as applied by section 342E of the Companies
Ordinance).
Personal Data
The section of the Application Form entitled “Personal Data” applies to any personal data
held by us and our H Share Registrar about you in the same way as it applies to personal data
about applicants other than HKSCC Nominees.
– 407 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
Warning
The subscription for the Hong Kong Offer Shares by giving electronic application
instructions to HKSCC is only a facility provided to CCASS Participants. Our Company, the
Directors, the Joint Sponsors, the Joint Global Coordinators, the Joint Bookrunners, the Joint
Lead Managers, and the Underwriters take no responsibility for the application and provide no
assurance that any CCASS Participant will be allotted any Hong Kong Offer Shares.
To ensure that CCASS Investor Participants can give their electronic application
instructions to HKSCC through the CCASS Phone System or the CCASS Internet System,
CCASS Investor Participants are advised not to wait until the last minute to input their
electronic application instructions. In the event that CCASS Investor Participants have
problems connecting to the CCASS Phone System or the CCASS Internet System to submit
their electronic application instructions, they should either:
(i) submit a WHITE or YELLOW Application Form; or
(ii) go to HKSCC’s Customer Service Centre to complete an input request form for
electronic application instructions before 12:00 noon on Friday, April 20, 2012, or
such later time as described under the subsection entitled “Effect of Bad Weather
Conditions on the Opening of the Application Lists” below.
HOW MANY APPLICATIONS MAY BE MADE
You may make more than one application for the Hong Kong Offer Shares if and only
if you are a nominee, in which case you may make an application as a nominee by (i) giving
electronic application instructions to HKSCC (if you are a CCASS Participant) or; (ii) using
a WHITE or YELLOW Application Form, and lodging more than one Application Form in
your own name if each application is made on behalf of different beneficial owners. In the box
on the Application Form marked “For nominees” you must include:
an account number; or
some other identification code,
for each beneficial owner or, in the case of joint beneficial owners, for each such beneficial
owner. If you do not include this information, the application will be treated as being made for
your benefit.
Otherwise, multiple applications are not allowed. It will be a term and condition of all
applications that by completing and delivering an Application Form, you:
(if the application is made for your own benefit) warrant that this is the only
application which has been or will be made for your benefit on a WHITE or
YELLOW Application Form or by giving electronic application instructions to
– 408 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
HKSCC via CCASS if you are a CCASS Investor Participant or applying through a
CCASS Clearing Participant or Custodian Participant or to the designated White
Form eIPO Service Provider through White Form eIPO service
(www.eipo.com.hk);
(if you are an agent for another person) warrant that reasonable enquiries have been
made of that other person that this is the only application which has been or will be
made for the benefit of that other person on a WHITE or YELLOW Application
Form or by giving electronic application instructions to HKSCC or to the
designated White Form eIPO Service Provider through White Form eIPO service
(www.eipo.com.hk) and that you are duly authorized to sign the Application Form
as that other person’s agent.
Except where you are a nominee and provide the information required to be provided in
your application, all of your applications will be rejected as multiple applications if you, or you
and your joint applicant(s) together:
make more than one application (whether individually or jointly) on a WHITE or
YELLOW Application Form or by giving electronic application instructions to
HKSCC via CCASS if you are a CCASS Investor Participant or applying through a
CCASS Clearing Participant or Custodian Participant or to the designated White
Form eIPO Service Provider through White Form eIPO service
(www.eipo.com.hk); or
apply both (whether individually or jointly) on one WHITE Application Form and
one YELLOW Application Form or on one WHITE or YELLOW Application
Form and give electronic application instructions to HKSCC via CCASS if you are
a CCASS Investor Participant or applying through a CCASS Clearing Participant or
Custodian Participant or to the designated White Form eIPO Service Provider
through White Form eIPO service (www.eipo.com.hk); or
apply (whether individually or jointly) on one WHITE or YELLOW Application
Form or by giving electronic application instructions to HKSCC via CCASS if you
are a CCASS Investor Participant or applying through a CCASS Clearing Participant
or Custodian Participant or to the designated White Form eIPO Service Provider
through White Form eIPO service (www.eipo.com.hk) for more than 30,734,800 H
Shares, being approximately 50.0% of the Offer Shares initially being offered for
public subscription under the Hong Kong Public Offering, as more particularly
described in the subsection entitled “Structure of the Global Offering – The Hong
Kong Public Offering” in this prospectus; or
have applied for or taken up, or indicated an interest for, or have been or will be
placed or allocated (including conditionally and/or provisionally) Offer Shares
under the International Offering.
– 409 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
All of your applications will also be rejected as multiple applications if more than one
application on a WHITE or YELLOW Application Form or by giving electronic application
instructions to HKSCC or to the designated White Form eIPO Service Provider through
White Form eIPO service is made for your benefit (including the part of the application made
by HKSCC Nominees acting on electronic application instructions). If an application is made
by an unlisted company and:
the principal business of that company is dealing in securities; and
you exercise statutory control over that company,
then the application will be treated as being for your benefit.
Unlisted company means a company with no equity securities listed on the Hong Kong
Stock Exchange.
Statutory control in relation to a company means you:
control the composition of the board of directors of the company; or
control more than half of the voting power of the company; or
hold more than half of the issued share capital of the company (not counting any part
of it which carries no right to participate beyond a specified amount in a distribution
of either profits or capital).
HOW MUCH ARE THE HONG KONG OFFER SHARES
The maximum Offer Price is HK$11.18 per H Share. You must also pay a brokerage of
1%, SFC transaction levy of 0.003% and the Hong Kong Stock Exchange trading fee of
0.005%. This means that for one board lot of 400 H Shares you will pay HK$4,517.07. The
Application Forms have tables showing the exact amount payable for numbers of H Shares up
to 30,734,800 H Shares.
You must pay the maximum Offer Price, brokerage, SFC transaction levy and the Hong
Kong Stock Exchange trading fee in full upon application for the H Shares by a check or a
banker’s cashier order in accordance with the terms set out in the Application Forms (if you
apply by an Application Form).
If your application is successful, brokerage is paid to participants of the Hong Kong Stock
Exchange, the SFC transaction levy and the Hong Kong Stock Exchange trading fee are paid
to the Hong Kong Stock Exchange (in the case of the SFC transaction levy, collected on behalf
of the SFC).
– 410 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
REFUND OF APPLICATION MONIES
If you do not receive any Hong Kong Offer Shares for any reason, we will refund your
application monies, including brokerage of 1%, SFC transaction levy of 0.003% and Hong
Kong Stock Exchange trading fee of 0.005%. No interest will be paid thereon. All interest
accrued on such monies prior to the date of dispatch of e-Refund payment instructions/refund
checks/share certificates will be retained for our benefit.
If your application is accepted only in part, we will refund the appropriate portion of your
application monies, including the related brokerage of 1%, SFC transaction levy of 0.003% and
Hong Kong Stock Exchange trading fee of 0.005%, without interest.
If the Offer Price as finally determined is less than HK$11.18 per H Share, appropriate
refund payments, including the brokerage of 1%, SFC transaction levy of 0.003% and Hong
Kong Stock Exchange trading fee of 0.005% attributable to the surplus application monies will
be made to successful applicants, without interest. Details of the procedure for refund are set
out below in the subsection entitled “Despatch/Collection of H Share Certificates and Refund
Monies” below.
In a contingency situation involving a substantial over-subscription, at the discretion of
our Company and the Joint Global Coordinators, checks for applications for certain small
denominations of Hong Kong Offer Shares on Application Forms (apart from successful
applications) may not be cleared.
Refund of your application monies (if any) will be made on Thursday, April 26, 2012 in
accordance with the various arrangements as described in this section.
MEMBERS OF THE PUBLIC – TIME FOR APPLYING FOR HONG KONG OFFER
SHARES
Completed WHITE or YELLOW Application Forms, together with payment attached,
must be lodged by 12:00 noon on Friday, April 20, 2012, or, if the application lists are not open
on that day, then by the time and date stated in the subsection entitled “Effect of Bad Weather
on the Opening of the Application Lists” below.
Your completed Application Form, together with payment attached, should be deposited
in the special collection boxes provided at any of the branches of the receiving banks listed
under the section entitled “Where to Collect the Prospectus and Application Forms” above at
the following times:
Tuesday, April 17, 2012 – 9:00 a.m. to 4:30 p.m.
Wednesday, April 18, 2012 – 9:00 a.m. to 4:30 p.m.
Thursday, April 19, 2012 – 9:00 a.m. to 4:30 p.m.
Friday, April 20, 2012 – 9:00 a.m. to 12:00 noon
The application lists will be open from 11:45 a.m. to 12:00 noon on Friday, April 20,
2012.
– 411 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
No proceedings will be taken on applications for the Offer Shares and no allotment of any
such Offer Shares will be made until the closing of the application lists. No allotment of any
of the Offer Shares will be made earlier than Thursday, April 26, 2012.
EFFECT OF BAD WEATHER ON THE OPENING OF THE APPLICATION LISTS
The application lists will not open if there is:
a tropical cyclone warning signal number 8 or above; or
a “black” rainstorm warning
in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Friday, April 20, 2012.
Instead they will open between 11:45 a.m. and 12:00 noon on the next Business Day which
does not have either of those warnings in Hong Kong in force at any time between 9:00 a.m.
and 12:00 noon on such day.
Business Day means a day that is not a Saturday, Sunday or a public holiday in Hong
Kong.
PUBLICATION OF RESULTS
We expect to announce the Offer Price, the indication of the level of interest in the
International Offering, the basis of allotment of the Hong Kong Offer Shares and the indication
of the level of applications under the Hong Kong Public Offering on Thursday, April 26, 2012
in the South China Morning Post (in English) and the Hong Kong Economic Times (in
Chinese). The allotment results as published in the newspapers will also be posted on the
website of the Hong Kong Stock Exchange (www.hkexnews.hk) and on the website of our
Company (www.htsec.com) on Thursday, April 26, 2012.
In addition, we expect to announce the level of applications and the Hong Kong identity
card/passport/Hong Kong business registration numbers of successful applicants under the
Hong Kong Public Offering at the times and dates and in the manner specified below:
(a) Results of allocations for the Hong Kong Public Offering will be available from our
designated results of allocations websites at (www.iporesults.com.hk),
(www.htsec.com) and (www.hkexnews.hk) on a 24-hour basis from 8:00 a.m. on
Thursday, April 26, 2012 to 12:00 midnight on Wednesday, May 2, 2012. The user
will be required to key in the Hong Kong identity card/passport/Hong Kong business
registration number provided in his/her/its application to search for his/her/its own
allocation result;
(b) Results of allocations will be available from our Hong Kong Public Offering
allocation results telephone enquiry line. Applicants may find out whether or not
their applications have been successful and the number of Offer Shares allocated to
them, if any, by calling 2862 8669 between 9:00 a.m. and 10:00 p.m. from Thursday,
April 26, 2012 to Sunday, April 29, 2012; and
– 412 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
(c) Special allocation results booklets setting out the results of allocations will be
available for inspection during opening hours of individual branches and sub-
branches from Thursday, April 26, 2012 to Monday, April 30, 2012 at all the
receiving bank branches and sub-branches at the addresses set out in the subsection
entitled “Where to Collect the Prospectus and the Application Forms” above.
CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOTTED HONG KONG
OFFER SHARES
Full details of the circumstances in which you will not be allotted the Hong Kong Offer
Shares are set out in the notes attached to the relevant Application Forms (whether you are
making your application by an Application Form or electronically instructing HKSCC to cause
HKSCC Nominees to apply on your behalf), and you should read them carefully. You should
note in particular the following situations in which the Hong Kong Offer Shares will not be
allotted to you:
If your application is revoked:
By completing and submitting an Application Form or giving an electronic
application instruction, you agree that your application or the application made by
HKSCC Nominees or to the designated White Form eIPO Service Provider through
White Form eIPO service (www.eipo.com.hk) on your behalf cannot be revoked on or
before the fifth day after the time of the opening of the application lists (excluding for this
purpose any day which is not a business day). This agreement will take effect as a
collateral contract with our Company, and will become binding when you lodge your
Application Form or give your electronic application instruction to HKSCC and an
application has been made by HKSCC Nominees on your behalf accordingly. This
collateral contract will be in consideration of our Company agreeing that we will not offer
any Hong Kong Offer Shares to any person on or before the fifth day after the time of the
opening of the application lists (excluding for this purpose any day which is not a
business day) except by means of one of the procedures referred to in this prospectus.
Your application or the application made by HKSCC Nominees on your behalf may
be revoked on or before the fifth day after the time of the opening of the application lists
(excluding for this purpose any day which is not a business day) if a person responsible
for this prospectus under section 40 of the Hong Kong Companies Ordinance gives a
public notice under that section which excludes or limits the responsibility of that person
for this prospectus.
If any supplement to this prospectus is issued, applicant(s) who have already
submitted an application may or may not (depending on the information contained in the
supplement) be notified that they can withdraw their applications. If applicant(s) have not
been so notified, or if applicant(s) have been notified but have not withdrawn their
applications in accordance with the procedure to be notified, all applications that have
been submitted remain valid and may be accepted. Subject to the above, an application
once made is irrevocable and applicants shall be deemed to have applied on the basis of
this prospectus as supplemented.
– 413 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
If your application or the application made by HKSCC Nominees or to the
designated White Form eIPO Service Provider through White Form eIPO service
(www.eipo.com.hk) on your behalf has been accepted, it cannot be revoked. For this
purpose, acceptance of applications which are not rejected will be constituted by
notification in the press of the results of allocation, and where such basis of allocation is
subject to certain conditions or provides for allocation by ballot, such acceptance will be
subject to the satisfaction of such conditions or results of the ballot respectively.
Full discretion of our Company or our agents to reject or accept your
application:
Our Company, the Joint Global Coordinators (as our agents) and the White Form
eIPO Service Provider or the respective agents and nominees, have full discretion to
reject or accept any application, or to accept only part of any application.
Our Company, the Joint Global Coordinators and the White Form eIPO Service
Provider in their capacity as our agents, and the respective agents and nominees do not
have to give any reason for any rejection or acceptance.
If the allotment of Hong Kong Offer Shares is void:
The allotment of Hong Kong Offer Shares to you or to HKSCC Nominees (if you
give electronic application instructions to HKSCC or apply by a YELLOW Application
Form) will be void if the Listing Committee of the Hong Kong Stock Exchange does not
grant permission to list the H Shares either:
within three weeks from the closing of the application lists; or
within a longer period of up to six weeks if the Listing Committee of the Hong
Kong Stock Exchange notifies our Company of that longer period within three
weeks of the closing date of the application lists.
You will not receive any allotment if:
you make multiple applications or suspected multiple applications;
you or the person for whose benefit you are applying have applied for or taken
up, or indicated an interest for, or have been or will be placed or allocated
(including conditionally and/or provisionally) Hong Kong Offer Shares and/or
Offer Shares in the International Offering. By filling in any of the Application
Forms or applying by giving electronic application instructions you agree
not to apply for Hong Kong Offer Shares as well as the International Offering
Shares in the International Offering. Reasonable steps will be taken to identify
and reject applications in the Hong Kong Public Offering from investors who
have received Offer Shares in the International Offering, and to identify and
reject indications of interest in the International Offering from investors who
have received Hong Kong Offer Shares in the Hong Kong Public Offering;
– 414 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
the number of shares you have applied for is not one of the numbers as set out
in the payment tables in the Application Forms;
your application is not completed in accordance with the instructions as stated
in the Application Forms (if you apply by an Application Form) or on the
White Form eIPO website;
your payment is not made correctly or you pay by check or banker’s cashier
order and the check or banker’s cashier order is dishonored upon its first
presentation;
the Underwriting Agreements do not become unconditional;
the Underwriting Agreements are terminated in accordance with their
respective terms;
our Company or the Joint Global Coordinators believe that by accepting your
application, they would violate the applicable securities or other laws, rules or
regulations; or
your application is for more than 50% of the Hong Kong Offer Shares initially
offered for public subscription under the Hong Kong Public Offering.
DESPATCH/COLLECTION OF H SHARE CERTIFICATES AND REFUND MONIES
If an application is rejected, not accepted or accepted in part only, or if the Offer Price
as finally determined is less than the Offer Price of HK$11.18 per H Share (excluding
brokerage, SFC transaction levy and Hong Kong Stock Exchange trading fee thereon) initially
paid on application, or if the conditions of the Hong Kong Public Offering are not fulfilled in
accordance with the subsection entitled “Structure of the Global Offering – Conditions of the
Global Offering” in this prospectus or if any application is revoked or any allotment pursuant
thereto has become void, the application monies, or the appropriate portion thereof, together
with the related brokerage, SFC transaction levy and Hong Kong Stock Exchange trading fee,
will be refunded, without interest. It is intended that special efforts will be made to avoid any
undue delay in refunding application monies where appropriate.
You will receive one H Share certificate for all the Hong Kong Offer Shares issued to you
under the Hong Kong Public Offering (except pursuant to applications made on YELLOW
Application Forms or by electronic application instructions to HKSCC via CCASS where the
H Share certificates will be deposited into CCASS as described below).
– 415 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
No temporary document of title will be issued in respect of the H Shares. No receipt will
be issued for sums paid on application but, subject to personal collection as mentioned below,
in due course they will be sent to you (or, in the case of joint applicants, to the first-named
applicant) by ordinary post, at your own risk, to the address specified on the application:
(a) for applications on WHITE Application Forms or White Form eIPO:
(i) H Share certificate(s) for all the Hong Kong Offer Shares applied for, if the
application is wholly successful; or
(ii) H Share certificate(s) for the number of Hong Kong Offer Shares successfully
applied for, if the application is partially successful; and/or
(b) for applications on WHITE or YELLOW Application Forms, refund check(s) will
be crossed “Account Payee Only” in favor of the applicant (or, in the case of joint
applicants, the first-named applicant) for (i) the surplus application monies for the
Hong Kong Offer Shares unsuccessfully applied for, if the application is partially
unsuccessful; or (ii) all the application monies, if the application is wholly
unsuccessful; and/or (iii) the difference between the Offer Price and the maximum
offer price per H Share paid on application in the event that the Offer Price is less
than the offer price per H Share initially paid on application, in each case including
brokerage of 1%, SFC transaction levy of 0.003% and Hong Kong Stock Exchange
trading fee of 0.005%, attributable to such refund/surplus monies but without
interest. Part of your Hong Kong identity card number/passport number, or, if you
are joint applicants, part of the Hong Kong identity card number/passport number of
the first-named applicant, provided by you may be printed on your refund check, if
any. Such data would also be transferred to a third party for refund purpose. Your
banker may require verification of your Hong Kong identity card number/passport
number before encashment of your refund check. Inaccurate completion of your
Hong Kong identity card number/passport number may lead to delay in encashment
of, or may invalidate, your refund check.
Subject to personal collection as mentioned below, refund checks for surplus application
monies (if any) in respect of wholly and partially unsuccessful applications and the difference
between the Offer Price and the offer price per H Share initially paid on application (if any)
under WHITE or YELLOW Application Forms; and H Share certificates for wholly and
partially successful applicants under WHITE Application Forms and the White Form eIPO
service are expected to be posted on or before Thursday, April 26, 2012. The right is reserved
to retain any H Share certificate(s) and any surplus application monies pending clearance of
check(s).
H Share certificates will only become valid certificates of title at 8:00 a.m. on Friday,
April 27, 2012 provided that the Hong Kong Public Offering has become unconditional in all
respects and the right of termination described in the subsection entitled “Underwriting –
Underwriting Arrangements and Expenses – Hong Kong Public Offering – Hong Kong
Underwriting Agreement – Grounds for Termination” in this prospectus has not been exercised.
– 416 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
(a) If you apply using a WHITE Application Form:
If you apply for 1,000,000 or more Hong Kong Offer Shares and have indicated your
intention in your WHITE Application Form respectively to collect your refund check(s)
(where applicable) and/or H Share certificate(s) (where applicable) in person and have
provided all information required by your Application Form, you may collect your refund
check(s) (where applicable) and H Share certificate(s) (where applicable) from our H Share
Registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th
floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, from 9:00 a.m. to 1:00
p.m. on Thursday, April 26, 2012 or such other date as notified by us in the newspapers as the
date of collection/dispatch of e-Refund payment instructions/refund checks/share certificates.
If you are an individual who opts for personal collection, you must not authorize any other
person to make collection on your behalf. If you are a corporate applicant which opts for
personal collection, you must attend by your authorized representative bearing a letter of
authorization from your corporation stamped with your corporation’s chop. Both individuals
and authorized representatives (if applicable) must produce, at the time of collection, evidence
of identity acceptable to our H Share Registrar. If you do not collect your refund check(s)
(where applicable) and/or H Share certificate(s) (where applicable) personally within the time
specified for collection, they will be sent to the address as specified in your Application Form
promptly thereafter by ordinary post and at your own risk.
If you apply for less than 1,000,000 Hong Kong Offer Shares or if you apply for
1,000,000 Hong Kong Offer Shares or more but have not indicated on your Application Form
that you will collect your refund check(s) (where applicable) and/or H Share certificate(s)
(where applicable) in person, your refund check(s) (where applicable) and/or H Share
certificate(s) (where applicable) will be sent to the address on your Application Form on
Thursday, April 26, 2012, by ordinary post and at your own risk.
(b) If you apply using a YELLOW Application Form:
If you apply for 1,000,000 Hong Kong Offer Shares or more and you have elected on your
YELLOW Application Form to collect your refund check (where applicable) in person, please
follow the same instructions as those for WHITE Application Form applicants as described
above.
If you apply for Hong Kong Offer Shares using a YELLOW Application Form and your
application is wholly or partially successful, your H Share certificate(s) will be issued in the
name of HKSCC Nominees and deposited into CCASS for credit to your CCASS Investor
Participant stock account or the stock account of your designated CCASS Participant as
instructed by you in your Application Form on Thursday, April 26, 2012 or, under contingent
situation, on any other date as shall be determined by HKSCC or HKSCC Nominees.
– 417 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
If you are applying through a designated CCASS Participant (other than a CCASS
Investor Participant):
for Hong Kong Offer Shares credited to the stock account of your designated
CCASS Participant (other than a CCASS Investor Participant), you can check the
number of Hong Kong Offer Shares allocated to you with that CCASS Participant.
If you are applying as a CCASS Investor Participant:
our Company expects to publish the results of CCASS Investor Participants’
applications together with the results of the Hong Kong Public Offering in the
manner described in the section headed “Publication of Results” above on Thursday,
April 26, 2012. You should check the announcement published by our Company and
report any discrepancies to HKSCC before 5:00 p.m. on Thursday, April 26, 2012 or
such other date as shall be determined by HKSCC or HKSCC Nominees.
Immediately after the credit of the Hong Kong Offer Shares to your stock account,
you can check your new account balance via the CCASS Phone System and the
CCASS Internet System (under the procedures contained in HKSCC’s “An
Operating Guide for Investor Participants” in effect from time to time). HKSCC will
also make available to you an activity statement showing the number of Hong Kong
Offer Shares credited to your stock account.
(c) If you apply through White Form eIPO service:
If you apply for 1,000,000 Hong Kong Offer Shares or more through the White Form
eIPO service and your application is wholly or partially successful, you may collect your H
Share certificate(s) in person from our H Share Registrar, Computershare Hong Kong Investor
Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East,
Wanchai, Hong Kong, from 9:00 a.m. to 1:00 p.m. on Thursday, April 26, 2012, or such other
date as notified by our Company in the newspapers as the date of dispatch of e-Refund payment
instructions/refund check(s)/share certificate(s).
If you do not collect your H Share certificate(s) personally within the specified period for
collection, they will be sent to the address specified in your instructions to the White Form
eIPO Service Provider promptly thereafter by ordinary post and at your own risk.
If you apply for less than 1,000,000 Hong Kong Offer Shares, your H Share certificate(s)
will be sent to the address specified in your application instructions to the designated White
Form eIPO Service Provider through the designated website at www.eipo.com.hk on
Thursday, April 26, 2012, by ordinary post and at your own risk.
If you apply through the White Form eIPO service (www.eipo.com.hk) by paying the
application monies through a single bank account and your application is wholly or partially
unsuccessful and/or the final Offer Price is different from the offer price initially paid on your
application, e-refund payment instructions (if any) will be dispatched to the application
payment account on Thursday, April 26, 2012.
– 418 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
If you apply through the White Form eIPO service (www.eipo.com.hk) by paying the
application monies through multiple bank accounts and your application is wholly or partially
unsuccessful and/or the final Offer Price is different from the offer price initially paid on your
application, refund check(s) will be sent to the address specified in your application
instructions to the designated White Form eIPO Service Provider on Thursday, April 26, 2012,
by ordinary post and at your own risk.
Please also note the additional information relating to refund of application monies
overpaid, application money underpaid or applications rejected by the designated White Form
eIPO Service Provider set out in the subsection entitled “Applying through White Form eIPO
Service – Additional Information” above.
(d) If you apply by giving electronic application instructions to HKSCC:
Allocation of Hong Kong Offer Shares
For the purposes of allocating Hong Kong Offer Shares, HKSCC Nominees will not be
treated as applicants. Instead, each CCASS Participant who gives electronic application
instructions or each person for whose benefit each such instructions is given will be
treated as an applicant.
Deposit of H Share Certificates into CCASS and Refund of application monies
No temporary document of title will be issued. No receipt will be issued for
application monies received.
If your application is wholly or partially successful, your H Share certificate(s) will
be issued in the name of HKSCC Nominees and deposited into CCASS for the credit
of the stock account of the CCASS Participant which you have instructed to give
electronic application instructions on your behalf or your CCASS Investor
Participant stock account on Thursday, April 26, 2012, or, in the event of a
contingency, on any other date as shall be determined by HKSCC or HKSCC
Nominees.
We expect to publish the application results of CCASS Participants (and where the
CCASS Participant is a broker or custodian, we will include information relating to
the relevant beneficial owner), your Hong Kong Identity Card/passport number or
other identification code (Hong Kong business registration number for corporations)
and the basis of allotment of the Hong Kong Public Offering in the manner described
in the subsection entitled “Publication of Results” above on Thursday, April 26,
2012. You should check the announcement published by us and report any
discrepancies to HKSCC before 5:00 p.m. on Thursday, April 26, 2012 or such other
date as shall be determined by HKSCC or HKSCC Nominees.
– 419 –
HOW TO APPLY FOR THE HONG KONG OFFER SHARES
If you have instructed your broker or custodian to give electronic application
instructions on your behalf, you can also check the number of Hong Kong Offer
Shares allotted to you and the amount of refund monies (if any) payable to you with
that broker or custodian.
If you have applied as a CCASS Investor Participant, you can also check the number
of Hong Kong Offer Shares allotted to you and the amount of refund monies (if any)
payable to you via the CCASS Phone System and the CCASS Internet System (under
the procedures contained in HKSCC’s “An Operating Guide for Investor
Participants” in effect from time to time) on Thursday, April 26, 2012. Immediately
after the credit of the Hong Kong Offer Shares to your CCASS Investor Participant
stock account and the credit of refund monies to your designated bank account,
HKSCC will also make available to you an activity statement showing the number
of Hong Kong Offer Shares credited to your CCASS Investor Participant stock
account and the amount of refund monies (if any) credited to your designated bank
account.
Refund of your application monies (if any) in respect of wholly and partially
unsuccessful applications and/or difference between the Offer Price and the offer
price per H Share initially paid on application, in each case including brokerage of
1%, SFC transaction levy of 0.003% and Hong Kong Stock Exchange trading fee of
0.005%, will be credited to your designated bank account or the designated bank
account of your broker or custodian on Thursday, April 26, 2012. No interest will be
paid thereon.
H SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS
If the Hong Kong Stock Exchange grants the listing of, and permission to deal in, the H
Shares and we comply with the stock admission requirements of HKSCC, the H Shares will be
accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with
effect from the date of commencement of dealings in the H Shares on the Hong Kong Stock
Exchange or any other date HKSCC chooses. Settlement of transactions between participants
of the Hong Kong Stock Exchange is required to take place in CCASS on the second Business
Day after any trading day.
All activities under CCASS are subject to the General Rules of CCASS and Operational
Procedures in effect from time to time.
Investors should seek the advice of their stockbroker or other professional advisor for
details of the settlement arrangement as such arrangements may affect their rights and interests.
All necessary arrangements have been made enabling the H Shares to be admitted into
CCASS.
– 420 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
GENERAL
(a) If you apply for Hong Kong Offer Shares in the Hong Kong Public Offering, you
will be agreeing with our Company and the Joint Global Coordinators (for itself and
on behalf of the Hong Kong Underwriters) as set out below.
(b) If you give electronic application instructions to HKSCC via CCASS to cause
HKSCC Nominees to apply for Hong Kong Offer Shares on your behalf, you will
have authorized HKSCC Nominees to apply on the terms and conditions set out
below, as supplemented and amended by the terms and conditions applicable to the
relevant application method.
If you give electronic application instructions through the designated website at
www.eipo.com.hk, you will have authorized the designated White Form eIPO Service
Provider to apply on the terms and conditions set out below, as supplemented and amended by
the terms and conditions applicable to the White Form eIPO service.
(c) In this section, references to “you,” “applicants,” “joint applicants” and other like
references shall, if the context so permits, include references to making applications
electronically by submitting an application to the designated White Form eIPO
Service Provider through the designated website for the White Form eIPO service
and both nominees and principals on whose behalf HKSCC Nominees are applying
for Hong Kong Offer Shares, and references to the making of an application shall,
if the context so permits, include references to making applications electronically by
giving instructions to HKSCC.
(d) Applicants should read this prospectus carefully, including the terms and conditions
set out herein and in the Application Forms or imposed by HKSCC prior to making
any application for Hong Kong Offer Shares.
OFFER TO PURCHASE THE HONG KONG OFFER SHARES
(e) You offer to purchase from us at the Offer Price the number of the Hong Kong Offer
Shares indicated in your Application Form (or any smaller number in respect of
which your application is accepted) on the terms and conditions set out in this
prospectus and the relevant Application Form.
(f) For applicants using Application Forms, a refund check in respect of the surplus
application monies (if any) representing the Hong Kong Offer Shares applied for but
not allocated to you and representing the difference (if any) between the Final Offer
Price and the maximum Offer Price (including the brokerage, SFC transaction levy
and the Hong Kong Stock Exchange trading fee attributable thereto), is expected to
be sent to you at your own risk to the address stated on your Application Form on
or before Thursday, April 26, 2012. Details of the procedure for refunds relating to
each of the Hong Kong Public Offering methods are contained below in the sections
– 421 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
headed “– If Your Application for Hong Kong Offer Shares is Successful (in Whole
or in Part),” “– Refund of Application Monies” and “– Additional Information for
Applicants Applying by Giving Electronic Application Instructions to HKSCC.”
(g) Any application may be rejected in whole or in part.
(h) Applicants under the Hong Kong Public Offering should note that in no
circumstances (save for those provided under section 40 of the Hong Kong
Companies Ordinance) can applications be withdrawn once submitted. For the
avoidance of doubt, our Company and all other parties involved in the preparation
of this prospectus acknowledge that each CCASS Participant who gives, or causes
to give, electronic application instructions to HKSCC via CCASS is a person who
may be entitled to compensation under section 40 of the Hong Kong Companies
Ordinance.
The section of the application form headed “Personal Data” applies to any personal data
held by the Company and the H Share Registrar about you in the same way as it applies to
personal data about applicants other than HKSCC Nominees.
ACCEPTANCE OF YOUR OFFER
(i) The Hong Kong Offer Shares will be allocated after the application lists close. We
expect to announce the final number of Hong Kong Offer Shares, the level of
applications under the Hong Kong Public Offering and the basis of allocations of the
Hong Kong Offer Shares in the South China Morning Post (in English) and the Hong
Kong Economic Times (in Chinese), and on the website of the Hong Kong Stock
Exchange at www.hkexnews.hk and our website at www.htsec.com on Thursday,
April 26, 2012.
(j) The results of allocations of the Hong Kong Offer Shares under the Hong Kong
Public Offering, including the Hong Kong identity card numbers, passport numbers
or Hong Kong business registration numbers (where applicable) of successful
applicants and the number of Hong Kong Offer Shares successfully applied for, will
be made available on Thursday, April 26, 2012 in the manner described in the
section headed “How to Apply for the Hong Kong Offer Shares – Publication of
Results”.
(k) We may accept your offer to purchase (if your application is received, valid,
processed and not rejected) by announcing the basis of allocations and/or making
available the results of allocations publicly.
(l) If we accept your offer to purchase (in whole or in part), there will be a binding
contract under which you will be required to purchase the Hong Kong Offer Shares
in respect of which your offer has been accepted if the conditions of the Global
Offering are satisfied or the Global Offering is not otherwise terminated. Further
details are contained in the section headed “Structure of the Global Offering.”
– 422 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
(m) You will not be entitled to exercise any remedy of rescission for innocent
misrepresentation at any time after acceptance of your application. This does not
affect any other right you may have.
EFFECT OF MAKING ANY APPLICATION
(n) By completing and submitting any Application Form, you:
instruct and authorize our Company and/or the Joint Global Coordinators (or
its agents or nominees) to execute any transfer forms, contract notes or other
documents on your behalf and to do on your behalf all other things necessary
to effect the registration of any Hong Kong Offer Shares allocated to you in
your name(s) or HKSCC Nominees, as the case may be, as required by our
Articles of Association and otherwise to give effect to the arrangements
described in this prospectus and the relevant Application Form;
undertake to sign all documents and to do all things necessary to enable you
or HKSCC Nominees, as the case may be, to be registered as the holder of the
Hong Kong Offer Shares allocated to you, and as required by our Articles of
Association;
represent, warrant and undertake that you understand that the H Shares have
not been and will not be registered under the U.S. Securities Act and you are
outside the United States when completing the Application Form (as defined in
Regulation S under the U.S. Securities Act);
confirm that you have received and/or read a copy of this prospectus and have
only relied on the information and representations contained in this prospectus
in making your application, and will not rely on any other information or
representation save as set out in any supplement to this prospectus;
confirm that you understand entirely that our registered share capital comprises
A Shares and H Shares and that holders of H Shares shall have the same right
as holders of A Shares save as to certain rights to which holders of H Shares
are entitled;
agree (without prejudice to any other rights which you may have) that once
your application has been accepted, you may not rescind it because of an
innocent misrepresentation;
(if the application is made for your own benefit) warrant that the application
is the only application that will be made for your benefit on a WHITE or
YELLOW Application Form or by giving electronic application instructions
to HKSCC via CCASS or to the designated White Form eIPO Service
Provider via White Form eIPO service (www.eipo.com.hk);
– 423 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
(if the application is made by an agent on your behalf) warrant that you have
validly and irrevocably conferred on your agent all necessary power and
authority to make the application;
(if you are an agent for another person) warrant that the application is the only
application which will be made for the benefit of that other person on a
WHITE or YELLOW Application Form or by giving electronic application
instructions to HKSCC via CCASS or to the designated White Form eIPO
Service Provider via White Form eIPO service (www.eipo.com.hk) and that
you are duly authorized to sign the Application Form or to give electronic
application instruction as that other person’s agent;
undertake and confirm that you (if the application is made for your benefit) or
the person(s) for whose benefit you have made the application have not applied
for or taken up or indicated an interest in or received or been placed or
allocated (including conditionally and/or provisionally) and will not apply for
or take up or indicate any interest in any Offer Shares in the International
Offering, nor otherwise participate in the International Offering;
warrant the truth and accuracy of the information contained in your
application;
agree that your application, any acceptance of it and the resulting contract will
be governed by and construed in accordance with the laws of Hong Kong;
undertake and agree to accept the H Shares applied for, or any lesser number
allocated to you under the application;
authorize our Company to place your name(s) or HKSCC Nominees, as the
case may be, on our register of members as the holder(s) of any Hong Kong
Offer Shares allocated to you, and our Company and/or our agents to send any
H Share certificate(s) (where applicable) and/or any refund check (where
applicable) to you or (in case of joint applicants) the first-named applicant in
the Application Form by ordinary post at your own risk to the address stated
on your Application Form (except if you have applied for 1,000,000 Hong
Kong Offer Shares or more and have indicated in your Application Form your
wish to collect your refund check and H Share certificates (where applicable)
in person);
understand that these declarations and representations will be relied upon by
our Company and the Joint Sponsors, Joint Global Coordinators and the Joint
Bookrunners, the Joint Lead Managers and the Underwriters in deciding
whether or not to allocate any Hong Kong Offer Shares in response to your
application;
– 424 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
if the laws of any place outside Hong Kong are applicable to your application,
you agree and warrant that you have complied with all such laws and none of
our Company, the Joint Sponsors, the Global Coordinators, the Joint
Bookrunners, the Joint Lead Managers and the Underwriters, and the other
parties involved in the Global Offering nor any of their respective officers or
advisors will infringe any laws outside Hong Kong as a result of the acceptance
of your offer to purchase, or any actions arising from your rights and
obligations under the terms and conditions contained in this prospectus;
agree with the Company, for itself and for the benefit of each Shareholder of
the Company, and so that the Company will be deemed by its acceptance in
whole or in part of the application, including applications made by HKSCC
Nominees, to have agreed for itself and on behalf of each Shareholder of the
Company, to observe and comply with the Company Law, the Special
Regulations, and the Articles of Association;
agree with our Company, and each Shareholder, Director, Supervisor, manager
and officer of our Company, and our Company acting for itself and for each
director, supervisor, manager and officer agrees with each Shareholder of our
Company to refer all differences and claims arising from our Articles of
Association or any rights or obligations conferred or imposed by the Company
Law or other relevant laws and administrative regulations concerning our
affairs to arbitration in accordance with our Articles of Association, and any
reference to arbitration shall be deemed to authorize the arbitration tribunal to
conduct hearings in open session and to publish its award, which shall be final
and conclusive;
agree with our Company and each Shareholder that the H Shares in our
Company are freely transferable by the holder thereof;
confirm that you understand entirely that our registered share capital comprises
A Shares and H Shares and that holders of H Shares shall have the same right
as holders of A Shares save as to the differences due to the listing rules
requirements of the stock exchange where the Shares are listed;
authorize our Company to enter into a contract on your behalf with each of our
directors, supervisors and officers whereby each such director, supervisor and
officer undertakes to observe and comply with his obligations to Shareholders
as stipulated in our Articles of Association;
agree that our Company, the Joint Sponsors, the Joint Global Coordinators, the
Joint Bookrunners, the Joint Lead Managers, the Underwriters and any of their
respective directors, officers, employees, agents or advisors and any other
parties involved in the Global Offering are liable only for, and that you have
only relied upon, the information and representations contained in this
prospectus and any supplement to this prospectus; and
– 425 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
agree to disclose to our Company, our H Share Registrar, the receiving bankers,
the Joint Sponsors, the Joint Global Coordinators, the Joint Bookrunners, the
Joint Lead Managers, the Underwriters and their respective advisors and agents
any personal data or other information that they require about you or the
person(s) for whose benefit you have made the application.
(o) If you apply for the Hong Kong Offer Shares using a YELLOW Application Form,
in addition to the confirmations and agreements referred to in (a) above, you (and
if you are joint applicants, each of you jointly and severally) agree that:
any Hong Kong Offer Shares allocated to you shall be registered in the name
of HKSCC Nominees and deposited directly into CCASS operated by HKSCC
for credit to your CCASS Investor Participant stock account or the stock
account of your designated CCASS Participant in accordance with your
election on the Application Form;
each of HKSCC and HKSCC Nominees reserves the right (1) not to accept any
or part of such allotted Hong Kong Offer Shares issued in the name of HKSCC
Nominees or not to accept such allotted Hong Kong Offer Shares for deposit
into CCASS; (2) to cause such allotted Hong Kong Offer Shares to be
withdrawn from CCASS and transferred into your name (or, if you are a joint
applicant, to the first-named applicant) at your own risk and costs; and (3) to
cause such allotted Hong Kong Offer Shares to be issued in your name (or, if
you are a joint applicant, to the first-named applicant) and in such a case, to
post the H Share certificates for such allotted Hong Kong Offer Shares at your
own risk to the address on your Application Form by ordinary post or to make
available the same for your collection;
each of HKSCC and HKSCC Nominees may adjust the number of allotted
Hong Kong Offer Shares issued in the name of HKSCC Nominees;
neither HKSCC nor HKSCC Nominees shall have any liability for the
information and representations not so contained in this prospectus and the
Application Form;
neither HKSCC nor HKSCC Nominees shall be liable to you in any way.
(p) In addition, by giving electronic application instructions to HKSCC or instructing
your broker or custodian who is a CCASS Clearing Participant or a CCASS
Custodian Participant to give such instructions to HKSCC, you (and if you are joint
applicants, each of you jointly and severally) are deemed to have done the following
things. Neither HKSCC nor HKSCC Nominees shall be liable to our Company or
any other person in respect of the things mentioned below:
instructed and authorized HKSCC to cause HKSCC Nominees (acting as
nominee for the relevant CCASS Participants) to apply for the Hong Kong
Offer Shares on your behalf;
– 426 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
instructed and authorized HKSCC to arrange payment of the maximum offer
price, brokerage, SFC transaction levy and the Hong Kong Stock Exchange
trading fee by debiting your designated bank account and, in the case of a
wholly or partially unsuccessful application and/or the offer price is less than
the offer price per H Share initially paid on application, refund of the
application monies, in each case including brokerage, SFC transaction levy and
the Hong Kong Stock Exchange trading fee, by crediting your designated bank
account;
(where a WHITE Application Form is signed by HKSCC Nominees on behalf
of persons who have given electronic application instructions to apply for the
Hong Kong Offer Shares) (i) HKSCC Nominees is only acting as nominee for
those persons and shall not be liable for any breach of the terms and conditions
of the WHITE Application Form or this prospectus; (ii) in addition to the
confirmations and agreements set out in paragraph (a) above, instructed and
authorized HKSCC to cause HKSCC Nominees to do on your behalf all the
things which it has stated to do on your behalf in the WHITE Application
Form, and the following:
– agree that the Hong Kong Offer Shares to be allocated shall be issued in
the name of HKSCC Nominees and deposited directly into CCASS for the
credit of the stock account of the CCASS Participant who has inputted
electronic application instructions on your behalf or your CCASS
Investor Participant stock account;
– undertake and agree to accept the Hong Kong Offer Shares in respect of
which you have given electronic application instructions or any lesser
number;
– (if the electronic application instructions are given for your own
benefit) declare that only one set of electronic application instructions
has been given for your benefit;
– (if you are an agent for another person) declare that you have only given
one set of electronic application instructions for the benefit of that
other person and that you are duly authorized to give those instructions
as that other person’s agent;
– understand that the above declaration will be relied upon by our
Company, the directors and the Joint Global Coordinators in deciding
whether or not to make any allotment of Hong Kong Offer Shares in
respect of the electronic application instructions given by you and that
you may be prosecuted if you make a false declaration;
– 427 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
– authorize our Company to place the name of HKSCC Nominees on the
register of members of our Company as the holder of the Hong Kong
Offer Shares allotted in respect of your electronic application
instructions and to send H Share certificate(s) and/or refund monies in
accordance with the arrangements separately agreed between our
Company and HKSCC;
– confirm that you have read the terms and conditions and application
procedures set out in this prospectus and agree to be bound by them;
– confirm that you have only relied on the information and representations
in this prospectus in giving your electronic application instructions or
instructing your broker or custodian to give electronic application
instructions on your behalf; agree (without prejudice to any other rights
which that person may have) that once the application of HKSCC
Nominees has been accepted, the application cannot be rescinded for
innocent misrepresentation;
– agree that any application made by HKSCC Nominees on behalf of you
pursuant to the electronic application instructions given by you is
irrevocable on or before the fifth day after the time of the opening of the
application lists (excluding for this purpose any day which is not a
business day), such agreement to take effect as a collateral contract with
our Company and to become binding when you give the instructions and
such collateral contract to be in consideration of our Company agreeing
that we will not offer any Hong Kong Offer Shares to any person before
the fifth day after the time of the opening of the application lists
(excluding for this purpose any day which is not a business day), except
by means of one of the procedures referred to in this prospectus.
However, HKSCC Nominees may revoke the application on or before the
fifth day after the time of the opening of the application lists (excluding
for this purpose any day which is not a business day), if a person
responsible for this prospectus under Section 40 of the Hong Kong
Companies Ordinance gives a public notice under that section which
excludes or limits the responsibility of that person for this prospectus;
– agree that once the application of HKSCC Nominees is accepted, neither
that application nor your electronic application instructions can be
revoked, and that acceptance of that application will be evidenced by the
announcement of the results of the Hong Kong Public Offering published
by our Company;
– agree to the arrangements, undertakings and warranties specified in the
participant agreement between you and HKSCC, read with the General
Rules of CCASS and the CCASS Operational Procedures, in respect of
the giving of electronic application instructions relating to Hong Kong
Offer Shares;
– 428 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
– agree with our Company, for itself and for the benefit of each of the
Shareholders of our Company (and so that our Company will be deemed
by its acceptance in whole or in part of the application by HKSCC
Nominees to have agreed, for itself and on behalf of each of the
Shareholders of our Company, with each CCASS Participant giving
electronic application instructions) to observe and comply with the
Company Law, the Special Regulations and our Articles of Association;
and
– agree with our Company, for itself and for the benefit of each of the
Shareholders of our Company and each director, supervisor, manager and
other officer (and so that our Company will be deemed by its acceptance
in whole or in part of this application to have agreed, for itself and on
behalf of each of the Shareholders of our Company and each director,
supervisor, manager and other officer, with each CCASS Participant
giving electronic application instructions):
(i) to refer all differences and claims arising from our Articles of
Association or any rights or obligations conferred or imposed by the
Company Law or other relevant laws and administrative regulations
concerning its affairs to arbitration in accordance with our Articles
of Association; and
(ii) that any reference to arbitration shall be deemed to authorize the
arbitration tribunal to conduct hearings in open session and to
publish its award, which arbitration shall be final and conclusive.
(q) Our Company, the Joint Sponsors, the Joint Global Coordinators, the Joint
Bookrunners, the Joint Lead Managers, the Underwriters and their respective
directors and any other parties involved in the Global Offering are entitled to rely
on any warranty(ies), representation(s) or declaration(s) made by you in your
application.
(r) All the warranties, representations, declarations and obligations expressed to be
made, given or assumed by or imposed on the joint applicants shall be deemed to
have been made, given or assumed by or imposed on the applicants jointly and
severally.
MULTIPLE APPLICATIONS
(s) It will be a term and condition of all applications that by completing and delivering
an Application Form or giving electronic application instructions, you:
(if the application is made for your own benefit) warrant that this is the only
application which will be made for your benefit on a WHITE or YELLOW
Application Form or by giving electronic application instructions to HKSCC
or to the designated White Form eIPO Service Provider via White Form
eIPO service;
– 429 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
(if you are an agent for another person) warrant that reasonable enquiries have
been made of that other person that this is the only application which will be
made for the benefit of that other person on a WHITE or YELLOW
Application Form or by giving electronic application instructions to HKSCC
or to the designated White Form eIPO Service Provider via White Form
eIPO service, and that you are duly authorized to sign the Application Form as
that other person’s agent.
(t) Except where you are a nominee and provide the information required to be
provided in your application, all of your applications will be rejected as multiple
applications if you, or you and your joint applicant(s) together:
make more than one application (whether individually or jointly) on a WHITE
or YELLOW Application Form or by giving electronic application
instructions to HKSCC or to the designated White Form eIPO Service
Provider via White Form eIPO service;
both apply (whether individually or jointly) on one WHITE Application Form
and one YELLOW Application Form or on one WHITE or YELLOW
Application Form and give electronic application instructions to HKSCC or
to the designated White Form eIPO Service Provider via White Form eIPO
service;
apply on one WHITE or YELLOW Application Form (whether individually or
jointly) or by giving electronic application instructions to HKSCC or to the
designated White Form eIPO Service Provider via White Form eIPO service
for more than 30,734,800 H Shares initially being offered for public
subscription under the Hong Kong Public Offering, as more particularly
described in the section entitled “Structure of the Global Offering – The Hong
Kong Public Offering”; or
have applied for or taken up, or indicated an interest for, or have been or will
be placed (including conditionally and/or provisionally) Offer Shares under the
International Offering.
(u) All of your applications will also be rejected as multiple applications if more than
one application is made for your benefit (including the part of the application made
by HKSCC Nominees acting on electronic application instructions). If an
application is made by an unlisted company and
the principal business of that company is dealing in securities; and
you exercise statutory control over that company, then the application will be
treated as being for your benefit.
Unlisted company means a company with no equity securities listed on the Hong
Kong Stock Exchange.
– 430 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
Statutory control means you:
control the composition of the board of directors of the company; or
control more than half of the voting power of the company; or
hold more than half of the issued share capital of the company (not counting
any part of it which carries no right to participate beyond a specified amount
in a distribution of either profits or capital).
CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOTTED HONG KONG
OFFER SHARES
You should note the following situations in which Hong Kong Offer Shares will not be
allotted to you or your application is liable to be rejected:
(v) If your application is revoked:
By completing and submitting an Application Form or electronic application
instructions to HKSCC or to the designated White Form eIPO Service Provider via
White Form eIPO service you agree that your application or the application made by
HKSCC Nominees on your behalf cannot be revoked on or before the fifth day after the
time of the opening of the application lists (excluding for this purpose any day which is
not a business day). This agreement will take effect as a collateral contract with our
Company, and will become binding when you lodge your Application Form or submit
your electronic application instructions to HKSCC and an application has been made by
HKSCC Nominees on your behalf accordingly or to the designated White Form eIPO
Service Provider via White Form eIPO service. This collateral contract will be in
consideration of our Company agreeing that we will not offer any Hong Kong Offer
Shares to any person on or before the fifth day after the time of the opening of the
application lists (excluding for this purpose any day which is not a business day) except
by means of one of the procedures referred to in this prospectus.
Your application or the application made by HKSCC Nominees on your behalf may
be revoked on or before the fifth day after the time of the opening of the application lists
(excluding for this purpose any day which is not a business day), if a person responsible
for this prospectus under section 40 of the Hong Kong Companies Ordinance gives a
public notice under that section which excludes or limits the responsibility of that person
for this prospectus.
If any supplement to this prospectus is issued, applicant(s) who have already
submitted an application may or may not (depending on the information contained in the
supplement) be notified that they can withdraw their applications. If applicant(s) have not
been so notified, or if applicant(s) have been notified but have not withdrawn their
applications in accordance with the procedure to be notified, all applications that have
been submitted remain valid and may be accepted. Subject to the above, an application
once made is irrevocable and applicants shall be deemed to have applied on the basis of
this prospectus as supplemented.
– 431 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
If your application or the application made by HKSCC Nominees on your behalf has
been accepted, it cannot be revoked. For this purpose, acceptance of applications which
are not rejected will be constituted by notification in the South China Morning Post (in
English) and the Hong Kong Economic Times (in Chinese), and on the website of the
Hong Kong Stock Exchange at www.hkexnews.hk and our website at www.htsec.com of
the results of allocation, and where such basis of allocation is subject to certain conditions
or provides for allocation by ballot, such acceptance will be subject to the satisfaction of
such conditions or results of the ballot respectively.
(w) If our Company, the Joint Global Coordinators (where applicable) or their
respective agents exercise their discretion to reject your application:
We and the Joint Global Coordinators (as agent for our Company) or the designated
White Form eIPO Service Provider, or their respective agents and nominees, have full
discretion to reject or accept any application, or to accept only part of any application,
without having to give any reasons for any rejection or acceptance.
(x) If the allotment of Hong Kong Offer Shares is void:
The allotment of Hong Kong Offer Shares to you or to HKSCC Nominees (if you
give electronic application instructions to HKSCC or apply by a YELLOW Application
Form) will be void if the Listing Committee of the Hong Kong Stock Exchange does not
grant permission to list the H Shares either:
within three weeks from the closing of the application lists; or
within a longer period of up to six weeks if the Listing Committee of the Hong
Kong Stock Exchange notifies our Company of that longer period within three
weeks of the closing date of the application lists.
(y) In the following circumstances:
you make multiple applications or suspected multiple applications;
you or the person for whose benefit you apply have applied for or taken up, or
indicated an interest for, or have been or will be placed or allocated (including
conditionally and/or provisionally) Offer Shares in the International Offering.
By filling in any of the Application Forms or giving electronic instructions to
HKSCC or to the designated White Form eIPO Service Provider via White
Form eIPO service, you agree not to apply for Offer Shares in the
International Offering. Reasonable steps will be taken to identify and reject
applications in the Hong Kong Public Offering from investors who have
received Offer shares in the International Offering, and to identify and reject
indications of interest in the International Offering from investors who have
received Hong Kong Offer Shares in the Hong Kong Public Offering;
you apply for more than 30,734,800 Hong Kong Offer Shares initially being
offered under the Hong Kong Public Offering;
– 432 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
your payment is not made correctly or you pay by check or banker’s cashier
order and the check or banker’s cashier order is dishonored upon its first
presentation;
your Application Form is not completed correctly and in accordance with the
instructions;
your electronic application instructions through the White Form eIPO
service are not completed in accordance with the instructions, terms and
conditions set out in the designated website at www.eipo.com.hk;
IF YOUR APPLICATION FOR HONG KONG OFFER SHARES IS SUCCESSFUL (IN
WHOLE OR IN PART)
No temporary document of title will be issued in respect of the H Shares.
No receipt will be issued for sums paid on application.
You will receive one H share certificate for all of the Hong Kong Offer Shares issued to
you under the Hong Kong Public Offering (except pursuant to applications made on yellow
Application Forms or by electronic application instructions to HKSCC via CCASS, in which
case H share certificates will be deposited in CCASS). H Share certificates will only become
valid certificates of title at 8:00 a.m. on Friday, April 27, 2012 provided that the Hong Kong
Public Offering has become unconditional in all respects and the right of termination described
in the section entitled “Underwriting – Underwriting Arrangements and Expenses – Hong Kong
Public Offering – Hong Kong Underwriting Agreement – Grounds for Termination” has not
been exercised.
(z) If you apply using a White Application Form:
If you apply for 1,000,000 Hong Kong Offer Shares or more on a WHITE
Application Form and have indicated your intention in your Application Form to collect
your H Share certificate(s) and/or refund check (where applicable) from Computershare
Hong Kong Investor Services Limited and have provided all information required by your
Application Form, you may collect it/them in person from Computershare Hong Kong
Investor Services Limited at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road
East, Wanchai, Hong Kong from 9:00 a.m. to 1:00 p.m. on Thursday, April 26, 2012 or
such other date as notified by our Company in the South China Morning Post (in English)
and the Hong Kong Economic Times (in Chinese), and on the website of the Hong Kong
Stock Exchange at www.hkexnews.hk and our website at www.htsec.com as the date of
despatch/collection of H Share certificates/e-Refund payment instructions/refund checks.
If you are an individual who opts for personal collection, you must not authorize any
other person to make collection on your behalf. If you are a corporate applicant which
opts for personal collection, you must attend by your authorized representative bearing a
letter of authorization from your corporation stamped with your corporation’s chop. Both
individuals and authorized representatives (if applicable) must produce, at the time of
collection, evidence of identity acceptable to Computershare Hong Kong Investor
Services Limited.
– 433 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
If you do not collect your refund check(s) and/or H Share certificate(s) personally
within the time specified for collection, they will be sent to the address as specified in
your Application Form promptly thereafter by ordinary post and at your own risk. If you
apply for less than 1,000,000 Hong Kong Offer Shares or if you apply for 1,000,000 Hong
Kong Offer Shares or more but have not indicated on your Application Form that you will
collect your refund check(s) and/or H Share certificate(s) (where applicable) in person,
your refund check(s) and/or H Share certificate(s) (where applicable) will be sent to the
address on your Application Form on Thursday, April 26, 2012, by ordinary post and at
your own risk.
(aa) If you apply using a Yellow Application Form:
If you apply for Hong Kong Offer Shares using a YELLOW Application Form and
your application is wholly or partially successful, your H Share certificate(s) will be
issued in the name of HKSCC Nominees and deposited into CCASS for credit to your
CCASS Investor Participant stock account or the stock account of your designated
CCASS Participant as instructed by you in your Application Form on Thursday, April 26,
2012, or in the event of a contingency, on any other date as shall be determined by
HKSCC Nominees.
If you are applying through a designated CCASS Participant (other than a CCASS
Investor Participant) on a YELLOW Application Form for Hong Kong Offer Shares
credited to the stock account of your designated CCASS Participant (other than a CCASS
Investor Participant), you can check the number of Hong Kong Offer Shares allocated to
you with that CCASS Participant.
If you are applying as a CCASS Investor Participant, our Company expects to
publish the results of CCASS Investor Participants’ applications together with the results
of the Hong Kong Public Offering on Thursday, April 26, 2012 in the manner described
in “How to Apply for the Hong Kong Offer Shares – Publication of Results”. You should
check the announcement to be published by our Company and report any discrepancies
to HKSCC before 5:00 p.m. on Thursday, April 26, 2012 or such other date as shall be
determined by HKSCC or HKSCC Nominees. Immediately after the credit of the Hong
Kong Offer Shares to your stock account, you can check your new account balance via
the CCASS Phone System and the CCASS Internet System (under the procedures
contained in HKSCC’s “An Operating Guide for Investor Participants” in effect from time
to time). HKSCC will also make available to you an activity statement showing the
number of Hong Kong Offer Shares credited to your stock account.
If you apply for 1,000,000 Hong Kong Offer Shares or more and you have elected
on your YELLOW Application Form to collect your refund check (where applicable) in
person, please follow the same procedure, as those for WHITE Application Form
applicants as described above. If you have applied for 1,000,000 Hong Kong Offer Shares
or above and have not indicated on your Application Form that you will collect your
refund check (if any) in person, or if you have applied for less than 1,000,000 Hong Kong
Offer Shares, your refund check (if any) will be sent to the address on your Application
Form on the date of despatch, which is expected to be on Thursday, April 26, 2012, by
ordinary post and at your own risk.
– 434 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
(bb) If you apply through White Form eIPO:
If you apply for 1,000,000 Hong Kong Offer Shares or more through the White
Form eIPO service by submitting an electronic application to the designated White
Form eIPO Service Provider through the designated website at www.eipo.com.hk and
your application is wholly or partially successful, you may collect your H Share
certificate(s) in person from Computershare Hong Kong Investor Services Limited at
Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong
Kong, from 9:00 a.m. to 1:00 p.m. on Thursday, April 26, 2012, or such other date as
notified by our company in the South China Morning Post (in English) and the Hong
Kong Economic Times (in Chinese), and on the website of the Hong Kong Stock
Exchange at www.hkexnews.hk and our website at www.htsec.com as the date of
dispatch/collection of Share certificates/e-Refund payment instructions/refund checks.
If you do not collect your H Share certificate(s) personally within the time specified
for collection, they will be sent to the address specified in your application instructions
to the designated White Form eIPO Service Provider promptly thereafter by ordinary
post and at your own risk.
If you apply for less than 1,000,000 Hong Kong Offer Shares, your H Share
certificate(s) will be sent to the address specified in your application instructions to the
designated White Form eIPO Service Provider through the designated website at
www.eipo.com.hk on Thursday, April 26, 2012, by ordinary post and at your own risk.
If you paid the application monies from a single bank account, e-Refund payment
instructions (if any) will be despatched to the application payment account on Thursday,
April 26, 2012. If you used multi-bank accounts to pay the application monies, refund
check (if any) will be despatched to you on Thursday, April 26, 2012.
Please also note the additional information relating to refund of application monies
overpaid, application money underpaid or applications rejected by the designated White
Form eIPO Service Provider set out in the section headed “How to Apply for the Hong
Kong Offer Shares – Applying through White Form eIPO Service – Additional
Information.”
– 435 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
REFUND OF APPLICATION MONIES
Your application monies, or the appropriate portion thereof, together with the related
brokerage of 1%, SFC transaction levy of 0.003% and the Hong Kong Stock Exchange trading
fee of 0.005%, will be refunded if:
your application is rejected, not accepted or accepted in part only or if you do not
receive any Hong Kong Offer Shares for any of the reasons set out above in the
section headed “Further Terms and Conditions of the Hong Kong Public Offering –
Circumstances in Which You Will Not be Allotted Hong Kong Offer Shares”;
the Offer Price as finally determined is less than the Offer Price of HK$11.18 per
H Share (excluding brokerage, SFC transaction levy and the Hong Kong Stock
Exchange trading fee thereon) initially paid on application;
the conditions of the Hong Kong Public Offering are not fulfilled in accordance with
the section headed “Structure of the Global Offering – Conditions of the Global
Offering”;
any application is revoked or any allotment pursuant thereto has become void.
No interest will be paid thereon. All interest accrued on such monies prior to the date of
refund will be retained for our benefit.
In a contingency situation involving a substantial over-subscription, at the discretion of
our Company and the Joint Global Coordinators, checks for applications for certain small
denominations of Hong Kong Offer Shares (apart from successful and reserved applications)
may not be cleared.
Refund of your application monies (if any) will be made on Thursday, April 26, 2012 in
accordance with the various arrangements as described above. Refund checks will be crossed
“Account Payee Only” made out to you, or if you are joint applicants, to the first-named
applicant. Part of your Hong Kong identity card number or passport number, or, if you are joint
applicants, part of the Hong Kong identity card number or passport number of the first-named
applicant, provided by you may be printed on your refund check, if any. Such data would also
be transferred to a third party for refund purposes. Your banker may require verification of your
Hong Kong identity card number or passport number before encashment of your refund check.
Inaccurate completion of your Hong Kong identity card number or passport number may lead
to delay in encashment of or may invalidate your refund check. It is intended that special
efforts will be made to avoid any undue delay in refunding application monies where
appropriate.
– 436 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
ADDITIONAL INFORMATION FOR APPLICANTS APPLYING BY GIVING
ELECTRONIC APPLICATION INSTRUCTIONS TO HKSCC
(cc) Allocation of Hong Kong Offer Shares
For the purposes of allocating Hong Kong Offer Shares, HKSCC Nominees will not
be treated as an applicant. Instead, each CCASS Participant who gives electronic
application instructions or each person for whose benefit each such instructions is given
will be treated as an applicant.
(dd) Deposit of H Share Certificates into CCASS and Refund of Application
Monies
No temporary document of title will be issued. No receipt will be issued for
sums on paid application.
If your application is wholly or partially successful, your H share certificate(s)
will be issued in the name of HKSCC Nominees and deposited into CCASS for
the credit of the stock account of the CCASS Participant which you have
instructed to give electronic application instructions on your behalf or your
CCASS Investor Participant stock account on Thursday, April 26, 2012, or, in
the event of a contingency, on any other date as shall be determined by HKSCC
or HKSCC Nominees Limited.
Our Company expects to publish the application results of CCASS Participants
(and where the CCASS Participant is a broker or custodian, our Company will
include information relating to the relevant beneficial owner), your Hong Kong
identity card/passport number or other identification code (Hong Kong
business registration number for corporations) and the basis of allotment of the
Hong Kong Public Offering on Thursday, April 26, 2012 in the manner
described in “How to Apply for the Hong Kong Offer Shares – Publication of
Results”. You should check the announcement published by our Company and
report any discrepancies to HKSCC before 5:00 p.m. on Thursday, April 26,
2012 or such other date as shall be determined by HKSCC or HKSCC
Nominees.
If you have instructed your broker or custodian to give electronic application
instructions on your behalf, you can also check the number of Hong Kong
Offer Shares allotted to you and the amount of refund monies (if any) payable
to you with that broker or custodian.
– 437 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
If you have applied as a CCASS Investor Participant, you can also check the
number of Hong Kong Offer Shares allotted to you and the amount of refund
monies (if any) payable to you via the CCASS Phone System and the CCASS
Internet System (under the procedures contained in HKSCC’s “An Operating
Guide for Investor Participants” in effect from time to time) on Thursday, April
26, 2012. Immediately following the credit of the public offer shares to your
stock account and the credit of the refund monies to your bank account,
HKSCC will also make available to you an activity statement showing the
number of Hong Kong Offer Shares credited to your CCASS Investor
Participant stock account and the amount of refund monies (if any) credited to
your designated bank account.
Refund of your application monies (if any) in respect of wholly and partially
unsuccessful applications and/or difference between the Offer Price and the
offer price per H Share initially paid on application, in each case including
brokerage of 1%, SFC transaction levy of 0.003% and the Hong Kong Stock
Exchange trading fee of 0.005%, will be credited to your designated bank
account or the designated bank account of your broker or custodian on
Thursday, April 26, 2012. No interest will be paid thereon.
Shares will be eligible for CCASS
Subject to the granting of listing of, and permission to deal in, the H shares on the Hong
Kong Stock Exchange as well as the compliance with the stock admission requirements of
HKSCC, the H shares will be accepted as eligible securities by HKSCC for deposit, clearance
and settlement in CCASS with effect from the date of commencement of dealings in the H
shares on the Hong Kong Stock Exchange or on any other date HKSCC chooses. Settlement
of transactions between participants of the Hong Kong Stock Exchange is required to take
place in CCASS on the second business day after any trading day.
All activities under CCASS are subject to the General Rules of CCASS and CCASS
Operational Procedures in effect from time to time.
All necessary arrangements have been made for the H shares to be admitted into CCASS.
Commencement of dealings in the Shares
Dealings in the H Shares on the Hong Kong Stock Exchange are expected to
commence on Friday, April 27, 2012.
The H Shares will be traded in board lots of 400 Shares.
– 438 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
PERSONAL DATA
The main provisions of the Personal Data (Privacy) Ordinance (Chapter 486 of the Laws
of Hong Kong) (the “Ordinance”) came into effect in Hong Kong on December 20, 1996. This
Personal Information Collection Statement informs the applicant for and holder of our H
Shares of the policies and practices of our Company and our H Share Registrar in relation to
personal data and the Ordinance.
(ee) Reasons for the collection of your personal data
From time to time it is necessary for applicants for securities or registered holders
of securities to supply their latest correct personal data to our Company and our H Share
Registrar when applying for securities or transferring securities into or out of their names
or in procuring the services of the H Share Registrar.
Failure to supply the requested data may result in your application for securities
being rejected or in delay or inability of our Company or the H Share Registrar to effect
transfers or otherwise render their services. It may also prevent or delay registration or
transfer of the Hong Kong Offer Shares which you have successfully applied for and/or
the despatch of H Share Certificate(s), and/or the despatch of e-Refund payment
instructions, and/or the despatch of refund check(s) to which you are entitled.
It is important that holders of securities inform us and our H Share Registrar
immediately of any inaccuracies in the personal data supplied.
(ff) Purposes
The personal data of the applicants and the holders of securities may be used, held
and/or stored (by whatever means) for the following purposes:
processing of your application and e-Refund payment instructions/refund
check, where applicable, and verification of compliance with the terms and
application procedures set out in the Application Forms and this prospectus and
announcing results of allocations of the Hong Kong Offer Shares;
enabling compliance with all applicable laws and regulations in Hong Kong
and elsewhere;
registering new issues or transfers into or out of the name of holders of
securities including, where applicable, in the name of HKSCC Nominees;
maintaining or updating the register of holders of securities of our Company;
– 439 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
conducting or assisting in the conduct of signature verifications, any other
verification or exchange of information;
establishing benefit entitlements of holders of securities of our Company, such
as dividends, rights issues and bonus issues;
distributing communications from our Company and our subsidiaries;
compiling statistical information and Shareholder profiles;
making disclosures as required by laws, rules or regulations;
disclosing relevant information to facilitate claims on entitlements; and
any other incidental or associated purposes relating to the above and/or to
enable our Company and our H Share Registrar to discharge our obligations to
holders of securities and/or regulators and/or other purpose to which the
holders of securities may from time to time agree.
(gg) Transfer of personal data
Personal data held by our Company and our H Share Registrar relating to the
applicants and the holders of securities will be kept confidential but our Company and our
H Share Registrar, to the extent necessary for achieving the above purposes or any of
them, may make such enquiries as they consider necessary to confirm the accuracy of the
personal data and in particular, they may disclose, obtain, transfer (whether within or
outside Hong Kong) the personal data of the applicants and the holders of securities to,
from or with any and all of the following persons and entities:
our Company or our respective appointed agents such as financial advisors and
receiving bankers;
HKSCC and HKSCC Nominees, who will use the personal data for the
purposes of operating CCASS (in cases where the applicants have requested
for the Hong Kong Offer Shares to be deposited into CCASS);
any agents, contractors or third party service providers who offer
administrative, telecommunications, computer, payment or other services to
our Company and/or our H Share Registrar in connection with the operation of
their business;
the Hong Kong Stock Exchange, the SFC and any other statutory, regulatory or
governmental bodies; and
any other persons or institutions with which the holders of securities have or
propose to have dealings, such as their bankers, solicitors, accountants or
stockbrokers.
– 440 –
FURTHER TERMS AND CONDITIONS OF THE HONG KONG PUBLIC OFFERING
By signing an Application Form or by giving electronic application instructions to
HKSCC or to the designated White Form eIPO Service Provider via White Form eIPO
service, you agree to all of the above.
(hh) Access to and correction of personal data
The Ordinance provides the holders of securities with rights to ascertain whether our
Company or our H Share Registrar holds their personal data, to obtain a copy of that data,
and to correct any data that is inaccurate.
In accordance with the Ordinance, our Company and our H Share Registrar have the right
to charge a reasonable fee for the processing of any data access request. All requests for access
to data or correction of data or for information regarding policies and practices and kinds of
data held should be addressed to us, at our registered address disclosed in the “Corporate
Information” section in this prospectus or as notified from time to time in accordance with
applicable law, for the attention of the company secretary, or our H Share Registrar for the
attention of the privacy compliance officer.
– 441 –
APPENDIX I ACCOUNTANTS’ REPORT
17 April 2012
The Directors
Haitong Securities Co., Ltd.
Haitong International Capital Limited
J.P. Morgan Securities (Asia Pacific) Limited
Dear Sirs,
We set out below our report on the financial information (“Financial Information”)
regarding Haitong Securities Co., Ltd. (mw R8Ng – QlS ) (the “Company”) and its
subsidiaries (hereinafter collectively referred to as the “Group”) for each of the three years
ended 31 December 2009, 2010 and 2011 (the “Relevant Periods”) for inclusion in the
prospectus of the Company dated 17 April 2012 (the “Prospectus”) in connection with the
initial listing of the shares of the Company on the Main Board of The Stock Exchange of Hong
Kong Limited (the “Hong Kong Stock Exchange”).
The Company was transformed from Shanghai Haitong Securities Company (N mwmw
R8QlS), which was established in 1988, to a limited liability company upon the authorisation
by the People’s Bank of China in September 1994 and had changed its name to mw R8g –
QlS . In December 2001, the Company was further transformed to a joint-stock company upon
the approval from China Securities Regulatory Commission (“CSRC”). In January 2002, the
Company changed its name from mw R8g – QlS to Haitong Securities Co., Ltd. (mw R8
g – QlS ). In June 2007, the Company’s merger with former Shanghai Urban Agro-
Business Co., Ltd. (N mw^ ^ Fy>Ng – QlS ) was approved by the CSRC, and was
listed on the Shanghai Stock Exchange in July in the same year, with its listing reference name
changed to “Haitong Securities”.
All subsidiaries have adopted 31 December as their financial year end dates. As at the
date of this report, the Company has interest in the subsidiaries as set out in note 21 to section
G of this report.
The consolidated financial statements of the Group prepared in accordance with the
relevant accounting rules and financial regulations applicable to enterprises in the People’s
Republic of China (the “PRC”) for each of the years ended 31 December 2009 and 2010 (the
“PRC Financial Statements”) were audited by Shu Lun Pan Certified Public Accountants Co.,
Ltd. (zOág NRg – QlS ), certified public accountants registered in the PRC, in
accordance with the China Standards on Auditing. The statutory financial statements of the
subsidiaries of the Company, directly or indirectly controlled by the Company, were audited by
independent auditors as set out in note 21 to section G of this report.
– I-1 –
APPENDIX I ACCOUNTANTS’ REPORT
For the purpose of this report, the directors of the Company have prepared consolidated
financial statements of the Group for the year ended 31 December 2011, in accordance with the
International Financial Reporting Standards (“IFRSs”) issued by International Accounting
Standards Board, which were audited by us in accordance with International Standards on
Auditing issued by International Auditing and Assurance Standards Board (“IAASB”). The
consolidated financial statements of the Group for the year ended 31 December 2011 together
with the PRC Financial Statements are referred to as the “Underlying Financial Statements”.
The Financial Information of the Group for the Relevant Periods set out in this report has
been prepared in accordance with the Underlying Financial Statements, after making such
adjustments as appropriate. For the purpose of this report, we have examined the Underlying
Financial Statements and carried out such additional procedures as necessary in accordance
with International Standards on Auditing issued by IAASB, and the Auditing Guideline 3.340
“Prospectuses and the Reporting Accountant” issued by the Hong Kong Institute of Certified
Public Accountants (the “HKICPA”).
The directors of the Company are responsible for the preparation of the Underlying
Financial Statements and the contents of the Prospectus in which this report is included. It is
our responsibility to compile the Financial Information set out in this report from the
Underlying Financial Statements, to form an independent opinion on the Financial Information,
and to report our opinion to you.
In our opinion, the Financial Information, together with the notes thereon, for the purpose
of this report, gives a true and fair view of the state of affairs of the Group and of the Company
as at 31 December 2009, 2010 and 2011 and of the consolidated results and consolidated cash
flows of the Group for each of the three years ended 31 December 2009, 2010 and 2011.
– I-2 –
APPENDIX I ACCOUNTANTS’ REPORT
A. CONSOLIDATED INCOME STATEMENTS
Year ended 31 December
2009 2010 2011
Notes RMB’000 RMB’000 RMB’000
Revenue
Commission and fee income 5 8,753,360 8,384,060 6,566,781
Interest income 6 1,407,042 1,647,007 2,553,171
Net investment gains 7 888,053 1,077,790 1,506,926
Total revenue 11,048,455 11,108,857 10,626,878
Other income and gains 8 267,391 196,078 233,496
Total revenue and other income 11,315,846 11,304,935 10,860,374
Depreciation and amortisation 9 (236,915) (288,472) (300,037)
Staff costs 10 (2,224,989) (2,619,668) (2,319,953)
Commission to account executives (51,050) (278,620) (297,519)
Brokerage transaction fees and other
services expenses 11 (947,122) (897,203) (746,724)
Interest expenses 12 (245,080) (281,489) (459,796)
Other expenses (1,694,825) (2,027,913) (2,509,093)
Total expenses (5,399,981) (6,393,365) (6,633,122)
Share of results of associates 22 65,962 78,120 72,912
Profit before income tax 13 5,981,827 4,989,690 4,300,164
Income tax expense 14 (1,320,086) (1,121,532) (1,018,167)
Profit for the year 4,661,741 3,868,158 3,281,997
Attributable to:
Owners of the Company 4,548,226 3,686,264 3,103,034
Non-controlling interests 113,515 181,894 178,963
4,661,741 3,868,158 3,281,997
Earnings per share
(Expressed in RMB per share)
– Basic 15 0.55 0.45 0.38
– Diluted 15 0.55 0.45 0.38
– I-3 –
APPENDIX I ACCOUNTANTS’ REPORT
B. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year ended 31 December
2009 2010 2011
RMB’000 RMB’000 RMB’000
Profit for the year 4,661,741 3,868,158 3,281,997
Other comprehensive income (expense):
Available-for-sale investments
Net fair value changes during the year 2,036,789 (691,854) (1,367,472)
Reclassification adjustment to profit or
loss on disposal/impairment (182,601) (498,880) (43,453)
Income tax relating to components of
other comprehensive income (458,004) 303,759 333,258
Share of revaluation surplus (deficit) of
associates 2,076 1,450 (8,084)
1,398,260 (885,525) (1,085,751)
Exchange differences arising on translation (4,265) (100,765) (196,436)
Other comprehensive income (expense) for
the year (net of tax) 1,393,995 (986,290) (1,282,187)
Total comprehensive income for the year 6,055,736 2,881,868 1,999,810
Attributable to:
Owners of the Company 5,933,369 2,723,561 1,867,682
Non-controlling interests 122,367 158,307 132,128
6,055,736 2,881,868 1,999,810
– I-4 –
APPENDIX I ACCOUNTANTS’ REPORT
C. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at 31 December
2009 2010 2011
Notes RMB’000 RMB’000 RMB’000
Non-current assets
Property and equipment 16 1,136,204 1,201,183 1,177,137
Investment properties 17 104,102 100,644 93,472
Goodwill 18 697,056 673,860 642,280
Other intangible assets 19 263,779 289,729 308,027
Investments in associates 22 215,747 543,281 926,114
Available-for-sale investments 23 870,102 1,877,469 1,933,565
Deferred tax assets 44 56,974 61,592 513,100
Restricted bank deposits 33 184,844 260,801 326,719
Other assets 24 84,695 108,017 242,547
Total non-current assets 3,613,503 5,116,576 6,162,961
Current assets
Advances to customers 25 2,034,977 5,814,456 6,462,677
Accounts receivable 26 677,077 980,221 872,552
Other receivables and prepayments 27 358,507 447,497 740,182
Available-for-sale investments 23 5,778,403 5,060,788 6,826,646
Financial assets held under
resale agreements 29 – 2,120,000 605,900
Financial assets at fair value
through profit or loss 30 12,896,752 15,018,084 20,605,107
Deposits with exchanges 31 1,374,951 2,373,425 2,177,814
Clearing settlement funds 32 5,749,123 20,424,736 3,952,038
Bank balances and cash 33 88,246,912 58,057,315 50,571,034
Total current assets 117,116,702 110,296,522 92,813,950
Total assets 120,730,205 115,413,098 98,976,911
– I-5 –
APPENDIX I ACCOUNTANTS’ REPORT
As at 31 December
2009 2010 2011
Notes RMB’000 RMB’000 RMB’000
Current liabilities
Borrowings 35 1,076,594 2,922,320 2,520,730
Accounts payable to brokerage
clients 36 66,580,170 63,682,354 38,013,807
Other payables and accruals 37 1,870,895 2,523,395 1,818,960
Provisions 38 8,815 6,853
Tax liabilities 381,808 465,293 415,972
Financial assets sold under
repurchase agreements 39 5,821,500 – 9,524,534
Total current liabilities 75,739,782 69,600,215 52,294,251
Net current assets 41,376,920 40,696,307 40,519,699
Total assets less current liabilities 44,990,423 45,812,883 46,682,660
Equity
Share capital 40 8,227,821 8,227,821 8,227,821
Capital reserve 22,576,527 22,551,933 22,493,436
Investment revaluation reserve 1,413,394 528,344 (545,232)
Translation reserve (11,380) (89,033) (250,809)
General reserves 42 3,989,218 5,014,289 5,929,525
Retained profits 7,218,380 8,234,009 9,187,634
Equity attributable to owners of
the Company 43,413,960 44,467,363 45,042,375
Non-controlling interests 1,104,635 1,149,384 1,568,267
Total equity 44,518,595 45,616,747 46,610,642
Non-current liabilities
Deferred tax liabilities 44 471,828 196,136 72,018
Total equity and non-current
liabilities 44,990,423 45,812,883 46,682,660
– I-6 –
APPENDIX I ACCOUNTANTS’ REPORT
D. STATEMENTS OF FINANCIAL POSITION
As at 31 December
2009 2010 2011
Notes RMB’000 RMB’000 RMB’000
Non-current assets
Property and equipment 16 1,065,147 1,136,586 1,097,079
Investment properties 17 100,128 96,800 93,472
Other intangible assets 19 158,770 154,492 159,153
Investments in subsidiaries 21 5,333,310 7,054,730 8,283,130
Investments in associates 22 92,907 92,907 92,907
Available-for-sale investments 23 290,345 319,995 353,184
Deferred tax assets 44 43,769 42,333 463,405
Other assets 24 64,918 69,916 73,413
Total non-current assets 7,149,294 8,967,759 10,615,743
Current assets
Advances to customers 25 – 2,091,136 3,675,252
Other receivables and prepayments 27 223,941 295,705 531,719
Amount due from a subsidiary 28 – 637,300 874,062
Available-for-sale investments 23 5,717,123 4,913,712 6,318,692
Financial assets held under resale
agreements 29 – 2,120,000 32,000
Financial assets at fair value
through profit or loss 30 12,845,060 14,913,359 20,299,297
Deposits with exchanges 31 672,582 790,909 1,031,890
Clearing settlement funds 32 5,511,975 19,652,583 2,792,636
Bank balances and cash 33 78,115,546 46,185,659 38,662,681
Total current assets 103,086,227 91,600,363 74,218,229
Total assets 110,235,521 100,568,122 84,833,972
– I-7 –
APPENDIX I ACCOUNTANTS’ REPORT
As at 31 December
2009 2010 2011
Notes RMB’000 RMB’000 RMB’000
Current liabilities
Accounts payable to brokerage
clients 36 59,473,774 54,211,820 29,127,160
Other payables and accruals 37 1,210,340 2,102,123 1,321,319
Amount due to a subsidiary 28 – 20,000
Provisions 38 8,815 6,853
Tax liabilities 305,896 378,167 311,608
Financial assets sold under
repurchase agreements 39 5,821,500 – 9,524,534
Total current liabilities 66,820,325 56,718,963 40,284,922
Net current assets 36,265,902 34,881,400 33,933,307
Total assets less current liabilities 43,415,196 43,849,159 44,549,050
Equity
Share capital 40 8,227,821 8,227,821 8,227,821
Capital reserve 22,635,141 22,635,141 22,635,141
Investment revaluation reserve 41 1,381,572 386,646 (587,071)
General reserves 42 3,989,218 5,014,289 5,929,525
Retained profits 43 6,728,364 7,438,661 8,318,500
Total equity 42,962,116 43,702,558 44,523,916
Non-current liabilities
Deferred tax liabilities 44 453,080 146,601 25,134
Total equity and non-current
liabilities 43,415,196 43,849,159 44,549,050
– I-8 –
APPENDIX I ACCOUNTANTS’ REPORT
E. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Attributable to owners of the Company Non-controlling interests
Share
Share option
Investment of net reserve
Share Capital revaluation Translation General Retained assets of of a Total
capital reserve reserve reserve reserves profits Total subsidiaries subsidiary Total equity
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
(Note a)
At 1 January 2009 8,227,821 22,635,141 23,986 (7,115) 2,693,817 4,788,338 38,361,988 275,006 – 275,006 38,636,994
Profit for the year – – – – – 4,548,226 4,548,226 113,515 – 113,515 4,661,741
Other comprehensive income
(expense) for the year – – 1,389,408 (4,265) – – 1,385,143 8,852 – 8,852 1,393,995
Total comprehensive income
(expense) for the year – – 1,389,408 (4,265) – 4,548,226 5,933,369 122,367 – 122,367 6,055,736
Acquisition of a subsidiary – – – – – – – 839,385 – 839,385 839,385
Changes of equity interests in
subsidiaries – (58,614) – – – – (58,614) (81,621) – (81,621) (140,235)
Appropriation to general reserves – – – – 1,295,401 (1,295,401) – – – – –
Cash dividend recognised as
distribution – – – – – (822,783) (822,783) (50,502) – (50,502) (873,285)
At 31 December 2009 8,227,821 22,576,527 1,413,394 (11,380) 3,989,218 7,218,380 43,413,960 1,104,635 – 1,104,635 44,518,595
Profit for the year – – – – – 3,686,264 3,686,264 181,894 – 181,894 3,868,158
Other comprehensive expense
for the year – – (885,050) (77,653) – – (962,703) (23,587) – (23,587) (986,290)
Total comprehensive (expense)
income for the year – – (885,050) (77,653) – 3,686,264 2,723,561 158,307 – 158,307 2,881,868
Changes of equity interests in
subsidiaries – (44,167) – – – – (44,167) (61,129) – (61,129) (105,296)
Issuance of shares by
a subsidiary – 12,937 – – – – 12,937 35,140 – 35,140 48,077
Appropriation to general reserves – – – – 1,025,071 (1,025,071) – – – – –
Cash dividend recognised as
distribution – – – – – (1,645,564) (1,645,564) (91,923) – (91,923) (1,737,487)
Others – 6,636 – – – – 6,636 4,354 – 4,354 10,990
At 31 December 2010 8,227,821 22,551,933 528,344 (89,033) 5,014,289 8,234,009 44,467,363 1,149,384 – 1,149,384 45,616,747
– I-9 –
APPENDIX I ACCOUNTANTS’ REPORT
Attributable to owners of the Company Non-controlling interests
Share
Share option
Investment of net reserve
Share Capital revaluation Translation General Retained assets of of a Total
capital reserve reserve reserve reserves profits Total subsidiaries subsidiary Total equity
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
(Note a)
At 1 January 2011 8,227,821 22,551,933 528,344 (89,033) 5,014,289 8,234,009 44,467,363 1,149,384 – 1,149,384 45,616,747
Profit for the year – – – – – 3,103,034 3,103,034 178,963 – 178,963 3,281,997
Other comprehensive expense
for the year – – (1,073,576) (161,776) – – (1,235,352) (46,835) – (46,835) (1,282,187)
Total comprehensive (expense)
income for the year – – (1,073,576) (161,776) – 3,103,034 1,867,682 132,128 – 132,128 1,999,810
Changes of equity interests in
subsidiaries (Note b) – (59,246) – – – – (59,246) 37,694 – 37,694 (21,552)
Capital injection by non-
controlling shareholders of
subsidiaries (Note c) – 749 – – – – 749 367,606 – 367,606 368,355
Appropriation to general reserves – – – – 915,236 (915,236) – – – – –
Cash dividend recognised as
distribution – – – – – (1,234,173) (1,234,173) (123,947) – (123,947) (1,358,120)
Others – – – – – – – – 5,402 5,402 5,402
At 31 December 2011 8,227,821 22,493,436 (545,232) (250,809) 5,929,525 9,187,634 45,042,375 1,562,865 5,402 1,568,267 46,610,642
Notes:
(a) Capital reserve of the Group represents primarily (i) the share premium arisen from the issuance of the
Company’s shares, and (ii) the difference between the considerations paid or received over the proportionate
share of net assets attributable to the changes of the Group’s equity interest in subsidiaries without loss of
control.
(b) The changes of equity interests in subsidiaries includes the effect arising from the Group’s subscription of a
total of 200,000,000 new shares issued by Haitong International Securities Group Limited, a Hong Kong listed
subsidiary, by way of capitalisation of loan of HKD850,000,000, equivalent to approximately
RMB689,000,000, in the third quarter of 2011.
(c) The capital injection by non-controlling shareholders of subsidiaries mainly includes capital injections by the
non-controlling interests of Haitong Futures Co., Ltd (“Haitong Futures”) and Haitong Chuangxin Capital
Management Company Limited (“Haitong Chuangxin”) of RMB342,600,000 and RMB24,500,000, to Haitong
Futures and Haitong Chuangxin, respectively.
– I-10 –
APPENDIX I ACCOUNTANTS’ REPORT
F. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended 31 December
2009 2010 2011
Notes RMB’000 RMB’000 RMB’000
OPERATING ACTIVITIES
Profit before income tax 5,981,827 4,989,690 4,300,164
Adjustments for
Interest expenses 245,080 281,489 459,796
Share-based payment expenses – 10,990 5,402
Share of results of associates (65,962) (78,120) (72,912)
Depreciation and amortisation 236,915 288,472 300,037
Reversal of impairment loss in respect
of other receivables (1,560) (3,773) (32,773)
Loss (gain) on disposal of property
and equipment and other intangible
assets 809 544 (693)
Gain on disposal of an associate – (4,121) –
Gain on disposal of bond investments
and held-to-maturity financial assets (46,759) – –
Foreign exchange gains, net (1,722) (5,814) (68,869)
Net realised gains arising from
available-for-sale investments (211,391) (596,163) (754,030)
Impairment loss in respect of
available-for-sale investments 4,659 – 540,409
– I-11 –
APPENDIX I ACCOUNTANTS’ REPORT
Year ended 31 December
2009 2010 2011
Notes RMB’000 RMB’000 RMB’000
Operating cash flows before movements in
working capital 6,141,896 4,883,194 4,676,531
(Increase)/decrease in deposits and reserve
funds and deposits with exchanges (874,677) (1,021,796) 216,685
(Increase)/decrease in advances to
customers (79,186) (3,906,056) (648,221)
(Increase)/decrease in accounts and other
receivables and prepayments (233,128) (388,864) (104,306)
(Increase)/decrease in financial assets held
under resale agreements – (2,120,000) 1,514,100
(Increase)/decrease in financial assets at
fair value through profit or loss (3,084,476) (2,121,332) (5,587,023)
(Increase)/decrease in restricted bank
deposits 907,609 (75,957) (65,918)
(Increase)/decrease in cash held on behalf
of clients (27,386,133) 3,404,597 25,748,006
Increase/(decrease) in accounts payable to
brokerage clients and other payables and
accruals 28,594,396 (2,034,887) (26,402,021)
Increase/(decrease) in financial assets sold
under repurchase agreements 5,211,500 (5,821,500) 9,524,534
Increase/(decrease) in provisions (101,761) (1,962) (6,605)
Cash from (used in) operations 9,096,040 (9,204,563) 8,865,762
Income taxes paid, net (1,330,320) (1,014,598) (1,310,236)
Interest paid (243,117) (281,489) (431,687)
NET CASH FROM (USED IN)
OPERATING ACTIVITIES 7,522,603 (10,500,650) 7,123,839
– I-12 –
APPENDIX I ACCOUNTANTS’ REPORT
Year ended 31 December
2009 2010 2011
Notes RMB’000 RMB’000 RMB’000
INVESTING ACTIVITIES
Dividends received from associates and
other investments 55,550 42,496 51,995
Purchases of property and equipment and
other intangible assets (240,798) (368,844) (366,307)
Proceeds on disposal of property and
equipment 36,055 12,075 28,298
Capital injection to associates (1,300) (300,000) (370,000)
Proceeds on disposal of an associate – 13,806 –
Acquisition of subsidiaries 51 (1,238,451) – –
Increase in available-for-sale investments (3,314,193) (936,144) (3,047,813)
Proceeds from (payment for) other
investment activities 1,406,046 – (157,683)
NET CASH USED IN INVESTING
ACTIVITIES (3,297,091) (1,536,611) (3,861,510)
FINANCING ACTIVITIES
Dividends paid (873,284) (1,736,589) (1,329,080)
Purchase of subsidiaries’ shares from
non-controlling interests (140,235) (105,296) (18,454)
Proceeds from issue of subsidiaries’ shares – 47,558 368,355
Borrowings raised (repaid) net of interest
paid 435,402 1,845,727 (417,877)
Payment for other financing activities – (1,158,272) (313,925)
NET CASH USED IN FINANCING
ACTIVITIES (578,117) (1,106,872) (1,710,981)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 3,647,395 (13,144,133) 1,551,348
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE YEAR 25,290,541 28,931,881 15,777,118
Effect of foreign exchange rate changes (6,055) (10,630) (61,327)
CASH AND CASH EQUIVALENTS AT
END OF THE YEAR 34 28,931,881 15,777,118 17,267,139
– I-13 –
APPENDIX I ACCOUNTANTS’ REPORT
G. NOTES TO THE FINANCIAL INFORMATION
1. GENERAL INFORMATION OF THE GROUP
The Company was transformed from Shanghai Haitong Securities Company (N mwmw R8QlS ), which was
established in 1988, to a limited liability company upon the authorisation by the People’s Bank of China in September
1994 and had changed its name to mw R8g – QlS . In December 2001, the Company was further transformed to
a joint-stock company upon the approval from China Securities Regulatory Commission (“CSRC”). In January 2002,
the Company changed its name from mw R8g – QlS to Haitong Securities Co., Ltd. (mw R8Ng – QlS ). In
June 2007, the Company’s merger with former Shanghai Urban Agro-Business Co., Ltd. (N mw^ ^ Fy>Ng
– QlS ) was approved by the CSRC, and was listed on the Shanghai Stock Exchange in July in the same year, with
its listing reference name changed to “Haitong Securities”.
The address of the Company’s registered office is 98 Central Huaihai Road, Shanghai, the PRC. The principal
place of business of the Company is Haitong Securities Building, No. 689 Guangdong Road, Shanghai, the PRC.
The Company and its subsidiaries are principally engaged in securities and futures contracts dealing and
broking, proprietary trading, margin and other financing, underwriting, assets management and provision of
investment advisory and consultancy services.
The Financial Information is presented in Renminbi (“RMB”), which is also the functional currency of the
Company.
2. APPLICATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
For the purpose of preparing and presenting the Financial Information, the Group has consistently applied
International Accounting Standards (“IASs”), International Financial Reporting Standards (“IFRSs”), amendments
and the related Interpretations (“IFRICs”) (herein collectively referred to as the “IFRSs”) issued by the International
Accounting Standards Board (“IASB”) which are effective for the accounting period beginning on 1 January 2011
throughout the Relevant Periods, except for IFRS 3 (Revised) which has been applied prospectively for business
combinations for which the acquisition date is on or after 1 January 2010.
The revision to IFRS 3 has no impact on the Group as the Group did not have any business combination after
1 January 2010.
The Group has not early applied the following new and revised Standards, Amendments and Interpretation that
have been issued but are not yet effective.
IFRS 7 (Amendments) Disclosures – Transfers of Financial Assets1
IFRS 7 (Amendments) Disclosures – Offsetting Financial Assets and Financial
Liabilities 2
IFRS 9 Financial Instruments 5
IFRS 9 and IFRS 7 (Amendments) Mandatory Effective Date of IFRS 9 and Transition
Disclosures 5
IFRS 10 Consolidated Financial Statements 2
IFRS 11 Joint Arrangements 2
IFRS 12 Disclosure of Interests in Other Entities 2
IFRS 13 Fair Value Measurement 2
IAS 1 (Amendments) Presentation of Items of Other Comprehensive Income 4
IAS 12 (Amendments) Deferred Tax: Recovery of Underlying Assets 3
IAS 19 (Revised 2011) Employee Benefits 2
IAS 27 (Revised 2011) Separate Financial Statements 2
IAS 28 (Revised 2011) Investments in Associates and Joint Ventures 2
IAS 32 (Amendments) Offsetting Financial Assets and Financial Liabilities 6
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine 2
1 Effective for annual periods beginning on or after 1 July 2011.
2 Effective for annual periods beginning on or after 1 January 2013.
3 Effective for annual periods beginning on or after 1 January 2012.
4 Effective for annual periods beginning on or after 1 July 2012.
5 Effective for annual periods beginning on or after 1 January 2015.
6 Effective for annual periods beginning on or after 1 January 2014.
– I-14 –
APPENDIX I ACCOUNTANTS’ REPORT
The amendments to IFRS 7 increase the disclosure requirements for transactions involving transfers of
financial assets. These amendments are intended to provide greater transparency around risk exposures when a
financial asset is transferred but the transferor retains some level of continuing exposure in the asset. The
amendments also require disclosures where transfers of financial assets are not evenly distributed throughout the
period.
The directors anticipate that the application of the amendments to IFRS 7 will affect the Group’s disclosures
regarding transfers of financial assets in the future.
The amendments to IAS 32 clarify existing application issues relating to the offsetting requirements.
Specifically, the amendments clarify the meaning of “currently has a legally enforceable right of set-off” and
“simultaneous realisation and settlement”.
The amendments to IFRS 7 require entities to disclose information about rights of offset and related
arrangements (such as collateral posting requirements) for financial instruments under an enforceable master netting
agreement or similar arrangement.
The amended offsetting disclosures are required for annual periods beginning on or after 1 January 2013 and
interim periods within those annual periods. The disclosures should also be provided retrospectively for all
comparative periods. However, the amendments to IAS 32 are not effective until annual periods beginning on or after
1 January 2014, with retrospective application required.
IFRS 9 Financial Instruments (as issued in November 2009) introduces new requirements for the classification
and measurement of financial assets. IFRS 9 Financial instruments (as revised in October 2010) adds the new
requirements for the financial liabilities and for derecognition.
Under IFRS 9, all recognised financial assets that are within the scope of IAS 39 Financial instruments:
Recognition and measurement are subsequently measured at either amortised cost or fair value. Specifically, debt
investments that are held within a business model whose objective is to collect the contractual cash flows, and that
have contractual cash flows that are solely payments of principal and interest on the principal outstanding are
generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and
equity investments are measured at their fair value at the end of subsequent accounting periods.
In relation to financial liabilities, the significant change relates to financial liabilities that are designated as at
fair value through profit or loss. Specifically, under IFRS 9, for financial liabilities that are designated as at fair value
through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes
in the credit risk of that liability is presented in other comprehensive income, unless the presentation of the effects
of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting
mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently
reclassified to profit or loss. Currently, under IAS 39, the entire amount of the change in the fair value of the financial
liability designated as at fair value through profit or loss is recognised in profit or loss.
IFRS 9 is effective for annual periods beginning on or after 1 January 2015, with earlier application permitted.
The directors anticipate that IFRS 9 that will be adopted in the Group’s consolidated financial statements for the
financial year ending 31 December 2015 and that the application of IFRS 9 will affect the classification and
measurement of the Group’s available-for-sale investments and may have impact on the Group’s other financial assets
and the Group’s financial liabilities. The directors of the Company have not yet completed the assessment of financial
impact to the Group but considered that the application of IFRS 9 may have significant impact on the Group.
IFRS 10 replaces the parts of IAS 27 Consolidated and Separate Financial Statements that deal with
consolidated financial statements and SIC 12 Consolidation – Special Purpose Entities. Under IFRS 10, there is only
one basis for consolidation, that is control. In addition, IFRS 10 includes a new definition of control that contains
three elements: (a) power over an investee, (b) exposure, or rights, to variable returns from its involvement with the
investee, and (c) ability to use its power over the investee to affect the amount of the investor’s returns. Extensive
guidance has been added in IFRS 10 to deal with complex scenarios. Overall, the application of IFRS 10 requires a
lot of judgement. It is not practicable to provide a reasonable estimate of that effect until a detailed review has been
completed.
IFRS 12 requires the disclosure of information that enables users of financial statements to evaluate the nature
of, and risks associated with, its interests in other entities and the effects of those interests on its financial position,
financial performance and cash flows. IFRS 12 is required to be applied by an entity that has an interest in
subsidiaries, joint arrangements (joint operations or joint ventures), associates and unconsolidated structured entities.
– I-15 –
APPENDIX I ACCOUNTANTS’ REPORT
The IFRS 10 and IFRS 12 are effective for annual periods beginning on or after 1 January 2013. The directors
anticipate that the IFRS 10 and IFRS 12 will be adopted in the Group’s consolidated financial statements for the
annual period beginning 1 January 2013. The directors have not yet performed a detailed analysis of the impact of
the application of these standards to the Group but considered that application of these standards would have no
significant impact on the Group.
IFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value
measurements. The standard defines fair value, establishes a framework for measuring fair value, and requires
disclosures about fair value measurements. The scope of IFRS 13 is broad; it applies to both financial instrument
items and non-financial instrument items for which other IFRSs require or permit fair value measurements and
disclosures about fair value measurements, except in specified circumstances. In general, the disclosure requirements
in IFRS 13 are more extensive than those in the current standards. For example, quantitative and qualitative
disclosures based on the three-level fair value hierarchy currently required for financial instruments only under IFRS
7 Financial Instruments: Disclosures will be extended by IFRS 13 to cover all assets and liabilities within its scope.
IFRS 13 is effective for annual periods beginning on or after 1 January 2013, with earlier application
permitted. The directors anticipate that IFRS 13 will be adopted in the Group’s consolidated financial statements for
the annual period beginning 1 January 2013 and that the application of the standard may affect the amounts reported
in the consolidated financial statements and result in more extensive disclosures in the consolidated financial
statements.
The directors of the Company anticipate that the application of other new and revised Standards, Amendments
and Interpretation will have no material impact on the financial statements of the Group.
3. SIGNIFICANT ACCOUNTING POLICIES
The Financial Information has been prepared in accordance with IFRSs and included applicable disclosures
required by the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange and the Hong Kong
Companies Ordinance. The Financial Information has been prepared on the historical cost basis except for certain
financial instruments which are measured at fair values, as explained in the accounting policies set out below.
Historical cost is generally based on the fair value of the consideration given in exchange for goods.
The preparation of Financial Information in conformity with IFRSs requires the use of certain critical
accounting estimates. It also requires the management to exercise its judgement in the process of applying the
Group’s accounting policies. Areas where assumptions and estimates are significant to the Financial Information are
disclosed in note 4.
Basis of consolidation
The Financial Information incorporates the financial statements of the Company and entities controlled
by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the
financial and operating policies of an entity so as to obtain benefits from its activities.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies into line with those used by other members of the Group.
All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.
Non-controlling interests in subsidiaries are presented separately from the Group’s equity therein.
Allocation of total comprehensive income to non-controlling interests
Total comprehensive income and expense of a subsidiary is attributed to the owners of the Company and
to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
– I-16 –
APPENDIX I ACCOUNTANTS’ REPORT
Changes in the Group’s ownership interests in existing subsidiaries
Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control
over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests
and the non-controlling interests are adjusted to reflect the changes in their relative interests in the
subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the
fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the
Company.
When the Group loses control of a subsidiary, it (i) derecognises the assets (including any goodwill) and
liabilities of the subsidiary at their carrying amounts at the date when control is lost, (ii) derecognises the
carrying amount of any non-controlling interests in the former subsidiary at the date when control is lost
(including any components of other comprehensive income attributable to them), and (iii) recognises the
aggregate of the fair value of the consideration received and the fair value of any retained interest, with any
resulting difference being recognised as a gain or loss in profit or loss attributable to the Group. When assets
of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been
recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in
other comprehensive income and accumulated in equity are accounted for as if the Group had directly disposed
of the related assets (i.e. reclassified to profit or loss or transferred directly to retained earnings as specified
by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when
control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39
Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an
investment in an associate or a jointly controlled entity.
Investments in subsidiaries
Investments in subsidiaries are stated at cost less accumulated impairment losses, if any.
Business combinations
Acquisition of businesses that took place prior to 1 January 2010 was accounted for using the purchase
method. The cost of the acquisition was measured at the aggregate of the fair values, at the date of exchange,
of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for
control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s
identifiable assets, liabilities and contingent liabilities that met the relevant conditions for recognition were
generally recognised at their fair value at the acquisition date.
Goodwill arising on acquisition was recognised as an asset and initially measured at cost, being the
excess of the cost of the acquisition over the Group’s interest in the recognised amounts of the identifiable
assets, liabilities and contingent liabilities recognised. If, after assessment, the Group’s interest in the
recognised amounts of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeded the cost
of the acquisition, the excess was recognised immediately in profit or loss.
The minority interest in the acquiree was initially measured at the minority interest’s proportionate share
of the recognised amounts of the assets, liabilities and contingent liabilities of the acquiree.
Goodwill
Goodwill arising on an acquisition of a business is carried at cost less any accumulated impairment
losses, if any, and is presented separately in the consolidated statement of financial position.
For the purposes of impairment testing, goodwill is allocated to each of the cash-generating units (or
groups of cash-generating units) that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more
frequently whenever there is indication that the unit may be impaired. For goodwill arising on an acquisition
in a reporting period, the cash-generating unit to which goodwill has been allocated is tested for impairment
before the end of that reporting period. If the recoverable amount of the cash-generating unit is less than the
carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any
goodwill allocated to the unit and then to the other assets of the unit pro rata on the basis of the carrying
amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss in
the consolidated income statement. An impairment loss recognised for goodwill is not reversed in subsequent
periods.
– I-17 –
APPENDIX I ACCOUNTANTS’ REPORT
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the
determination of the amount of profit or loss on disposal.
Investments in associates
An associate is an entity over which the investor has significant influence and that is neither a subsidiary
nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating
policy decisions of the investee but is not control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in this Financial Information using
the equity method of accounting. Under the equity method, investments in associates are initially recognised
in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share
of the profit or loss and other comprehensive income of the associates. When the Group’s share of losses of
an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in
substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its
share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal
or constructive obligations or made payments on behalf of that associate.
Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable
assets, liabilities and contingent liabilities of an associate recognised at the date of acquisition is recognised
as goodwill, which is included within the carrying amount of the investment.
The requirements of IAS 39 are applied to determine whether it is necessary to recognise any
impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying
amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment
of assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs
to sell) with its carrying amount, any impairment loss recognised forms part of the carrying amount of the
investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that
the recoverable amount of the investment subsequently increases.
When a group entity transacts with its associate of the Group, profits and losses resulting from the
transactions with the associate are recognised in the Financial Information only to the extent of interests in the
associate that are not related to the Group.
In the Company’s statement of financial position, investments in associates are stated at cost less
accumulated impairment losses, if any.
Property and equipment
Property and equipment including leasehold land (classified as finance lease) and building held for use
in the supply of services, or for administrative purpose (other than construction in progress as described
below), are stated in the Group and the Company’s statements of financial position at cost less subsequent
accumulated depreciation and accumulated impairment losses, if any.
Depreciation is recognised so as to write off the cost of items of property and equipment, other than
construction in progress, less their residual values over their estimated useful lives, using straight line method.
Construction in progress for production, supply or administrative purposes are carried at cost, less any
recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing costs
capitalised in accordance with the Group’s accounting policy. Such properties are classified to the appropriate
categories of property and equipment when completed and ready for intended use. Depreciation of these assets,
on the same basis as other property assets, commences when the assets are ready for their intended use.
An item of property and equipment is derecognised upon disposal or when no future economic benefits
are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement
of an item of property and equipment is determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognised in profit or loss.
– I-18 –
APPENDIX I ACCOUNTANTS’ REPORT
The estimated residual value rates and useful lives of each class of property and equipment are as
follows:
Estimated
residual value
Classes rates Useful lives
Leasehold land and buildings 3-5% Over the shorter of the lease term and
estimated useful life of buildings of
30-40 years
Furniture, fixtures and equipment 3-10% 5-11 years
Motor vehicles 3-10% 5-8 years
Electronic equipment 3-10% 3-5 years
Leasehold improvements 0% Over the lease term ranging from
1 month to 35 years
Investment properties
Investment properties are properties held to earn rentals and/or for capital appreciation.
Investment properties are initially measured at cost, including any directly attributable expenditure.
Subsequent to initial recognition, investment properties are stated at cost less subsequent accumulated
depreciation and any accumulated impairment losses.
Depreciation is recognised so as to write off the cost of investment properties over their estimated useful
lives and after taking into account their estimated residual value, using the straight-line method.
An investment property is derecognised upon disposal or when the investment property is permanently
withdrawn from use and no future economic benefits are expected from its disposals. Any gain or loss arising
on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the profit or loss in the period in which the item is derecognised.
Intangible assets
Intangible assets acquired separately
Intangible assets acquired separately and with finite useful lives are carried at costs less accumulated
amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives
is provided on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation
method are reviewed at the end of each reporting period, with the effective of any changes in estimate being
accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately
are carried at cost less any subsequent accumulated impairment losses.
Gains or losses arising from derecognition of an intangible asset are measured at the difference between
the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss in the period
when the asset is derecognised.
The estimated useful lives of each class of intangible assets are as follows:
Computer software 3-10 years
Others (car park right, house use right and club membership) 5-50 years
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination are recognised separately from goodwill and are
initially recognised at their fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets with finite useful lives are carried at costs less
accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with
finite useful lives is provided on a straight-line basis over their estimated useful lives. Alternatively, intangible
assets with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses.
– I-19 –
APPENDIX I ACCOUNTANTS’ REPORT
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks
and rewards of ownership to the lessee. All other leases are classified as operating leases.
The Group as lessor
Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term
of the relevant lease.
The Group as lessee
Operating lease payments are recognised as an expense on a straight-line basis over the term of the
relevant lease.
Leasehold land and building
When a lease includes both land and building elements, the Group assesses the classification of each
element as a finance or an operating lease separately based on the assessment as to whether substantially all
the risks and rewards incidental to ownership of each element have been transferred to the Group, unless it is
clear that both elements are operating leases in which case the entire lease is classified as an operating lease.
Specifically, the minimum lease payments (including any lump-sum upfront payments) are allocated between
the land and the building elements in proportion to the relative fair values of the leasehold interests in the land
element and building element of the lease at the inception of the lease.
To the extent the allocation of the lease payments can be made reliably, interest in leasehold land that
is accounted for as an operating lease is presented as “prepaid lease payments” and included in “other assets”
in the Group and the Company’s statements of financial position and is amortised over the lease term on a
straight-line basis. When the lease payments cannot be allocated reliably between the land and building
elements, the entire lease is generally classified as finance lease and accounted for as property and equipment
or investment properties, where applicable, unless it is clear that both elements are operating leases, in which
case the entire lease is classified as an operating lease.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets,
which are assets that necessarily take a substantial period of time to get ready for their intended use or sale,
are added to the cost of those assets until such time as the assets are substantially ready for their intended use
or sale. Investment income earned on the temporary investment of specific borrowings pending their
expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
Foreign currencies
In preparing the financial statements of each individual group entity, transactions in currencies other
than the functional currency of that entity (foreign currencies) are recorded in the respective functional
currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of
exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items
denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items
carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the
date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in
a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary
items, are recognised in profit or loss in the period in which they arise, except for exchange differences arising
on a monetary item that forms part of the Company’s net investment in a foreign operation, in which case, such
exchange differences are recognised in other comprehensive income and accumulated in equity and will be
reclassified from equity to profit or loss on disposal of the foreign operation. Exchange differences arising on
the retranslation of non-monetary items carried at fair value are included in profit or loss for the period, except
– I-20 –
APPENDIX I ACCOUNTANTS’ REPORT
for exchange differences arising on the retranslation of non-monetary items in respect of which gains and
losses are recognised directly in other comprehensive income, in which cases, the exchange differences are
also recognised directly in other comprehensive income.
For the purposes of presenting the Financial Information, the assets and liabilities of the Group’s foreign
operations are translated into the presentation currency of the Group at the rate of exchange prevailing at the
end of the reporting period, and their income and expenses are translated at the average exchange rates for the
year. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in
equity (the translation reserve).
Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign
operation on or after 1 January 2005 are treated as assets and liabilities of that foreign operation and
retranslated at the rate of exchange prevailing at the end of the reporting period. Exchange differences arising
are recognised in the translation reserve.
Government grants
Government grants are not recognised until there is reasonable assurance that the Group will comply
with the conditions attaching to them and that the grants will be received.
Government grants are recognised in profit or loss on a systematic basis over the periods in which the
Group recognises as expenses the related costs for which the grants are intended to compensate. Government
grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving
immediate financial support to the Group with no future related costs are recognised in profit or loss in the
period in which they become receivable.
Social welfare
Social welfare expenditure refers to payments for employees’ social welfare system established by the
Government of the People’s Republic of China, including social insurance, housing funds and other social
welfare contributions. The Group contributes on a monthly basis to these funds based on certain percentage
of the salaries of the employees and the contributions are recognised in profit or loss for the period when
employees have rendered service entitling them to the contribution. The Group’s liabilities in respect of these
funds are limited to the contribution payable in the reporting period.
Contributions to pension schemes and annuity plans
Payments to defined contribution retirement benefits plan are charged as expenses when employees have
rendered service entitling them to the contributions.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as
reported in the consolidated income statement because it excludes items of income or expense that are taxable
or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s
liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end
of the reporting period.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and
liabilities in the Financial Information and the corresponding tax base used in the computation of taxable
profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax
assets are generally recognised for all deductible temporary difference to the extent that it is probable that
taxable profits will be available against which those deductible temporary differences can be utilised. Such
assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial
recognition (other than in a business combination) of other assets and liabilities in a transaction that affects
neither the taxable profit nor the accounting profit.
– I-21 –
APPENDIX I ACCOUNTANTS’ REPORT
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in
subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference
and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets
arising from deductible temporary differences associated with such investments are only recognised to the
extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the
temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of the reporting period and reduced
to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part
of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period
in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted
or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow
from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying
amount of its assets and liabilities.
Current and deferred tax is recognised in profit or loss, except when it relates to items that are
recognised in other comprehensive income or directly in equity, in which case, the deferred tax are also
recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax
arises from the initial accounting for a business combination, the tax effect is included in the accounting for
the business combination.
Financial instruments
Financial assets and financial liabilities are recognised in the consolidated statement of financial
position when a group entity becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial
assets or financial liabilities at fair value through profit or loss) are added to or deducted from the fair value
of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly
attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are
recognised immediately in profit or loss.
Financial assets
Financial assets can be classified as financial assets at fair value through profit or loss (“FVTPL”), loans
and receivable, held-to-maturity investments and available-for-sale investments. The Group’s financial assets
are classified into one of the three categories, including FVTPL, loans and receivables and available-for-sale
investments. The classification depends on the nature and purpose of the financial assets and is determined at
the time of initial recognition. All regular way purchases or sales of financial assets are recognised and
derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets
that require delivery of assets within the time frame established by regulation or convention in the marketplace.
Financial assets at fair value through profit or loss
Financial assets at FVTPL represents financial assets held for trading.
A financial asset is classified as held for trading if:
it has been acquired principally for the purpose of selling in the near future;
it is a part of an identified portfolio of financial instruments that the Group manages together and
has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.
Financial assets at FVTPL are measured at fair value, with changes in fair value arising from
re-measurement recognised directly in profit or loss in the period in which they arise. The net gain or loss
recognised in profit or loss includes any dividend or interest earned on the financial assets.
– I-22 –
APPENDIX I ACCOUNTANTS’ REPORT
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. Subsequent to initial recognition, loans and receivables (including advances
to customers, accounts receivable, amount due from a subsidiary, bond investments, financial assets held under
resale agreements, clearing settlement funds, bank balances and cash, pledged bank deposits, restricted bank
deposits, deposits and other receivables), are carried at amortised cost using the effective interest method, less
any identified impairment losses (see accounting policy on impairment loss on financial assets below).
Available-for-sale investments
Available-for-sale investments are non-derivatives that are either designated or not classified as
financial assets at FVTPL, loans and receivables or held-to-maturity financial assets.
Available-for-sale investments are measured at fair value at the end of the reporting period. Changes in
fair value are recognised in other comprehensive income and accumulated in the investment revaluation
reserve, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative
gain or loss previously accumulated in the investment revaluation reserve is reclassified to profit or loss (see
accounting policy on impairment loss on financial assets below).
For available-for-sale equity investments that do not have a quoted market price in an active market and
whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery
of such unquoted equity instruments, they are measured at cost less any identified impairment losses at the end
of the reporting period (see accounting policy on impairment loss on financial assets below).
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of the
reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more
events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the
financial assets have been affected.
For an available-for-sale equity investment, a significant or prolonged decline in the fair value of that
investment below its cost is considered to be objective evidence of impairment.
For all other financial assets, objective evidence of impairment could include:
significant financial difficulty of the issuer or counterparty;
breach of contract, such as default or delinquency in interest and principal payments;
it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or
the disappearance of an active market for that financial asset because of financial difficulties.
For certain categories of financial assets, such as advances to customers and accounts receivable, assets
that are assessed not to be impaired individually are subsequently assessed for impairment on a collective
basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past
experience of collecting payments and observable changes in national or local economic conditions that
correlate with default on receivables.
For financial assets carried at amortised cost, the amount of the impairment loss recognised is the
difference between the asset’s carrying amount and the present value of the estimated future cash flows
discounted at the financial asset’s original effective interest rate.
For financial assets carried at cost, the amount of the impairment loss is measured as the difference
between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the
current market rate of return for a similar financial asset. Such impairment loss will not be reversed in
subsequent periods.
– I-23 –
APPENDIX I ACCOUNTANTS’ REPORT
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial
assets with the exception of advances to customers, accounts receivable and other receivables, where the
carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the
allowance account are recognised in profit or loss. When an advance to customers, an account receivable or
a receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries
of amounts previously written off are credited to profit or loss.
When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses
previously recognised in other comprehensive income are reclassified to profit or loss in the period in which
the impairment takes place.
For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment
loss decreases and the decrease can be related objectively to an event occurring after the impairment losses
were recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that
the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost
would have been had the impairment not been recognised.
Impairment losses on available-for-sale equity investments will not be reversed through profit or loss
in subsequent periods. Any increase in fair value subsequent to impairment loss is recognised directly in other
comprehensive income and accumulated in the investment revaluation reserve. For available-for-sale debt
investments, impairment losses are subsequently reversed through profit or loss if an increase in the fair value
of the investment can be objectively related to an event occurring after the recognition of the impairment loss.
Financial liabilities and equity instruments
Financial liabilities and equity instruments issued by a group entity are classified as either financial
liabilities or as equity in accordance with the substance of the contractual arrangements entered into and the
definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual interest in the assets of the group after
deducting all of its liabilities. The Group’s financial liabilities are generally classified into other financial
liabilities.
Other financial liabilities
Other financial liabilities including borrowings, accounts payable to brokerage clients, financial assets
sold under repurchase agreements, other payables and amount due to a subsidiary are subsequently measured
at amortised cost, using the effective interest method.
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial asset or
liability and of allocating interest income or expense over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an
integral part of the effective interest rate, transaction costs and other premiums or discounts) or payments
(including all fees and points paid or received that form an integral part of the effective interest rate,
transaction costs and other premiums or discounts) through the expected life of the financial asset or liability,
or, where appropriate, a shorter period to the net carrying amount of the financial asset or liability on initial
recognition. When the difference between the effective interest rate and the contract rate is insignificant,
interest income or expense will be calculated using the contract interest rate.
Interest income is recognised on an effective interest basis for debt instruments other than those
financial assets classified as at FVTPL, of which interest income is included in net gains or losses. Interest
expense is recognised on an effective interest basis.
– I-24 –
APPENDIX I ACCOUNTANTS’ REPORT
Derivative financial instruments
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are
subsequently remeasured to their fair value at the end of the reporting period. The resulting gain or loss is
recognised in profit or loss immediately unless the derivative is designated and effective as a hedging
instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge
relationship.
Financial assets sold under repurchase agreements and financial assets held under resale agreements
Financial assets sold under repurchase agreements continue to be recognised, which do not result in
derecognition of the financial assets, and are recorded as “available-for-sale investments” or “financial assets
held for trading”. The corresponding liability is included in “financial assets sold under repurchase
agreements”. Financial assets held under agreements to resell are recorded as “financial assets held under
resale agreements” as appropriate. Financial assets sold under repurchase agreements and financial assets held
under resale agreements are initially measured at fair value and are subsequently measured at amortised cost
using the effective interest method.
Securities lending
The Group lends investment securities to clients and the cash collaterals balance required under the
securities lending agreements and the interest arisen from these are classified as “accounts payable to
brokerage clients”. For those securities held by the Group lent to client that do not result in the derecognition
of financial assets, they are included in “available-for-sale investments”.
Derecognition
The Group derecognises a financial asset only when the contractual rights to the cash flows from the
asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership
of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards
of ownership and continues to control the transferred asset, the Group continues to recognise the asset to the
extent of its continuing involvement and recognises an associated liability. If the Group retains substantially
all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the
financial asset and also recognises a collateralised borrowing for the proceeds received.
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount
and the sum of the consideration received and receivable and the cumulative gain or loss that had been
recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.
On derecognition of a financial asset other than in its entirety (e.g. when the Group retains an option
to repurchase part of a transferred asset or retains a residual interest that does not result in the retention of
substantially all the risks and rewards of ownership and the Group retains control), the Group allocates the
previous carrying amount of the financial asset between the part it continues to recognise under continuing
involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the
date of the transfer. The difference between the carrying amount allocated to the part that is no longer
recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain
or loss allocated to it that had been recognised in other comprehensive income is recognised in profit or loss.
A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the
part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair
values of those parts.
Financial liabilities are derecognised when the obligation specified in the relevant contract is
discharged, cancelled or expires. The difference between the carrying amount of the financial liability
derecognised and the consideration paid and payable is recognised in profit or loss.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts
receivable for services provided in the normal course of business. Revenue is recognised when it is probable
that the economic benefits will flow to the Group and when revenue can be measured reliably, on the following
basis:
(i) Commission income for broking business is recorded as income on a trade date basis, and
handling fee income arising from broking business is recognised when services are rendered;
– I-25 –
APPENDIX I ACCOUNTANTS’ REPORT
(ii) Underwriting and sponsors fees are recognised as income in accordance with the terms of the
underwriting agreement or deal mandate when the relevant significant acts have been completed;
(iii) Interest income from a financial asset is accrued on a time basis using the effective interest
method, by reference to the principal outstanding and at the effective interest rate applicable,
which is the rate that exactly discounts the estimated future cash receipts through the expected
life of the financial asset to that asset’s net carrying amount on initial recognition;
(iv) Financial advisory and consultancy fee income are recognised when the relevant transactions
have been arranged or the relevant services have been rendered; and
(v) Asset management fee income is recognised when management services are provided in
accordance with the management contracts.
Provision
Provisions are recognised when the Group has a present obligation as a result of a past event, and it is
probable that the Group will be required to settle that obligation, and a reliable estimate can be made of the
amount of the obligation. Provisions are measured at the best estimate of the consideration required to settle
the present obligation at the end of the reporting period, taking into account the risks and uncertainties
surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash flows (where the effect is material).
Share-based payment transactions
Share options granted to employees
The fair value of services received determined by reference to the fair value of share options granted
at the grant date is expensed on a straight-line basis over the vesting period, with a corresponding increase in
equity (share option reserve).
At each reporting date, for share options, which are conditional upon satisfying specified non-market
performance vesting conditions, the Group revises its estimates of the number of options that are expected to
vest ultimately. The impact of the revision of the original estimates during the vesting period, if any, is
recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding
adjustment to the share option reserve.
At the time when the share options are exercised, the amount previously recognised in the share option
reserve will be transferred to share premium. When share options are forfeited after the vesting date or are still
not exercised at the expiry date, the amount previously recognised in the share option reserve will be remained
in the reserve.
Impairment losses on tangible and intangible assets as well as investments in subsidiaries other than
goodwill and financial assets (see the accounting policy in respect of goodwill and financial assets
above)
At the end of the reporting period, the Group reviews the carrying amounts of its tangible and intangible
assets as well as investment in subsidiaries to determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in
order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable
amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which
the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are
also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of
cash-generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for
impairment at least annually, and whenever there is an indication that they may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset for which
the estimates of future cash flows have not been adjusted.
– I-26 –
APPENDIX I ACCOUNTANTS’ REPORT
If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying
amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. An
impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued
amount under another standard.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the
carrying amount that would have been determined had no impairment loss been recognised for the asset (or
a cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.
4. KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in note 3, the directors of the
Company are required to make estimates and assumptions about the carrying amounts of assets and liabilities that
are not readily apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in
the period of the revision and future periods if the revision affects both current and future periods.
Impairment of advances to customers
The Group reviews its advances to customers to assess impairment on a periodic basis. In determining
whether an impairment loss should be recognised in profit or loss, the Group makes judgments as to whether
there is any observable data indicating that there is an objective evidence of impairment will have a measurable
decrease in the estimated future cash flows from a portfolio of advances. Moreover, the Group also reviews
the value of the securities collateral received from the customers in determining the impairment. The
methodology and assumptions used for estimating both the amount and timing of future cash flows are
reviewed regularly to reduce any differences between loss estimates and actual loss experience.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the
cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group
to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate
in order to calculate the present value. Where the actual future cash flows are less than expected, a material
impairment loss may arise. Details of the recoverable amount calculation are disclosed in note 20.
Impairment of available-for-sale investments
The determination of whether an available-for-sale investment is impaired requires significant
judgement. For listed available-for-sale equity investments, a significant or prolonged decline in fair value
below cost is considered to be objective evidence of impairment. Judgement is required when determining
whether a decline in fair value has been significant or prolonged. In making this judgement, the Group
evaluates the duration and extent to which the fair value of an investment is less than its cost. In assessing
whether it is prolonged, the decline is evaluated against the period in which the fair value of the asset has been
below its original cost at initial recognition. In assessing whether it is significant, the decline in fair value is
evaluated against the original cost of the asset at initial recognition. The Group also takes into account other
factors, such as the historical data on market volatility and the price of the specific investment, significant
changes in technology, markets, economics or the law, as well as industry and sector performance and the
financial information regarding the investee that provides evidence that the cost of the equity securities may
not be recovered. Judgement is also required to determine whether historical performance remains
representative of current and future economic conditions.
– I-27 –
APPENDIX I ACCOUNTANTS’ REPORT
Fair value of available-for-sale investments with restriction on disposal
For available-for-sale investments which are subject to legally enforceable restriction that prevents the
holders from disposing them within the specified period, the fair value of these securities are made based on
quoted market rates adjusted for specific features of the instrument. The estimation of fair value of these
instruments includes some assumptions not supported by observable market prices or rates.
Income taxes
There are certain transactions and activities for which the ultimate tax determination is uncertain during
the ordinary course of business. Where the final tax outcome of these matters is different from the amounts
that were initially estimated, such differences will impact the current income tax and deferred income tax in
the period during which such a determination is made.
No deferred tax asset has been recognised on the tax losses arising from the Group’s subsidiaries in
Hong Kong due to the unpredictability of future profit streams. The reliability of the deferred tax asset mainly
depends on whether sufficient future profits or taxable temporary differences will be available in the future.
In cases where the actual profits generated are more than expected, a material deferred tax assets would be
recognised in profit or loss for the period. Details of the tax losses for the Relevant Periods are disclosed in
note 14.
5. COMMISSION AND FEE INCOME
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Commission on securities dealing and broking
and handling fee income 7,264,369 5,938,693 3,933,956
Commission on futures and options contracts
dealing and broking and handling fee income 144,818 392,719 393,150
Financial advisory and consultancy fee income 151,122 274,844 283,067
Underwriting and sponsors fees 449,392 1,039,162 960,006
Asset management fee income 743,659 714,793 985,783
Commission on bullion contracts dealing – 7,621 7,966
Others – 16,228 2,853
8,753,360 8,384,060 6,566,781
6. INTEREST INCOME
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Bank interest income 1,359,585 1,399,582 1,944,013
Interest income from advances to customers 8,648 219,039 522,773
Interest income from financial assets held under
resale agreements 844 27,845 83,692
Interest income from
held-to-maturity financial assets 4,392 – –
Interest income from other bond investments 33,568 – –
Other interest income 5 541 2,693
1,407,042 1,647,007 2,553,171
– I-28 –
APPENDIX I ACCOUNTANTS’ REPORT
7. NET INVESTMENT GAINS
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Net realised gains arising from available-for-sale
investments 211,391 596,163 754,030
Net gains arising from financial assets/financial
liabilities held for trading and derivatives 950,838 378,038 1,226,764
Fair value change of financial instruments at fair
value through profit or loss
– financial assets/financial liabilities held for
trading (274,178) 101,052 (578,849)
– derivatives 2 2,537 104,981
888,053 1,077,790 1,506,926
8. OTHER INCOME AND GAINS
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Gain on disposal/redemption of held-to-maturity
financial assets 3,780 – –
Gain on disposal of other bond investments 42,979 – –
Non-recurring government grants (Note) 162,811 155,345 107,703
Rental income from investment properties 13,405 14,558 13,016
Others 44,416 26,175 112,777
267,391 196,078 233,496
Note: The non-recurring government grants were received unconditionally by the Company and its
subsidiaries from their local government where they reside. The main purpose is to subsidise the
operation of these entities.
9. DEPRECIATION AND AMORTISATION
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Depreciation for property and equipment 210,219 245,762 247,492
Depreciation for investment properties 3,459 3,458 3,404
Amortisation of other intangible assets 22,734 38,749 48,638
Amortisation of prepaid lease payments 503 503
236,915 288,472 300,037
– I-29 –
APPENDIX I ACCOUNTANTS’ REPORT
10. STAFF COSTS
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Staff costs (including directors’ remuneration
(Note 48)):
Salaries, bonus and allowances 1,806,042 2,170,795 1,926,463
Contributions to annuity plans 22,813 78,197 77,567
Social welfare 396,134 370,676 315,923
2,224,989 2,619,668 2,319,953
The domestic employees of the Group in the PRC participate in a state-managed retirement benefit schemes
operated by the respective local government in the PRC. The Group also operates a Mandatory Provident Fund
Scheme for all qualifying employees in Hong Kong under the Mandatory Provident Fund Schemes Ordinance. The
Group is required to contribute a specified percentage of payroll cost to these pension schemes and annuity plans to
fund the benefits. The only obligation of the Group with respect to these schemes and annuity plans is to make the
specified contributions.
11. BROKERAGE TRANSACTION FEES AND OTHER SERVICES EXPENSES
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Securities and futures dealing and broking
expenses 909,625 807,279 645,569
Services expenses for underwriting, sponsorship,
and financial advisory, etc. 37,497 89,924 101,155
947,122 897,203 746,724
12. INTEREST EXPENSES
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Interest on borrowings wholly repayable within
five years:
– bank loans and overdrafts 6,514 22,759 25,308
– deposit taken from other financial institution – – 13,367
– financial assets sold under repurchase
agreements 54,988 54,025 209,225
– accounts payable to brokerage clients 183,578 198,757 208,991
– others – 5,948 2,905
245,080 281,489 459,796
– I-30 –
APPENDIX I ACCOUNTANTS’ REPORT
13. PROFIT BEFORE INCOME TAX
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
The Group’s profit before income tax is arrived
at after charging (crediting):
Auditors’ remuneration 9,483 9,033 9,593
Impairment loss in respect of available-for-sale
investments included in other expenses 4,659 – 540,409
Reversal of impairment loss in respect of other
receivables (1,560) (3,773) (32,773)
Loss (gain) on disposal of property and
equipment and other intangible assets 809 544 (693)
Gain on disposal of an associate – (4,121) –
Foreign exchange gains, net included in other
income and gains (1,722) (5,814) (68,869)
Operating lease rentals in respect of rented
premises 124,977 194,421 234,584
14. INCOME TAX EXPENSE
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Current tax:
PRC Enterprise Income Tax and other
jurisdictions 1,545,433 1,122,723 1,218,733
Hong Kong Profits Tax 6,938 17,307 21,395
1,552,371 1,140,030 1,240,128
Adjustments in respect of current income tax
in relation to prior years:
PRC Enterprise Income Tax and other
jurisdictions (114,450) (39,441) 19,198
Hong Kong Profits Tax – (2,506) 1,209
(114,450) (41,947) 20,407
Deferred tax:
Current year (117,835) 23,449 (242,368)
1,320,086 1,121,532 1,018,167
Under the Law of the People’s Republic of China on Enterprise Income Tax (the “EIT Law”) and
Implementation Regulation of the EIT Law, the tax rate is 25% from 1 January 2008 onwards. According to
“Notification of the State Council on Carrying out the Transitional Preferential Policies Concerning Enterprise
Income Tax” (Guo Fa [2007] No. 39), branches set up in Shenzhen and Haikou in the PRC are subject to tax rates
of 20%, 22% and 24%, respectively, for each of the years ended 31 December 2009, 2010 and 2011.
Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for the Relevant Periods.
Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.
– I-31 –
APPENDIX I ACCOUNTANTS’ REPORT
A reconciliation of the tax expense applicable to profit before income tax using the applicable rate to the tax
expense at the effective tax rate is as follows:
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Profit before income tax 5,981,827 4,989,690 4,300,164
Tax at the statutory tax rate of 25% 1,495,457 1,247,423 1,075,041
Effect of share of results of associates (16,491) (19,530) (18,229)
Tax effect of expenses not deductible for tax
purpose 10,694 60,947 84,600
Tax effect of income not taxable for tax purpose (63,976) (129,001) (119,637)
Adjustments in respect of current income tax in
relation to prior years (114,450) (41,947) 18,508
Effect of different tax rates of subsidiaries
operating in other jurisdictions (7,497) (13,415) (17,054)
Others 16,349 17,055 (5,062)
Tax charge 1,320,086 1,121,532 1,018,167
The Group has tax losses arising from its subsidiaries in Hong Kong of approximately RMB170 million,
RMB155 million and RMB123 million as at 31 December 2009, 2010 and 2011, respectively, that can be carried
forward indefinitely for offsetting against future taxable profits of the respective companies in which the losses arose.
Additional tax loss of approximately RMB142 million arose from the Group’s acquisition of subsidiaries during the
year ended 31 December 2009. Deferred tax assets have not been recognised in respect of these tax losses as it is
not probable that sufficient future taxable profits will be available in the subsidiaries in which the losses arose against
which the unused tax losses can be utilised in the near future.
15. EARNINGS PER SHARE
The calculation of basic and diluted earnings per share attributable to owners of the Company is as follows:
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Earnings for the purpose of basic earnings
per share:
Profit for the year attributable to owners of
the Company 4,548,226 3,686,264 3,103,034
Effect of dilutive potential ordinary shares:
Adjustment to the share of profit of a listed
subsidiary based on dilution of its earnings
per share – (414) (281)
Earnings for the purpose of diluted earnings
per share 4,548,226 3,685,850 3,102,753
Number of shares:
Number of shares in issue (’000) 8,227,821 8,227,821 8,227,821
For the year ended 31 December 2009, there was no effect of dilutive potential ordinary shares since the Group
acquired the listed subsidiary in December 2009 and did not share any profit or loss of the listed subsidiary for that
year due to insignificance.
– I-32 –
APPENDIX I ACCOUNTANTS’ REPORT
16. PROPERTY AND EQUIPMENT
Group
Leasehold Furniture,
land and Leasehold Electronic Motor fixtures and Construction
buildings improvements equipment vehicles equipment in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
COST
As at 1 January 2009 821,329 291,958 578,006 103,414 109,551 26,638 1,930,896
Additions during the year 16,084 51,590 117,619 27,495 28,761 35,245 276,794
Acquired on acquisition of
subsidiaries 1,857 6,420 8,598 – 7,264 – 24,139
Disposals during the year – – (81,543) (19,721) (14,355) – (115,619)
Transfer during the year – 45,686 – – – (45,686) –
As at 31 December 2009 839,270 395,654 622,680 111,188 131,221 16,197 2,116,210
ACCUMULATED
DEPRECIATION
As at 1 January 2009 162,509 193,173 337,831 58,287 67,537 – 819,337
Provided for the year 24,452 53,036 113,862 10,605 8,264 – 210,219
Eliminated on disposals – – (58,260) (12,376) (9,296) – (79,932)
As at 31 December 2009 186,961 246,209 393,433 56,516 66,505 – 949,624
ALLOWANCE FOR
IMPAIRMENT LOSSES
As at 1 January 2009 30,382 – – – – – 30,382
Recognised in profit or loss – – – – – – –
As at 31 December 2009 30,382 – – – – – 30,382
CARRYING VALUES
As at 31 December 2009 621,927 149,445 229,247 54,672 64,716 16,197 1,136,204
– I-33 –
APPENDIX I ACCOUNTANTS’ REPORT
Leasehold Furniture,
land and Leasehold Electronic Motor fixtures and Construction
buildings improvements equipment vehicles equipment in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
COST
As at 1 January 2010 839,270 395,654 622,680 111,188 131,221 16,197 2,116,210
Additions during the year 1,947 71,979 132,763 30,815 25,011 59,387 321,902
Disposals during the year (62) – (51,049) (12,935) (12,913) – (76,959)
Transfer during the year – 63,648 8,197 – (8,197) (63,648) –
As at 31 December 2010 841,155 531,281 712,591 129,068 135,122 11,936 2,361,153
ACCUMULATED
DEPRECIATION
As at 1 January 2010 186,961 246,209 393,433 56,516 66,505 – 949,624
Provided for the year 25,072 65,727 121,386 17,836 15,741 – 245,762
Eliminated on disposals (29) – (42,778) (10,171) (12,820) – (65,798)
As at 31 December 2010 212,004 311,936 472,041 64,181 69,426 – 1,129,588
ALLOWANCE FOR
IMPAIRMENT LOSSES
As at 1 January 2010 30,382 – – – – – 30,382
Recognised in profit or loss – – – – – – –
As at 31 December 2010 30,382 – – – – – 30,382
CARRYING VALUES
As at 31 December 2010 598,769 219,345 240,550 64,887 65,696 11,936 1,201,183
– I-34 –
APPENDIX I ACCOUNTANTS’ REPORT
Leasehold Furniture,
land and Leasehold Electronic Motor fixtures and Construction
buildings improvements equipment vehicles equipment in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
COST
As at 1 January 2011 841,155 531,281 712,591 129,068 135,122 11,936 2,361,153
Additions during the year 11,679 27,091 99,996 22,245 16,134 62,708 239,853
Disposals during the year (26,357) (81,304) (62,302) (6,794) (9,787) – (186,544)
Transfer during the year 3,768 60,307 1,779 – 956 (63,042) 3,768
As at 31 December 2011 830,245 537,375 752,064 144,519 142,425 11,602 2,418,230
ACCUMULATED
DEPRECIATION
As at 1 January 2011 212,004 311,936 472,041 64,181 69,426 – 1,129,588
Provided for the year 24,691 78,977 109,495 17,312 17,017 – 247,492
Eliminated on disposals (12,597) (81,304) (58,637) (5,753) (8,078) – (166,369)
As at 31 December 2011 224,098 309,609 522,899 75,740 78,365 – 1,210,711
ALLOWANCE FOR
IMPAIRMENT LOSSES
As at 1 January 2011 30,382 – – – – – 30,382
Recognised in profit or loss – – – – – – –
As at 31 December 2011 30,382 – – – – – 30,382
CARRYING VALUES
As at 31 December 2011 575,765 227,766 229,165 68,779 64,060 11,602 1,177,137
The carrying values of the Group’s leasehold land and buildings are situated on land with the following lease
terms:
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Held in Hong Kong
Medium-term lease
(10 – 50 years) 1,857 1,728 1,584
Held in PRC
Long-term lease
(over 50 years) 620,070 597,041 574,181
621,927 598,769 575,765
– I-35 –
APPENDIX I ACCOUNTANTS’ REPORT
Company
Leasehold Furniture,
land and Leasehold Electronic Motor fixtures and Construction
buildings improvements equipment vehicles equipment in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
COST
As at 1 January 2009 821,329 245,219 559,734 97,011 92,311 26,373 1,841,977
Additions during the year 16,084 30,693 114,573 25,957 23,759 30,464 241,530
Disposals during the year – – (80,744) (17,931) (13,266) – (111,941)
Transfer during the year – 40,640 – – – (40,640) –
As at 31 December 2009 837,413 316,552 593,563 105,037 102,804 16,197 1,971,566
ACCUMULATED
DEPRECIATION
As at 1 January 2009 162,509 154,477 328,216 55,782 60,862 – 761,846
Provided for the year 24,452 40,708 107,768 9,364 8,190 – 190,482
Eliminated on disposals – – (57,177) (10,765) (8,349) – (76,291)
As at 31 December 2009 186,961 195,185 378,807 54,381 60,703 – 876,037
ALLOWANCE FOR
IMPAIRMENT LOSSES
As at 1 January 2009 30,382 – – – – – 30,382
Recognised in profit or loss – – – – – – –
As at 31 December 2009 30,382 – – – – – 30,382
CARRYING VALUES
As at 31 December 2009 620,070 121,367 214,756 50,656 42,101 16,197 1,065,147
– I-36 –
APPENDIX I ACCOUNTANTS’ REPORT
Leasehold Furniture,
land and Leasehold Electronic Motor fixtures and Construction
buildings improvements equipment vehicles equipment in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
COST
As at 1 January 2010 837,413 316,552 593,563 105,037 102,804 16,197 1,971,566
Additions during the year 1,947 65,687 121,706 26,825 22,645 59,387 298,197
Disposals during the year – – (50,036) (12,935) (12,543) – (75,514)
Transfer during the year – 63,648 – – – (63,648) –
As at 31 December 2010 839,360 445,887 665,233 118,927 112,906 11,936 2,194,249
ACCUMULATED
DEPRECIATION
As at 1 January 2010 186,961 195,185 378,807 54,381 60,703 – 876,037
Provided for the year 24,976 53,411 111,095 16,493 10,837 – 216,812
Eliminated on disposals – – (42,678) (10,170) (12,720) – (65,568)
As at 31 December 2010 211,937 248,596 447,224 60,704 58,820 – 1,027,281
ALLOWANCE FOR
IMPAIRMENT LOSSES
As at 1 January 2010 30,382 – – – – – 30,382
Recognised in profit or loss – – – – – – –
As at 31 December 2010 30,382 – – – – – 30,382
CARRYING VALUES
As at 31 December 2010 597,041 197,291 218,009 58,223 54,086 11,936 1,136,586
– I-37 –
APPENDIX I ACCOUNTANTS’ REPORT
Leasehold Furniture,
land and Leasehold Electronic Motor fixtures and Construction
buildings improvements equipment vehicles equipment in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
COST
As at 1 January 2011 839,360 445,887 665,233 118,927 112,906 11,936 2,194,249
Additions during the year 11,679 13,987 77,582 16,426 13,957 61,723 195,354
Disposals during the year (26,272) (81,304) (56,229) (6,303) (8,265) – (178,373)
Transfer during the year – 59,322 1,779 – 956 (62,057) –
As at 31 December 2011 824,767 437,892 688,365 129,050 119,554 11,602 2,211,230
ACCUMULATED
DEPRECIATION
As at 1 January 2011 211,937 248,596 447,224 60,704 58,820 – 1,027,281
Provided for the year 24,575 67,173 97,590 14,758 13,371 – 217,467
Eliminated on disposals (12,594) (81,304) (54,278) (5,373) (7,430) – (160,979)
As at 31 December 2011 223,918 234,465 490,536 70,089 64,761 – 1,083,769
ALLOWANCE FOR
IMPAIRMENT LOSSES
As at 1 January 2011 30,382 – – – – – 30,382
Recognised in profit or loss – – – – – – –
As at 31 December 2011 30,382 – – – – – 30,382
CARRYING VALUES
As at 31 December 2011 570,467 203,427 197,829 58,961 54,793 11,602 1,097,079
The Company’s leasehold land and buildings are situated on land in the PRC with long-term lease.
As the lease payments included in the Group and the Company’s leasehold land and buildings cannot be
allocated reliably between the land and buildings, the entire leases are classified as finance leases and accounted for
as property and equipment.
– I-38 –
APPENDIX I ACCOUNTANTS’ REPORT
17. INVESTMENT PROPERTIES
Group
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
COST
At beginning of the year 125,585 125,585 125,585
Transfer to property and equipment – – (5,491)
At end of the year 125,585 125,585 120,094
ACCUMULATED DEPRECIATION
At beginning of the year 18,024 21,483 24,941
Provided for the year 3,459 3,458 3,404
Eliminated on transfer to property and equipment – – (1,723)
At end of the year 21,483 24,941 26,622
CARRYING VALUES
At end of the year 104,102 100,644 93,472
The fair values of the Group’s investment properties at 31 December 2009, 2010 and 2011, were
RMB258,487,000, RMB240,834,000 and RMB256,305,000, respectively. The fair values have been determined by
the directors of the Company by reference to recent market prices for similar properties in the same or similar
locations and conditions.
Company
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
COST
At beginning and end of the year 120,094 120,094 120,094
ACCUMULATED DEPRECIATION
At beginning of the year 16,637 19,966 23,294
Provided for the year 3,329 3,328 3,328
At end of the year 19,966 23,294 26,622
CARRYING VALUES
At end of the year 100,128 96,800 93,472
The fair values of the Company’s investment properties at 31 December 2009, 2010 and 2011, were
RMB233,053,000, RMB213,773,000 and RMB256,305,000, respectively. The fair values have been determined by
the directors of the Company by reference to recent market prices for similar properties in the same or similar
locations and conditions.
The above investment properties are depreciated over their estimated useful lives of 35 years and after taking
into account their estimated residual value of 3%, using the straight-line method.
All investment properties held by the Group and the Company are situated on land in the PRC with long-term
lease.
– I-39 –
APPENDIX I ACCOUNTANTS’ REPORT
18. GOODWILL
Group
Cost and carrying value
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
At beginning of the year 5,896 697,056 673,860
Arising on acquisition of subsidiaries 691,160 – –
Exchange adjustments – (23,196) (31,580)
At end of the year 697,056 673,860 642,280
Particulars regarding impairment testing on goodwill are disclosed in note 20.
19. OTHER INTANGIBLE ASSETS
Group
Trading Computer Construction
rights software Others in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
COST
As at 1 January 2009 219,100 114,512 49,329 1,456 384,397
Additions during the year 2,162 14,925 – 8,744 25,831
Acquired on acquisition of
subsidiaries 4,059 80,526 – – 84,585
Disposals during the year (4,050) (16,671) – – (20,721)
Transfer during the year – 3,558 – (3,558) –
As at 31 December 2009 221,271 196,850 49,329 6,642 474,092
ACCUMULATED
AMORTISATION
As at 1 January 2009 121,854 66,760 15,854 – 204,468
Provided for the year – 18,993 3,741 – 22,734
Eliminated on disposals (2,524) (14,365) – – (16,889)
As at 31 December 2009 119,330 71,388 19,595 – 210,313
ALLOWANCE FOR
IMPAIRMENT LOSSES
As at 1 January 2009 1,526 – – – 1,526
Eliminated on disposals (1,526) – – – (1,526)
As at 31 December 2009 – – – – –
CARRYING VALUES
As at 31 December 2009 101,941 125,462 29,734 6,642 263,779
– I-40 –
APPENDIX I ACCOUNTANTS’ REPORT
Trading Computer Construction
rights software Others in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
COST
As at 1 January 2010 221,271 196,850 49,329 6,642 474,092
Additions during the year 1,568 59,714 161 4,715 66,158
Disposals during the year (531) (2,513) – – (3,044)
Transfer during the year – 4,882 – (4,882) –
As at 31 December 2010 222,308 258,933 49,490 6,475 537,206
ACCUMULATED
AMORTISATION
As at 1 January 2010 119,330 71,388 19,595 – 210,313
Provided for the year – 35,397 3,352 – 38,749
Eliminated on disposals (500) (1,085) – – (1,585)
As at 31 December 2010 118,830 105,700 22,947 – 247,477
CARRYING VALUES
As at 31 December 2010 103,478 153,233 26,543 6,475 289,729
COST
As at 1 January 2011 222,308 258,933 49,490 6,475 537,206
Additions during the year 170 67,017 48 7,429 74,664
Disposals during the year (1,100) (12,408) (308) – (13,816)
Transfer during the year – 8,274 – (8,274) –
As at 31 December 2011 221,378 321,816 49,230 5,630 598,054
ACCUMULATED
AMORTISATION
As at 1 January 2011 118,830 105,700 22,947 – 247,477
Provided for the year 170 44,708 3,760 – 48,638
Eliminated on disposals – (6,019) (69) – (6,088)
As at 31 December 2011 119,000 144,389 26,638 – 290,027
CARRYING VALUES
As at 31 December 2011 102,378 177,427 22,592 5,630 308,027
– I-41 –
APPENDIX I ACCOUNTANTS’ REPORT
Company
Trading Computer Construction
rights software Others in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
COST
As at 1 January 2009 219,100 88,677 47,529 1,456 356,762
Additions during the year 1,300 6,737 – 8,744 16,781
Disposals during the year (4,050) (15,406) – – (19,456)
Transfer during the year – 3,558 – (3,558) –
As at 31 December 2009 216,350 83,566 47,529 6,642 354,087
ACCUMULATED
AMORTISATION
As at 1 January 2009 121,854 56,286 15,404 – 193,544
Provided for the year – 14,747 3,560 – 18,307
Eliminated on disposals (2,524) (14,010) – – (16,534)
As at 31 December 2009 119,330 57,023 18,964 – 195,317
ALLOWANCE FOR
IMPAIRMENT LOSSES
As at 1 January 2009 1,526 – – – 1,526
Eliminated on disposals (1,526) – – – (1,526)
As at 31 December 2009 – – – – –
CARRYING VALUES
As at 31 December 2009 97,020 26,543 28,565 6,642 158,770
– I-42 –
APPENDIX I ACCOUNTANTS’ REPORT
Trading Computer Construction
rights software Others in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
COST
As at 1 January 2010 216,350 83,566 47,529 6,642 354,087
Additions during the year – 11,158 – 4,715 15,873
Disposals during the year (500) (562) – – (1,062)
Transfer during the year – 4,882 – (4,882) –
As at 31 December 2010 215,850 99,044 47,529 6,475 368,898
ACCUMULATED
AMORTISATION
As at 1 January 2010 119,330 57,023 18,964 – 195,317
Provided for the year – 16,958 3,173 – 20,131
Eliminated on disposals (500) (542) – – (1,042)
As at 31 December 2010 118,830 73,439 22,137 – 214,406
CARRYING VALUES
As at 31 December 2010 97,020 25,605 25,392 6,475 154,492
COST
As at 1 January 2011 215,850 99,044 47,529 6,475 368,898
Additions during the year 170 18,054 – 7,429 25,653
Disposals during the year – (1,255) (300) – (1,555)
Transfer during the year – 8,274 – (8,274) –
As at 31 December 2011 216,020 124,117 47,229 5,630 392,996
ACCUMULATED
AMORTISATION
As at 1 January 2011 118,830 73,439 22,137 – 214,406
Provided for the year 170 16,989 3,556 – 20,715
Eliminated on disposals – (1,209) (69) – (1,278)
As at 31 December 2011 119,000 89,219 25,624 – 233,843
CARRYING VALUES
As at 31 December 2011 97,020 34,898 21,605 5,630 159,153
Trading rights mainly comprise the trading rights in the Shanghai Stock Exchange, the Shenzhen Stock
Exchange, the Hong Kong Stock Exchange and the Hong Kong Futures Exchange Limited which allow the Group to
trade securities and futures contracts on or through these exchanges.
– I-43 –
APPENDIX I ACCOUNTANTS’ REPORT
20. IMPAIRMENT TESTING ON GOODWILL AND TRADING RIGHTS WITH INDEFINITE USEFUL
LIVES
Impairment testing on goodwill
For the purpose of impairment testing, goodwill set out in Note 18 has been allocated to two individual
cash generating units (CGUs), including one subsidiary in Shanghai (“Unit A”) and one subsidiary in Hong
Kong (“Unit B”). The carrying amounts of goodwill as at 31 December 2009, 31 December 2010, and 31
December 2011 allocated to these units are as follows:
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Unit A – Haitong Futures Co., Ltd. 5,896 5,896 5,896
Unit B – Haitong International Securities
Group Limited 691,160 667,964 636,384
697,056 673,860 642,280
During the years ended 31 December 2009, 2010 and 2011, management of the Group determines that
there are no impairments of any of its CGUs containing goodwill as the recoverable amounts of Unit A and
Unit B exceed their respective carrying amounts.
The basis of the recoverable amounts of the above CGUs and their major underlying assumptions are
summarised below:
The recoverable amounts of Unit A and Unit B have been determined on the basis of value in use
calculation. That calculation uses cash flow projections based on financial budgets approved by management
covering a 5-year period, and at a discount rate of 8%, 8%, 8% and 7%, 7%, 5.6%, for Unit A and Unit B,
respectively, as at 31 December 2009, 2010 and 2011. The discount rates used reflect specific risks relating
to the relevant CGUs.
Other key assumptions for the value in use calculations relate to the estimation of cash inflows/outflows
which include budgeted income and gross margin, such estimation is based on the units’ past performance and
management’s expectations for the market development.
Management believes that any reasonably possible change in any of these assumptions would not cause
the aggregate carrying amount of Unit A or Unit B to exceed their respective aggregate recoverable amount.
Impairment testing on trading rights with indefinite useful lives
The trading rights held by the Group are considered by the directors of the Company as having indefinite
useful lives because they are expected to contribute net cash inflows indefinitely. The trading rights will not
be amortised until their useful life is determined to be finite. Instead, they will be tested for impairment
annually and whenever there is an indication that they may be impaired. The respective recoverable amounts
of the two cash generating units relating to brokerage business whereby these trading rights are allocated to,
using a value in use calculation, exceed the carrying amounts. Accordingly, there is no impairment of the
trading rights as at 31 December 2009, 2010 and 2011.
– I-44 –
APPENDIX I ACCOUNTANTS’ REPORT
21. INVESTMENTS IN SUBSIDIARIES
Company
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Unlisted shares, at cost 5,333,310 7,054,730 8,283,130
Less: Allowance for impairment losses – – –
5,333,310 7,054,730 8,283,130
As of each of the reporting period ends and at the date of this report, the Company has the following
subsidiaries comprising the Group:
Equity interest held by the Group
As at
Place of date of Share capital/
incorporation/ As at 31 December this registered and
Name of subsidiary establishment 2009 2010 2011 report paid-up capital Principal activities Statutory auditor#
mw[ Wú‘{t g –PQlS PRC 51% 51% 51% 51% RMB150,000,000 Provision of fund KPMG Huazhen
HFT Investment Management Co., Ltd.* trading,
distribution and
management
services
mw[ u\"{t (n/ )g – Q S Hong Kong – 100% 100% 100% HKD60,000,000 Provision of asset KPMG HK
HFT Investment Management (HK) management
Limited services
mw[u\"imbWú‘t PRC 67% 67% 67% 67% RMB20,000,000 Provision of Deloitte PRC
g – Q S advisory services
Haitong-Fortis Private Equity Fund and fund
Management Co., Ltd.* management
services
mw bg – Q S PRC 100% 100% 100% 100% RMB4,000,000,000 Provision of Shu Lun Pan
Haitong Capital Investment Co., Ltd.* advisory services
and proprietary
trading
mw T yk bWú‘t PRC – 51% 51% 51% RMB50,000,000 Provision of Shu Lun Pan
g – QlS advisory services
Haitong Jihe Private Equity Investment and investment
Fund Management Company Limited* management
mw W – §g – Q S Hong Kong 100% 100% 100% 100% HKD4,000,000,000 Investment holding BDO
(ST mw (n/ )‘c§
g – Q S )
Haitong International Holdings Limited
(Formerly known as Hai Tong (HK)
Financial Holdings Limited)
mw R8 (n/ )} g – Q S Hong Kong 100% 100% 100% 100% HKD300,000,000 Inactive BDO
Hai Tong Securities (HK) Brokerage
Limited
mw u\"{t (n/ )g – Q S Hong Kong 100% 100% 100% 100% HKD20,000,000 Provision of fund Note 1
Hai Tong Asset Management (HK) management
Limited\" services
(Formerly known as Hai Tong Assets
Management (HK) Limited)
– I-45 –
APPENDIX I ACCOUNTANTS’ REPORT
Equity interest held by the Group
As at
Place of date of Share capital/
incorporation/ As at 31 December this registered and
Name of subsidiary establishment 2009 2010 2011 report paid-up capital Principal activities Statutory auditor#
mw (n/ )g – Q S Hong Kong 100% 100% 100% 100% HKD10,000,000 Provision of Note 1
Hai Tong Capital (HK) Limited\" corporate
advisory services
m IR (n/ )g – Q S Hong Kong 100% 100% 100% – HKD1 Inactive Note 2
Hai Tong Securities (HK) Limited+
m g ¨ (n/ )g – Q S Hong Kong 100% 100% 100% – HKD1 Inactive Note 2
Hai Tong Futures (HK) Limited+
m x zv (n/ )g – Q S Hong Kong 100% 100% 100% – HKD1 Inactive Note 2
Hai Tong Research (HK) Limited+
m W –‘c§g –P Hong Kong – 100% 100% – HKD1 Inactive Note 2
Haitong International Financial Holdings
Company Limited+
N m m Qb –P PRC 100% 100% 100% 100% RMB10,000,000 Provision of nìl_Oág ^+NR
Shanghai Haitong Open Trillion advisory services b@g – Q S ,
Investment Consulting Company certified public
Limited* accountants
registered in the
PRC
mW3mw bbg – Q S PRC – 100% 100% 100% RMB10,000,000 Provision of mW3]ènóT g ^+
Shenzhen Haitong Open Trillion advisory services NRb@, certified
Investment Consulting Company public accountants
Limited* registered in the
PRC
Haitong PE Investment Management Cayman Islands 100% 100% 100% 100% USD10 Investment Note 3
Ltd. \" management
(Formerly known as Haitong Drilex
Investment Management Ltd.)
f [ t°t g Rg –P Hong Kong – 60% 60% 60% HKD5,000,000 Provision of call Counselors CPA
Epro Global Services Limited centre and Limited, certified
system public accountants
maintenance registered in Hong
services Kong
mw W – l UOg – Q S Hong Kong – 60% 60% 60% HKD100,000 Provision of Leslie Cheng & Co.,
(ST Y’ykwe yl UO immigration certified public
g – Q S ) consultancy accountants
Haitong International Immigration services registered in Hong
Consultants Limited Kong
(Formerly known as Taifook Lexton
Immigration Consultants Limited)
mw g – Q S PRC 93.334% 93.334% 66.667% 66.667% RMB1,000,000,000 Physical Zhonghua Certified
Haitong Futures Co., Ltd.* commodities and Public Accountants,
futures contracts certified public
broking and accountants
dealing registered in the
PRC
mw W – R8–W g – Q S Bermuda 57.3% 60.59% 69.74% 69.74% HKD91,534,271 Investment holding PWC
(ST Y’yIR8–W g – Q S )
Haitong International Securities Group
Limited
(Formerly known as Taifook Securities
Group Limited)
Ru[g g – Q S Hong Kong 100% 100% 100% – HKD1,000,000 Inactive PWC
E-wealth Club Limited
Grand Fortune Company Limited Cayman Islands – 100% 100% 100% HKD1 Investment Note 3
– I-46 –
APPENDIX I ACCOUNTANTS’ REPORT
Equity interest held by the Group
As at
Place of date of Share capital/
incorporation/ As at 31 December this registered and
Name of subsidiary establishment 2009 2010 2011 report paid-up capital Principal activities Statutory auditor#
mw W –u\"{t g –PQlS Hong Kong 100% 100% 100% 100% HKD13,000,000 Investment holding PWC
(ST Y’yu\"{t g – Q S ) and asset
Haitong International Asset Management management
Limited
(Formerly known as Taifook Asset
Management Limited)
mw W – u\"{t Nt N”g – Q S Hong Kong 100% 100% 100% 100% HKD6,000,000 Proprietary trading PWC
(ST Y’yu\"{t Nt N”g – Q S )
Haitong International Asset Management
Nominees Limited
(Formerly known as Taifook Asset
Management Nominees Limited)
mw W – img – Q S Hong Kong 100% 100% 100% 100% HKD7,000,000 Bullion contracts PWC
(ST Y’yimg – Q S ) dealing and
Haitong International Bullion Limited trading
(Formerly known as Taifook Bullion
Limited)
Haitong International (BVI) Limited British Virgin 100% 100% 100% 100% HKD11,576 Investment holding PWC
(Formerly Taifook (BVI) Limited) Islands
mw W – g,g – Q S Hong Kong 100% 100% 100% 100% HKD20,000,000 Provision of PWC
(ST Y’yg – Q S ) corporate
Haitong International Capital Limited advisory services
(Formerly known as Taifook Capital
Limited)
Haitong International Capital British Virgin 100% 100% 100% 100% USD1 Investment holding Note 3
Management Limited Islands
(ST Taifook Capital Management
Limited and
Y’yWú‘t g – Q S ) (Formerly
known as Taifook Capital Management
Limited and Tai Fook Fund Managers
Limited)
m W –g –P Hong Kong 60% 60% 60% 60% HKD5,000,000 Provision of Leslie Cheng & Co.,
(ST Y’ykwe UOg – Q S ) financial certified public
Haitong International Consultants advisory services accountants
Limited registered in Hong
(Formerly known as Taifook Lexton Kong
Consultants Limited)
Haitong International E-wealth Club British Virgin 100% 100% 100% 100% USD1 Investment holding Note 3
Inc. Islands
(Formerly known as Taifook E-wealth
Club Inc.)
m W –Rg –P Hong Kong 100% 100% 100% 100% HKD300,000,002 Investment holding, PWC
(ST Y’yRg – Q S ) (Non-voting money lending
Haitong International Finance Company deferred and securities
Limited HKD100,700,001) trading
(Formerly known as Taifook Finance
Company Limited)
mw W – u[t UO (o ) g – Q S Macau 45% 59% 59% 59% MOP500,000 Provision of Leong Kam Chun &
(ST Y’ykwe Ru[t UO (o ) support services Co., certified
g – Q S ) public accountants
Haitong International Financial registered in
Management Consultancy (Macau) Macau
Limited
(Formerly known as Taifook Lexton
Wealth Management Consultants
(Macau) Limited)
– I-47 –
APPENDIX I ACCOUNTANTS’ REPORT
Equity interest held by the Group
As at
Place of date of Share capital/
incorporation/ As at 31 December this registered and
Name of subsidiary establishment 2009 2010 2011 report paid-up capital Principal activities Statutory auditor#
mw W –g ¨g –PQlS Hong Kong 100% 100% 100% 100% HKD100,000,000 Futures and options PWC
(ST Y’yg – Q S ) broking and
Haitong International Futures Limited trading
(Formerly known as Taifook Futures
Limited)
Haitong International Information British Virgin 100% 100% 100% 100% USD1 Investment holding Note 3
Systems Inc. Islands
(Formerly known as Taifook
Information Systems Inc.)
m W – |}q –P Hong Kong 100% 100% 100% 100% HKD11,000,000 Provision of PWC
(ST Y’y | } g – Q S ) information
Haitong International Information technology
Systems Limited solutions
(Formerly known as Taifook
Information Systems Limited)
Haitong International British Virgin 100% 100% 100% 100% USD1 Investment holding Note 3
Information Technology Inc. Islands
(Formerly known as Taifook
Information Technology Inc.)
Haitong International British Virgin 100% 100% 100% 100% USD1 Investment holding Note 3
Investment Management Inc. Islands
(Formerly known as Taifook
Investment Management Inc.)
m W –b}“t g –P Hong Kong 100% 100% 100% 100% HKD47,000,000 Provision of asset PWC
(ST Y’ybt g – Q S ) and fund
Haitong International Investment management
Managers Limited services
(Formerly known as Taifook
Investment Managers Limited)
mw W – g Rg – Q S Hong Kong 100% 100% 100% 100% HKD42,500,000 Securities broking PWC
(ST Y’ybg Rg – Q S ) and dealing
Haitong International Investment Services
Limited
(Formerly known as Taifook
Investment Services Limited)
mw W – im{t UOg – Q S Hong Kong 100% 100% 100% – HKD2 Inactive PWC
(ST Y’yO im{t UOg – Q S )
Haitong International Management
Consultancy Limited
(Formerly known as Taifook
Management Consultancy Limited)
mw W – g Rg – Q S Hong Kong 100% 100% 100% 100% HKD2 Provision of PWC
(ST Y’yt g Rg – Q S ) management
Haitong International Management services
Services Company Limited
(Formerly known as Taifook
Management Services Company
Limited)
Haitong International Net Inc. British Virgin 100% 100% 100% 100% USD1 Investment holding Note 3
(Formerly known as Taifook Net Inc.) Islands
m W –}g –P Hong Kong 100% 100% 100% 100% HKD1,000,000 Inactive PWC
(ST Y’yg – Q S )
Haitong International Net Limited
(Formerly known as Taifook Net
Limited)
– I-48 –
APPENDIX I ACCOUNTANTS’ REPORT
Equity interest held by the Group
As at
Place of date of Share capital/
incorporation/ As at 31 December this registered and
Name of subsidiary establishment 2009 2010 2011 report paid-up capital Principal activities Statutory auditor#
mw W –Nt Ng –PQlS Hong Kong 100% 100% 100% 100% HKD50,000,000 Securities trading PWC
(ST Y’yNt N”g – Q S )
Haitong International Nominees Company
Limited
(Formerly known as Taifook Nominees
Company Limited)
Haitong International On-line Inc. British Virgin 100% 100% 100% 100% USD1 Investment holding Note 3
(Formerly known as Taifook On-line Islands
Inc.)
m W ––[}N g Rg –P Hong Kong 100% 100% 100% 100% HKD6,000,000 Provision of PWC
(ST Y’yPN g Rg – Q S ) electronic
Haitong International On-line Services financial services
Limited
(Formerly known as Taifook On-line
Services Limited)
mw W – zvg – Q S Hong Kong 100% 100% 100% 100% HKD1,000,000 Provision of PWC
(ST mw W – ex zvg – Q SS research services
Y’yex zvg – Q S )
Haitong International Research Limited
(Formerly known as Taifook Research
Limited)
mw W – R8g – Q S Hong Kong 100% 100% 100% 100% HKD1,500,000,000 Securities broking PWC
(ST Y’yIR8g – Q S ) and dealing and
Haitong International Securities Company leverage foreign
Limited exchange trading
(Formerly known as Taifook Securities
Company Limited)
mw W – R8Nt N”g – Q S Hong Kong 100% 100% 100% 100% HKD2 Provision of PWC
(ST Y’yIR8Nt N”g – Q S ) nominee and
Haitong International Securities custodian
Nominees Limited services
(Formerly known as Taifook Securities
Nominees Limited)
mw W – u[t W g – Q S Hong Kong 100% 100% 100% 100% HKD3,500,000 Inactive PWC
(ST Y’yRu[t W g – Q S )
Haitong International Wealth
Management Group Limited
(Formerly known as Taifook Wealth
Management Group Limited)
mw Y’ybb (mW3g – Q S PRC – – 100% 100% HKD2,000,000 Provision of mW3l8Oát^Tg ^+
Haitong Taifook Investment Consultancy investment NRb@, certified
(Shenzhen) Company Limited* consultancy public accountants
services registered in the
PRC
mw Y’ybb (N mw)g – Q S PRC – – – 100% HKD2,000,000 Provision of Note 5
Haitong Taifook Investment Consultancy investment
(Shanghai) Company Limited* consultancy
services
m W –Ru[t g –P Hong Kong 60% 60% 60% 60% HKD1,240,000 Provision of Leslie Cheng & Co.,
(ST Y’ykwe Ru[t – Q S ) financial certified public
Haitong International Wealth planning services accountants
Management Limited and financial and registered in Hong
(Formerly known as Taifook Lexton insurance Kong
Wealth Management Limited) products
brokerage
– I-49 –
APPENDIX I ACCOUNTANTS’ REPORT
Equity interest held by the Group
As at
Place of date of Share capital/
incorporation/ As at 31 December this registered and
Name of subsidiary establishment 2009 2010 2011 report paid-up capital Principal activities Statutory auditor#
IB Capital Management Limited Cayman Islands – 100% 100% – USD50,000 Inactive Note 3
o Y yb –P Hong Kong 100% 100% 100% 100% HKD2 Investment holding PWC
iT Technology Company Limited
iT Technology Holdings Inc. British Virgin 100% 100% 100% 100% USD1 Investment holding Note 3
Islands
o Y yb (mW3g – Q S PRC 100% 100% 100% 100% HKD10,000,000 Provision of mW3l8Oát^Tg ^+
iT Technology (Shenzhen) Company software NRb@, certified
Limited* development public accountants
services registered in the
PRC
Ocean Pilot Investments Limited British Virgin 100% 100% 100% 100% USD1 Investment holding Note 3
Islands
a vg –P Hong Kong 100% 100% 100% 100% HKD2 Investment holding PWC
Prosper Ideal Limited
Y’ybbgUO (^] )g – Q S PRC 100% 100% 100% 100% HKD2,000,000 Provision of ^]kc|g ^+NR
Taifook Investment Consultancy investment b@ certified public
(Guangzhou) Company Limited* consultancy accountants
services registered in the
PRC
Y’ybbgUO (N mw)g – Q S PRC 100% 100% 100% 100% USD700,000 Provision of N mwzToT g ^+
Taifook Investment Consultancy investment NRb@, certified
(Shanghai) Company Limited* consultancy public accountants
services registered in the
PRC
mw Rue°g,{t g – Q S PRC – – 51% 51% RMB50,000,000 Provision of Shu Lun Pan
Haitong Chuangxin Capital Management investment and
Company Limited* asset
management and
investment
consultancy
services
Haitong International Asset Management Cayman Islands – 100% 100% 100% JPY10,000 Provision of Note 3
(Cayman) Limited investment
management
services
f f [R (mW3g – Q S PRC – 60% 60% 60% RMB3,000,000 Provision of call Note 4
Epro Electronic Commerce (Shenzhen) centre and
Company Limited* system
maintenance
services
Y yu\"{t g –P Hong Kong – 100% – – HKD1 Inactive PWC
§
Taifook Asset Management Limited
Y’yimg – Q S Hong Kong – 100% – – HKD1 Inactive Note 2
§
Taifook Bullion Limited
Y yg –P Hong Kong – 100% – – HKD1 Inactive Note 2
§
Taifook Capital Limited
Y ykwe g –P Hong Kong – 100% – – HKD1 Inactive Note 2
§
Taifook Lexton Consultants Limited
Y yg ¨g –P Hong Kong – 100% – – HKD1 Inactive Note 2
§
Taifook Futures Limited
– I-50 –
APPENDIX I ACCOUNTANTS’ REPORT
Equity interest held by the Group
As at
Place of date of Share capital/
incorporation/ As at 31 December this registered and
Name of subsidiary establishment 2009 2010 2011 report paid-up capital Principal activities Statutory auditor#
Y’yb}“t g –PQlS Hong Kong – 100% – – HKD1 Inactive Note 2
§
Taifook Investment Managers Limited
Y ybg Rg –P Hong Kong – 100% – – HKD1 Inactive Note 2
§
Taifook Investment Services Limited
Y yex zvg –P Hong Kong – 100% – – HKD1 Inactive Note 2
§
Taifook Research Limited
Y yIR –P Hong Kong – 100% – – HKD1 Inactive Note 2
§
Taifook Securities Company Limited
Y yIR–W g –P Hong Kong – 100% – – HKD1 Inactive PWC
§
Taifook Securities Group Limited
Y’ykwe Ru[t – Q S Hong Kong – 100% – – HKD1 Inactive Note 2
Taifook Lexton Wealth Management
Limited §
* English translated name is for identification only.
The subsidiary is directly held by the Company.
The subsidiary’s shares are listed on the Main Board of the Hong Kong Stock Exchange. On 16 August
2011, the subsidiary has issued new shares at HKD4.25 per share by way of capitalisation of
HKD850,000,000 out of total outstanding amount of intercompany loans due to its immediate holding
company, Haitong International Holdings Limited.
The equity interest in the subsidiary represents the equity interest held directly by HFT Investment
Management Company Limited.
\" The equity interest in the subsidiary was held directly or indirectly by Haitong International Holdings
Limited as at 31 December 2009 and is subsequently held indirectly by Haitong International Securities
Group Limited as at 31 December 2010, 31 December 2011 and at the date of this report.
The equity interest in the subsidiary represents the effective equity interest held directly or indirectly
by Haitong International Securities Group Limited.
The paid-up capital of the subsidiary has increased from RMB500,000,000 to RMB1,000,000,000
during the year ended 31 December 2011. The Company and the non-controlling interest of the
subsidiary paid RMB228,400,000 and RMB342,600,000, respectively, to subscribe for the additional
interests. The interests in the subsidiary held by the Group has decreased from 93.334% to 66.67%.
During the year ended 31 December 2011, all members of the subsidiary resolved to deregister and
dissolve the subsidiary. As at date of this report, deregistration procedures have been completed and the
subsidiary has been dissolved on 30 March 2012.
+ Subsequent to 31 December 2011, the subsidiary was deregistered on 20 January 2012.
During the year ended 31 December 2011, all members of the respective subsidiaries resolved to
deregister and dissolve the subsidiaries, which subject to the issue of the notice of no objection by the
Inland Revenue Department and publication of a notice of the proposed deregistration in the
Government Gazette pursuant to the section 291AA of the Hong Kong Companies Ordinance. As at date
of this report, deregistration procedures have been completed.
§ The Group has disposed of the interests in these subsidiaries during the year ended 31 December 2011.
The non-voting deferred shares carry no rights to dividends, attend or vote at general meetings and
receive any surplus in a return of capital, winding-up or otherwise in respect of the first HKD100,000
billion thereof.
– I-51 –
APPENDIX I ACCOUNTANTS’ REPORT
During the year ended 31 December 2011, all members of the respective subsidiaries resolved to
deregister and dissolve the subsidiaries, which subject to the issue of the notice of the proposed
deregistration in the Government Gazette pursuant to the section 291AA of the Hong Kong Companies
Ordinance. As at date of this report, deregistration procedures have not been completed.
# Statutory auditor of respective subsidiary of the Group are as follows:
– BDO represents BDO Limited, certified public accountants registered in Hong Kong;
– Deloitte PRC represents Deloitte Touche Tohmatsu CPA Ltd. (_Rl8g ^+NRb@g – Q S ),
certified public accountants registered in the PRC;
– KPMG HK represents KPMG in Hong Kong, certified public accountants registered in Hong
Kong;
– KPMG Huazhen represents KPMG Huazhen, certified public accountants registered in the PRC;
– PWC represents PricewaterhouseCoopers, certified public accountants registered in Hong Kong;
and
– Shu Lun Pan represents Shu Lun Pan Certified Public Accountants Co., Ltd. (zOág NRg –
Q S ), certified public accountants registered in the PRC.
Note 1 The subsidiary was audited by BDO for the year ended 31 December 2009 and was audited by PWC for
the year ended 31 December 2010 and 2011.
Note 2 No audited financial statements were issued during the Relevant Periods for the subsidiary since the
subsidiary was inactive since its incorporation.
Note 3 There was no statutory audit requirement for the subsidiary and accordingly no audited financial
statements were issued during the Relevant Periods.
Note 4 The subsidiary was newly incorporated during the Relevant Periods and no statutory audit has been
performed since its establishment and up to the date of the report.
Note 5 The subsidiary was newly incorporated subsequent to 31 December 2011.
22. INVESTMENTS IN ASSOCIATES
Group
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Cost of unlisted investments in associates 103,749 394,207 764,207
Share of post-acquisition profits and other
comprehensive income, net of dividends
received 111,998 149,074 161,907
215,747 543,281 926,114
– I-52 –
APPENDIX I ACCOUNTANTS’ REPORT
Company
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Cost of unlisted investments in associates 92,907 92,907 92,907
As of each of the reporting period ends, the Group has the following associates:
Place of Equity interest held by the Group
incorporation/ As at 31 December
Name of associates establishment 2009 2010 2011 Principal activities
[ W Wú‘{t g –PQlS PRC 27.78% 27.78% 27.78% Provision of fund trading
Fullgoal Fund Management Co. Ltd.* distribution services
mw[S/ (Y)m%g,{t O im (g – T Y% ) PRC 65.00% 65.00% 65.00% Investing in securities
HFT Jinhui (Tianjin) Capital Management
Enterprise (Limited Partnership)*^
T g—w sNimTe u\"imb PRC – 37.50% 37.50% Investing in securities
Wú‘g – Q S
Jilin Modern Agricultural and Emerging Markets
Investment Fund Limited*@
‰ [ Y)e°nu\"imbg – Q S PRC – – 37.00% Investing in securities
Xi’an Aerospace and New Energy Industry
Fund*
bUFY’yu\"{t g – Q S Hong Kong 49.00% – – Asset management
CMTF Asset Management Limited#
* English translated name is for identification only.
^ Pursuant to the partnership agreement, the Group is a limited partner of the partnership and therefore
the Group does not control HFT Jinhui (Tianjin) Capital Management Enterprise (Limited Partnership)
(mw[S/ (Y)m%g,{t O im (g – T Y% )). The directors of the Company consider that the Group does
exercise significant influence over HFT Jinhui (Tianjin) Capital Management Enterprise (Limited
Partnership) (mw[S/ (Y)m%g,{t O im (g – T Y% )) through the Group’s participation in its
operating and financing activities and it is therefore classified as an associate of the Group.
@
The associate was established in 2010 and the Group made capital injection of RMB300,000,000 on its
establishment.
The associate was established in 2011 and the Group made capital injection of RMB370,000,000 on its
establishment.
# The associate was acquired through the acquisition of Haitong International Securities Group Limited
in December 2009 and was disposed of at a cash consideration of HKD15,680,000 (equivalent to
RMB13,806,000) in January 2010. The gain arising from the disposal of HKD4,843,000 (equivalent to
RMB4,121,000) was recognised as other income during the year ended 31 December 2010 accordingly.
– I-53 –
APPENDIX I ACCOUNTANTS’ REPORT
The summarised financial information in respect of the Group’s associates is set out below:
Group
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Total assets 868,760 1,833,714 2,882,151
Total liabilities (158,031) (197,434) (207,531)
Net assets 710,729 1,636,280 2,674,620
Group’s share of net assets of associates 202,215 532,755 911,602
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Income for the year 796,279 877,477 900,139
Total profit for the year 251,644 292,802 273,547
Other comprehensive income (expense) for
the year 7,475 5,223 (48,007)
Group’s share of profits and other comprehensive
income of associates for the year 68,038 79,570 64,828
– I-54 –
APPENDIX I ACCOUNTANTS’ REPORT
23. AVAILABLE-FOR-SALE INVESTMENTS
Group
As at 31 December
2009 2010 2011
RMB’000 RMB’000 RMB’000
Debt securities 110,938 278,522 507,743
Equity securities 6,049,354 5,735,718 7,644,569
Funds 488,213 924,017 607,899
6,648,505 6,938,257 8,760,211
Analysed as:
Listed in Hong Kong 21,992 16,501 58,253
Listed outside Hong Kong (primarily in the
PRC) 5,670,210 4,912,892 6,211,410
Unlisted 956,303 2,008,864 2,490,548
6,648,505 6,938,257 8,760,211
Analysed as:
Listed equity securities 5,642,236 4,845,408 6,071,117
Unlisted equity securities 407,118 890,310 1,573,452
6,049,354 5,735,718 7,644,569
Analysed for reporting purpose as:
Current assets 5,778,403 5,060,788 6,826,646
Non-current assets 870,102 1,877,469 1,933,565
6,648,505 6,938,257 8,760,211
– I-55 –
APPENDIX I ACCOUNTANTS’ REPORT
Company
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Debt securities 110,938 270,472 507,743
Equity securities 5,704,696 4,741,075 5,903,543
Funds 191,834 222,160 260,590
6,007,468 5,233,707 6,671,876
Analysed as:
Listed outside Hong Kong (primarily in
the PRC) 5,659,675 4,726,950 5,961,083
Unlisted 347,793 506,757 710,793
6,007,468 5,233,707 6,671,876
Analysed as:
Listed equity securities 5,606,185 4,642,964 5,808,364
Unlisted equity securities 98,511 98,111 95,179
5,704,696 4,741,075 5,903,543
Analysed for reporting purpose as:
Current assets 5,717,123 4,913,712 6,318,692
Non-current assets 290,345 319,995 353,184
6,007,468 5,233,707 6,671,876
The equity interest in unlisted securities held by the Group and the Company are issued by private companies
(including companies in (among others) banking, manufacturing, property development and utilities sectors). As the
reasonable range of fair value estimation is so significant that the directors of the Company are of the opinion that
the fair value cannot be measured reliably, the value of the securities is measured at cost less impairment at the
reporting date.
Included in the Group’s listed equity securities of approximately RMB4,155,143,000, RMB1,270,717,000 and
RMB1,423,849,000 as at 31 December 2009, 2010 and 2011, respectively, are restricted shares listed in the PRC with
a legally enforceable restriction on these securities that prevents the Group to dispose of within the specified period.
The fair values of these securities have taken into account the relevant features including the restrictions.
Included in the Company’s listed equity securities of approximately RMB4,141,084,000, RMB1,096,002,000
and RMB1,245,921,000 as at 31 December 2009, 2010 and 2011, respectively, are restricted shares listed in the PRC
with a legally enforceable restriction on these securities that prevents the Company to dispose of within the specified
period. The fair values of these securities have taken into account the relevant features including the restrictions.
In the opinion of the directors of the Company, non-current available-for sale investments are expected to be
realised or restricted for sale beyond one year from the end of the respective reporting periods.
The fair value of the Group and the Company’s investments in unlisted funds, which mainly invest in publicly
traded equities listed in Hong Kong and the PRC, are valued based on the net asset values of the funds calculated
by the respective fund managers by reference to their underlying assets and liabilities’ fair values.
The fair value of the Group and the Company’s investments in equity securities without restriction,
exchange-traded funds and debt securities are determined with reference to their quoted prices as at reporting date.
– I-56 –
APPENDIX I ACCOUNTANTS’ REPORT
As at 31 December 2010 and 2011, the Company has entered into securities lending arrangement with clients
that resulted in the transfer of available-for-sale investments with total fair value of RMB275,000 and
RMB254,128,000 to external clients, respectively, which did not result in derecognition of the financial assets.
RMB109,915,000 and RMB837,988,000 cash collateral was received from clients for securities lending arrangement
and margin financing activities carried out in the PRC, and reported under accounts payable to brokerage clients (note
36). There was no such arrangement as at 31 December 2009.
24. OTHER ASSETS
Group
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Foreclosed assets 6,500 6,500 6,500
Deposits with the Hong Kong Stock Exchange 1,277 1,489 1,216
Contributions to reserve funds of
– HKFE Clearing Corporation Limited 5,668 13,999 1,216
– The SEHK Options Clearing House Limited 10,840 21,037 7,396
Deposits for trading rights 40,396 45,897 51,520
Other bond investments – – 157,683
Prepaid lease payments 18,022 17,519 17,016
Others 1,992 1,576 –
84,695 108,017 242,547
Note: The other bond investments carried coupon interest ranging from 1.25% per annum to 9.00% per
annum with maturity dates between 2 September 2013 to 22 July 2014.
Company
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Foreclosed assets 6,500 6,500 6,500
Deposits for trading rights 40,396 45,897 49,897
Prepaid lease payments 18,022 17,519 17,016
64,918 69,916 73,413
25. ADVANCES TO CUSTOMERS
Group
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Loans to margin clients 2,034,977 5,814,456 6,462,677
Less: Allowance for doubtful debts – – –
2,034,977 5,814,456 6,462,677
– I-57 –
APPENDIX I ACCOUNTANTS’ REPORT
Company
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Loans to margin clients – 2,091,136 3,675,252
Less: Allowance for doubtful debts – – –
– 2,091,136 3,675,252
The credit facility limits to margin clients are determined by the discounted market value of the collateral
securities accepted by the Group and the Company.
The majority of the loans to margin clients which are secured by the underlying pledged securities are interest
bearing. The Group maintains a list of approved stocks for margin lending at a specified loan to collateral ratio. Any
excess in the lending ratio will trigger a margin call which the customers have to make good of the shortfall.
Advances to customers as at 31 December 2009, 2010 and 2011 were secured by the customers’ securities to
the Group as collateral with undiscounted market value of approximately RMB14,630,936,000, RMB24,775,053,000
and RMB22,610,397,000, respectively.
Advances to customers as at 31 December 2010 and 2011 were secured by the customers’ securities to the
Company as collateral with undiscounted market value of approximately RMB6,914,883,000 and
RMB9,661,086,000, respectively.
No ageing analysis is disclosed as in the opinion of the directors, the ageing analysis does not give additional
value in view of the nature of business of securities margin financing.
The Group determines the allowance for impaired debts based on the evaluation of collectability and ageing
analysis of accounts and on management’s judgement including the assessment of change in credit quality, collateral
and the past collection history of each client. There is no impaired debt for the years ended 31 December 2009, 2010
and 2011. The concentration of credit risk is limited due to the customer base being large and unrelated.
26. ACCOUNTS RECEIVABLE
Group
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Accounts receivable from:
– Cash clients 52,281 44,118 42,757
– Brokers, dealers and clearing house 494,479 742,431 684,661
– Advisory and financial planning 4,012 4,344 3,980
– Asset and fund management 102,108 160,359 125,391
– Others 24,197 28,969 15,763
677,077 980,221 872,552
– I-58 –
APPENDIX I ACCOUNTANTS’ REPORT
There are no impaired accounts receivable for the years ended 31 December 2009, 2010 and 2011. Ageing
analysis of accounts receivable from the trade date is as follows:
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Between 0 and 3 months 557,491 823,320 859,783
Between 4 and 6 months 111,656 115,153 5,558
Between 7 and 12 months 2,485 1,214 3,816
Over 1 year 5,445 40,534 3,395
677,077 980,221 872,552
The normal settlement terms of accounts receivable from clients and brokers, dealers and clearing houses are
within two days after trade date. Trading limits are set for clients. The Group seeks to maintain tight control over
its outstanding accounts receivable in order to minimise credit risk. Overdue balances are regularly monitored by
management.
27. OTHER RECEIVABLES AND PREPAYMENTS
Group
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Interest receivable 145,661 217,241 448,730
Dividend receivable 11 4,532
Expenses for underwriting business to be settled
by clients 13,361 221
Other receivables and prepayments 760,764 788,115 827,065
919,797 1,010,109 1,276,489
Less: allowance for doubtful debts on other
receivables (561,290) (562,612) (536,307)
358,507 447,497 740,182
Company
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Interest receivable 141,167 187,104 415,526
Dividend receivable – –
Expenses for underwriting business to be settled
by clients 13,361 221
Other receivables and prepayments 630,703 670,992 651,806
785,231 858,317 1,068,026
Less: allowance for doubtful debts on other
receivables (561,290) (562,612) (536,307)
223,941 295,705 531,719
– I-59 –
APPENDIX I ACCOUNTANTS’ REPORT
Movements in the allowance for doubtful debts are as follows:
Group and Company
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
At beginning of the year 556,366 561,290 562,612
Reversal of impairment allowance (1,560) (3,773) (32,773)
Recoveries of other receivables previously
written off 6,591 5,095 6,468
Amounts written off during the year (107) – –
At end of the year 561,290 562,612 536,307
Included in the allowance for doubtful debts of the Group and Company mainly represents a receivable of
RMB550,000,000 from an independent third party. In the opinion of the directors of the Company, the recoverability
of the receivable is remote and a full provision was made in previous year. In 2011, an amount of RMB27,752,000
was recovered.
The remaining other receivables and prepayments mainly represent short-term rental deposits placed with
landlords under operating leases and other prepaid expenses for daily operation.
28. AMOUNT DUE FROM/TO A SUBSIDIARY
Amount due from/to a subsidiary is unsecured, repayable on demand, and bear interest at prevailing market
interest rates. The Company is expected to recover the amount due from a subsidiary within 1 year from the end of
the reporting period.
29. FINANCIAL ASSETS HELD UNDER RESALE AGREEMENTS
Group
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Analysed as collateral type:
Bonds – 2,120,000 573,900
Stock – – 32,000
– 2,120,000 605,900
Analysed by market:
Shanghai Stock Exchange – – 605,900
Inter-bank market – 2,120,000 –
– 2,120,000 605,900
Company
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Analysed as collateral type:
Bonds – 2,120,000 –
Stock – – 32,000
– 2,120,000 32,000
Analysed by market:
Shanghai Stock Exchange – – 32,000
Inter-bank market – 2,120,000 –
– 2,120,000 32,000
– I-60 –
APPENDIX I ACCOUNTANTS’ REPORT
30. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Group
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Held for trading:
Debt securities 6,297,506 8,978,165 14,803,400
Equity securities 2,087,886 3,248,364 1,508,502
Funds 4,280,728 2,791,555 4,185,923
Derivatives 230,632 – 107,282
12,896,752 15,018,084 20,605,107
Analysed as:
Listed in Hong Kong 49,117 75,891 5,585
Listed outside Hong Kong
(primarily in the PRC) 3,243,849 5,151,119 10,085,516
Unlisted 9,603,786 9,791,074 10,514,006
12,896,752 15,018,084 20,605,107
Company
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Held for trading:
Debt securities 6,297,506 8,951,939 14,611,999
Equity securities 2,038,616 3,172,474 1,502,917
Funds 4,278,306 2,788,946 4,083,847
Derivatives 230,632 – 100,534
12,845,060 14,913,359 20,299,297
Analysed as:
Listed outside Hong Kong
(primarily in the PRC) 3,243,849 5,151,119 10,085,516
Unlisted 9,601,211 9,762,240 10,213,781
12,845,060 14,913,359 20,299,297
The investments held within the above unlisted fund investments, which were classified as held for trading
financial assets, mainly consist of publicly traded equities listed mainly in Hong Kong and the PRC. The fair value
of the Group and the Company’s investments in funds are valued based on the net asset values of the funds calculated
by the respective fund managers by reference to their underlying assets and liabilities’ fair values.
The fair value of the Group and the Company’s listed equity securities, exchange-traded funds and unlisted
debt securities are determined by reference to their quoted prices as at the reporting date.
The Group and the Company’s derivatives mainly comprise of index futures contracts and swap contract.
– I-61 –
APPENDIX I ACCOUNTANTS’ REPORT
31. DEPOSITS WITH EXCHANGES
Group
As at 31 December
2009 2010 2011
RMB’000 RMB’000 RMB’000
Deposits with stock exchanges
– Shanghai Stock Exchange 21,774 19,747 20,158
– Shenzhen Stock Exchange 655,012 708,735 536,414
676,786 728,482 556,572
Deposits with futures and commodity exchanges
– Shanghai Futures Exchange 505,146 726,498 638,247
– Dalian Commodity Exchange 126,967 187,732 98,619
– Zhengzhou Commodity Exchange 66,052 348,286 145,162
– China Financial Futures Exchange – 373,315 695,825
698,165 1,635,831 1,577,853
Guarantee fund paid to Shenzhen
Stock Exchange – 9,112 43,389
1,374,951 2,373,425 2,177,814
Company
As at 31 December
2009 2010 2011
RMB’000 RMB’000 RMB’000
Deposits with stock exchanges
– Shanghai Stock Exchange 19,484 16,718 16,695
– Shenzhen Stock Exchange 653,098 706,380 533,620
672,582 723,098 550,315
Deposits with China Financial
Futures Exchange – 58,699 438,186
Guarantee fund paid to Shenzhen
Stock Exchange – 9,112 43,389
672,582 790,909 1,031,890
– I-62 –
APPENDIX I ACCOUNTANTS’ REPORT
32. CLEARING SETTLEMENT FUNDS
Group
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Clearing settlement funds held with
clearing houses for:
House 210,415 442,829 1,537,006
Clients 5,538,708 19,981,907 2,415,032
5,749,123 20,424,736 3,952,038
Company
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Clearing settlement funds held with
clearing houses for:
House 210,415 442,829 662,944
Clients 5,301,560 19,209,754 2,129,692
5,511,975 19,652,583 2,792,636
These clearing settlement funds are held by the clearing houses for the Group and the Company and can be
withdrawn freely by the Group and the Company. These balances carry interest at prevailing market interest rates.
33. BANK BALANCES AND CASH
Group
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
House accounts (note i) 28,906,310 16,765,183 17,525,952
Cash held on behalf of clients
(note ii) 59,525,446 41,552,933 33,371,801
88,431,756 58,318,116 50,897,753
Less: non-current restricted bank deposits
(note iii) (184,844) (260,801) (326,719)
88,246,912 58,057,315 50,571,034
– I-63 –
APPENDIX I ACCOUNTANTS’ REPORT
Company
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
House accounts 24,434,879 11,832,759 11,957,875
Cash held on behalf of clients (note ii) 53,680,667 34,352,900 26,704,806
78,115,546 46,185,659 38,662,681
Bank balances and cash comprise cash on hand and demand deposits which bear interest at the prevailing
market rates.
Notes:
(i) Included in the house accounts as at 31 December 2010 and 31 December 2011 are pledged bank
deposits of approximately RMB1,158,272,000 and RMB1,469,100,000, respectively, used as a security
of borrowings (note 35), carry interest ranging from 0.71% to 2.80% per annum and 0.52% to 4.00%
per annum, respectively, and have a maturity of seven days to three months.
(ii) The Group and the Company maintain bank accounts with banks to hold clients’ deposits arising from
normal business transactions. The Group and the Company have recognised the corresponding amount
in accounts payable to brokerage clients (note 36).
(iii) The non-current restricted bank deposits are restricted for fund management risk reserve purpose.
34. CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprises of the following:
Group
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Bank balances and cash – house 28,906,310 16,765,183 17,525,952
Less: Pledged bank deposits and fixed deposits – (1,158,272) (1,469,100)
Restricted bank deposits (184,844) (260,801) (326,719)
Clearing settlement funds – house 210,415 442,829 1,537,006
Bank overdrafts – (11,821) –
28,931,881 15,777,118 17,267,139
– I-64 –
APPENDIX I ACCOUNTANTS’ REPORT
35. BORROWINGS
Group
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Secured short-term borrowings:
Bank overdrafts (notes (i), (ii), (vi)) – 11,821 –
Bank loans (notes (ii), (iii), (iv), (vi)) 724,402 2,060,101 1,741,384
Unsecured short-term borrowings:
Bank loans (notes (iv), (vi)) 132,072 765,305 779,346
Other loans (notes (iv), (v)) 220,120 85,093 –
1,076,594 2,922,320 2,520,730
Notes:
i. These are secured overdrafts and are repayable on demand.
ii. Bank overdrafts and bank loans, borrowed by the subsidiaries in Hong Kong, of approximately
RMB287,037,000, RMB1,220,992,000 and RMB525,334,000 as at 31 December 2009, 31 December
2010 and 31 December 2011, respectively, are secured by the listed shares pledged to the Group as a
security for advances to customers (with customers’ consent) of approximately RMB485,523,000,
RMB2,767,224,000 and RMB1,705,713,000 as at 31 December 2009, 31 December 2010 and 31
December 2011, respectively.
As at 31 December 2009, secured bank loans of RMB437,365,000 are secured by the shares held by the
Group in Haitong International Securities Group Limited (formerly known as Taifook Securities Group
Limited).
iii. As at 31 December 2010 and 31 December 2011, secured bank loans of RMB850,930,000 and
RMB1,216,050,000, respectively, are secured by the Group’s short-term time deposits placed at
financial institutions.
iv. Bank loans and other loans are repayable on demand or within 1 year.
v. Other loans of approximately RMB85,093,000 at 31 December 2010 were obtained from an independent
third party and were interest bearing at a fixed rate of 4% per annum. The loans were repaid during the
year ended 31 December 2011.
At 31 December 2009, other loans of RMB132,072,000 were obtained from a related company of the
former controlling shareholder of Haitong International Securities Group Limited and with interest
bearing at a fixed rate of 0.9% per annum whilst the remaining other loan of RMB88,048,000 was
obtained from an independent third party and with interest bearing at a fixed rate of 4% per annum. All
other loans were repayable on demand or within 1 year.
vi. All the Group’s bank borrowings bear interest (which are also equal to the effective interest rate) at
Hong Kong Interbank Offered Rate plus 0.55% to 0.7% per annum, 0.50% to 1.24% per annum and
0.41% to 1.75% per annum as at 31 December 2009, 31 December 2010 and 31 December 2011,
respectively.
– I-65 –
APPENDIX I ACCOUNTANTS’ REPORT
36. ACCOUNTS PAYABLE TO BROKERAGE CLIENTS
The majority of the accounts payable balances is repayable on demand except where certain accounts payable
to brokerage clients represent margin deposits received from clients for their trading activities under normal course
of business. Only the excess amounts over the required margin deposits stipulated are repayable on demand.
No ageing analysis is disclosed as in the opinion of the directors of the Company, the ageing analysis does not
give additional value in view of the nature of these businesses.
Accounts payable mainly include money held on behalf of clients at the banks and at the clearing houses by
the Group and the Company.
As at 31 December 2010 and 31 December 2011, included in the Group and the Company’s accounts payable
to brokerage clients were approximately RMB109,915,000 and RMB837,988,000 cash collateral received from
clients for securities lending and margin financing arrangement.
Accounts payable to brokerage clients is interest bearing at the prevailing interest rate.
37. OTHER PAYABLES AND ACCRUALS
Group
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Accrued staff cost 860,961 905,143 911,275
Business tax and other tax payable 235,773 292,812 221,267
Funds payable to securities issuers – 700,000 –
Others 774,161 625,440 686,418
1,870,895 2,523,395 1,818,960
Company
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Accrued staff cost 688,787 680,840 665,203
Business tax and other tax payable 200,537 268,696 188,871
Funds payable to securities issuers – 700,000 –
Others 321,016 452,587 467,245
1,210,340 2,102,123 1,321,319
Others represent primarily accrued operating expenses which are non-interest bearing and are repayable within
one year.
– I-66 –
APPENDIX I ACCOUNTANTS’ REPORT
38. PROVISIONS
Group and Company
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
At beginning of the year 110,576 8,815 6,853
Addition for the year – –
Reversal for the year (51,734) (1,912) (6,853)
Settlement in the year (50,027) (50) –
Provision 8,815 6,853
As at 31 December 2009, 2010 and 2011, the Group has several outstanding litigations with potential claims
with maximum total amount of approximately RMB9,900,000, RMB10,100,000 and RMB404,000, respectively, of
which RMB8,800,000, RMB6,900,000 and RMB248,000, respectively were accounted for and provided based on
directors’ best estimate of the amounts required to settle the claims.
39. FINANCIAL ASSETS SOLD UNDER REPURCHASE AGREEMENTS
Group and Company
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Analysed as collateral type:
Bonds 5,821,500 – 9,524,534
Analysed by market:
Shanghai Stock Exchange 1,806,500 – 6,460,234
Inter-bank market 4,015,000 – 3,064,300
5,821,500 – 9,524,534
– I-67 –
APPENDIX I ACCOUNTANTS’ REPORT
40. SHARE CAPITAL
Non-trade restricted
A shares Listed A shares Total
Number of Number of Number of
share Amount share Amount share Amount
’000 RMB’000 ’000 RMB’000 ’000 RMB’000
Registered, issued and fully paid at
RMB1.0 per share:
At 1 January 2009 4,475,248 4,475,248 3,752,573 3,752,573 8,227,821 8,227,821
Transfer (249,852) (249,852) 249,852 249,852 – –
At 31 December 2009 4,225,396 4,225,396 4,002,425 4,002,425 8,227,821 8,227,821
Transfer (4,225,396) (4,225,396) 4,225,396 4,225,396 – –
At 31 December 2010
and 31 December 2011 – – 8,227,821 8,227,821 8,227,821 8,227,821
Note: Non-trade restricted A shares are issued to shareholders when the Company became listed in 2007 and
through private placements, which were restricted to be disposed of by the shareholders within a period
of 12 months to 3 years. Other than the restrictions on disposal, the rights attached to non-trade
restricted A shares are same as Listed A shares. Upon the maturity of the restrictions on disposal period
of these non-trade restricted A shares, the Company did not have any non-trade restricted A shares.
41. INVESTMENT REVALUATION RESERVE
The movements of the investment revaluation reserve of the Company are set out below:
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
At beginning of the year 30,550 1,381,572 386,646
Available-for-sale investments
Net fair value changes during the year 1,958,070 (871,389) (1,162,892)
Reclassification adjustments to profit or loss
on disposal/impairment (156,706) (455,270) (135,398)
Income tax relating to components of other
comprehensive income (450,342) 331,733 324,573
At end of the year 1,381,572 386,646 (587,071)
– I-68 –
APPENDIX I ACCOUNTANTS’ REPORT
42. GENERAL RESERVES
The general reserves comprise statutory reserve, general reserve and transaction risk reserve.
Pursuant to the Company Law of The People’s Republic of China, 10% of the net profit of the Company, as
determined under the PRC accounting regulations and before distribution to shareholders, is required to be transferred
to a statutory reserve until such time when this reserve represents 50% of the share capital of the Company. The
reserve appropriated can be used for loss-covering, expansion of production scale and capitalisation, in accordance
with the Company’s articles of association or approved by the shareholders in a shareholders’ general meeting.
In accordance with the Financial Rules for Financial Enterprises, the Company is required to appropriate 10%
of net profit derived in accordance with the relevant accounting rules in the PRC before distribution to shareholders
as general reserve from retained profits for loss-covering purpose.
Pursuant to the Securities Law of The People’s Republic of China, the Company is required to appropriate 10%
of the net profit derived in accordance with the relevant accounting rules in the PRC before distribution to
shareholders as transaction risk reserve from retained profits for covering trading losses and shall not be converted
into dividends or increasing capital.
For each of the year ended 31 December 2009, 2010 and 2011, the Company transferred approximately
RMB431,800,000, RMB341,690,000 and RMB305,079,000, respectively, the same amount to each of the statutory
reserve, general reserve and transaction risk reserve pursuant to the above regulatory requirements in the PRC.
Each of the statutory reserve, general reserve and transaction risk reserve amounted to approximately
RMB1,329,739,000, RMB1,671,430,000 and RMB1,976,508,000 as at 31 December 2009, 2010 and 2011,
respectively.
The Company’s PRC subsidiaries are also subject to the statutory requirements to appropriate their earnings
to reserves. The total amount of reserves appropriated as at 31 December 2011 is RMB70,689,000.
43. RETAINED PROFITS
The movements of retained profits of the Company are set out below:
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
At beginning of the year 4,539,073 6,728,364 7,438,661
Profit for the year 4,307,475 3,380,932 3,029,248
Appropriation to general reserves (1,295,401) (1,025,071) (915,236)
Dividends recognised as distribution (Note 47) (822,783) (1,645,564) (1,234,173)
At end of the year 6,728,364 7,438,661 8,318,500
– I-69 –
APPENDIX I ACCOUNTANTS’ REPORT
44. DEFERRED TAXATION
For the purpose of presentation in the Group and the Company’s statements of financial position, certain
deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for
financial reporting purposes:
Group
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Deferred tax assets 56,974 61,592 513,100
Deferred tax liabilities (471,828) (196,136) (72,018)
(414,854) (134,544) 441,082
Company
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Deferred tax assets 43,769 42,333 463,405
Deferred tax liabilities (453,080) (146,601) (25,134)
(409,311) (104,268) 438,271
– I-70 –
APPENDIX I ACCOUNTANTS’ REPORT
The following are the major deferred tax assets (liabilities) recognised and movements thereon in the Relevant
Periods:
Group
Accrued
Financial but not Available-
assets held Accelerated Derivative paid for-sale Derivative
for trading depreciation assets expenses investments liabilities Others Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2009 (64,708) (753) 1 951 (3,216) – – (67,725)
Credit (charge) to profit
or loss 68,546 (217) (1) 49,507 – – – 117,835
Charge to other
comprehensive income – – – – (458,004) – – (458,004)
Acquired on acquisition
of subsidiaries – (13,476) – – – – 6,516 (6,960)
At 31 December 2009 3,838 (14,446) – 50,458 (461,220) – 6,516 (414,854)
(Charge) credit to profit
or loss (26,365) (2,813) – 9,139 – 1,112 (4,522) (23,449)
Credit to other
comprehensive income – – – – 303,759 – – 303,759
At 31 December 2010 (22,527) (17,259) – 59,597 (157,461) 1,112 1,994 (134,544)
Credit (charge) to profit
or loss 142,186 (2,857) (25,134) 25,425 103,644 (1,112) 216 242,368
Credit to other
comprehensive income – – – – 333,258 – – 333,258
At 31 December 2011 119,659 (20,116) (25,134) 85,022 279,441 – 2,210 441,082
Company
Accrued
Financial but not Available-
assets held Derivative paid for-sale Derivative
for trading assets expenses investments liabilities Others Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2009 (64,708) 1 – (6,576) – – (71,283)
Credit (charge) to profit or loss 68,546 (1) 43,769 – – – 112,314
Charge to other comprehensive income – – – (450,342) – – (450,342)
At 31 December 2009 3,838 – 43,769 (456,918) – – (409,311)
(Charge) credit to profit or loss (26,365) – (1,436) – 1,112 (1) (26,690)
Credit to other comprehensive income – – – 331,733 – – 331,733
At 31 December 2010 (22,527) – 42,333 (125,185) 1,112 (1) (104,268)
Credit (charge) to profit or loss 142,197 (25,134) (2,010) 104,024 (1,112) 1 217,966
Credit to other comprehensive income – – – 324,573 – – 324,573
At 31 December 2011 119,670 (25,134) 40,323 303,412 – – 438,271
– I-71 –
APPENDIX I ACCOUNTANTS’ REPORT
45. OPERATING LEASE ARRANGEMENTS
The Group as lessee
Leases for the properties are negotiated for an average term of three years and rentals are fixed for an
average term of three years.
At 31 December 2009, 2010 and 2011, the Group had total future minimum lease payments under
non-cancellable operating leases in respect of rented premises falling due as follows:
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Within one year 47,554 170,246 210,016
In the second to fifth year, inclusive 224,048 275,306 344,461
Over five years 41,063 101,582 59,586
312,665 547,134 614,063
The Company as lessee
Leases for the properties are negotiated for an average term of three years and rentals are fixed for an
average term of three years.
At 31 December 2009, 2010 and 2011, the Company had total future minimum lease payments under
non-cancellable operating leases in respect of rented premises falling due as follows:
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Within one year 7,822 97,060 99,541
In the second to fifth year, inclusive 199,267 188,761 284,408
Over five years 41,003 101,582 59,309
248,092 387,403 443,258
The Group as lessor
The lease terms are negotiated for an average term of two years and rental are fixed for an average term
of two years.
At the end of the reporting period, the Group had contracted with tenants for the following future
minimum lease payments:
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Within one year 6,426 6,051 9,947
In the second to fifth year, inclusive 19,733 13,682 18,966
26,159 19,733 28,913
– I-72 –
APPENDIX I ACCOUNTANTS’ REPORT
The Company as lessor
The lease terms are negotiated for an average term of two years and rental are fixed for an average term
of two years.
At the end of the reporting period, the Company had contracted with tenants for the following future
minimum lease payments:
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Within one year 5,864 5,863 9,947
In the second to fifth year, inclusive 19,546 13,682 18,966
25,410 19,545 28,913
46. CAPITAL COMMITMENT
Group
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Capital expenditure in respect of acquisition of
property and equipment:
– Contracted but not provided for 726 9,159 21,960
47. DIVIDENDS
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
(Note a) (Note b) (Note c)
Dividends recognised as distribution 822,783 1,645,564 1,234,173
Notes:
(a) Pursuant to the resolution of annual general meeting 2008, the Company declared 2008 final dividend
of RMB0.10 per share, satisfied by cash.
(b) Pursuant to the resolution of annual general meeting 2009, the Company declared 2009 final dividend
of RMB0.20 per share, satisfied by cash.
(c) Pursuant to the resolution of annual general meeting 2010, the Company declared 2010 final dividend
of RMB0.15 per share, satisfied by cash.
– I-73 –
APPENDIX I ACCOUNTANTS’ REPORT
48. DIRECTORS’, SENIOR MANAGEMENT’S AND SUPERVISORS’ EMOLUMENTS
The emoluments of the Directors, Senior Management and Supervisors of the Company paid/payable by the
Group for each of the year ended 31 December 2009, 2010 and 2011 are set out below:
For the year ended 31 December 2009
Employer’s
contribution
to pension
schemes/
Salary and annuity
Name Director fee commission plans Bonuses* Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Executive Directors and
Senior Management:
Wang Kaiguo – 872 43 1,231 2,146
Li Mingshan – 872 43 1,231 2,146
Shen Degao – 643 43 812 1,498
Ji Yuguang – 643 43 813 1,499
Ren Peng – 641 43 812 1,496
Ma Yong – 573 43 811 1,427
Jin Xiaobin – 473 43 477 993
Li Chuqian – 473 43 477 993
Wang Jianye – 473 43 477 993
Wu Bin – 439 43 474 956
Independent Non-executive
Directors and Supervisors:
Xia Bin 120 – – – 120
Li Guangrong 120 – – – 120
Gu Gongyun 120 – – – 120
Chen Qiwei 120 – – – 120
Wu Xiaoqiu 120 – – – 120
Zhang Huiquan 120 – – – 120
Zhang Ming 120 – – – 120
Ke Yongzhen – 872 43 1,231 2,146
Yang Qingzhong – 587 43 810 1,440
Qiu Xiaping – 318 43 314 675
Nai Xuegang – 223 43 169 435
840 8,102 602 10,139 19,683
– I-74 –
APPENDIX I ACCOUNTANTS’ REPORT
For the year ended 31 December 2010
Employer’s
contribution
to pension
schemes/
Salary and annuity
Name Director fee commission plans Bonuses* Total^
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Executive Directors and
Senior Management:
Wang Kaiguo – 873 47 1,313 2,233
Li Mingshan – 873 47 1,313 2,233
Shen Degao – 643 47 973 1,663
Ji Yuguang – 644 47 973 1,664
Ren Peng – 642 47 973 1,662
Ma Yong – 608 47 973 1,628
Jin Xiaobin – 473 47 676 1,196
Li Chuqian – 474 47 676 1,197
Wang Jianye – 473 47 676 1,196
Wu Bin – 443 47 676 1,166
Independent Non-executive
Directors and Supervisors:
Xia Bin 120 – – – 120
Li Guangrong 120 – – – 120
Gu Gongyun 120 – – – 120
Chen Qiwei 120 – – – 120
Wu Xiaoqiu 120 – – – 120
Zhang Huiquan 120 – – – 120
Zhang Ming 120 – – – 120
Wang Yimin – 756 47 993 1,796
Yang Qingzhong – 611 47 973 1,631
Qiu Xiaping – 330 47 463 840
Nai Xuegang – 230 47 273 550
840 8,073 658 11,924 21,495
– I-75 –
APPENDIX I ACCOUNTANTS’ REPORT
For the year ended 31 December 2011
Employer’s
contribution
to pension
schemes/
Salary and annuity
Name Director fee commission plans Bonuses* Total #^
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Executive Directors and
Senior Management:
Wang Kaiguo – 1,184 140 1,012 2,336
Li Mingshan – 1,184 140 1,012 2,336
Shen Degao – 839 140 735 1,714
Ji Yuguang – 840 140 735 1,715
Ren Peng – 838 140 735 1,713
Ma Yong – 592 105 419 1,116
Jin Xiaobin – 737 140 626 1,503
Li Chuqian – 736 140 626 1,502
Wang Jianye – 738 140 626 1,504
Wu Bin – 728 140 623 1,491
Independent Non-executive
Directors and Supervisors:
Xia Bin 120 – – –
Li Guangrong § 120 – – –
Gu Gongyun § 60 – – –
Chen Qiwei 120 – – –
Wu Xiaoqiu § 60 – – –
Zhang Huiquan 120 – – –
Dai Genyou 80 – – –
Liu Zhimin 20 – – –
Zhang Ming 120 – – –
Wang Yimin – 1,166 134 1,011 2,311
Yang Qingzhong – 836 140 735 1,711
Qiu Xiaping – 483 140 376
Du Hongbo – 465 129 374
Nai Xuegang – 287 130 191
820 11,653 2,038 9,836 24,347
* The bonuses are discretionary and are determined by reference to the Group’s and the individuals’
performance.
#
The total compensation packages for these directors, senior management and supervisors for the year
ended 31 December 2011 have not yet been finalised. The amount of the compensation not provided for
is not expected to have significant impact on the Group’s financial statements. The final compensation
will be disclosed in a separate announcement when determined.
^ The Company did not operate any share option scheme during the reporting periods. However, there was
share-based payment expenses arising from the share options granted to the directors, senior
management and supervisors by a subsidiary of the Company amounting to approximately RMB937,000
and RMB156,000 for the years ended 31 December 2010 and 31 December 2011, respectively, which
were not included in the above total emolument. Details of the subsidiary’s share option scheme are
disclosed in note 50.
§
Li Guangrong, Gu Gongyun and Wu Xiaoqiu resigned as independent non-executive directors during the
year ended 31 December 2011.
Ma Yong resigned as senior management during the year ended 31 December 2011.
Nai Xuegang resigned as supervisor during the year ended 31 December 2011.
– I-76 –
APPENDIX I ACCOUNTANTS’ REPORT
During the Relevant Periods, no directors, supervisors or senior management of the Company waived any
emoluments and no emoluments were paid by the Company to any of the directors, supervisors or senior management
as an inducement to join or upon joining the Group or as compensation for loss of office.
49. HIGHEST PAID INDIVIDUALS
As disclosed above in note 48, the bonus of the directors, senior management or supervisors for the year ended
31 December 2011 have not yet been approved by the related government department up to the date of this report
and as a result, the bonus payable to them has not been considered in the determination of the top five highest paid
individual of the Group for the year ended 31 December 2011. Taking this into account, of the five individuals with
the highest emoluments, none of them are directors, supervisors or senior management. Details of the remuneration
of the five highest paid employees during the relevant years are as follows:
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Salary and commission 4,060 10,571 5,814
Bonuses 36,290 14,025 29,963
Employer’s contribution to pension
schemes/annuity plans 213 233
40,563 24,829 36,299
Bonuses are discretionary and are determined by reference to the Group’s and the individuals’ performance.
No emoluments have been paid to or receivable by these individuals as an inducement to join or upon joining the
Group or as compensation for loss of office during the Relevant Periods.
The emoluments of the highest-paid individuals of the Group fall within the following bands:
Year ended 31 December
2009 2010
No. of No. of No. of
employees employees employees
Emolument bands
– HKD4,500,001 to HKD5,000,000 – 1 –
– HKD5,000,001 to HKD5,500,000 – 1 –
– HKD5,500,001 to HKD6,000,000 1 – –
– HKD6,000,001 to HKD6,500,000 1 3 –
– HKD7,000,001 to HKD7,500,000 – –
– HKD8,000,001 to HKD8,500,000 – –
– HKD11,500,001 to HKD12,000,000 3 – –
– HKD12,000,001 to HKD12,500,000 – –
5 5
50. SHARE OPTION SCHEME OF A SUBSIDIARY
One of the Company’s subsidiaries, Haitong International Securities Group Limited (“HISGL”), a Hong Kong
listed company, operates a share option scheme mainly for its directors and employees. HISGL was acquired by the
Group on 21 December 2009.
The shareholders of HISGL approved the adoption of a share option scheme (the “2002 Share Option Scheme”)
on 23 August 2002.
– I-77 –
APPENDIX I ACCOUNTANTS’ REPORT
A summary of the principal terms of the 2002 Share Option Scheme is set out as follows:
The 2002 Share Option Scheme was adopted for the purpose of attracting, retaining and motivating talented
employees to strive towards long-term performance targets set by HISGL and its subsidiaries and at the same time
allowing the participants to enjoy the results of HISGL attained through their effort and contribution. Under the 2002
Share Option Scheme, options may be granted to any full time employees, executive and non-executive directors of
HISGL or any of its subsidiaries or associates.
The maximum number of shares which may be issued upon exercise of all options to be granted under the 2002
Share Option Scheme and any other share option schemes of HISGL shall not in aggregate exceed 10% of the total
number of shares in issue as at the date of adoption of the 2002 Share Option Scheme (the “Scheme Mandate Limit”)
but HISGL may seek approval of its shareholders at general meetings to refresh the Scheme Mandate Limit, save that
the maximum number of shares in respect of which options may be granted by directors of HISGL under the 2002
Share Option Scheme and any other share option schemes of HISGL shall not exceed 10% of the issued share capital
of HISGL as at the date of approval by the shareholders of HISGL at general meetings where such limit is refreshed.
Options previously granted under the 2002 Share Option Scheme and any other share option schemes of HISGL
(including those outstanding, cancelled, lapsed or exercised options) will not be counted for the purpose of
calculating such 10% limit as refreshed. Notwithstanding the aforesaid in this paragraph, the maximum number of
shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the 2002
Share Option Scheme and any other share option schemes of HISGL shall not exceed 30% (or such higher percentage
as may be allowed under the Listing Rules) of the total number of shares in issue from time to time.
The maximum number of shares issued and to be issued upon exercise of the options granted to each
participant under the 2002 Share Option Scheme and any other share option schemes of HISGL (including both
exercised and outstanding options) in any period shall not exceed 1% of the total number of HISGL’s shares in issue.
Any further grant of share options in excess of this limit is subject to approval by the shareholders of HISGL at a
general meeting.
Share options granted to a director, chief executive or substantial shareholders of HISGL, or to any of their
associates, are subject to approval in advance by the independent non-executive directors. In addition, any share
options granted to a substantial shareholder or an independent non-executive director of HISGL, or to any of their
associates, in excess of 0.1% of the total number of shares of HISGL in issue at the date on which such grant is
proposed by the directors of HISGL or with an aggregate value (based on the closing price of HISGL’s shares at the
date on which such grant is proposed by the directors of HISGL) in excess of HKD5 million, within any period, are
subject to shareholders’ approval in advance at a general meeting of HISGL.
The offer of a grant of share options may be accepted within 30 days from the date of the offer upon payment
of a consideration of HKD1 by the grantee. The exercise period of the share options granted is determinable by the
directors of HISGL, and such period shall commence not earlier than six months from the date of grant of the options
and expire not later than ten years after the date of grant of the options. The vesting period of the share options is
from the date of the grant until the commencement of the exercise period. All share options under the 2002 Share
Option Scheme are subject to a six-month vesting period.
The exercise price of the share options is determinable by the directors of HISGL, and shall be at least the
highest of (i) the closing price of HISGL’s shares as stated in the Hong Kong Stock Exchange’s daily quotations sheet
on the offer date; (ii) the average closing price of HISGL’s shares as stated in the Hong Kong Stock Exchange’s daily
quotations sheets for the five trading days immediately preceding the offer date; and (iii) the nominal value of
HISGL’s shares.
Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings of HISGL.
The 2002 Share Option Scheme shall be valid and effective for a period of ten years commencing from the date
on which it is conditionally adopted by resolution of HISGL at a general meeting and will expire on 22 August 2012.
– I-78 –
APPENDIX I ACCOUNTANTS’ REPORT
The following table discloses movements of share options granted to directors and employees of the Group
under HISGL’s 2002 Share Option Scheme during each year:
Year ended 31 December
2009 2010
Weighted Weighted Weighted
average Number of average Number of average Number of
exercise price options exercise price options exercise price options
HKD ’000 HKD ’000 HKD ’000
per share per share per share
At beginning of the year – – 5.88 24,050 5.26 54,807
Granted during the year – – 4.85 32,880 – –
Adjusted during the year – – 5.24 (46) – –
Exercised during the year – – 5.87 (1,740) 4.85 (310)
Forfeited during the year – – 5.80 (337) 5.34 (11,281)
Acquisition of HISGL 5.88 24,050 – – – –
At end of the year 5.88 24,050 5.26 54,807 5.25 43,216
Exercisable at end of the year 24,050 21,956 43,216
The weighted average share price at the date of exercise for the share options exercised during the years ended
31 December 2010 and 31 December 2011 was HKD6.93 and HKD5.05, respectively.
The exercise prices and exercise periods of the share options outstanding as at respective reporting dates are
as follows:
Number of options Exercise price 1 Exercise period
’000 HKD per share
31 December 2011
16,570 5.88 1 June 2008 to 31 May 2016
26,646 4.85 3 March 2011 to 2 March 2019
43,216
31 December 2010
21,956 5.88 1 June 2008 to 31 May 2016
32,851 4.85 3 March 2011 to 2 March 2019
54,807
31 December 2009
24,050 5.88 1 June 2008 to 31 May 2016
1
The exercise price of the share option is subject to adjustment in case of rights, scrip dividend or bonus
issues, or other similar changes in HISGL’s share capital.
– I-79 –
APPENDIX I ACCOUNTANTS’ REPORT
New share option granted in September 2010
On 3 September 2010, HISGL granted 33,480,000 share options (of which 32,880,000 shares options
were accepted) to its employees (including directors) under the 2002 Share Option Scheme pursuant to a board
of directors resolution of HISGL with a six-month vesting period from 3 September 2010 to 2 March 2011 and
exercisable from 3 March 2011 to 2 March 2019.
The fair value of the equity settled share options granted above is estimated at the date of grant using
the Binomial model. The fair value of the share options granted above was HKD30,726,712 (HKD0.92 each)
of which the Group recognised a share option expense of HKD12,791,000 and HKD6,396,000 (equivalent to
approximately RMB10,990,000 and RMB5,402,000, respectively) for the years ended 31 December 2010 and
31 December 2011, respectively.
The following table lists the key inputs to the model used:
Share price at the date of grant HKD4.85
Contractual option life 8.5 years
Exercise price HKD4.85
Expected volatility 52.6%
Expected dividend yield (%) 5.61%
Risk-free interest rate (%) (based on Hong Kong Exchange Fund Notes) 1.7456%
The expected volatility is based on the historical volatility, and calculated based on the contractual life
of the share options. Expected dividend yield is based on historical dividends. The Binomial model has been
used to estimate the fair value of the options. The variables and assumptions used in computing the fair value
of the share options are based on the directors’ best estimate. The value of an option varies with different
variables of certain subjective assumptions.
51. ACQUISITION OF SUBSIDIARIES
On 21 December 2009, the Group acquired 52.86% of issued share capital of HISGL from an independent third
party for consideration of HKD1,822,361,000 (equivalent to RMB1,604,553,000). The transaction has been
accounted for using the purchase method. As the completion date of this acquisition was close to 31 December 2009,
the consolidated statement of comprehensive income of HISGL and its subsidiaries had not been consolidated in the
Group’s statement of comprehensive income for the year ended 31 December 2009 as it has no significant financial
impact to the Group. The amount of goodwill arising as a result of the acquisition was HKD784,980,000
(RMB691,160,000). HISGL is engaged in the securities, futures and options contracts, broking and trading services.
HISGL was acquired so as to continue the expansion of the Group’s securities broking and trading services.
Consideration transferred
RMB’000
Cash 1,604,553
Direct costs relating to the acquisition 23,086
Total 1,627,639
– I-80 –
APPENDIX I ACCOUNTANTS’ REPORT
Assets acquired and liabilities recognised at the date of acquisition
Acquiree’s
carrying amount
and fair value
RMB’000
Cash and cash equivalents 367,753
Property and equipment 24,139
Other intangible assets 84,585
Other assets 151,818
Investment in an associate 9,542
Available-for-sale investments 34,868
Deferred tax assets 6,516
Advances to customers 1,926,057
Accounts receivables 460,258
Financial assets at fair value through profit or loss 51,539
Cash held on behalf of clients 4,102,238
Accounts payables (4,628,162)
Tax payable (35,677)
Other payables and accruals (126,905)
Borrowings (639,229)
Deferred tax liabilities (13,476)
Net assets acquired 1,775,864
Goodwill arising on acquisition
RMB’000
Consideration transferred 1,627,639
Plus: non-controlling interests (47.14% in HISGL) 839,385
Less: fair value of net assets acquired (1,775,864)
Goodwill arising on acquisition 691,160
Goodwill arose in the acquisition of HISGL because the cost of the combination included a control
premium. In addition, the consideration paid for the combination effectively included amounts in relation to
the benefit of expected synergies, revenue growth, future market development and the assembled workforce
of HISGL. These benefits are not recognised separately from goodwill because they do not meet the
recognition criteria for identifiable intangible assets.
Net cash outflow on acquisition of HISGL
RMB’000
Cash consideration paid 1,604,553
Payment of direct costs relating to the acquisition 1,651
Less: cash and cash equivalent balances acquired (367,753)
Cash outflow on acquisition 1,238,451
From 21 December 2009 to 31 December 2009, the Group acquired additional 4.44% interest in HISGL
from the market with total consideration amounting to approximately RMB135 million. During each of the
year ended 31 December 2010 and 31 December 2011, the Group further acquired 3.29% and 8.81% of HISGL
from the market with a total consideration amounting to approximately RMB93 million and RMB707 million,
respectively. The excess of RMB56 million, RMB39 million and RMB74 million, representing the
consideration paid over the carrying amount of the non-controlling interest in 2009, 2010 and 2011,
respectively, has been recognised in equity.
– I-81 –
APPENDIX I ACCOUNTANTS’ REPORT
52. RELATED PARTY TRANSACTIONS
In addition to the transactions and balances set out in note 48 above, the Group had the following material
transactions with an associate during the Relevant Periods:
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Administration fee income
– Fullgoal Fund Management Co. Ltd. 1,610 1,072
Interest expense
– Fullgoal Fund Management Co. Ltd. (9) (37) (32)
The followings are the material transactions between the Group’s subsidiary, HFT Investment Management
Company Limited and BNP Paribas Investment Partners BE Holding SA (formerly known as Fortis Investment
Management S.A.), its non-controlling shareholder and BNP Paribas Investment Partners Japan Ltd, BNP’s
subsidiary:
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Consultancy and financial advisory fee income
received and receivable from:
– BNP Paribas Investment Partners BE
Holding SA 61,213 93,319 83,073
Other expenses paid and payable to:
– BNP Paribas Investment Partners BE
Holding SA (1,044) (921) (87)
– BNP Paribas Investment Partners Japan Ltd – (2,278) (1,004)
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Accounts receivable from:
– BNP Paribas Investment Partners BE
Holding SA 19,333 23,913
– BNP Paribas Investment Partners Japan Ltd – – 11,232
Other payables and accrued expenses to:
– BNP Paribas Investment Partners BE
Holding SA (1,263) (2,184) (87)
– BNP Paribas Investment Partners Japan Ltd – (433) (397)
The followings are the material transactions between the Group’s subsidiary, Haitong Capital Investment Co.,
Ltd., and the Group’s associates, Jilin Modern Agricultural and Emerging Markets Investment Fund Limited (“Jilin”)
and Xi’an Aerospace and New Energy Industry Fund (“Xi’an Aerospace”):
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Financial advisory and consultancy fee income:
– Jilin – – 20,000
– Xi’an Aerospace – – 16,820
– I-82 –
APPENDIX I ACCOUNTANTS’ REPORT
The remuneration of the key management personnel of the Group was as follows:
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Short-term benefits:
– Fees, salaries, commission and bonuses 19,081 20,837 22,309
Post-employment benefits:
– Employer’s contribution to pension schemes/
annuity plans 602 658 2,038
Share-based payment – 937
19,683 22,432 24,503
53. SEGMENT REPORTING
Information reported to the chief operating decision maker (the “CODM”), being the board of directors of the
Company, for the purposes of resource allocation and assessment of segment performance focuses on the nature of
products sold and services provided by the Group, which is also consistent with the Group’s basis of organisation,
whereby the businesses are organised and managed separately as individual strategic business unit that offers
different products and serves different markets. Segment information is measured in accordance with the accounting
policies and measurement criteria adopted by each segment when reporting to management, which are consistent with
the accounting and measurement criteria in the preparation of the Financial Information.
During 2011, the CODM commenced to allocate resources and assess the segment performance based on the
revised grouping of operating segments. Accordingly, the Relevant Periods’ segment reporting presentation has been
presented in accordance with the new approach adopted by the CODM in the Financial Information.
Specifically, the Group’s reportable and operating segments are as follows:
(a) the brokerage segment engages in the trading of equities, bonds, funds, and warrants, as well as futures
on behalf of the customers, and also providing margin financing and securities lending services (the
“Securities and futures brokerage” segment);
(b) the assets management segment offers traditional asset management products and services through the
Company and HFT Investment Management Co., Ltd. (mw[ Wú‘t g – Q S ), one of the Group’s
subsidiaries. The Group operates the private equity asset management business through its subsidiaries,
Haitong-Fortis Private Equity Fund Management Co., Ltd. (mw[u\"imbWú‘t g – Q S ), Haitong
Jihe Private Equity Investment Fund Management Company Limited (mw T yk bWú‘t g –
QlS ) and Haitong Chuangxin Capital Management Company Limited (mw Rue°g,{t g – Q
S ) (the “Asset management” segment);
(c) the proprietary trading segment engages in trading of equities, bonds, funds, derivative and other
financial products for the Group (the “Proprietary trading” segment);
(d) the investment banking segment provides corporate finance services, including equity underwriting,
debt underwriting and financial advisory services to institutional clients (the “Investment banking”
segment);
(e) the direct investment segment make direct equity investments in private companies and earn capital
gains by exiting from these private equity investments through IPOs or share sales, or receive dividends
from these portfolio companies. In addition, the Group invests in private equity funds (the “Direct
investment” segment);
(f) the headquarters and others segment mainly represents head office operations, investment holding as
well as interest income and interest expense incurred for general working capital purpose (the
“Headquarters and others” segment); and
(g) the overseas operations segment mainly represents the business operation of Haitong International
Securities Group Limited, a listed subsidiary of the Company, which mainly engages in broking, margin
financing, corporate advisory, placing and underwriting, trading and investment and financial planning
and advisory services (the “Overseas operations” segment).
Inter-segment transactions, if any, are conducted with reference to the prices charged to third parties and there
was no change in the basis during the Relevant Periods.
Segment profit/loss represents the profit earned by/loss measured by each segment without allocation of share
of result of associates and income tax expenses. This is the measure reported to CODM for the purposes of resource
allocation and performance assessment.
Segment assets/liabilities are allocated to each segment, excluding investments in associates, deferred tax
assets/liabilities. Inter-segment balances eliminations mainly include amount due from/to another segment arising
from investing activities’ carried out by a segment for another segment.
– I-83 –
APPENDIX I ACCOUNTANTS’ REPORT
The segment information provided to the CODM for the operating and reportable segments for the years ended
31 December 2009, 2010 and 2011 is as follows:
Operating and Reportable Segment
For the year ended 31 December 2009
Securities
and futures Asset Proprietary Investment Direct Headquarters Overseas Segment Consolidated
brokerage management trading banking investment and others operations total Eliminations total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Segment revenue and
results
Revenue
– External 7,266,210 866,237 804,362 496,763 37,068 1,427,218 150,597 11,048,455 – 11,048,455
– Inter-segment 613,070 428 – 836 – 55,252 – 669,586 (669,586) –
Other income and gains 17,802 12,656 450 – 15,012 174,810 46,661 267,391 – 267,391
Segment revenue 7,897,082 879,321 804,812 497,599 52,080 1,657,280 197,258 11,985,432 (669,586) 11,315,846
Segment expenses (3,337,293) (514,055) (92,093) (224,233) (15,471) (1,746,223) (87,635) (6,017,003) 617,022 (5,399,981)
Segment result 4,559,789 365,266 712,719 273,366 36,609 (88,943) 109,623 5,968,429 (52,564) 5,915,865
Share of results of
associates – (118) – – – 66,080 – 65,962 – 65,962
Profit before income tax 4,559,789 365,148 712,719 273,366 36,609 (22,863) 109,623 6,034,391 (52,564) 5,981,827
Segment assets and
liabilities
Segment assets 68,187,585 956,496 22,625,591 323,046 3,047,388 110,373,175 9,143,117 214,656,398 (94,198,914) 120,457,484
Investments in associates 215,747
Deferred tax assets 56,974
Group’s total assets 120,730,205
Segment liabilities 63,395,308 259,358 21,135,151 49,704 13,320 73,165,993 6,584,139 164,602,973 (88,863,191) 75,739,782
Deferred tax liabilities 471,828
Group’s total liabilities 76,211,610
Other segment
information
Amounts included in the
measure of segment
profit or loss:
Depreciation and
amortisation 118,319 11,702 792 3,064 604 99,267 3,167 236,915 – 236,915
Impairment loss in respect
of available-for-sale
investments – – 200 – – – 4,459 4,659 – 4,659
Reversal of impairment
loss in respect of other
receivables – – – – – 1,560 – 1,560 – 1,560
Interest income 17,871 8,195 – 182 36,299 1,300,259 44,236 1,407,042 – 1,407,042
Interest expenses 183,151 84 34,469 – – – 27,376 245,080 – 245,080
– I-84 –
APPENDIX I ACCOUNTANTS’ REPORT
Operating and Reportable Segment
For the year ended 31 December 2010
Securities
and futures Asset Proprietary Investment Direct Headquarters Overseas Segment Consolidated
brokerage management trading banking investment and others operations total Eliminations total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Segment revenue and
results
Revenue
– External 5,759,169 868,475 779,766 1,091,718 106,018 1,616,636 887,075 11,108,857 – 11,108,857
– Inter-segment 679,432 409 – 1,602 – 54,838 – 736,281 (736,281) –
Other income and gains 15,602 30 – – – 162,481 17,965 196,078 – 196,078
Segment revenue 6,454,203 868,914 779,766 1,093,320 106,018 1,833,955 905,040 12,041,216 (736,281) 11,304,935
Segment expenses (3,438,600) (530,224) (82,232) (511,701) (23,974) (1,761,873) (726,204) (7,074,808) 681,443 (6,393,365)
Segment results 3,015,603 338,690 697,534 581,619 82,044 72,082 178,836 4,966,408 (54,838) 4,911,570
Share of profits of
associates – (346) – – – 78,466 – 78,120 – 78,120
Profit before income tax 3,015,603 338,344 697,534 581,619 82,044 150,548 178,836 5,044,528 (54,838) 4,989,690
Segment assets and
liabilities
Segment assets 72,680,321 1,112,302 19,686,020 1,494,945 2,981,507 110,964,233 12,508,847 221,428,175 (106,619,950) 114,808,225
Investments in associates 543,281
Deferred tax assets 61,592
Group’s total assets 115,413,098
Segment liabilities 69,402,259 260,711 19,003,657 914,457 26,383 71,224,676 8,242,153 169,074,296 (99,474,081) 69,600,215
Deferred tax liabilities 196,136
Group’s total liabilities 69,796,351
Other segment
information
Amounts included in the
measure of segment
profit or loss:
Depreciation and
amortisation 148,396 13,113 778 3,661 919 89,878 31,727 288,472 – 288,472
Reversal of impairment
loss in respect of other
receivables – – – – – 3,773 – 3,773 – 3,773
Interest income 87,063 11,236 4 500 59,278 1,282,640 206,286 1,647,007 – 1,647,007
Interest expenses 198,981 79 35,980 – – 18,401 28,048 281,489 – 281,489
– I-85 –
APPENDIX I ACCOUNTANTS’ REPORT
Operating and Reportable Segment
For the year ended 31 December 2011
Securities
and futures Asset Proprietary Investment Direct Headquarters Overseas Segment Consolidated
brokerage management trading banking investment and others operations total Eliminations total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Segment revenue and
results
Revenue
– External 4,143,204 1,094,573 1,144,784 1,068,459 54,961 2,249,115 871,782 10,626,878 – 10,626,878
– Inter-segment 653,049 332 – 893 140 269,039 – 923,453 (923,453) –
Other income and gains 19,883 (2,474) – 124 – 133,227 82,736 233,496 – 233,496
Segment revenue 4,816,136 1,092,431 1,144,784 1,069,476 55,101 2,651,381 954,518 11,783,827 (923,453) 10,860,374
Segment expenses (2,943,670) (662,840) (655,496) (520,139) (17,460) (1,654,279) (833,652) (7,287,536) 654,414 (6,633,122)
Segment results 1,872,466 429,591 489,288 549,337 37,641 997,102 120,866 4,496,291 (269,039) 4,227,252
Share of profits of
associates – 310 – – (930) 73,532 – 72,912 – 72,912
Profit before income tax 1,872,466 429,901 489,288 549,337 36,711 1,070,634 120,866 4,569,203 (269,039) 4,300,164
Segment assets and
liabilities
Segment assets 48,167,107 1,311,585 25,996,744 959,543 3,529,474 88,294,868 11,487,414 179,746,735 (82,209,038) 97,537,697
Investments in associates 926,114
Deferred tax assets 513,100
Group’s total assets 98,976,911
Segment liabilities 45,463,691 369,868 26,639,694 410,206 42,346 45,730,963 7,518,288 126,175,056 (73,880,805) 52,294,251
Deferred tax liabilities 72,018
Group’s total liabilities 52,366,269
Other segment
information
Amounts included in the
measure of segment
profit or loss:
Depreciation and
amortisation 164,652 15,575 1,273 4,869 1,452 78,578 33,638 300,037 – 300,037
Reversal of impairment
loss in respect of other
receivables – – – (9) – (32,764) – (32,773) – (32,773)
Impairment loss in respect
of available-for-sale
investments – – 416,258 – – – 124,151 540,409 – 540,409
Interest income 369,533 20,402 128 1,170 45,114 1,799,053 317,771 2,553,171 – 2,553,171
Interest expenses 203,497 44 143,549 2 – 84,596 28,108 459,796 – 459,796
The Group operates in two principal geographical areas, the People’s Republic of China (excluding Hong
Kong) and Hong Kong, representing the location of majority of the income from external customers and non-current
assets of the Group. Segment revenue and non-current assets in respect of Overseas operations segment are
substantially attributable to Hong Kong. The remaining segment revenue and non-current assets are attributable to
the PRC. No single customers contribute more than 10% of income to the Group’s income for the Relevant Periods.
– I-86 –
APPENDIX I ACCOUNTANTS’ REPORT
54. MATURITY PROFILE OF ASSETS AND LIABILITIES
An analysis of the maturity profile of certain assets and liabilities of the Group based on the remaining
contractual maturity as at 31 December 2009, 2010 and 2011 is as follows:
More than
1 year but
Repayable Less than less than More than
on demand 1 year 5 years 5 years Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at 31 December 2009
Assets
Advances to customers 2,034,977 – – – 2,034,977
Bank balances and cash
(including restricted
bank deposits) 88,246,912 – 184,844 – 88,431,756
Clearing settlement
funds (client money) 5,538,708 – – – 5,538,708
Debt securities classified
as:
Financial assets held
for trading – 110,012 2,646,878 3,540,616 6,297,506
Available-for-sale
investments – – 40,748 70,190 110,938
95,820,597 110,012 2,872,470 3,610,806 102,413,885
Liabilities
Borrowings from banks – 856,474 – – 856,474
Accounts payable to
brokerage clients
(money held on behalf
of clients only) 65,064,154 – – – 65,064,154
65,064,154 856,474 – – 65,920,628
– I-87 –
APPENDIX I ACCOUNTANTS’ REPORT
More than
1 year but
Repayable Less than less than More than
on demand 1 year 5 years 5 years Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at 31 December 2010
Assets
Advances to customers 5,814,456 – – – 5,814,456
Bank balances and cash
(including restricted
bank deposits) 56,899,043 1,158,272 260,801 – 58,318,116
Clearing settlement
funds (client money) 19,981,907 – – – 19,981,907
Debt securities classified
as:
Financial assets held
for trading – 635,798 4,687,264 3,655,103 8,978,165
Available-for-sale
investments – 39,905 108,558 130,059 278,522
82,695,406 1,833,975 5,056,623 3,785,162 93,371,166
Liabilities
Borrowings from banks – 2,825,406 – – 2,825,406
Bank overdrafts 11,821 – – – 11,821
Accounts payable to
brokerage clients
(money held on behalf
of clients only) 61,534,840 – – – 61,534,840
61,546,661 2,825,406 – – 64,372,067
– I-88 –
APPENDIX I ACCOUNTANTS’ REPORT
More than
1 year but
Repayable Less than less than More than
on demand 1 year 5 years 5 years Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at 31 December 2011
Assets
Advances to customers 6,462,677 – – – 6,462,677
Bank balances and cash
(including restricted
bank deposits) 43,349,176 7,221,858 326,719 – 50,897,753
Clearing settlement
funds (client money) 2,415,032 – – – 2,415,032
Debt securities classified
as:
Financial assets held
for trading – – 5,696,683 9,106,717 14,803,400
Available-for-sale
investments – – 30,000 477,743 507,743
Bond investments
included in other
assets – – 157,683 – 157,683
52,226,885 7,221,858 6,211,085 9,584,460 75,244,288
Liabilities
Borrowings from banks 2,073,224 447,506 – – 2,520,730
Accounts payable to
brokerage clients
(money held on behalf
of clients only) 35,786,833 – – – 35,786,833
37,860,057 447,506 – – 38,307,563
– I-89 –
APPENDIX I ACCOUNTANTS’ REPORT
55. FINANCIAL INSTRUMENTS
Categories of financial instruments
Group
As at 31 December
2009 2010 2011
RMB’000 RMB’000 RMB’000
Financial assets
Loans and receivable 98,686,564 90,562,449 65,879,726
Available-for-sale investments 6,648,505 6,938,257 8,760,211
Fair value through profit or loss
– Held for trading 12,896,752 15,018,084 20,605,107
Financial liabilities
Amortised cost 74,252,425 67,930,114 50,745,489
Company
As at 31 December
2009 2010 2011
RMB’000 RMB’000 RMB’000
Financial assets
Loans and receivable 84,564,440 71,819,189 47,601,916
Available-for-sale investments 6,007,468 5,233,707 6,671,876
Fair value through profit or loss
– Held for trading 12,845,060 14,913,359 20,299,297
Financial liabilities
Amortised cost 65,616,290 55,384,407 39,118,993
– I-90 –
APPENDIX I ACCOUNTANTS’ REPORT
56. FINANCIAL RISK MANAGEMENT
The Group and the Company’s major financial instruments include equity and debt investments, advances to
customers, accounts receivable, other receivables, amount due from / to a subsidiary, financial assets held under
resale agreements, clearing settlement funds, bank balances and cash, pledged bank deposits, borrowings, financial
assets sold under repurchase agreements, accounts payable to brokerage clients and other payables. Details of the
financial instruments are disclosed in respective notes. The risks associated with these financial instruments include
market risk (price risk, currency risk and interest rate risk), credit risk and liquidity risk. The policies on how to
mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate
measures are implemented on a timely and effective manner.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in economic environment. Market risk comprises three types of risks: price risk, currency
risk and interest rate risk.
The Group and the Company’s exposures to market risk include price risk, currency risk and interest rate
risk.
Price risk
Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as
a result of changes in market prices (other than those arising from interest rate risk or foreign exchange risk),
whether caused by factors specific to an individual investment, its issuer, or all factors affecting equity
instruments traded in the market.
The Group and the Company are exposed to price risk arising from individual investment classified as
financial assets held for trading and available-for-sale investments. The directors of the Company manage the
exposure by closely monitoring the portfolio of investments. The Group started hedging exposure by entering
into derivatives contracts in 2010 to hedge against the exposure arising from the securities lending activities.
Price risk exposures are measured using value-at-risk (VaR) at the Company level.
There has been no change to the Company’s exposure to market risks or the manner in which it manages
and measures the risk.
Value at Risk (VaR) analysis
The VaR risk measure estimates the potential loss over a given holding period for a specified confidence
level. The VaR methodology is a statistically defined, probability-based approach that takes into account
market volatilities as well as risk diversification by recognising offsetting positions and correlations between
products and markets. Risks can be measured consistently across all markets and products, and risk measures
can be aggregated to arrive at a single risk number. The one-day 95% VaR number used by the Group reflects
the 95% probability that the daily loss will not exceed the reported VaR.
– I-91 –
APPENDIX I ACCOUNTANTS’ REPORT
VaR methodologies employed to calculate the month end risk numbers include the historical approach.
Historical VaR
(95%, one-day) As at 31 December
by risk type 2009 2010
RMB’000 RMB’000 RMB’000
Total VaR exposure 409,000 175,000 166,000
Average
Historical VaR
(95%, one-day) Year ended 31 December
by risk type 2009 2010
RMB’000 RMB’000 RMB’000
Total VaR exposure 231,000 223,000 154,000
Minimum
Historical VaR
(95%, one-day) Year ended 31 December
by risk type 2009 2010
RMB’000 RMB’000 RMB’000
Total VaR exposure 73,000 173,000 116,000
Maximum
Historical VaR
(95%, one-day) Year ended 31 December
by risk type 2009 2010
RMB’000 RMB’000 RMB’000
Total VaR exposure 438,000 278,000 185,000
The subsidiaries of the Company have utilised the effect of security price variation on net profit and
revaluation reserve within the period, rather than VaR methodology, to manage and analyse the price risk.
When reporting internally to the key management on risk, the management estimates that reasonably possible
change in price is 10%. If the prices of the respective equity instruments had been 10% higher/lower, and held
other variables constant, the impacts to the profit for the year and investment revaluation reserve are as
follows:
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Profit for the year
Increase by 10% 3,695 5,692 22,936
Decrease by 10% (3,695) (5,692) (27,304)
Investment revaluation reserve
Increase by 10% 2,704 14,357 23,932
Decrease by 10% (2,704) (14,357) (19,564)
– I-92 –
APPENDIX I ACCOUNTANTS’ REPORT
In the above analysis, management also considers the case of an available-for-sale equity investment
that a reasonably possible downward fall in the equity price would lead the investment to be impaired, the
effect of loss would be shown as affecting profit or loss and the cumulative loss previously recognised in
investment revaluation reserve would be reclassified to profit or loss, but an equivalent upward shift in the
equity price would be shown as affecting investment revaluation reserve.
In the case that an available-for-sale equity investment that has already been impaired, a reasonably
possible downward fall in the equity price may continue to be recognised in profit or loss but an equivalent
upward shift in the equity price would be shown as affecting investment revaluation reserve.
In management’s opinion, the sensitivity analysis is unrepresentative of inherent price risk as the year
end exposure does not reflect the exposure during the year.
Currency risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
as a result of changes in foreign exchange rates.
The Group’s currency risk arises principally from its leveraged foreign exchange business carried out
through HISGL. The Group hedges majority of its client trades in its leveraged foreign exchange business
back-to-back with external counterparties, such that the Group is not exposed to significant foreign currency
risk.
The other amounts of financial assets and liabilities of the Group are substantially denominated in the
functional currency of the respective entity within the Group except that as at 31 December 2011, the Group’s
Hong Kong subsidiaries’, whose functional currency is Hong Kong dollar (“HKD”), have significant monetary
assets denominated in the RMB.
Sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to foreign exchange rates for
financial assets and liabilities denominated in RMB for the Group’s Hong Kong subsidiaries. The analysis is
prepared assuming the financial instruments outstanding at 31 December 2011 were outstanding for the whole
year. When reporting to the management on the currency risk, the Company will adopt a 50 basis points
increase or decrease for sensitivity analysis, while considering the reasonably possible change in RMB/HKD.
Group
If RMB strengthened/weakened against HKD by 5% with all other variables were held constant, the
Group’s profit for the year ended 31 December 2011 would increase/decrease by RMB103,925,000.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market interest rates.
The Group and the Company’s exposure to interest rate risk relates primarily to the Group and the
Company’s bank deposits, advances to customers, amount due from/to a subsidiary, clearing settlement funds,
debt securities, accounts payable to brokerage clients and borrowings. Management actively monitors the
Group and the Company’s net interest rate exposure through setting limits on the level of mismatch of interest
rate repricing and duration gap and aims at maintaining an interest rate spread, such that the Group and the
Company are always in a net interest-bearing asset position and derive net interest income.
Fluctuations of prevailing rate quoted by the People’s Bank of China and Hong Kong Inter-bank Offered
Rate are the major sources of the Group and the Company’s cash flow interest rate risk.
The Group and the Company’s exposures to interest rates on financial liabilities are detailed in the
liquidity risk management section of this note.
Sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to interest rates for variable
rate financial assets and liabilities. The analysis is prepared assuming the financial instruments outstanding at
the end of the reporting period were outstanding for the whole year. When reporting to the management on the
interest rate risk, the Company will adopt a 50 basis points increase or decrease for sensitivity analysis, while
considering the reasonably possible change in interest rates.
– I-93 –
APPENDIX I ACCOUNTANTS’ REPORT
Group
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the
Group’s:
Profit for the years ended 31 December 2009, 31 December 2010 and 31 December 2011 would
decrease/increase by RMB18,188,000, RMB42,460,000 and RMB141,996,000, respectively. This
is mainly attributable to the Group’s exposure to interest rates on its bank balances, accounts
payable to brokerage clients and held for trading debt securities; and
Investment revaluation reserve for the years ended 31 December 2009, 2010 and 2011 would
decrease/increase by RMB3,200,000, RMB5,515,000 and RMB9,521,000, respectively, mainly as
a result of the changes in the fair value of available-for-sale debt investments.
Company
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the
Company’s:
Profit for the years ended 31 December 2009, 2010 and 2011 would decrease/increase by
RMB34,706,000, RMB60,368,000 and RMB155,397,000, respectively. This is mainly
attributable to the Company’s exposure to interest rates on its bank balances, held for trading debt
securities and accounts payable to brokerage clients; and
Investment revaluation reserve for the years ended 31 December 2009, 2010 and 2011 would
decrease/increase by RMB3,200,000, RMB5,515,000 and RMB9,521,000, respectively, mainly as
a result of the changes in the fair value of available-for-sale debt investments.
Credit risk
The Group and the Company take on exposure to credit risk, which is the risk that a counterparty will
be unable to pay amounts in full when due. The tables below show the maximum credit risk exposure of the
Group and the Company, being the carrying amount of the respective recognised financial assets before the
effect of mitigation through the use of collateral.
Group
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Advances to customers 2,034,977 5,814,456 6,462,677
Accounts receivable 677,077 980,221 872,552
Other receivables 358,507 447,497 691,961
Available-for-sale debt investments 110,938 278,522 507,743
Financial assets held under resale
agreements – 2,120,000 605,900
Financial assets at fair value through
profit or loss 6,528,138 8,978,165 14,910,682
Deposits with exchanges 1,374,951 2,373,425 2,177,814
Clearing settlement funds 5,749,123 20,424,736 3,952,038
Bank balances and cash 88,246,912 58,057,315 50,571,034
Restricted bank deposits 184,844 260,801 326,719
Other assets 60,173 83,998 219,031
Maximum credit exposure 105,325,640 99,819,136 81,298,151
– I-94 –
APPENDIX I ACCOUNTANTS’ REPORT
Company
As at 31 December
2009 2010
RMB’000 RMB’000 RMB’000
Advances to customers – 2,091,136 3,675,252
Other receivables 223,941 295,705 483,498
Amount due from a subsidiary – 637,300 874,062
Available-for-sale debt investments 110,938 270,472 507,743
Financial assets held under resale
agreements – 2,120,000 32,000
Financial assets at fair value through
profit or loss 6,528,138 8,951,939 14,712,533
Deposits with exchanges 672,582 790,909 1,031,890
Clearing settlement funds 5,511,975 19,652,583 2,792,636
Bank balances and cash 78,115,546 46,185,659 38,662,681
Other assets 40,396 45,897 49,897
Maximum credit exposure 91,203,516 81,041,600 62,822,192
Credit exposures arise principally from investments in debt securities, advances to customers,
accounts receivable, clearing settlement funds and bank balances which are included in the Group and
the Company’s asset portfolios.
Credit exposure arising from investments in debt securities include downgrading of credit rating
of the debt securities and/or of its underlying issuers and default of payments by the issuers. The Group
and the Company have implemented a policy of not investing in any debt securities rated by reputable
credit rating agency at a rating below A-3 and BBB for short-term tenor and for medium to long-term
tenor, respectively. Management also closely monitors the credit ratings of respective debt securities on
a regular basis and the financial soundness of the underlying issuers.
The Group and the Company provide clients with margin financing for securities transactions and
securities lending to clients, which are secured by clients’ securities or deposits held as collateral.
Management has delegated a team responsible for determination of credit limits, credit approvals and
other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. Each
client has a maximum credit limit based on the quality of collateral held and the financial background
of the client. In addition, the Group and the Company review the recoverable amount of each individual
at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable
amounts. Margin calls are made when the trades of margin clients exceed their respective limits. Any
such excess is required to be made good within the next trading day. Failure to meet margin calls may
result in the liquidation of the client’s positions. The Group and the Company seek to maintain strict
control over its outstanding receivables.
The Group seeks to maintain tight control over its outstanding accounts receivable in order to
minimise credit risk. Overdue balances are regularly monitored by management. Accounts receivable
from cash clients which are neither past due nor impaired represent unsettled client trades on various
securities exchanges transacted on the last two business days prior to the respective reporting date. Such
receivable balances are neither past due nor impaired as they are within the normal market convention.
Accounts receivable from cash clients which are past due but not impaired represent client trades
on various securities exchanges which are unsettled beyond the settlement date. When the cash clients
failed to settle on settlement date, the Group and the Company has a right to force-sell the collateral
underlying the securities transactions. The outstanding accounts receivable from cash clients as at 31
December 2009, 2010 and 2011 are considered not to be impaired after taking into consideration the
recoverability from collateral. Collateral held against such receivables are publicly traded securities.
The credit risk on liquid funds is limited because the counterparties are banks with high credit
ratings assigned by international credit-rating agencies.
Other than concentration of credit risk on liquid funds which are deposited with several banks
with high credit ratings, the Group and the Company’s major credit exposures are with counterparties
domiciled in the PRC as of 31 December 2009, 2010 and 2011.
– I-95 –
APPENDIX I ACCOUNTANTS’ REPORT
Liquidity risk
Liquidity risk is the risk that the Group and the Company will encounter difficulty in meeting
obligations associated with its financial liabilities. Prudent liquidity risk management includes maintaining
sufficient cash, the availability of funding from the market in the capacity of a financial institution, and the
ability to close out market positions. As part of the measures to safeguard liquidity, the Group has maintained
substantial long-term and other stand-by banking facilities, diversifying the funding sources and spacing out
the maturity dates.
Undiscounted cash flows by contractual maturities
The table below presents the cash flows payable by the Group under non-derivative financial liabilities
held for managing liquidity risk by remaining contractual maturities at the reporting date. The amounts
disclosed in the table are the contractual undiscounted cash flows. The table includes both interest and
principal cash flows.
Group
As at 31 December 2009
Less than 3 months to
On demand 3 months 1 year Total
RMB’000 RMB’000 RMB’000 RMB’000
Borrowings 220,120 856,564 – 1,076,684
Accounts payable to brokerage
clients 66,510,310 69,860 – 66,580,170
Other payables 759,466 – 14,695 774,161
Financial assets sold under
repurchase agreements – 5,822,629 – 5,822,629
67,489,896 6,749,053 14,695 74,253,644
As at 31 December 2010
Less than 3 months to
On demand 3 months 1 year Total
RMB’000 RMB’000 RMB’000 RMB’000
Borrowings 96,913 2,826,305 – 2,923,218
Accounts payable to brokerage
clients 63,462,147 110,292 109,915 63,682,354
Other payables 1,307,591 – 17,849 1,325,440
64,866,651 2,936,597 127,764 67,931,012
As at 31 December 2011
Less than 3 months to
On demand 3 months 1 year Total
RMB’000 RMB’000 RMB’000 RMB’000
Borrowings 2,075,209 447,934 – 2,523,143
Accounts payable to brokerage
clients 36,972,208 203,611 837,988 38,013,807
Other payables 674,537 – 11,881 686,418
Financial assets sold under
repurchase agreements – 9,532,001 – 9,532,001
39,721,954 10,183,546 849,869 50,755,369
– I-96 –
APPENDIX I ACCOUNTANTS’ REPORT
Company
As at 31 December 2009
Less than 3 months to
On demand 3 months 1 year Total
RMB’000 RMB’000 RMB’000 RMB’000
Accounts payable to brokerage
clients 59,473,774 – – 59,473,774
Other payables 306,321 – 14,695 321,016
Financial assets sold under
repurchase agreements – 5,822,629 – 5,822,629
59,780,095 5,822,629 14,695 65,617,419
As at 31 December 2010
Less than 3 months to
On demand 3 months 1 year Total
RMB’000 RMB’000 RMB’000 RMB’000
Accounts payable to brokerage
clients 54,101,905 – 109,915 54,211,820
Other payables 1,134,738 – 17,849 1,152,587
Amount due to a subsidiary 20,000 – – 20,000
55,256,643 – 127,764 55,384,407
As at 31 December 2011
Less than 3 months to
On demand 3 months 1 year Total
RMB’000 RMB’000 RMB’000 RMB’000
Accounts payable to brokerage
clients 28,289,172 – 837,988 29,127,160
Other payables 455,365 – 11,881 467,246
Amount due to a subsidiary 53 – –
Financial assets sold under
repurchase agreements – 9,532,001 – 9,532,001
28,744,590 9,532,001 849,869 39,126,460
Fair value of financial assets and liabilities
The fair value of financial assets and financial liabilities are determined as follows:
the fair value of financial assets with standard terms and conditions and traded in active liquid
markets are determined with reference to quoted market bid prices;
the fair value of derivative instruments is calculated using quoted prices. Where such prices are
not available, use is made of discounted cash flow analysis using the applicable yield curve for
the duration of the instruments for non-optional derivatives, and option pricing models for
optional derivatives; and
the fair value of other financial assets and financial liabilities (excluding those described above)
is determined in accordance with generally accepted pricing models based on discounted cash
flow analysis.
The directors of the Company consider that the carrying amounts of financial assets and financial
liabilities recorded at amortised cost in the Group and the Company’s statements of financial position
approximate their fair values.
– I-97 –
APPENDIX I ACCOUNTANTS’ REPORT
Financial instruments measured at fair value
The following table provides an analysis of financial instruments that are measured subsequent to initial
recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active
market for identical assets or liabilities.
Level 2 fair value measurements are those derived from inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
Level 3 fair value measurements are those derived from valuation techniques that include inputs
for the asset or liability that are not based on observable market data (unobservable inputs).
Group
As at 31 December 2009
Level 1 Level 2 Level 3 Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments 1,562,629 545,661 4,133,097 6,241,387
Financial assets at fair value through
profit or loss 3,662,334 9,234,418 – 12,896,752
5,224,963 9,780,079 4,133,097 19,138,139
As at 31 December 2010
Level 1 Level 2 Level 3 Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments 3,740,349 1,104,354 1,188,769 6,033,472
Financial assets at fair value through
profit or loss 5,253,236 9,764,848 – 15,018,084
8,993,585 10,869,202 1,188,769 21,051,556
As at 31 December 2011
Level 1 Level 2 Level 3 Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments 5,393,570 961,228 836,056 7,190,854
Financial assets at fair value through
profit or loss 10,091,102 10,514,005 – 20,605,107
15,484,672 11,475,233 836,056 27,795,961
– I-98 –
APPENDIX I ACCOUNTANTS’ REPORT
Company
As at 31 December 2009
Level 1 Level 2 Level 3 Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments 1,540,637 249,282 4,119,038 5,908,957
Financial assets at fair value through
profit or loss 3,613,065 9,231,995 – 12,845,060
5,153,702 9,481,277 4,119,038 18,754,017
As at 31 December 2010
Level 1 Level 2 Level 3 Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments 3,713,104 402,221 1,013,846 5,129,171
Financial assets at fair value through
profit or loss 5,151,119 9,762,240 – 14,913,359
8,864,223 10,164,461 1,013,846 20,042,530
As at 31 December 2011
Level 1 Level 2 Level 3 Total
RMB’000 RMB’000 RMB’000 RMB’000
Available-for-sale investments 5,308,746 603,399 658,127 6,570,272
Financial assets at fair value through
profit or loss 10,085,517 10,213,781 – 20,299,298
15,394,263 10,817,180 658,127 26,869,570
There were no transfers between instruments in Level 1 and Level 2 during the years ended 31
December 2009, 2010 and 2011.
The following table represents the changes in Level 3 available-for-sale investments for the years ended
31 December 2009, 2010 and 2011.
Group
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
At beginning of the year 93,100 4,133,097 1,188,769
Recognised in other comprehensive income 815,960 33,272 (193,854)
Purchases 3,291,100 917,560 762,470
Transfer into Level 3* 200,310 55,000 –
Transfer out of Level 3 to Level 1 (267,373) (3,950,160) (921,329)
At end of the year 4,133,097 1,188,769 836,056
* Investment was originally stated at cost and was subsequently measured at fair value.
– I-99 –
APPENDIX I ACCOUNTANTS’ REPORT
Company
Year ended 31 December
2009 2010
RMB’000 RMB’000 RMB’000
At beginning of the year 93,100 4,119,038 1,013,846
Recognised in other comprehensive income 809,401 (120,727) (161,928)
Purchases 3,291,100 917,560 723,769
Transfer into Level 3* 192,810 – –
Transfer out of Level 3 to Level 1 (267,373) (3,902,025) (917,560)
At end of the year 4,119,038 1,013,846 658,127
* Investment was originally stated at cost and was subsequently measured at fair value.
Capital management
The Group’s objectives when managing capital are:
To safeguard the Group’s ability to continue as a going concern so that it can continue to provide
returns for shareholders and benefits for other stakeholders;
To support the Group’s stability and growth;
To maintain a strong capital base to support the development of its business; and
To comply with the capital requirements under the PRC and Hong Kong regulations.
In accordance with Administrative Measures for Risk Control Indicators of Securities Companies
(Revision 2008) (the “Administrative Measures”) issued by the China Securities Regulatory Commission
(CSRC), the Company is required to meet the following standards for risk control indicators on a continual
basis:
1. The ratio between its net capital and the sum of its various risk capital provisions shall be no less
than 100% (“Ratio 1”);
2. The ratio between its net capital and its net assets shall be no less than 40% (“Ratio 2”);
3. The ratio between its net capital and its liabilities shall be no less than 8% (“Ratio 3”);
4. The ratio between its net assets and its liabilities shall be no less than 20% (“Ratio 4”);
5. The ratio between the value of equity securities, derivatives held and its net capital shall not
exceed 100% (“Ratio 5”); and
6. The ratio between the value of fixed income securities held and net capital shall not exceed 500%
(“Ratio 6”).
Net capital refers to net assets minimises risk adjustments on certain types of assets as defined in the
Administrative Measures.
– I-100 –
APPENDIX I ACCOUNTANTS’ REPORT
As at 31 December 2009, 2010 and 2011, the Company has maintained the above ratios as follows:
As at 31 December
2009 2010
Net capital (RMB’000) 34,390,881 32,459,539 31,342,596
Ratio 1 779.24% 571.67% 527.66%
Ratio 2 79.84% 74.02% 70.14%
Ratio 3 440.93% 1232.45% 282.82%
Ratio 4 552.26% 1665.01% 403.23%
Ratio 5 25.28% 26.87% 38.09%
Ratio 6 29.53% 36.31% 60.35%
The above ratios are calculated based on the underlying financial information prepared in accordance
with the relevant accounting rules and financial regulations applicable to enterprises in the People’s Republic
of China.
Certain subsidiaries of the Group are also subject to capital requirements under the PRC and Hong Kong
regulations, imposed by the CSRS and the Hong Kong Securities and Futures Commission, respectively.
The capital of the Group mainly comprises its total equity.
57. LITIGATIONS
As at 31 December 2009, 2010 and 2011, the Group has several outstanding litigations with potential claims
with maximum total amount of approximately RMB9,900,000, RMB10,100,000 and RMB404,000, respectively, of
which RMB8,800,000, RMB6,900,000 and RMB248,000, respectively were accounted for and provided in the
Financial Information based on directors’ best estimate of the amount required to settle the claims. Certain
outstanding litigations as at respective reporting date were settled subsequently. For details, please refer to note 38.
In previous year, the branch of the Company has involved in a few interrelated legal proceedings arising from
one case that related to stock trading dispute. Pursuant to the final judgment of the Higher People’s Court of Hubei
made in 2009, the relevant case had been closed, and the Company was ordered to pay a compensation of
approximately RMB26.3 million (excluding interests ordered in the final judgment). The Company had performed the
obligated compensation, and a provision had been reflected in the financial statements in the year which it occurred.
In November 2011, the Company has received a summons from the Supreme People’s Court, stating that the PRC
Supreme People’s Procuratorate had filed a formal protest for the above case to the PRC Supreme People’s Court,
and the PRC Supreme People’s Court had decided to start the retrial process. Pursuant to the written protest, the
maximum possible claim faced by the Company in this case will be an additional amount of RMB26.8 million
(excluding the interest ordered to be incurred by the Company pursuant to the judgment of the retrial). Based on the
advice of the legal counsel, the Company considered that the final judgment of Higher People’s Court of Hubei
conformed to the principles of fairness and shall be maintained. Based on this expectation, no outflow of economic
benefits should be made to settle the obligation and accordingly, no provision for any potential liabilities has been
made in this respect.
– I-101 –
APPENDIX I ACCOUNTANTS’ REPORT
H. SUBSEQUENT EVENT
On 14 March 2012, the board of directors of the Company has proposed a cash dividend
of RMB0.15 per share, or a total of RMB1,234.2 million based on the number of shares in issue
as at 31 December 2011. The cash dividend is subject to the shareholders’ approval at the
forthcoming annual general meeting.
Other than disclosed above, the Group had no material events for disclosure subsequent
to 31 December 2011 and up to the date of this report.
I. SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements of the Group, the Company or any of the companies now
comprising the Group have been prepared in respect of any period subsequent to 31 December
2011 and up to the date of this report.
Yours faithfully,
Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
– I-102 –
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
The information set forth in this appendix does not form part of the accountants’ report
on the financial information of the Group for the three years ended 31 December 2011 prepared
by Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, the reporting
accountants of the Company, as set forth in Appendix I to this prospectus. For the purpose of
this Appendix II, Haitong Securities Co., Ltd. is referred to as the “Company” and, together
with its subsidiaries, the “Group”.
The following unaudited pro forma financial information prepared in accordance with
paragraph 29 of Chapter 4 of the Listing Rules is for illustrative purposes only, and is set out
here to provide investors with further information about how the proposed Global Offering
might have affected the consolidated net tangible assets of the Group attributable to the owners
of the Company after completion of the Global Offering. Although reasonable care has been
exercised in preparing the said information, prospective investors who read the information
should bear in mind that these figures are inherently subject to adjustments and may not give
a true picture of the Group’s financial position following the Global Offering or at any future
dates.
(A) UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED NET TANGIBLE
ASSETS OF THE GROUP ATTRIBUTABLE TO THE OWNERS OF THE
COMPANY
The following unaudited pro forma adjusted consolidated net tangible assets of the Group
attributable to the owners of the Company have been prepared based on the audited
consolidated net tangible assets of the Group attributable to the owners of the Company as at
31 December 2011 as extracted from the Accountants’ Report, the text of which is set out in
Appendix I to this prospectus, and is adjusted as described below.
The unaudited pro forma adjusted consolidated net tangible assets of the Group
attributable to the owners of the Company have been prepared for illustrative purposes only
and, because of their nature, they may not give a true picture of the Group’s financial position
as at 31 December 2011 or any future dates.
– II-1 –
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma adjusted consolidated net tangible assets of the Group
attributable to the owners of the Company have been prepared to show the effect of the Global
Offering on the audited consolidated net tangible assets of the Group attributable to the owners
of the Company as at 31 December 2011 as if it had occurred on 31 December 2011.
Audited Unaudited pro
consolidated net forma adjusted
tangible assets Unaudited pro consolidated net
attributable to forma adjusted tangible assets
the owners of consolidated net of the Group
the Company as Estimated net tangible assets attributable to
at proceeds from attributable to the owners of
31 December the Global the owners of the Company
2011 Offering the Company per share
RMB’ million RMB’ million RMB’ million RMB HK$
(Note 1) (Note 2) (Note 3) (Note 4) (Note 5)
Based on offer price of
HK$10.48 for each Offer
Share 44,129.3 10,030.8 54,160.1 5.73 7.06
Based on offer price of
HK$11.18 for each Offer
Share 44,129.3 10,704.7 54,834.0 5.80 7.15
Notes:
(1) The audited consolidated net tangible assets attributable to the owners of the Company as at 31
December 2011 is compiled based on the Accountants’ Report set out in Appendix I to the prospectus,
which is based on the audited consolidated net assets attributable to the owners of the Company at 31
December 2011 of approximately RMB45,042.4 million with an adjustment for goodwill and other
intangible assets attributable to the owners of the Company at 31 December 2011.
(2) The estimated net proceeds from the Global Offering are based on the offer price of HK$10.48 per share
and HK$11.18 per share after deduction of the underwriting fees and other related expenses payable by
the Company, and do not take into account any shares which may be issued upon the exercise of the
Over-allotment Option for the Global Offering.
(3) The unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the
owners of the Company does not take into account the effect of the profit for the period from and
including 1 January 2012 to the date immediately preceding the date of the Global Offering. In
particular, the unaudited pro forma adjusted consolidated net tangible assets of the Group attributable
to the owners of the Company has not taken into account the dividend of RMB0.15 per share to the
existing shareholders of the Company as at 31 December 2011, equivalent to approximately
RMB1,234.2 million in aggregate, proposed by the directors of the Company on 14 March 2012. Had
the effect been given to the distribution of such dividend, the unaudited pro forma adjusted consolidated
net tangible assets of the Group attributable to the owners of the Company per share would have been
HK$6.90 or RMB5.60 based on the offer price of HK$10.48 per share and HK$6.99 or RMB5.67 based
on the offer price of HK$11.18 per share.
(4) The unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the
owners of the Company per share is calculated after the adjustments referred to in note (2) above and
on the basis that 9,457,221,180 shares are issued and outstanding following the completion of the Global
Offering and assuming that the Over-allotment Option for the Global Offering is not exercised.
(5) The translation of Renminbi into Hong Kong dollars has been made at the rate of RMB0.8115 to
HK$1.00, PBOC rate prevailing on 9 April 2012. No representation is made that the Hong Kong dollar
amounts have been, could have been or could be converted to Renminbi, or vice versa, at that rate or
at any other rates or at all.
– II-2 –
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
(B) REPORT FROM THE REPORTING ACCOUNTANTS ON THE UNAUDITED
PROFORMA FINANCIAL INFORMATION
The following is the text of an accountants’ report, prepared for the purpose of
incorporation in this prospectus, received from the reporting accountants, Deloitte Touche
Tohmatsu, Certified Public Accountants, Hong Kong, in respect of the Group’s unaudited pro
forma financial information.
ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION
TO THE DIRECTORS OF HAITONG SECURITIES CO., LTD.
We report on the unaudited pro forma financial information of Haitong Securities Co.,
Ltd. (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”)
(the “Unaudited Pro Forma Financial Information”) set out in Part (A) of Appendix II to the
Prospectus dated 17 April 2012 (the “Prospectus”) in connection with the Global Offering,
which has been prepared by the directors of the Company (the “Directors”) for illustrative
purposes only, to provide information about how the Global Offering might have affected the
financial information of the Group presented, for inclusion in Appendix II to the Prospectus.
The basis of preparation of the Unaudited Pro Forma Financial Information is set out in Part
(A) of Appendix II to the Prospectus.
Respective responsibilities of the Directors and reporting accountants
It is the responsibility solely of the Directors to prepare the Unaudited Pro Forma
Financial Information in accordance with paragraph 29 of Chapter 4 of the Rules Governing
the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”)
and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information
for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public
Accountants (the “HKICPA”).
It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4
of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our
opinion solely to you. We do not accept any responsibility for any reports previously given by
us on any financial information used in the compilation of the Unaudited Pro Forma Financial
Information beyond that owed to those to whom those reports were addressed by us at the dates
of their issue.
– II-3 –
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
Basis of opinion
We conducted our engagement in accordance with Hong Kong Standard on Investment
Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial
Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of
comparing the unadjusted financial information with the source documents, considering the
evidence supporting the adjustments, and discussing the Unaudited Pro Forma Financial
Information with the Directors. This engagement did not involve independent examination of
any of the underlying financial information.
We planned and performed our work so as to obtain the information and explanations we
considered necessary in order to provide us with sufficient evidence to give reasonable
assurance that the Unaudited Pro Forma Financial Information has been properly compiled by
the Directors on the basis stated, that such basis is consistent with the accounting policies of
the Group and that the adjustments are appropriate for the purpose of the Unaudited Pro Forma
Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing
Rules.
Our work has not been carried out in accordance with the auditing standards or other
standards and practices generally accepted in the United States of America or auditing
standards of the Public Company Accounting Oversight Board (United States) and,
accordingly, should not be relied upon as if it has been carried out in accordance with those
standards.
The Unaudited Pro Forma Financial Information is for illustrative purpose only, based on
the judgments and assumptions of the Directors and, because of its hypothetical nature, does
not provide any assurance or indication that any event will take place in the future and may not
be indicative of the financial position of the Group as at 31 December 2011 or any future dates.
– II-4 –
APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION
Opinion
In our opinion:
(a) the Unaudited Pro Forma Financial Information has been properly compiled by the
Directors on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purpose of the Unaudited Pro Forma
Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the
Listing Rules.
Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
17 April 2012
– II-5 –
APPENDIX III TAXATION AND FOREIGN EXCHANGE
TAXATION OF SECURITIES HOLDERS
The following is a summary of certain PRC and Hong Kong tax consequences of the
ownership of H Shares by an investor that purchases such H Shares in connection with the
Global Offering and holds the H Shares as capital assets. This summary does not purport to
address all material tax consequences of the ownership of H Shares, and does not take into
account the specific circumstances of any particular investors, some of which may be subject
to special rules. This summary is based on the tax laws of the PRC and Hong Kong as in effect
on the date hereof, all of which are subject to change (or changes in interpretation), possibly
with retroactive effect.
This section of this prospectus does not address any aspects of Hong Kong or PRC
taxation other than income taxation, capital taxation, stamp taxation and estate taxation.
Prospective investors are urged to consult their tax advisors regarding the PRC, Hong Kong
and other tax consequences of owning and disposing of H Shares.
TAXATION IN THE PRC
Taxation of the Dividends
Individual Investors
According to the Individual Income Tax Law of China (0 N-N”l Q TW P N”b@z
l0 ) (the “Individual Income Tax Law”) promulgated on September 10, 1980, as amended on
October 31, 1993, August 30, 1999, October 27, 2005, June 29, 2007, December 29, 2007, June
30, 2011, and the Provision for Implementation of the Individual Income Tax Law (0 N-N”
l Q TW P N”b@z l[ehO0 ) (“Provision for Implementation”) promulgated on January
28, 1994, as amended on December 19, 2005, February 18, 2008 and July 19, 2011, dividends
paid by PRC companies to individuals are ordinarily subject to a PRC withholding tax levied
at a flat rate of 20%. For a foreign individual who is not a resident of the PRC, the receipt of
dividends from a company in the PRC is normally subject to a withholding tax of 20% unless
specifically exempted by the tax authority of the State Council or reduced by an applicable tax
treaty.
Pursuant to the Notice on Matters Concerning the Levy and Administration of Individual
Income Tax After the Repeal of Guo Shui Fa [1993] No. 45 (Guo Shui Han [2011] No. 348)
(0 eW z v| [1993]045eN^kb_g P N”b@ z _ OLv w0 (W z Q [2011]348
)) promulgated by the SAT recently, domestic non-foreign-invested enterprises issuing
shares in Hong Kong may, when distributing dividends, withhold individual income tax at the
rate of 10%. For the individual holders of H Shares receiving dividends who are citizens from
countries that has entered into an income tax treaty with the tax rates lower than 10%, we will
apply on behalf of the such holders to seek entitlement of the lower preferential tax treatments,
and upon examination and approval by the tax authorities, the amounts which is over the
withheld tax will be refunded. For the individual holders of H shares receiving dividends who
are citizens from countries that entered into an income tax treaty with the tax rates higher than
– III-1 –
APPENDIX III TAXATION AND FOREIGN EXCHANGE
10% but lower than 20%, we are required to withhold the tax at the agreed rate under the treaty,
and no application procedures will be necessary. For the individual holders of H Shares
receiving dividends who are citizens from countries without taxation agreements with the PRC
or are under other situations, we are required to withhold the tax at a the rate of 20%.
Enterprise
According to the new PRC Enterprise Income Tax Law (0 N-N”l Q TW O imb@z
l0 ) (the “EIT Law”) and the Provision for Implementation of Enterprise Income Tax Law of
the PRC (0 N-N”l Q TW O imb@z l[ehO0 ) (the “Implementation Regulations”),
which both became effective on January 1, 2008, the nonresident enterprises shall be subject
to 10% enterprise tax for the income originated from the PRC provided that the non-resident
enterprises do not establish institutions or premises in the PRC, or where there are institutions
and premises established, there is no connection between the income received and the
institutions or premises established by the non-resident enterprises. Such withholding tax may
be reduced pursuant to an applicable double taxation treaty.
According to the Notice of the State Administration of Taxation Regarding Questions on
Withholding Enterprise Income tax on the Dividends Paid by PRC Resident Enterprises to
Non-resident Enterprise Shareholders of H Shares (Guo Shui Han [2008] No. 897) (0 W [z
R~eN-W \ l O imT Y HEl O imgqm>voNbcN~sO imb@z g UOLv
w0 , W z Q [2008]897 ), which became effective on November 6, 2008, PRC enterprises
should withhold enterprise income tax at a rate of 10% when they distribute dividends to
non-resident enterprise shareholders of H shares from the year of 2008. Such withholding tax
may be reduced pursuant to an applicable double taxation treaty.
According to the Arrangement between the Mainland China and Hong Kong for the
Avoidance of Double Taxation on Income (0 Q W0TnryR%Le?Se\ b@Mz
T2kbPwo z v[c0 ) signed on August 21, 2006, the PRC Government may impose tax on
dividends payable by a PRC company to a Hong Kong resident, but such tax shall not exceed
10% of the gross amount of dividends payable, and in the case where a Hong Kong resident
holds 25% equity interest or more in a PRC company, such tax shall not exceed 5% of the gross
amount of dividends payable by the PRC company.
Tax Treaties
Investors who do not reside in the PRC and reside in countries that have entered into
double taxation treaties with the PRC may be entitled to a reduction of the withholding tax
imposed on the payment of dividends to investors of our Company who do not reside in the
PRC. The PRC currently has double-taxation treaties with many nations in the world, which
include but not limited to:
Australia;
Canada;
– III-2 –
APPENDIX III TAXATION AND FOREIGN EXCHANGE
France;
Germany;
Japan;
Malaysia;
the Netherlands;
Singapore;
the United Kingdom; and
the United States.
Taxation of Capital Gains
Individual Investors
With respect to individual holders of H shares, the Individual Income Tax Law and
Provision for Implementation generally stipulate that gains derived from assignment of
property shall be subject to income tax at a rate of 20%. In addition, the Provisions stipulate
that measures for the levying of individual income tax on gains derived from the sale of equity
securities shall be formulated separately by the Ministry of Finance and shall be implemented
following approval of the State Council. Pursuant to the Notice of the Ministry of Finance and
the State Administration of Taxation concerning the Continued Individual Income Tax
Exemption for Individuals’ Proceeds from Share Transfers (0 ? 0 W [z R~eP N”
hb@fMe6P N”b@z v w0 ) (the “Exemption Notice”) which came into
effect on March 30, 1998, and effective since January 1, 1997, individual income tax
exemption is continually valid from individuals’ transfers of shares of public companies.
However, there is no further interpretation whether such exemption is applied to H Shares.
Theoretically, there is exposure that PRC individual income tax shall be applicable to capital
gains derived from disposal of H shares by non-resident individuals, which may have not been
collected by the PRC tax authorities in practice at the moment. However, if PRC tax laws and
regulations, in the future, provide that such exemption is withdrawn or ceases to be effective,
or is not applied to H Shares, individual holders of H shares who are Hong Kong or Macau
residents are subject to capital gains tax when transferring their H shares.
Enterprise
According to the EIT Law and the Implementation Regulations, the non-resident
enterprises shall be subject to 10% enterprise tax for the income originated from the PRC
provided that the non-resident enterprises do not establish offices or premises in the PRC, or
where there are offices and premises established, there is no connection between the gains
received and the offices or premises established by the non-resident enterprises. Such
withholding tax may be reduced pursuant to an applicable double taxation treaty.
– III-3 –
APPENDIX III TAXATION AND FOREIGN EXCHANGE
Additional Chinese Tax Considerations
PRC Stamp Duty
PRC stamp duty imposed on the transfer of shares of PRC publicly traded companies
should not apply to the acquisition and disposal by non-PRC investors of H Shares outside of
the PRC by virtue of the Provisional Regulations of the PRC Concerning Stamp Duty (0 N-
N”l Q TW Sp–z fLhO0 ), which became effective on October 1, 1988 and which provide
that PRC stamp duty is imposed only on documents, executed or received within the PRC that
are legally binding in the PRC and are protected under PRC law.
Estate Tax
No liability for estate tax under PRC law will arise from non-PRC national’s holding of
H shares.
Taxation of the Company by the PRC
Income Tax
As stipulated under the new EIT Law, enterprises and other organizations which generate
income within the PRC shall pay enterprise income tax according to stipulations of the new
EIT Law and are subject to enterprise income tax at the rate of 25%.
Business Tax
Pursuant to the Provisional Regulations of the PRC Concerning Business Tax (0 N-N”
l Q TW qimz fLhO0 ) effective from January 1, 1994 which was amended in November
2008 and the relevant implementing rules, a business tax is imposed on enterprises which
provide taxable services, transfer intangible property or sell real estate in the PRC. The
business tax is levied at a rate from 3% to 20% on the provision of taxable services, transfer
of intangible property or sale of real estate in the PRC.
The PRC implemented value-added tax reform according to which industries that are
subject to business tax will gradually transit to pay value-added tax instead of business tax.
According to the requirements of the Pilot Scheme for the Change from Business Tax to
Value-Added Tax [Cai Shui [2011] No.110] issued by the Ministry of Finance and the SAT on
November 16 2011, the future financial insurance industry is principally applicable to the
simple VAT taxation method and the pilot scheme will commerce from January 1, 2012.
However, there are no specific requirements on the tax rate and simple taxation method for
financial insurance industry.
– III-4 –
APPENDIX III TAXATION AND FOREIGN EXCHANGE
Foreign Exchange Control
The lawful currency of the PRC is the RMB, which is subject to foreign exchange controls
and is not freely convertible into foreign exchange at this time. SAFE, under the authority of
PBOC, is empowered with the functions of administering all matters relating to foreign
exchange, including the enforcement of foreign exchange control regulations.
On January 29, 1996, the State Council promulgated new Regulation of Foreign Exchange
(0 N-N”l Q TW Y S/t hO0 ) (the “Foreign Exchange Regulations”) which was
effective from April 1, 1996. The Foreign Exchange Regulations classifies all international
payments and transfers into current account items and capital account items. Most of the
current account items are no longer subject to the approval from the SAFE while capital
account items still are. The Foreign Exchange Regulations was subsequently amended on
January 14, 1997 and on August 1, 2008. This latest amendment affirmatively states that the
State shall not restrict international current account payments and transfers.
On June 20, 1996, PBOC promulgated the Regulations for Administration of Settlement,
Sale and Payment of Foreign Exchange (0 } S/0 U.S/SNS/t ‰ ) (the “Settlement
Regulations”) which took effect on July 1, 1996. The Settlement Regulations superseded the
Provisional Regulations for the Administration of Settlement, Sale and Payment of Foreign
Exchange and abolished the remaining restrictions on convertibility of foreign exchange in
respect of current account items while retaining the existing restrictions on foreign exchange
transactions in respect of capital account items.
On October 25, 1998, PBOC and SAFE promulgated the Notice Concerning Closure of
the Foreign Exchange Swap Business Activities (0 eP\ S/R‘imRv w0 ) pursuant
to which and with effect from December 1, 1998, all foreign exchange swapping business in
the PRC for foreign-invested enterprises shall be discontinued, while the trading of foreign
exchange by foreign-invested enterprise shall come under the banking system for the
settlement and sale of foreign exchange.
On July 21, 2005, PBOC announced that from the same date, the PRC would implement
a managed floating exchange rate system based on market supply and demand and with
reference to a basket of currencies. Therefore, the RMB exchange rate was no longer pegged
to the U.S. dollar only. The PBOC would announce the closing price of a foreign currency such
as the U.S. dollar against the RMB in the inter-bank foreign exchange market after the closing
of the market on each working day. This closing price will be used as the middle price for
quoting the RMB exchange rate on the following working day.
Since January 4, 2006, PBOC improved the method of generating the middle price for
quoting the RMB exchange rate by introducing an enquiry system while keeping the
match-making system in the interbank spot foreign exchange market. In addition, PBOC
provided liquidity in the foreign exchange market by introducing the market-making system in
the inter-bank foreign exchange market. After the introduction of the enquiry system, the
generation of the middle price for quoting the RMB was transformed to a mechanism under
– III-5 –
APPENDIX III TAXATION AND FOREIGN EXCHANGE
which PBOC authorized the China Foreign Exchange Trading System to determine and
announce the middle price for quoting the RMB against the U.S. dollar, based on the enquiry
system, at 9:15 am on each business day.
According to Foreign Exchange Regulation, current account foreign exchange income
may, in accordance with relevant provision of the state, be retained or sold to any financial
institution engaged in foreign exchange settlement and sale business, and where any foreign
exchange income on capital account is to be retained or sold to a financial institution engaged
in foreign exchange settlement and sales business, an approval shall be obtained from the
relevant foreign exchange administrative authority, other than where no approval is required
under state provisions.
PRC enterprises (including foreign-invested enterprises) which require foreign exchange
for transactions relating to current account items, may, without the approval of SAFE, effect
payment from their foreign exchange account or convert and pay at the designated foreign
exchange banks, on the strength of valid receipts and proof of transactions. Foreign-invested
enterprises which need foreign exchange for the distribution of profits to their shareholders,
and PRC enterprises which in accordance with regulations are required to pay dividends to
shareholders in foreign exchange, may on the strength of general meeting resolutions of such
PRC enterprises or board resolutions on the distribution of profits, and with the submission of
other required supporting documents, effect payment from their foreign exchange account or
convert and pay at the designated foreign exchange banks.
Convertibility of foreign exchange in respect of capital account items, like direct
investment and capital contribution, is still subject to restriction, and prior approval from
SAFE or the relevant branch.
The Notice Concerning Foreign Exchange Control of Overseas-listed Enterprises (0
eX N ^ O imY S/t g UOLv w0 ), as jointly promulgated by CSRC and the State
Administration of Foreign Exchange (“SAFE”), came into effect on January 13, 1994, and
provides that:
(i) Funds raised by domestic enterprises through issuing shares in foreign countries
shall be categorized as income from capital projects, and may be deposited in cash
in foreign exchange accounts opened in China as approved by the SAFE.
(ii) A domestic enterprise issuing shares in foreign countries shall, within ten days after
the foreign funds raised through the issuance of the shares have become available,
transfer the full amount of the funds into China and deposit the amount in a foreign
exchange account opened with approval.
(iii) Foreign currencies needed by domestic enterprises issuing shares in foreign
countries for the purpose of distributing dividends and capital bonuses to overseas
shareholders may be paid and remitted by the enterprises’ banks from their foreign
exchange accounts with approval of the SAFE. The enterprises’ foreign currency
uses for other purposes shall be handled according to applicable regulations.
– III-6 –
APPENDIX III TAXATION AND FOREIGN EXCHANGE
(iv) If the sum of foreign-currency funds raised by a domestic enterprise through the
issuance of shares in foreign countries reaches 25% or more of the enterprise’s total
net assets, it may apply to the Ministry of Commerce of the PRC (previously known
as the Ministry of Foreign Trade and Economic Cooperation of China) or its
authorized department to establish a Sino-foreign joint venture according to the Law
on Sino-foreign Joint Ventures. If it is granted the status of a Sino-foreign joint
venture, its foreign-currency income and expenses shall be handled pursuant to the
foreign exchange control regulation governing foreign-invested enterprises.
The Notice Concerning Further Improving Foreign Exchange Control of Overseas-listed
Enterprises (0 e2N ke[U N ^ Y S/t g UOLv w0 ), jointly issued by CSRC
and SAFE, took effect on September 1, 2002, and provides that:
(i) Companies with foreign shares listed overseas and domestic equity holders of
overseas-listed companies held by domestic shareholders shall, within 30 days after
obtaining CSRC’s approval for issuing and listing shares in foreign countries, fulfill
the procedure with SAFE for foreign exchange registration of overseas-listed shares.
(ii) Companies with foreign shares listed overseas shall, within 30 days after the funds
raised have become ready, transfer into China the amount of the funds remaining
after deduction of associated costs and expenses, and shall not retain the funds in
foreign countries without permission of SAFE. The funds transferred back into
China shall be subject to control as if they were funds directly injected by foreign
investors and may be kept in earmarked accounts or be used for foreign exchange
settlement if approved by SAFE.
(iii) Foreign-currency funds, obtained by companies with foreign shares listed overseas
and domestic equity holders of overseas-listed companies held by domestic
shareholders through reducing holdings of shares in listed companies or through the
listed companies’ sale of their assets (or equity), shall be transferred back into China
within 30 days after the funds become available and after deduction of associated
costs and expenses, which may not be detained in foreign countries without approval
of SAFE. Foreign exchange settlement shall be made for such funds as approved by
SAFE after they are transferred back into China.
(iv) If overseas accounts are to be opened to temporarily keep the abovementioned
foreign-currency funds before they are transferred back into China, application may
be made to SAFE for opening such earmarked foreign exchange accounts, of which
the maximum term shall be 3 months from the date of account opening.
(v) Companies with foreign shares listed overseas needing to repurchase their own
shares listed and circulated in foreign countries shall, after obtaining the approval
from CSRC, follow procedures set by SAFE for changing foreign exchange
registration of their overseas-listed shares and for approval of opening an overseas
account and remittance of funds to foreign countries.
– III-7 –
APPENDIX III TAXATION AND FOREIGN EXCHANGE
On September 9, 2003, SAFE issued the Notice Concerning Improving Foreign Exchange
Control of Overseas Listings (0 e[U N ^ Y S/t g UOLv w0 ), clarifying
relevant issues in the Notice Concerning Further Improving Foreign Exchange Control of
Overseas-listed Enterprises.
On February 1, 2005, SAFE promulgated the Circular Concerning Foreign Exchange
Control of Overseas Listings (0 eX N ^ Y S/t g UOLv w0 ), further revising
and supplementing the abovementioned circulars as follows:
(i) The time limit for companies with foreign shares listed overseas and domestic equity
owners of overseas-listed companies held by domestic shareholders to transfer funds
back into China has been extended to “within six months after the funds so raised
have become ready,” and for earmarked overseas foreign exchange accounts, the
time period has been extended to “two years from the date of account opening.”
(ii) Where foreign-currency funds, obtained by companies with foreign shares listed
overseas and domestic equity owners of overseas-listed companies held by domestic
shareholders through reducing holdings of shares in listed companies or through the
listed companies’ sale of their assets (or equity), are transferred back into China,
such domestic equity owners may apply to the local foreign exchange office for
opening an earmarked account (or use existing earmarked account) to retain such
funds. Foreign exchange settlement shall not be made for such funds without the
approval of local foreign exchange office.
TAXATION IN HONG KONG
1. Taxation on Dividends
Under the current practice of the Hong Kong Inland Revenue Department, no tax is
payable in Hong Kong in respect of dividends paid by us.
2. Taxation on Capital Gains and Profits
No tax is imposed in Hong Kong in respect of capital gains from the sale of the H shares.
Trading gains from the sale of H shares by persons carrying on a trade, profession or business
in Hong Kong, where such gains are derived from or arise in Hong Kong from such trade,
profession or business, will be chargeable to Hong Kong profits tax. Currently, profits tax is
imposed on corporations at the rate of 16.5% and on unincorporated businesses at a maximum
rate of 15.0%. Gains from sales of the H shares effected on the Hong Kong Stock Exchange
will be considered to be derived from or arise in Hong Kong. Liability for Hong Kong profits
tax would thus arise in respect of trading gains from sales of H shares effected on the Hong
Kong Stock Exchange realized by persons carrying on a business of trading or dealing in
securities in Hong Kong.
– III-8 –
APPENDIX III TAXATION AND FOREIGN EXCHANGE
3. Stamp Duty
Hong Kong stamp duty will be payable by the purchaser on every purchase, and by the
seller on every sale, of the H shares. The duty is charged at the ad valorem rate of 0.1% of the
consideration for, or (if greater) the value of, the H shares transferred on each of the seller and
purchaser. In other words, a total of 0.2% is currently payable on a typical sale and purchase
transaction of H shares. In addition, a fixed duty of HK$5 is charged on each instrument of
transfer (if required). Where a sale or purchase of H shares is effected by a person who is not
a resident of Hong Kong and any stamp duty payable on the instrument of transfer is not paid,
the relevant instrument of transfer (if any) shall be chargeable with such duty, together with the
duty otherwise chargeable thereon, and the transferee shall be liable to pay such duty.
4. Estate Duty
The Revenue (Abolition of Estate Duty) Ordinance 2005 came into effect on February 11,
2006 in Hong Kong. No Hong Kong estate duty is payable and no estate duty clearance papers
are needed for an application for a grant of representation in respect of holders of H shares
whose deaths occur on or after February 11, 2006.
– III-9 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
The PRC Legal System
The PRC legal system is based on the PRC Constitution (0 N-N”l Q TW al0 ) and
is made up of written laws, administrative regulations, local regulations, autonomy regulations,
separate regulations, rules and regulations of State Council departments, rules and regulations
of local governments and international treaties of which the PRC government is a signatory.
Decided court cases do not constitute binding precedents, although they may be used for the
purposes of judicial reference and guidance.
The National Peoples’ Congress of the PRC (“NPC”) and the Standing Committee of the
NPC are empowered to exercise the legislative power of the State. The NPC has the power to
formulate and amend basic laws governing State organs, civil and criminal matters and other
matters. The Standing Committee of the NPC is empowered to formulate and amend laws other
than those required to be enacted by the NPC and to supplement and amend any parts of laws
enacted by the NPC during the adjournment of the NPC, provided such supplements and
amendments are not in conflict with the basic principles of such laws. The Standing Committee
of the NPC is empowered to interpret, enact and amend other laws not required to be enacted
by the NPC.
The State Council is the highest organ of the PRC administration and has the power to
formulate administrative regulations based on the constitution and laws.
The people’s congresses of provinces, autonomous regions and municipalities and their
respective standing committees may formulate local regulations based on the specific
circumstances and actual requirements of their own respective administrative areas, subject to
the constitution, laws and administrative regulations. The people’s congresses of larger cities
and their respective standing committees may formulate local regulations based on the specific
circumstances and actual requirements of such cities and take the same effect after submitting
to the standing committee of the people’s congresses of provinces or autonomous regions for
approval. The standing committee of the people’s congresses of provinces or autonomous
regions shall examine the legality of local regulations submitted for approval, and such
approval should be granted within four months if they are not in conflict with the constitution,
laws, administrative regulations and local regulations of the province or autonomous region
concerned. Where conflicts with the rules and regulations of the People’s Government of the
province or autonomous region concerned are identified in the examination of local regulations
of larger cities by the standing committee of the people’s congresses of provinces or
autonomous regions, a decision should be made to deal with the matter. “Larger cities” refer
to cities where the people’s governments of provinces or autonomous regions are located, cities
where special economic zones are located and larger cities as approved by the State Council.
People’s congresses of national autonomous areas have the power to enact autonomy
regulations and separate regulations in the light of the political, economic and cultural
characteristics of the nationality (nationalities) in the areas concerned. The autonomy
regulations and separate regulations of autonomous regions shall be submitted to the Standing
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APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
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Committee of the NPC for approval before taking effect. The autonomous regulations and
separate regulations of the autonomous prefectures or counties shall be submitted to the
standing committees of the people’s congresses of the relevant provinces, autonomous regions
or municipalities. Based on the characteristics of the local nationality (nationalities),
adaptations to the provisions of laws and administrative regulations may be introduced to the
autonomy regulations and separate regulations so long as they do not contravene the basic
principles of the laws or administrative regulations, provided that no adaptations shall be made
to specific provisions on national autonomous areas contained in the constitution, autonomy
law of national areas and other relevant laws and administrative regulations.
The ministries, commissions, People’s Bank of China, National Audit Office of the State
Council and institutions with administrative functions directly under the State Council may
formulate department rules within the jurisdiction of their respective departments based on the
laws and the administrative regulations, decisions and rulings of the State Council. Matters
governed by the departmental rules and regulations should be those for the enforcement of the
laws and administrative regulations, decisions and rulings of the State Council. The people’s
governments of provinces, autonomous regions, municipalities and larger cities may formulate
rules based on the laws, administrative regulations and local regulations of such provinces and
autonomous regions and municipalities.
According to the PRC Constitution, the power to interpret laws is vested in the Standing
Committee of the NPC. According to the Decision of the Standing Committee of the NPC
Regarding the Strengthening of Interpretation of Laws passed on June 10, 1981, the Supreme
People’s Court has the power to give general interpretation on questions involving the specific
application of laws and decrees in court trials. The State Council and its ministries and
commissions are also vested with the power to give interpretation of the administrative
regulations and department rules which they have promulgated. At the regional level, the power
to give interpretations of the local laws and regulations as well as administrative rules is vested
in the regional legislative and administrative organs which promulgate such laws, regulations
and rules.
The PRC Judicial System
Under the PRC Constitution and the Law of Organization of the People’s Courts of the
PRC (0 N-N”l Q TW l–bDTl0 ), the PRC judicial system is made up of the Supreme
People’s Court, the local people’s courts, military courts and other special people’s courts. The
local people’s courts are divided into three levels, namely, the primary people’s courts, the
intermediate people’s courts and the high people’s courts. The primary people’s courts may set
up civil, criminal, economic and administrative divisions. The intermediate people’s courts
have divisions similar to those of the primary people’s courts and other special divisions (such
as the intellectual property division). These two levels of people’s courts are subject to
supervision of the high people’s courts. The people’s procuratorates also have the right to
exercise legal supervision over the civil proceedings of people’s courts of the same level and
lower levels. The Supreme People’s Court is the highest trial organ of the PRC. It supervises
the administration of justice by the people’s courts at all levels.
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The people’s court shall apply the system whereby the second instance is final, i.e., the
judgment or ruling of the second instance at a people’s court is final. A party to the case
concerned may appeal to the people’s court at the next higher level against the judgment or
ruling of the first instance. The people’s procuratorate may appeal to the people’s court at the
next higher level in accordance with procedures stipulated by the laws. In the absence of any
appeal by any parties to the case and any appeal by the people’s procuratorate within the
stipulated period, the judgment or ruling of the people’s court shall be the final judgment or
rulings. Judgments or rulings of the second instance of the intermediate people’s courts, the
higher people’s courts and the Supreme People’s Court are final. Judgments or rulings of the
first instance of the Supreme People’s Court are also final. If, however, the Supreme People’s
Court or a people’s court at a higher level finds an error in a final and binding judgment which
has taken effect in any people’s court at a lower level, or the president of a people’s court finds
an error in a final and binding judgment which has taken effect in the court over which he
presides, a retrial of the case may be conducted according to the adjudication supervision
procedures.
The Civil Procedure Law of the PRC (the “Civil Procedure Law”) adopted on April 9,
1991 and amended on October 28, 2007 prescribes the provisions for instituting a civil action,
the jurisdiction of the people’s courts, the procedures to be followed for conducting a civil
action, and the procedures for enforcement of a civil judgment or ruling. All parties to a civil
action conducted within the PRC must comply with the Civil Procedure Law. A civil case is
generally heard by a court located in the defendant’s place of domicile. The competent court
may also be selected by express agreement amongst the parties to a contract provided that the
court selected is located at the plaintiff’s or the defendant’s place of domicile, the place of
performing the contract or the place of executing the contract or the object of the action,
provided that the provisions of this Law regarding the level of jurisdiction and exclusive
jurisdiction shall not be violated.
A foreign national or foreign enterprise is generally given the same litigation rights and
obligations as a citizen or legal person of the PRC. Should a juridical system of a foreign
country limit the litigation rights of PRC citizens and enterprises, subject to the principle of
reciprocity, the PRC courts may apply the same limitations to the citizens and enterprises (in
China) of that foreign country. If any party to a civil action refuses to comply with a judgment
or ruling made by a people’s court or an award made by an arbitration tribunal in the PRC, the
other party may apply to the people’s court for the enforcement of the same within a stipulated
period. Should anyone be unable to execute the judgment of the people’s court within a
stipulated period, as a result of any party’s application, the people’s court shall enforce such
a judgment in accordance with the law.
A party seeking to enforce a judgment or ruling of a people’s court against a party who
is not personally or whose property is not within the PRC may apply to a foreign court with
jurisdiction over the case for recognition and enforcement of such judgment or ruling.
Similarly, if the PRC has entered into a treaty relating to judicial enforcement with the relevant
foreign country or a relevant international treaty, a foreign judgment or ruling may also be
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APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
recognized and enforced according to PRC enforcement procedures by a PRC court based on
the equity principle unless the people’s court considers that the recognition or enforcement of
a judgment or ruling will violate the basic legal principles of the PRC or its sovereignty or
national security, or social and public interest.
The Company Law, Special Regulations and Mandatory Provisions
The Company Law was adopted by the Standing Committee of the Eighth NPC at its Fifth
Meeting on December 29, 1993 and came into effect on July 1, 1994. It was amended thrice
on December 25, 1999 and on August 28, 2004 and revised on October 27, 2005. The latest
revised Company Law came into effect on January 1, 2006.
The Special Regulations of the State Council on the Overseas Offering and Listing of
Shares by Joint Stock Limited Companies (“Special Regulations”) were passed at the 22nd
Standing Committee Meeting of the State Council on July 4, 1994 and promulgated and
implemented on August 4, 1994. The Special Regulations are formulated in respect of the
overseas share subscription and listing of joint stock limited companies. The Mandatory
Provisions of the Companies Seeking Overseas Listing (the “Mandatory Provisions”)
promulgated by Securities Commission and the State Restructuring Commission on August 27,
1994 prescribe provisions which must be incorporated in the articles of association of joint
stock limited companies to be listed on overseas stock exchanges. Accordingly, the Mandatory
Provisions have been incorporated in the Articles of Association.
Set out below is a summary of the major provisions of the Company Law, the Special
Regulations and the Mandatory Provisions.
General
A “company” is a corporate legal person incorporated within PRC under the Company
Law with independent legal person properties and entitlements to such legal person properties.
The liability of the company is limited to the full amount of its assets and the liability of its
shareholders is limited to the extent of the capital contributions subscribed or the shares
subscribed respectively by them. Companies can be divided into two different categories:
limited liability companies and joint stock limited companies.
Incorporation
A joint stock limited company may be incorporated by promotion or subscription. A joint
stock limited company may be incorporated by a minimum of two but not more than two
hundred promoters. At least half of the promoters must have residence within the PRC.
Joint stock limited companies incorporated by promotion are companies the entire
registered capital of which is subscribed for by the promoters. The initial capital contribution
by all promoters of the joint stock limited company shall not be less than 20% of the registered
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APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
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capital. The remainder shall be paid up within two years from the date of incorporation of the
joint stock limited company by the promoters. For investment joint stock limited companies,
the remainder may be paid up within five years. Shares in the company shall not be offered to
other persons unless the registered capital has been paid up. For joint stock limited companies
incorporated by public subscription, the registered capital is the amount of its total paid up
capital as registered with the registration authorities. The minimum registered capital of a joint
stock limited company is RMB5 million or as required by the laws or administrative
regulations, whichever is higher.
For joint stock limited companies incorporated by way of promotion, the promoters shall
subscribe in full in writing for shares required to be subscribed by them by the articles of
association. The full amount of capital contribution shall be paid up if payments are made in
one lump sum and the first installment shall be paid forthwith if payments are made in
installments. Procedures relating to the transfer of title for non-monetary assets shall be duly
completed if such assets are to be contributed as capital. Promoters who fail to pay up their
capital contributions in accordance with the foregoing provision shall be liable for breach of
contract in accordance with the covenants laid down in the promoters’ agreement. After the
promoters have completed the initial capital contribution, a board of directors and a
supervisory committee shall be elected and the board of directors shall apply for registration
of incorporation by filing the articles of association with the company registration authorities,
together with a capital verification certificate issued by a capital verification institution
established by law and other documents required by the law or administrative regulations.
Where joint stock limited companies are incorporated by subscription, not less than 35%
of their total shares must be subscribed for by the promoters and the remainder can be
subscribed for by the public or particular persons, unless otherwise provided for by the law or
administrative regulations. A promoter who offers shares to the public must publish a
prospectus and draft a share subscription form to be signed and sealed by subscribers,
specifying the number and amount of shares to be subscribed for and their addresses. The
subscribers shall pay up the amounts for the number of shares they have subscribed for. Where
a promoter is offering shares to the public, such offer shall be underwritten by securities firms
established by law, in relation to which underwriting agreements shall be signed. A promoter
offering shares to the public shall also sign an agreement with a bank in relation to the receipt
of subscription amounts. The receiving bank shall receive and keep in custody the subscription
amounts, issue receipts to subscribers who have paid the subscription amounts and furnish
evidence of receipt of subscription amounts to the relevant authorities. After the subscription
amounts for the share issuance have been paid in full, a capital verification institution
established by law must be engaged to conduct capital verification and furnish a report thereon.
The promoters shall convene an inauguration meeting within thirty days and notify each
subscriber of or publicly announce the date of the inaugural meeting no less than fifteen days
in advance of the meeting. The inauguration meeting shall be held only if the promoters and
subscribers representing more than half of the total shares issued are present. Where shares
issued remain undersubscribed by the cut-off date stipulated in the share offering prospectus,
or where the promoter fails to convene an inauguration meeting within thirty days after
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APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
subscription amounts for the shares issued have been fully paid up, the subscribers may
demand the promoter return the subscription amounts so paid up together with interest at bank
rates payable for a deposit of an equivalent amount for the same term. Within thirty days after
the conclusion of the inaugural meeting, the board of directors shall apply to the registration
authority for registration of the establishment of the company.
A joint stock limited company is formally established and has the status of a legal person
after the approval of registration has been given by the relevant administration bureau for
industry and commerce and a business license has been issued.
A joint stock limited company’s promoter shall bear the following liabilities:
(i) Where the company cannot be incorporated, they shall bear the joint and several
liability for all the debts and expenses incurred in the act of incorporation;
(ii) Where the company cannot be incorporated, they shall bear the joint and several
liability for refunding the subscription moneys paid by the subscribers, plus their
bank deposit interest calculated for the same period of time; and
(iii) Where the interests of the company are impaired due to the fault committed by the
promoters in the process of the incorporation of the company, they shall bear the
liability to pay compensation to the company.
Share capital
The promoter of a joint stock limited company may make capital contribution in
currencies, or in kind or by way of injection of assets, intellectual property rights or land use
rights based on their appraised value, and may also convert lawfully transferred non-monetary
assets into capital contribution with a monetary value, save for assets prohibited to be
contributed as capital by the law or administrative regulations. If a capital contribution is made
other than in cash, a valuation and verification of the asset contributed must be carried out
without any overvaluation or under-valuation, subject to any provisions of the law or
administrative regulations on valuation. The amount of monetary contribution by all
shareholders shall not be less than 30% of the registered capital of the company.
A joint stock limited company may issue registered or bearer share certificates. The
Special Regulations and the Mandatory Provisions provide that shares issued to foreign
investors and listed overseas be issued in registered form and shall be denominated in
Renminbi and subscribed for in foreign currency. Shares issued to foreign investors and
investors from the territories of Hong Kong, Macau and China Taiwan and listed in Hong Kong
are classified as H shares, and those shares issued to investors within the PRC other than the
territories specified above are known as domestic shares. Under the Special Regulations, upon
approval of the CSRC, a company may agree, in the underwriting agreement in respect of an
issue of H shares, to retain not more than 15% of the aggregate number of H shares proposed
to be issued besides the amount of underwritten shares. The share offering price may be equal
to or greater than the par value, but may not be less than the par value.
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APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
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Increase in share capital
According to the Company Law, the issuance of shares shall be conducted in a fair and
equitable manner. Shares in the same class shall rank pari passu with one another. Shares of
the same class in the same offer shall be issued on the same conditions and at the same price.
The same price per share shall be paid by any units or individuals subscribing for shares.
When a joint stock limited company is issuing new shares, resolutions shall be passed by
a shareholders’ general meeting, approving the class and number of the new shares, the issue
price of the new shares, the commencement and end of the new share issue and the class and
amount of new shares to be issued to existing shareholders. When a joint stock limited
company launches a public issue of new shares with the approval of the securities regulatory
authorities under the State Council, a new share offering prospectus and financial accounting
report must be published and a subscription form must be prepared. After the new share
issuance of the Company has been paid up, the change must be registered with the company
registration authorities and an announcement must be made. Where a joint stock limited
company is issuing new shares to increase its registered capital, the subscription of new shares
by shareholders shall be conducted in accordance with provisions on the payment of
subscription amounts in relation to the incorporation of the company.
Besides the Company Law’s provision that the issue of new shares shall be approved by
a shareholders’ general meeting, the Securities Law also stipulates that any company that
makes an initial public offer (IPO) of its stock shall: (i) have a sound organizational structure
and be well-operated; (ii) have a profitable outlook and be of sound financial status; (iii) have
no record of having filed any false financial statement in the previous three years or any other
major legal irregularity; and (iv) meet any other State Council-approved requirement
prescribed by the securities regulatory authority under the State Council.
Reduction of share capital
Subject to the minimum registered capital requirements, a joint stock limited company
may reduce its registered capital in accordance with the following procedures prescribed by the
Company Law: (i) the joint stock limited company shall prepare a balance sheet and a property
list; (ii) the reduction of registered capital must be approved by shareholders in a shareholders’
general meeting; (iii) the joint stock limited company shall inform its creditors of the reduction
in capital within ten days and publish an announcement of the reduction in the newspaper
within thirty days after the resolution approving the reduction has been passed; (iv) the
creditors of the company may within the statutory prescribed time limit require the company
to pay its debts or provide guarantees covering the debts; and (v) the company must apply to
the relevant administration bureau for industry and commence the registration of the reduction
in registered capital.
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APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
Repurchase of shares
A Company may not purchase its own shares other than for one of the following purposes:
(i) to reduce its registered share capital; (ii) to merge with another company that holds its
shares; (iii) to grant shares to its employees as incentives; (iv) to purchase its own shares from
its shareholders who are against the resolution regarding the merger or demerger with other
company in a shareholders’ general meeting; and (v) such other purposes permitted by law and
administrative regulations. The company’s acquisition of its own shares on the grounds set out
in (i) to (iii) above shall require approval by way of a resolution passed by a shareholders’
general meeting. Following the company’s acquisition of its shares in accordance with the
foregoing, such shares shall be canceled within ten days from the date of acquisition in the case
of (i) and transferred or canceled within six months in the case of (ii) or (iv).
Shares acquired by the company in accordance with (iii) under paragraph one of this
section shall not exceed 5% of the total number of issued shares of the company. Such
acquisition shall be financed by funds appropriated from the company’s profit after taxation,
and the shares so acquired shall be transferred to the employees of the company within one
year.
Transfer of shares
Shares held by shareholders may be transferred in accordance with the relevant laws and
regulations. A shareholder may only effect a transfer of its shares on a stock exchange
established in accordance with law or by other ways as required by the State Council.
Registered shares may be transferred after the shareholders endorse their signatures on the back
of the share certificates or in any other manner specified by the law or administrative
regulations. Following the transfer, the company shall enter the name of the transferee and its
address into the share register. The transfer of bearer’s share certificate shall become effective
upon the delivery of such share certificate to the transferee by the shareholder. Subject to the
Company Law, no changes of registration in the share register provided in the foregoing shall
be effected during a period of twenty days prior to the convening of the shareholders’ general
meeting or five days prior to the record day for the purpose of determining entitlements to
dividend distributions, subject to any legal provisions on the registration of changes in the
share register of listed companies. Subject to the Mandatory Provisions, the shareholders’
register may not be modified within the thirty days preceding the shareholder’s general meeting
or within the five days preceding any ex-dividend date fixed by the company.
Shares held by a promoter may not be transferred within one year after the company’s
establishment. Shares of the company issued prior to the public issue of shares shall not be
transferred within one year from the date of the company’s listing on a stock exchange.
Directors, supervisors and the senior management of a company shall declare to the company
their shareholdings in the company and any changes in such shareholdings. During their term
of office, they shall transfer no more than 25% of the shares they hold in the company. They
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APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
shall not transfer the shares they hold within one year from the date of the company’s listing
on a stock exchange, nor within six months after they have resigned from their positions with
the company. The articles of association may lay down other restrictive provisions in respect
of the transfer of shares in the company held by the Directors, supervisors and the senior
management of the company.
Shareholders
A shareholder’s rights and duties are all stipulated in the company’s articles of
association, which is binding on all shareholders.
Under the Company Law and the Mandatory Provisions, the rights of a shareholder
include:
(i) to attend shareholders’ general meetings and exercise the voting rights on the basis
of the number of the shares held by such shareholder personally or appoint an agent
to attend such meetings and exercise the rights referred to hereinabove;
(ii) to transfer the shares held by such shareholder subject to the applicable laws,
regulations and the company’s article;
(iii) to bring an action in the people’s court to rescind the resolution when any law or
administrative regulation or any legal right or interest of any shareholder is violated
by a resolution passed by the shareholders’ general meeting or the board of
directors;
(iv) to inspect the articles of association, share register, counterfoil of company
debentures, minutes of shareholders’ general meetings, board resolutions,
resolutions of the supervisory committee and financial and accounting reports and
to make proposals or enquiries in respect of the company’s operations;
(v) to receive dividends in respect of the number of shares held;
(vi) to receive residual properties of the company in proportion to their shareholdings
upon the liquidation of the company; and
(vii) any other shareholders’ rights provided for in the articles of association.
The obligations of a shareholder include the obligation to abide by the company’s articles
of association, to pay the subscription moneys in respect of the shares subscribed for, to be
liable for the company’s debts and liabilities to the extent of the amount of subscription moneys
agreed to be paid in respect of the shares taken up by him and any other shareholders’
obligation specified in the company’s articles of association.
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APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
Shareholders’ general meetings
The shareholders’ general meeting is the organ of authority of the company, which
exercises its powers in accordance with the Company Law.
The shareholders’ general meeting exercises the following principal powers:
(i) to decide on the company’s operational policies and investment plans;
(ii) to elect or remove the directors and supervisors (that are not staff representatives)
and to decide on matters relating to the remuneration of directors and supervisors;
(iii) to examine and approve reports of the board of directors;
(iv) to examine and approve reports of the supervisory committee or supervisor;
(v) to examine and approve the company’s proposed annual financial budget and final
accounts;
(vi) to examine and approve the company’s proposals for profit distribution plans and
recovery of losses;
(vii) to decide on any increase or reduction of the company’s registered capital;
(viii) to decide on the issue of bonds by the company;
(ix) to decide on issues such as merger, division, dissolution and liquidation of the
company and other matters;
(x) to amend the company’s articles of association; and
(xi) other powers as provided for in the articles of association.
Shareholders’ general meetings are required to be held once every year. An extraordinary
shareholders’ general meeting is required to be held within two months after the occurrence of
any of the following:
(i) the number of directors is less than the number stipulated by the law or less than
two-thirds of the number specified in the articles of association;
(ii) the aggregate losses of the company which are not recovered reach one third of the
company’s total paid-in share capital;
(iii) when shareholders alone or in aggregate holding 10% or more of the company’s
shares request the convening of an extraordinary general meeting;
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APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
(iv) whenever the board of directors deems necessary;
(v) when the supervisory committee so requests; or
(vi) other circumstances as provided for in the articles of associations.
Shareholders’ general meetings shall be convened by the board of directors, and presided
over by the chairman of the board of directors. In the event that the chairman is incapable of
performing or not performing his duties, the meeting shall be presided over by the vice
chairman. In the event that the vice chairman is incapable of performing or not performing his
duties, a director nominated by more than half of directors shall preside over the meeting.
Where the board of directors is incapable of performing or not performing its duties of
convening the shareholders’ general meeting, the supervisory committee shall convene and
preside over such meeting in a timely manner. In case the supervisory committee fails to
convene and preside over such meeting, shareholders alone or in aggregate holding more than
10% of the company’s shares for ninety days consecutively may unilaterally convene and
preside over such meeting.
Subject to the Company Law, notice of the shareholders’ general meeting stating the time
and venue of and matters to be considered at the meeting shall be given to all shareholders
twenty days before the meeting. Notice of extraordinary general meetings shall be given to all
shareholders fifteen days prior to the meeting. Notice of the issuance of bearer’s share shall be
announced thirty days before the meeting. Subject to the Special Regulations and the
Mandatory Provisions, such notice shall be delivered to all the shareholders forty-five days in
advance, and the matters to be considered at the meeting shall be specified. Subject to the
Special Regulations and the Mandatory Provisions, the confirmation letter of the shareholders
planning to attend the meeting shall be delivered to the company twenty days in advance of the
meeting. Moreover, subject to the Special Regulations, shareholders holding more than 5% of
the company’s shares may put forward a new proposal in writing for the meeting to discuss at
the shareholder’s annual meeting, and if the proposal falls within the purview of the meeting,
it shall be placed on the agenda of that meeting. Shareholders present at a shareholders’ general
meeting have one vote for each share they hold, save that shares held by the company are not
entitled to any voting rights. Resolutions of the shareholders’ general meeting must be adopted
by more than half of the voting rights held by shareholders present at the meeting, with the
exception of matters relating to merger, division, dissolution of a company or amendments to
the articles of association, which must be adopted by more than two-thirds of the voting rights
held by the shareholders present at the meeting. Where the Company Law and the articles of
association provide that the transfer or acquisition of significant assets or the provision of
external guarantees by a company must be approved by way of resolution of the shareholders’
general meeting, the directors shall convene a shareholders’ general meeting promptly to vote
on the above matters. The accumulative voting system may be adopted pursuant to the
provisions of the articles of association or a resolution of the shareholders’ general meeting for
the election of directors and supervisors at the shareholders’ general meeting. Under the
accumulative voting system, each share shall be entitled to votes equivalent to the number of
directors or supervisors to be elected at the shareholders’ general meeting and shareholders
may consolidate their voting rights when casting a vote.
– IV-11 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
Minutes shall be prepared in respect of matters considered at the shareholders’ general
meeting and the president of the meeting and directors attending the meeting shall sign to
endorse such minutes. The minutes shall be kept together with the shareholders’ attendance
register and the proxy forms.
According to the Mandatory Provisions, the increase or reduction of share capital, the
issue of shares of any class, warrants or other similar securities, and bonds or debentures, the
liquidation of the company and any other matters in respect of which the shareholders by
ordinary resolution so decide, must be approved through special resolutions by more than
two-thirds of the voting rights held by shareholders present at the meeting.
There is no specific provision in the Company Law regarding the number of shareholders
constituting a quorum in a shareholders’ meeting, although the Special Regulations and the
Mandatory Provisions provide that a company’s annual general meeting may be convened
when replies to the notice of that meeting from shareholders holding shares representing 50%
of the voting rights in the company have been received twenty days before the proposed date,
or if that 50% level is not achieved, the company shall within five days of the last day for
receipt of the replies notify shareholders again by public announcement of the matters to be
considered at the meeting and the date and place of the meeting and the annual general meeting
may be held thereafter. The Mandatory Provisions require class meetings to be held in the event
of a variation or derogation of the class rights of a class.
Directors
A company shall have a board of directors, which shall consist of five to 19 members.
Members of the board of directors may include staff representatives of the company, who shall
be democratically elected by the company’s staff at the staff representative assembly, general
staff meeting or otherwise. The term of a director shall be stipulated in the articles of
association, provided that no term of office shall last for more than three years. A director may
serve consecutive terms if re-elected. A director shall continue to perform his duties in
accordance with the laws, administrative regulations and articles of association until a
re-elected director takes office, if re-election is not conducted in a timely manner upon the
expiry of his term of office or if the resignation of directors results in the number of directors
being less than the quorum.
Under the Company Law, the board of directors exercises the following powers:
(i) to convene the shareholders’ general meetings and report on its work to the
shareholders’ general meetings;
(ii) to implement the resolutions passed in general meetings;
(iii) to decide on the company’s business plans and investment proposals;
– IV-12 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
(iv) to formulate the company’s proposed annual financial budget and final accounts;
(v) to formulate the company’s profit distribution proposals and for recovery of losses;
(vi) to formulate proposals for the increase or reduction of the company’s registered
capital and the issuance of corporate bonds;
(vii) to prepare plans for the merger, division or dissolution of the company;
(viii) to decide on the company’s internal management structure;
(ix) to appoint or dismiss the company’s general manager and based on the general
manager’s recommendation, to appoint or dismiss the deputy general managers and
financial officers of the company and to decide on their remuneration;
(x) to formulate the company’s basic management system; and
(xi) to exercise any other power under the articles of association.
Meetings of the board of directors shall be convened at least twice a year. Notice of
meeting shall be given to all directors and supervisors ten days before the meeting. Interim
board meetings may be convened by shareholders representing more than 10% of voting rights,
more than one third of the directors or the supervisory committee. The chairman shall convene
and preside over such meeting within ten days after receiving such proposal. The board of
directors may provide for a different method of giving notice and notice period for convening
an extraordinary meeting of the board of directors. Meetings of the board of directors shall be
held only if half or more of the directors are present. Resolutions of the board of directors
require the approval of more than half of all directors. Each director shall have one vote for
resolutions to be approved by the board of directors. Directors shall attend board meetings in
person. If a director is unable to attend a board meeting, he may appoint another director by
a written power of attorney specifying the scope of the authorization to attend the meeting on
his behalf.
If a resolution of the board of directors violates the law, administrative regulations or the
company’s articles of association, and as a result of which the company sustains serious losses,
the directors participating in the resolution are liable to compensate the company. However, if
it can be proved that a director expressly objected to the resolution when the resolution was
voted on, and that such objections were recorded in the minutes of the meeting, such director
may be relieved from that liability.
– IV-13 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
Under the Company Law, the following persons may not serve as a director of a company:
(i) persons without civil capacity or with restricted civil capacity;
(ii) persons who have committed the offence of corruption, bribery, taking of property,
misappropriation of property or destruction of the social economic order, and have
been sentenced to criminal punishment, where less than five years have elapsed
since the date of completion of the sentence; or persons who have been deprived of
their political rights due to criminal offence, where less than five years have elapsed
since the date of the completion of implementation of this deprivation;
(iii) persons who are former directors, factory managers or managers of a company or
enterprise which has become bankrupt and been liquidated and who are personally
liable for the bankruptcy of such company or enterprise, where less than three years
have elapsed since the date of the completion of the bankruptcy and liquidation of
the company or enterprise;
(iv) persons who were legal representatives of a company or enterprise which had its
business license revoked due to violation of the law and who are personally liable,
where less than three years have elapsed since the date of the revocation of the
business license; and
(v) persons who have a relatively large amount of debts due and outstanding.
The election, appointment or engagement of directors elected or appointed by the
company in violation of the aforesaid provisions shall be null and void. If one of these
restrictions becomes applicable to a director during his term of office, such director shall be
released of his duties by the company.
Other circumstances under which a person is disqualified from acting as a director of a
company are set out in the Mandatory Provisions.
The board of directors shall appoint a chairman and may appoint a vice chairman. The
chairman and the vice chairman are elected with approval of more than half of all the directors.
The chairman shall convene and preside over board meetings and examine the implementation
of board resolutions. The vice chairman shall assist in the work of the chairman. In the event
that the chairman is not performing his duties, the duties shall be performed by the vice
chairman. In the event that the vice chairman is incapable of performing or not performing his
duties, a director nominated by more than half of directors shall perform his duties.
– IV-14 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
Supervisors
A company shall have a supervisory committee composed of not less than three members.
The supervisory committee is made up of representatives of the shareholders and an
appropriate proportion of representatives of the company’s staff. The actual proportion shall be
stipulated in the articles of association, provided that the proportion of representatives of the
company’s staff shall not be less than one-third of the Directors and officers may not act
concurrently as supervisors. Representatives of the company’s staff and workers at the
supervisory committee shall be democratically elected at the staff representative assembly,
general staff meeting or otherwise. The supervisory committee shall appoint a chairman and
may appoint a vice chairman. The chairman and the vice chairman of the supervisory
committee are elected with approval of more than half of all the supervisors. The chairman of
the supervisory committee shall convene and preside over supervisory committee meetings. In
the event that the chairman of the supervisory committee is incapable of performing or not
performing his duties, the vice chairman of the supervisory committee shall convene and
preside over supervisory committee meetings. In the event that the vice chairman of the
supervisory committee is incapable of performing or not performing his duties, a supervisor
nominated by more than half of supervisors shall convene and preside over supervisory
committee meetings.
Each term of office of a supervisor is three years and he or she may serve consecutive
terms if reelected. A supervisor shall continue to perform his duties in accordance with the
laws, administrative regulations and articles of association until a duly re-elected supervisor
takes office, if re-election is not conducted in a timely manner upon the expiry of his term of
office or if the resignation of supervisors results in the number of supervisor being less than
the quorum.
The supervisory committee exercises the following powers:
(i) to review the company’s financial position;
(ii) to supervise the directors and officers in their performance of their duties and to
propose the removal of directors and officers who have violated laws, regulations,
the articles of association or shareholders’ resolution;
(iii) when the acts of directors and officers are harmful to the company’s interests, to
require correction of these acts;
(iv) to propose the convening of extraordinary shareholders’ general meetings and to
convene and preside over shareholders’ meetings when the board of directors fails
to perform the duty of convening and presiding over shareholders’ meeting under
this law;
(v) make proposals for resolutions to shareholders’ general meeting;
– IV-15 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
(vi) to initiate proceedings against directors and officers; and
(vii) other powers specified in the articles of association.
Supervisors may be in attendance at board meetings and make enquiries or proposals in
respect of board resolutions. The supervisory committee or (where there is no supervisory
committee) the supervisors of a company may initiate investigations into any irregularities
identified in the operation of the company and, where necessary, may engage an accountant to
assist in their work at the company’s expense.
Managers and officers
A company shall have a manager who shall be appointed or removed by the board of
directors. The manager shall report to the board of directors and may exercise the following
powers:
(i) supervise the production, business and administration of the company and arrange
for the implementation of resolutions of the board of directors;
(ii) arrange for the implementation of the company’s annual business and investment
plans;
(iii) formulate plans for the establishment of the company’s internal management
structure;
(iv) formulate the basic administration system of the company;
(v) formulate the company’s internal rules;
(vi) recommend the appointment and dismissal of deputy managers and any financial
controller;
(vii) appoint or dismiss other administration officers (other than those required to be
appointed or dismissed by the board of directors); and
(viii) other powers conferred by the board of directors or the articles of association.
Other provisions of the articles of association concerning the general manager’s powers
shall also be complied with. The general manager shall be in attendance at board meetings.
According to the Company Law, officers shall mean the general manager, deputy general
manager(s), financial controller, board secretaries (in case of a listed company) of a company
and other personnel as stipulated in the articles of association.
– IV-16 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
Duties of the directors, supervisors, general managers and other officers
Directors, supervisors, managers and officers of a company are required under the
Company Law to comply with the relevant laws, regulations and the articles of association, and
carry out their duties honestly and diligently. Directors, supervisors, managers and officers are
prohibited from abusing their powers to accept bribes or other unlawful income and from
misappropriating the company’s properties. Directors and officers are prohibited from:
(i) misappropriation of company funds;
(ii) deposit of company funds into accounts under his own name or the name of other
individuals;
(iii) loaning company funds to others or providing guarantees in favor of others
supported by the company properties in violation of the articles of association or
without prior approval of the shareholders’ meeting, shareholders’ general meeting
or board of directors;
(iv) entering into contracts or deals with the company in violation of the articles of
association or without prior approval of the shareholders’ meeting, shareholders’
general meeting or board of directors;
(v) using their position and powers to procure business opportunities for themselves or
others that should have otherwise been available to the company or operating for
their own benefit or managing on behalf of others businesses similar to that of the
company without prior approval of the shareholders’ meeting or the shareholders’
general meeting;
(vi) accepting for their own benefit commissions from a third party dealing with the
company;
(vii) unauthorized divulgence of confidential business information of the company; or
(viii) other acts in violation of their duty of loyalty to the company.
Income generated by directors or officers in violation of the foregoing provisions shall
revert to the company.
A director, supervisor or officer who contravenes any law, regulation or the company’s
articles of association in the performance of his duties resulting in any loss to the company
shall be personally liable to the company.
Where the attendance of a director, supervisor or officer is requested by the shareholders’
general meeting, such director, supervisor or officer shall attend the meeting as requested and
answer enquiries of shareholders.
– IV-17 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
Directors and officers should furnish with all truthfulness facts and information to the
supervisory committee or the supervisor (for companies with limited liability that do not have
supervisory committees) without obstructing the discharge of duties by the supervisory
committee or the supervisors.
The Special Regulations and the Mandatory Provisions provide that a company’s
directors, supervisors, general managers and other officers shall have duty of loyalty towards
the company. They are required to faithfully perform their duties, protect the interests of the
company and not use their positions for their own benefit. The Mandatory Provisions contain
detailed stipulations on these duties.
Finance and accounting
A company shall establish its financial and accounting systems according to laws,
administrative regulations and the regulations of the responsible financial department of the
State Council and at the end of each financial year prepare a financial report which shall be
audited by an accountant as provided by law. The financial and accounting report shall be
prepared in accordance with provisions of the laws, administrative regulations and the
regulations of the financial department of the State Council.
The financial report of a liability limited company shall be delivered to all the
shareholders within the time limit stipulated in the company’s articles. A joint stock limited
company shall deposit its financial statements at the company for inspection by the
shareholders at least twenty days before the convening of an annual general meeting of
shareholders. A joint stock limited company issuing its shares in public must publish its
financial statements.
When distributing each year’s after-tax profits, the company shall set aside 10% of its
after-tax profits for the company’s statutory surplus common reserve fund (except where the
fund has reached 50% of the company’s registered capital). When the company’s statutory
common reserve fund is not sufficient to make up for the company’s losses of the previous year,
current year profits shall be used to make good the losses before allocating such profits. After
the company has made appropriations to the statutory common reserve fund from its after-tax
profit, it may, with the approval of the shareholders’ meeting or the shareholders’ general
meeting by way of resolution, make further appropriations from its after-tax profit to the
discretionary common reserve fund. After the company has made good its losses and made
allocations to its common reserve fund, the remaining profits are distributed in proportion to
the number of shares held by the shareholders, or in other manner. Profit distributed to
shareholders by the shareholders’ meeting or shareholders’ general meeting or the board of
directors before losses have been made good and appropriations have been made to the
statutory commons reserve fund in violation of the foregoing provisions must be returned to the
company. Company shares held by the company shall not be entitled to any distribution of
profit.
– IV-18 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
The premium over the nominal value of the shares of the company on issue and other
amounts required by the relevant governmental authority to be treated as the capital common
reserve shall be accounted for as capital common reserve. The capital common reserve of a
company shall be applied to make up the company’s losses, expand the business operations of
the company or increase the company’s capital. The capital common reserve shall not be used
to make good the company’s losses. Upon the conversion of statutory common reserve into
capital, the balance of the statutory common reserve shall not be less than 25% of the registered
capital of the company before such conversion.
The company shall have no other accounting books except the statutory accounting books.
The company’s assets shall not be deposited in any accounts opened in the name of an
individual.
Appointment and retirement of auditors
Pursuant to the Company Law, the appointment or dismissal of accountants responsible
for the company’s auditing shall be determined by the shareholders’ meeting, the shareholders’
general meeting or the board of directors in accordance with the articles of association. The
accountant should be allowed to make representations when the shareholders’ meeting, the
shareholders’ general meeting or board of directors is going to conduct a vote on the dismissal
of the accountant. The company should provide true and complete accounting evidences,
books, financial and accounting reports and other accounting data to the accountant it hires
without any refusal, withholding and false information.
The Special Regulations require a company to employ an independent qualified firm of
accountants to audit the company’s annual report and review and check other financial reports.
The accountant’s term of office shall commerce from the end of the annual general meeting of
the company’s shareholders and it shall expire on the end of the next annual general meeting
of the company’s shareholders.
Distribution of profits
According to the Company Law, the company shall not distribute profits before losses are
covered and the statutory common reserve is drawn. Under the Mandatory Provisions, the
payment of foreign currency to shareholders shall be made through a receiving agent.
Amendment of articles of association
Any amendments to the articles of association must be made in accordance with the
procedures set forth in applicable laws, regulations and the articles of association. Any
amendment of provisions incorporated in the articles of association in accordance with the
Mandatory Provisions will only be effective after approval by the company’s approval
department authorized by the CSRC and the State Council and filed with the State
Administration of Industry and Commerce or any of its local bureaus for registration. If the
amendment to the articles of association falls to be registered and filed and has been adopted,
the company must process registration of changes in accordance with applicable laws and
regulations.
– IV-19 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
Dissolve and liquidation
According to the Company Law, a company shall be dissolved by reason of the following:
(i) the term of its operations set down in the company’s articles of association has
expired or other events of dissolution specified in the company’s articles of
association have occurred;
(ii) the shareholders in general meeting have resolved to dissolve the company;
(iii) the company is dissolved by reason of its merger or demerger;
(iv) the business license is invalidated; the operation is suspended, or the company is
dissolved as ordered; or
(v) the company is dissolved by the people’s court in response to the request of
shareholders holding shares that represent more than 10% of the voting rights of all
shareholders of the company, on the grounds that the operation of the company
experiences serious difficulties that cannot be resolved through other means,
rendering ongoing existence of the company a source of significant losses for
shareholders.
In the event of (i) above, the company may carry on its existence by amending its articles
of association. The amendment of the articles of association in accordance with provisions set
out in the previous paragraph shall require approval of shareholders holding more than
two-thirds of voting rights in the case of companies with limited liability and more than
two-thirds of voting rights of shareholders attending a shareholders’ general meeting in the
case of a joint stock limited company.
Where the company is dissolved in the circumstances described in (i), (ii), (iv) or (v)
above, a liquidation committee shall be established and liquidation within fifteen days after the
occurrence of an event of dissolution.
Members of the liquidation committee of a joint stock limited company shall be composed
of its directors or the person appointed by the shareholders’ general meeting. If a liquidation
committee is not established within the stipulated period, the company’s creditors can apply to
the people’s court, requesting the court to appoint relevant personnel to form the liquidation
committee. The people’s court should accept such application and form a liquidation committee
to conduct a liquidation in a timely manner.
– IV-20 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
The liquidation committee shall exercise the following powers during the liquidation
period:
(i) to handle the company’s assets and to prepare a balance sheet and an inventory of
the assets;
(ii) to notify creditors or issue public notices;
(iii) to deal with the company’s outstanding businesses related to liquidation;
(iv) to pay any tax overdue as well as tax amounts arising from the process of
liquidation;
(v) claiming credits and paying off debts;
(vi) to handle the surplus assets of the company after its debts have been paid off; and
(vii) to represent the company in civil lawsuits.
The liquidation committee shall notify the company’s creditors within ten days after its
establishment, and issue public notices in the newspapers within sixteen days. A creditor shall
lodge his claim with the liquidation committee within thirty days after receiving notification,
or within forty-five days of the public notice if he did not receive any notification. A creditor
shall state all matters relevant to his creditor rights in making his claim and furnish evidence.
The liquidation committee shall register such creditor rights. The liquidation committee shall
not make any debt settlement to creditors during the period of claim.
Upon liquidation of the company’s properties and the preparation of the balance sheet and
inventory of assets, the liquidation committee shall draw up a liquidation plan to be submitted
to the shareholders’ meeting, shareholders’ general meeting or people’s court for endorsement.
The remaining assets of the company after payment of liquidation expenses, wages, social
insurance expenses and statutory compensation, outstanding taxes and the company’s debt
shall be distributed to shareholders according to their proportion of capital contribution in the
case of companies with limited liability and according to shareholding proportion in the case
of joint stock limited companies. The company shall continue to exist during the liquidation
period, although it can only engage in any operating activities that are related to the
liquidation. The company’s properties shall not be distributed to the shareholders before
repayment are made in accordance to the foregoing provisions.
Upon liquidation of the company’s properties and the preparation of the balance sheet and
inventory of assets, if the liquidation committee becomes aware that the company does not
have sufficient assets to meet its liabilities, it must immediately apply to the people’s court for
a declaration for bankruptcy.
– IV-21 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
Following such declaration, the liquidation committee shall hand over all affairs of the
liquidation to the people’s court.
Upon completion of the liquidation, the liquidation committee shall submit a liquidation
report to the shareholders’ meeting, shareholders’ general meeting or the court for verification.
Thereafter, the report shall be submitted to the company’s registration authority in order to
cancel the company’s registration, and a public notice of its termination shall be issued.
Members of the liquidation committee are required to discharge their duties honestly and in
compliance with the relevant laws. Members of the liquidation committee shall be prohibited
from making of their powers to accept bribes or other unlawful income and from appropriating
the company’s properties.
A member of the liquidation committee is liable to indemnify the company and its
creditors in respect of any loss arising from his willful or material default.
Securities Law and Regulations and Regulatory Regimes
Since 1992, the PRC has promulgated a number of regulations in relation to the issue and
trading of shares and disclosure of information. In October 1992, the Securities Commission
and the CSRC were established under the State Council. The Securities Commission is
responsible for coordinating the drafting of relevant laws and regulations on securities,
formulating policies on securities affairs, planning the development of securities markets and
guiding, coordinating and regulating all PRC institutions involved in securities affairs and
supervising the CSRC. The CSRC is the regulatory and execution arm of the Securities
Commission and is responsible for drafting regulations governing the securities market,
supervising securities companies, regulating the domestic and overseas public issue of
securities by PRC companies, supervising securities trading, compiling securities related
statistics and conducted research and analysis. In 1998, the State Council decided to cancel the
Securities Commission of the State Council and the functions of the Securities Commission
was assumed by the CSRC.
On December 25, 1995, the State Council promulgated the Regulations of the State
Council Concerning Domestic Listed Foreign Shares of Joint Stock Limited Companies. These
regulations deal mainly with the issue, subscription, trading, declaration of dividends and other
distributions of domestic listed foreign shares and the disclosure of information of joint stock
limited companies having domestic listed foreign shares.
On December 29, 1998, the Standing Committee of the NPC promulgated the Securities
Law which came into effect on July 1, 1999. This is the first national securities law in the PRC
and is the fundamental law comprehensively regulating activities in the PRC securities market.
On August 28, 2004 and October 27, 2005, the Securities Law was respectively revised twice.
The Securities Law is applicable to the issuance and trading in the PRC of shares, company
bonds and other securities designated by the State Council according to law, and provisions of
the issuance and transaction of securities, acquisitions of listed companies, stock exchanges,
security companies and the duties and responsibilities of securities regulatory authority under
the State Council, etc.
– IV-22 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
Where the Securities Law does not apply, the provisions of the Company Law and other
applicable laws and administrative regulations will apply.
Anti-money Laundering Regulation
The “Anti-money Laundering Law of the PRC” (0 N-N”l QqTW Sm “ l0 ), which
became effective on January 1, 2007, sets out the responsibilities of the relevant financial
regulatory authorities regarding anti-money laundering, including participating in the
formulation of the rules and regulations regarding anti-money laundering activities of the
financial institutions which they regulate and requiring financial institutions to establish sound
internal control systems regarding anti-money laundering.
To facilitate the implementation of the “Anti-money Laundering Law of the PRC,” PBOC
promulgated the “Provisions on Anti-money Laundering of Financial Institutions” (0 ‘ _
iSm “ ‰ ) which became effective on January 1, 2007. According to those regulations,
PRC financial institutions are required to establish an internal anti-money laundering
procedure and either establish an independent anti-money laundering department or designate
a relevant department to implement their anti-money laundering procedures.
PRC financial institutions are required to establish a customer identification system in
accordance with the “Measures on the Administration of Identification of Clients and
Preservation of Client Identities Information and Trading Records of Financial Institutions”
(0 ‘ _ [b6NR%Tb6NeSN¤f “ O[t 0 ) promulgated jointly
by PBOC, CBRC, CSRC and CIRC which became effective on August 1, 2007. PRC financial
institutions are also required to record the identities of all customers and the information
relating to each transaction, and keep retail transaction documents and books.
In accordance with the “Administrative Measures for the Financial Institutions’ Report of
Large-sum Transactions and Doubtful Transactions” (0 ‘ _ Y’MN¤f TSu‘Nf X TJ{
t 0 ) promulgated by PBOC which became effective on March 1, 2007, upon the
detection of any suspicious transactions or transactions involving large amounts, PRC financial
institutions are required to report the transactions to PBOC or SAFE, as applicable. Where
necessary and pursuant to appropriate judicial proceedings, PRC financial institutions are
required to cooperate with government authorities in preventing money laundering activities
and in freezing assets. PBOC supervises and conducts on-site examinations of PRC financial
institutions’ compliance with its anti-money laundering regulations, and may impose penalties
for any violations thereof in accordance with the “Anti-money Laundering Law of the PRC.”
The “Measures on the Anti-money Laundering by Securities and Futures Industry” (0
R8g mSm “ ] O\el0 ) which was formulated by CSRC and has come into effect
since October 1, 2010 further sets forth the anti-money laundering rules of the securities and
futures sectors and the anti-money laundering obligations which have to be met by institutions
engaged in sales of funds. An institution engaged in securities and futures operation should
establish a sound internal control system against money laundering.
– IV-23 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
Foreign Exchange Control
The State Administration of Foreign Exchange (“SAFE”) promulgated the “Notice of
SAFE on the Relevant Issues concerning Foreign Exchange Administration of Foreign
Investment by Funds Management Companies and Securities Companies” (0 W [ S/t eWú‘t QlSTIR8QlSX R8b S/t g UOLv w0 ) on September 29,
2009, which regulates the exchange control for investments in overseas securities by domestic
fund management companies and securities companies. For securities operating institutions
which possess the qualification to engage in foreign exchange business to conduct investments
in overseas securities, they shall apply to SAFE for investment quotas; SAFE adopts the
method of quota balance in managing the investment quotas, the net amount remitted by a
securities operating institution shall not exceed the approved investment quota, a securities
institution are not allowed to transfer or sell its investment quota to other institutions in any
form; a securities operating institution may raise foreign exchange funds from the domestic
investors, or it may raise capital in RMB from the domestic investors to purchase foreign
currency for investments in overseas securities, domestic investors are not allowed to purchase
the relevant products issued by securities operating institutions with foreign currencies; a
securities company shall, within seven working days after establishment of each product,
report to SAFE the situations such as the actual size and source of funds of the product, a
securities operating institution shall, within seven working days after the end of each month,
report to SAFE the aggregate data on overseas securities investments by that institution, a
domestic custodian shall, within seven working days after the end of each month, report to
SAFE the relevant data for investments in overseas securities by the securities operating
institutions under the custody. Securities operating institutions and domestic custodians shall
discharge their declaration responsibilities in accordance with the relevant provisions of the
declaration of international balance of payment statistics.
In accordance with the “Provisions on the Foreign Exchange Administration of Domestic
Securities Investments by Qualified Foreign Institutional Investors” (0 T h< j_ib X
QgIR8b S/t ‰ ) which entered into force on September 29, 2009, the
administration of quota on domestic securities investments by QFIIs has been implemented.
The investment quota applied for by a QFII shall be worth no less than USD50 million each
time, with the accumulative investment quota not exceeding USD1 billion and the aforesaid
quota may be subject to adjustment. A QFII shall not file another application for increase of
investment quota within one year after the approval of the previous investment quota. The
lock-in period for deposit for the QFIIs of such types as pension fund, insurance fund, common
fund, charity fund, donation fund and government and currency administration and the
open-ended Chinese fund established by QFIIs shall be three months; and that of deposit for
other QFIIs one year. A custodian should go through a filing in the foreign exchange bureau
where the custodian is domiciled within five working days upon the opening of the QFII
foreign exchange account and the special RMB account, submit the official custody agreement
to SAFE and receive the “Foreign Exchange Registration Certificate” (0 Y S/v 0 ) for the
QFII. The “Provisions on the Foreign Exchange Administration of Domestic Securities
Investments by Qualified Foreign Institutional Investors” has also listed out details regarding
QFII account management, currency exchange management as well as statistics and
supervision issues.
– IV-24 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
Regulation of Listed Companies
As our A Shares have been listed on the Shanghai Stock Exchange since 2007, we are
subject to the Securities Law of the PRC and the Shanghai Listing Rules. The Shanghai Listing
Rules regulate share listing and information disclosure by the listed companies, including us,
and seek to maintain the orderly operation of the stock exchange market and protect the
interests of the investors. As a company with A Shares listed on the Shanghai Stock Exchange,
we are subject to a number of obligations under the Shanghai Listing Rules, including:
Publishing annual, semiannual and quarterly reports;
Disclosing all information that may have a material impact upon our share price;
Making announcements in relation to certain corporate matters; and
Appointing a secretary to the board of directors, who is responsible for, among other
things, certain corporate administration matters and information disclosure matters.
HONG KONG LAWS AND REGULATIONS
(a) Company Law
The Hong Kong law applicable to a company having share capital incorporated in Hong
Kong is based on the Companies Ordinance and is supplemented by common law. Our
Company, which is a joint stock limited liability company established in the PRC, is governed
by the Company Law and all other rules and regulations promulgated pursuant to the Company
Law applicable to a joint stock limited liability company established in the PRC issuing
overseas listed foreign shares to be listed on the Hong Kong Stock Exchange.
Set out below is a summary of the material differences between the Companies Ordinance
applicable to a company incorporated in Hong Kong and the Company Law applicable to a
joint stock limited liability company incorporated and existing under the Company Law. This
summary is, however, not intended to be an exhaustive comparison:
(i) Corporate existence
Under Companies Ordinance, a company having share capital is incorporated by the
Registrar of Companies in Hong Kong issuing a certificate of incorporation and upon its
incorporation, a company will acquire an independent corporate existence. A company may be
incorporated as a public company or a private company.
– IV-25 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
Under the Company Law, a joint stock limited liability company may be incorporated by
either the promotion method or the subscription method. A joint stock limited liability company
must have a minimum registered capital of RMB5 million, or higher as may otherwise be
required by the laws and regulations. Hong Kong law does not prescribe any minimum capital
requirements for a Hong Kong company. Under the Company Law, the monetary contributions
by all the shareholders must not be less than 30% of the registered capital. There is no such
restriction on a Hong Kong company under Hong Kong law.
(ii) Share capital
Under Hong Kong law, the authorized share capital of a Hong Kong company is the
amount of share capital which the company is authorized to issue and a company is not bound
to issue the entire amount of its authorized share capital. For a Hong Kong company, the
authorized share capital may be larger than the issued share capital. Hence, the directors of a
Hong Kong company may, with the prior approval of the shareholders, if required, cause the
company to issue new shares. The Company Law does not recognize the concept of authorized
share capital. The registered capital of a joint stock limited liability company is the amount of
the issued share capital. Any increase in registered capital must be approved by the
shareholders in general meeting and by the relevant governmental and regulatory authorities in
the PRC.
Under the Company Law, a company which is authorized by the relevant securities
administration authority to list its shares on a stock exchange must have a registered capital of
not less than RMB30 million. Hong Kong law does not prescribe any minimum capital
requirements for companies incorporated in Hong Kong.
Under the Company Law, the shares may be subscribed for in the form of money or
non-monetary assets (other than assets not entitled to be used as capital contributions under
relevant laws and administrative regulations). For non-monetary assets to be used as capital
contributions, appraisals and verification must be carried out to ensure no overvaluation or
under-valuation of the assets. The monetary contribution shall not be less than 30% of a joint
stock limited liability company’s registered capital. There is no such restriction on a Hong
Kong company under Hong Kong law.
(iii) Restrictions on shareholding and transfer of shares
Under PRC law, the domestic shares in the share capital of a joint stock limited liability
company which are denominated and subscribed for in RMB may only be subscribed or traded
by the State, PRC legal and natural persons. The overseas listed foreign shares issued by a joint
stock limited liability company which are denominated in RMB and subscribed for in a
currency other than RMB may only be subscribed and traded by investors from Hong Kong,
the Macau Special Administrative Region of the PRC and Taiwan or any country and territory
outside the PRC.
– IV-26 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
Under the Company Law, shares in a joint stock limited liability company held by its
promoters cannot be transferred within one year after the date of establishment of the company.
Shares in issue prior to the company’s public offering cannot be transferred within one year
from the listing date of the shares on the Hong Kong Stock Exchange. Shares in a joint stock
limited liability company held by its directors, supervisors and managers and transferred each
year during their term of office shall not exceed 25% of the total shares they held in the
company, and the shares they held in the company cannot be transferred within one year from
the listing date of the shares, and also cannot be transferred within half a year after the said
personnel has left office. The articles of association may set other restrictive requirements on
the transfer of the company’s shares held by its directors, supervisors and officers. There are
no such restrictions on shareholdings and transfers of shares under Hong Kong law apart from
the six-month lock up on the company’s issue of shares and the 12-month lock up on
controlling shareholders’ disposal of shares, as illustrated by the undertakings given by our
Company to the Hong Kong Stock Exchange as described in the section entitled
“Underwriting” in this prospectus.
(iv) Financial assistance for acquisition of shares
The Company Law does not contain any provision prohibiting or restricting a joint stock
limited liability company or its subsidiaries from providing financial assistance for the purpose
of an acquisition of its own or its holding company’s shares. The Mandatory Provisions contain
certain restrictions on a company and its subsidiaries providing such financial assistance
similar to those under Companies Ordinance.
(v) Variation of class rights
The Company Law makes no specific provision relating to variation of class rights.
However, the Company Law states that the State Council can promulgate regulations relating
to other kinds of shares. The Mandatory Provisions contain elaborate provisions relating to the
circumstances which are deemed to be variation of class rights and the approval procedures
required to be followed in respect thereof. These provisions have been incorporated in the
Articles of Association, which are summarized in the appendix entitled “Appendix V –
Summary of the Articles of Association” to this prospectus. Under Companies Ordinance, no
rights attached to any class of shares can be varied except (i) with the approval of a special
resolution of the holders of the relevant class at a separate meeting, (ii) with the consent in
writing of the holders of three-fourths in nominal value of the issued shares of the class in
question, (iii) by agreement of all the members of the company or (iv) if there are provisions
in the articles of association relating to the variation of those rights, then in accordance with
those provisions.
Our Company (as required by the Listing Rules and the Mandatory Provisions) have
adopted in the Articles of Association provisions protecting class rights in a similar manner to
those found in Hong Kong law. Holders of overseas listed shares and domestic listed shares are
defined in the Articles of Association as different classes, except in the case of (i) where our
– IV-27 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
Company issues, upon the approval by special resolution of the Shareholders in general
meeting, either separately or concurrently once every 12 months, not more than 20% of each
of our existing issued domestic Shares or overseas-listed foreign-invested Shares; (ii) where
our Company completes, with 15 months from the date on which approval is given by the
securities regulatory authorities of the State Council, our plan (made at the time of our
establishment) to issue domestic Shares and overseas-listed foreign-invested Shares; and (iii)
where the Shares registered on our domestic Share register may be transferred to overseas
investors, and such transferred Shares may be listed or traded on an overseas stock exchange,
subject to the approval of the securities regulatory authorities of the State Council.
(vi) Directors
The Company Law, unlike Companies Ordinance, does not contain any requirements
relating to the declaration of interests in material contracts, restrictions on interested directors
being counted towards the quorum of and voting at a meeting of the board of directors at which
a transaction in which a director is interested is being considered, restrictions on directors’
authority in making major dispositions, restrictions on companies providing certain benefits
such as loans to directors and guarantees in respect of directors’ liability and prohibition
against compensation for loss of office without shareholders’ approval. The Mandatory
Provisions, however, contain requirements and restrictions in relation to the foregoing matters
similar to those applicable under Hong Kong law.
(vii) Supervisory committee
Under the Company Law, the board of directors and managers of a joint stock limited
liability company is subject to the supervision and inspection of a supervisory committee but
there is no mandatory requirement for the establishment of a supervisory committee for a
company incorporated in Hong Kong. The Mandatory Provisions provide that each supervisor
owes a duty, in the exercise of his powers, to act in good faith and honestly in what he
considers to be in the best interests of the company and to exercise the care, diligence and skill
that a reasonably prudent person would exercise under comparable circumstances.
(viii) Derivative action by minority shareholders
Hong Kong law permits minority shareholders to start a derivative action on behalf of a
company against directors who have been guilty of a breach of their fiduciary duties to the
company, if such directors control a majority of votes at a general meeting thereby effectively
preventing a company from suing the directors in breach of their duties in its own name. The
Company Law gives shareholders of a joint stock limited liability company the right that in the
event that the directors and senior managers violate their fiduciary obligations to a company,
shareholders individually or jointly holding over 1% of the shares in the company for more
than 180 days consecutively may request in writing the supervisory committee to initiate
proceedings in the people’s court. In the event that the supervisory committee violates their
fiduciary obligations to a company, the above said shareholders may request in writing the
– IV-28 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
board of directors to initiate proceedings in the people’s court. Upon receipt of such request in
writing from the shareholders, if the supervisory committee or the board of directors refuse to
initiate such proceedings, or has not initiated proceedings within 30 days upon receipt of the
request, or if under urgent situations, failure of initiating immediate proceeding may cause
irremediable damages to the company, the above said shareholders shall for the benefit of the
company’s interests, have the right to initiate proceedings directly to the court in its own name.
The Mandatory Provisions further provide remedies to the company against directors,
supervisors and officers in breach of their duties to the company. In addition, every director and
supervisor of a joint stock limited liability company applying for a listing of its foreign shares
on the Hong Kong Stock Exchange is required to give an undertaking in favor of the company
to comply with the company’s articles of association. This allows minority shareholders to act
against directors and supervisors in default.
(ix) Protection of minorities
Under Hong Kong law, a shareholder who complains that the affairs of a company
incorporated in Hong Kong are conducted in a manner unfairly prejudicial to his interests may
petition to court to either wind up the company or make an appropriate order regulating the
affairs of the company. In addition, on the application of a specified number of members, the
Financial Secretary may appoint inspectors who are given extensive statutory powers to
investigate the affairs of a company incorporated in Hong Kong. The Company Law does not
contain similar safeguards. The Mandatory Provisions, however, contain provisions to the
effect that a controlling shareholder may not exercise its voting rights in a manner prejudicial
to the interests of the shareholders generally or of some part of the shareholders of a company
to relieve a director or supervisor of his duty to act honestly in the best interests of the company
or to approve the expropriation by a director or supervisor of the company’s assets or the
individual rights of other shareholders.
(x) Notice of shareholders’ meetings
Under the Company Law, notice of a shareholders’ general meeting must be given 20 days
before the meeting, while notice of an extraordinary meeting must be given 15 days before the
meeting or, in the case of a company having bearer shares, a public announcement of a
shareholders’ general meeting must be made 30 days prior to its being held. Under the Special
Regulations and the Mandatory Provisions, 45 days’ written notice must be given to all
shareholders and shareholders who wish to attend the meeting must reply in writing 20 days
before the date of the meeting. For a company incorporated in Hong Kong, the minimum notice
periods of a general meeting convened for passing an ordinary resolution and a special
resolution are 14 days and 21 days, respectively; and the notice period for an annual general
meeting is 21 days.
– IV-29 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
(xi) Quorum for shareholders’ meetings
Under Hong Kong law, the quorum for a general meeting is two members unless the
articles of association of the company otherwise provide. For one member companies, one
member will be a quorum. The Company Law does not specify any quorum requirement for
shareholders’ general meeting but the Special Regulations and the Mandatory Provisions
provide that a company’s general meeting can be convened when replies to the notice of that
meeting have been received from shareholders whose shares represent 50% of the voting rights
in the company at least 20 days before the proposed date of the meeting. If that 50% level is
not achieved, the company shall within five days notify shareholders by public announcement
and the shareholders’ general meeting may be held thereafter.
(xii) Voting
Under Hong Kong law, an ordinary resolution is passed by a simple majority of votes cast
by members present in person or by proxy at a general meeting and a special resolution is
passed by a majority of not less than three fourths of votes cast by members present in person
or by proxy at a general meeting. Under the Company Law, the passing of any resolution
requires more than one half of the votes cast by shareholders present in person or by proxy at
a shareholders’ general meeting except in cases of proposed amendment to the articles of
association, increase or reduction of share capital, and merger, demerger or dissolution of a
joint stock limited liability company or changes to the company status, which require
two-thirds or more of votes cast by shareholders present at a shareholders’ general meeting.
(xiii) Financial disclosure
A joint stock limited liability company is required under the Company Law to make
available at its office for inspection by shareholders its annual balance sheet, profit and loss
account, changes in financial position and other relevant annexures 20 days before an annual
general meeting. In addition, a company established by the public subscription method under
the Company Law must publish its financial situation. The annual balance sheet has to be
verified by registered accountants. The Companies Ordinance requires a company to send to
every shareholder a copy of its balance sheet, auditors’ report and directors’ report which are
to be tabled before the company in its annual general meeting not less than 21 days before such
meeting.
A joint stock limited liability company is required under the PRC law to prepare its
financial statements in accordance with the PRC accounting standards. The Mandatory
Provisions require that the company must, in addition to preparing accounts according to the
PRC GAAP, have its accounts prepared and audited in accordance with IFRS or Hong Kong
accounting standards and its financial statements must also contain a statement of the financial
effect of the material differences (if any) from the financial statements prepared in accordance
with the PRC GAAP.
– IV-30 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
The Special Regulations require that there should not be any inconsistency between the
information disclosed within and outside the PRC and that, to the extent that there are
differences in the information disclosed in accordance with the relevant PRC and overseas
laws, regulations and requirements of the relevant stock exchanges, such differences should
also be disclosed simultaneously.
(xiv) Information on directors and shareholders
The Company Law gives shareholders the right to inspect the articles of association,
minutes of the shareholders’ general meetings and financial and accounting reports. Under the
articles of association, shareholders have the right to inspect and copy (at reasonable charges)
certain information on shareholders and on directors similar to that available to shareholders
of Hong Kong companies under Hong Kong law.
(xv) Receiving agent
Under both the PRC and Hong Kong law, dividends once declared become debts payable
to shareholders. The limitation period for debt recovery action under Hong Kong law is six
years while that under the PRC law is two years. The Mandatory Provisions require the
appointment of a trust company registered under the Hong Kong Trustee Ordinance (Chapter
29 of the Laws of Hong Kong) as a receiving agent to receive on behalf of holders of foreign
shares dividends declared and all other monies owed by a joint stock limited liability company
in respect of such foreign shares.
(xvi) Corporate reorganization
Corporate reorganization involving a company incorporated in Hong Kong may be
effected in a number of ways, such as a transfer of the whole or part of the business or property
of the company in the course of being wound up voluntarily to another company pursuant to
section 237 of the Companies Ordinance or a compromise or arrangement between the
company and its creditors or between the company and its members pursuant to section 166 of
the Companies Ordinance which requires the sanction of the court. Under PRC law, the merger,
demerger, dissolution or change to the status of a joint stock limited liability company has to
be approved by shareholders in general meeting.
(xvii) Arbitration of disputes
In Hong Kong, disputes between shareholders and a company incorporated in Hong Kong
or its directors may be resolved through the courts. The Mandatory Provisions provide that
such disputes should be submitted to arbitration at either the HKIAC or the CIETAC, at the
claimant’s choice.
– IV-31 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
(xviii) Mandatory transfers
Under the Company Law, a joint stock limited liability company is required to make
transfers equivalent to certain prescribed percentages of its after tax profit to the statutory
common reserve fund. There are no such requirements under Hong Kong law.
(xix) Remedies of a company
Under the Company Law, if a director, supervisor or manager in carrying out his duties
infringes any law, administrative regulation or the articles of association of a company, which
results in damage to the company, that director, supervisor or manager should be responsible
to the company for such damages. In addition, in compliance with the Mandatory Provisions,
the Articles of Association set out remedies to the company similar to those available under
Hong Kong law (including recovery of profits made by a director, supervisor or officer).
(xx) Dividends
The articles of association of a company empower the company to withhold, and pay to
the relevant tax authorities, any tax payable under PRC law on any dividends or other
distributions payable to a shareholder. Under Hong Kong law, the limitation period for an
action to recover a debt (including the recovery of dividends) is six years, whereas under PRC
laws, the relevant limitation period is two years. A company shall not exercise its powers to
forfeit any unclaimed dividend in respect of its listed foreign shares until after the expiry of
the applicable limitation period.
(xxi) Fiduciary duties
In Hong Kong, there is the common law concept of the fiduciary duty of directors. Under
the Company Law and the Special Regulations, directors, supervisors, officers, and managers
owe a fiduciary duty towards a company and are not permitted to engage in any activities which
compete with or damage the interests of the company.
(xxii) Closure of register of shareholders
The Companies Ordinance requires that the register of shareholders of a company must
not generally be closed for the registration of transfers of shares for more than 30 days
(extendable to 60 days in certain circumstances) in a year, whereas the articles of association
of a company provide, as required by the Company Law and the Mandatory Provisions, that
share transfers may not be registered within 30 days before the date of a shareholders’ meeting
or within five days before the record date set for the purpose of distribution of dividends.
– IV-32 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
(b) Listing Rules
The Listing Rules provide additional requirements which apply to an issuer which is
incorporated in the PRC as a joint stock limited liability company and seeks a primary listing
or whose primary listing is on the Hong Kong Stock Exchange. Set out below is a summary
of such principal additional requirements which apply to our Company:
(i) Compliance advisor
A company seeking listing on the Hong Kong Stock Exchange is required to appoint a
compliance advisor acceptable to the Hong Kong Stock Exchange for the period from its listing
date up to the date of the publication of its first full year’s financial results, to provide the
company with professional advice on continuous compliance with the Listing Rules and all
other applicable laws, regulations, rules, codes and guidelines, and to act at all times, in
addition to the company’s two authorized representatives, as the principal channel of
communication with the Hong Kong Stock Exchange. The appointment of the compliance
advisor may not be terminated until a replacement acceptable to the Hong Kong Stock
Exchange has been appointed.
If the Hong Kong Stock Exchange is not satisfied that the compliance advisor is fulfilling
its responsibilities adequately, it may require the company to terminate the compliance
advisor’s appointment and appoint a replacement.
The compliance advisor must keep the company informed on a timely basis of changes
in the Listing Rules and any new or amended law, regulation or code in Hong Kong applicable
to the company. It must act as the company’s principal channel of communication with the
Hong Kong Stock Exchange if the authorized representatives of the company are expected to
be frequently outside Hong Kong.
(ii) Accountants’ report
The accountant’s report must normally be drawn up in conformity with: (a) Hong Kong
Financial Reporting Standards (HKFRS); or (b) International Financial Reporting Standards.
(IFRS); or (c) China Accounting Standards for Business Enterprises (CASBE) in the case of a
PRC issuer that has adopted CASBE for the preparation of its annual financial statements.
(iii) Process agent
Our Company is required to appoint and maintain a person authorized to accept service
of process and notices on its behalf in Hong Kong throughout the period during which its
securities are listed on the Hong Kong Stock Exchange and must notify the Hong Kong Stock
Exchange of his appointment, the termination of his appointment and his contact particulars.
– IV-33 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
(iv) Public shareholdings
If at any time there are existing issued securities of a PRC issuer other than foreign shares
which are listed on the Hong Kong Stock Exchange, the Listing Rules require that the
aggregate amount of H shares and other securities held by the public must constitute not less
than 25% of the PRC issuer’s issued share capital and that the class of securities for which
listing is sought must not be less than 15% of the issuer’s total issued share capital, having an
expected market capitalization at the time of listing of not less than HK$50 million.
The Hong Kong Stock Exchange may, at its discretion, accept a lower percentage of
between 15% and 25% in the case of issuers with an expected market capitalization at the time
of listing of over HK$10,000 million.
(v) Independent non-executive directors and supervisors
The independent non-executive directors of a PRC issuer are required to demonstrate an
acceptable standard of competence and adequate commercial or professional expertise to
ensure that the interests of the general body of shareholders will be adequately represented.
The supervisors of a PRC issuer must have the character, expertise and integrity and be able
to demonstrate a standard of competence commensurate with their position as supervisors.
(vi) Restrictions on purchase and subscription of its own securities
Subject to governmental approvals and the provisions of the Articles of Association, our
Company may repurchase our own H shares on the Hong Kong Stock Exchange in accordance
with the provisions of the Listing Rules. Approval by way of special resolution of the holders
of domestic Shares and the holders of H Shares at separate class meetings conducted in
accordance with the Articles of Association is required for share repurchases. In seeking
approvals, our Company is required to provide information on any proposed or actual
purchases of all or any of our equity securities, whether or not listed or traded on the Hong
Kong Stock Exchange. The Directors must also state the consequences of any purchases which
will arise under either or both of the Code on Takeovers and Mergers and any similar PRC law
of which they are aware, if any. Any general mandate given to the Directors to repurchase H
shares must not exceed 10% of the total amount of existing issued H Shares.
(vii) Mandatory provisions
With a view to increasing the level of protection afforded to investors, the Hong Kong
Stock Exchange requires the incorporation, in the articles of association of a PRC company
whose primary listing is on the Hong Kong Stock Exchange, of the Mandatory Provisions and
provisions relating to the change, removal and resignation of auditors, class meetings and the
conduct of the supervisory committee of the company. Such provisions have been incorporated
into the Articles of Association, a summary of which is set out in the appendix entitled
“Appendix V – Summary of the Articles of Association” to this prospectus.
– IV-34 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
(viii) Redeemable Shares
Our Company must not issue any redeemable Shares unless the Hong Kong Stock
Exchange is satisfied that the relative rights of the holders of the H Shares are adequately
protected.
(ix) Pre-emptive rights
Except in the circumstances mentioned below, the Directors are required to obtain the
approval by a special resolution of Shareholders in general meeting, and the approvals by
special resolutions of the holders of domestic Shares and H Shares (each being otherwise
entitled to vote at general meetings) at separate class meetings conducted in accordance with
the Articles of Association, prior to authorizing, allotting, issuing or granting shares or
securities convertible into shares, or options, warrants or similar rights to subscribe for any
shares or such convertible securities.
No such approval will be required under the Listing Rules, but only to the extent that, the
existing Shareholders of our Company have by special resolution in general meeting given a
mandate to the Directors, either unconditionally or subject to such terms and conditions as may
be specified in the resolution, to authorize, allot or issue, either separately or concurrently once
every 12 months, not more than 20% of the existing domestic Shares and H Shares as of the
date of the passing of the relevant special resolution or of such Shares that are part of our plan
at the time of our establishment to issue domestic Shares and H Shares and which plan is
implemented within 15 months from the date of approval by the CSRC.
(x) Supervisors
Our Company is required to adopt rules governing dealings by the Supervisors in
securities of our Company in terms no less exacting than those of the model code (set out in
Appendix 10 to the Listing Rules) issued by the Hong Kong Stock Exchange.
Our Company is required to obtain the approval of the Shareholders in a general meeting
(at which the relevant Supervisor and his associates shall not vote on the matter) prior to our
Company or any of our subsidiaries entering into a service contract of the following nature
with a Supervisor or proposed Supervisor of our Company or our subsidiaries: (i) the contract
is for a duration that may exceed three years; or (ii) the contract expressly requires our
Company to give more than one year’s notice or to pay compensation or make other payments
equivalent to more than one year’s emoluments.
– IV-35 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
The remuneration committee of our Company or an independent board committee must
form a view in respect of service contracts that require Shareholders’ approval and advise
Shareholders (other than shareholders with a material interest in the service contracts and their
associates) as to whether the terms are fair and reasonable, advise whether such contracts are
in the interests of our Company and the Shareholders as a whole and advise Shareholders on
how to vote.
(xi) Amendment to the Articles of Association
Our Company is required not to permit or cause any amendment to be made to the Articles
of Association which would cause the same to cease to comply with the mandatory provisions
of the Listing Rules relating to such Articles of Association.
(xii) Documents for inspection
Our Company is required to make available at a place in Hong Kong for inspection by the
public and shareholders free of charge, and for copying by Shareholders at reasonable charges
of the following:
a complete duplicate register of Shareholders;
a report showing the state of the issued share capital of our Company;
our Company’s latest audited financial statements and the reports of the Directors,
auditors and Supervisors (if any) thereon;
special resolutions of our Company;
reports showing the number and nominal value of securities repurchased by our
Company since the end of the last financial year, the aggregate amount paid for such
securities and the maximum and minimum prices paid in respect of each class of
securities repurchased (with a breakdown between A Shares and H Shares); and
for Shareholders only, copies of minutes of meetings of Shareholders.
(xiii) Receiving agents
Our Company is required to appoint one or more receiving agents in Hong Kong and pay
to such agent(s) dividends declared and other monies owing in respect of the H Shares to be
held, pending payment, in trust for the holders of such H Shares.
– IV-36 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
(xiv) Statements in share certificates
Our Company is required to ensure that all of our listing documents and share certificates
include the statements stipulated below and to instruct and cause each of our Share registrars
not to register the subscription, purchase or transfer of any of our Shares in the name of any
particular holder unless and until such holder delivers to such Share registrar a signed form in
respect of such Shares bearing statements to the following effect that the acquirer of the Shares:
agrees with our Company and each Shareholder of our Company, and our Company
agrees with each Shareholder of our Company, to observe and comply with the
Company Law, the Special Regulations, the Articles of Association and other
relevant laws and administrative regulations;
agrees with our Company, each Shareholder, Director, Supervisor, manager and
officer of our Company, and our Company acting for itself and for each Director,
Supervisor, manager and officer of our Company agrees with each Shareholder, to
refer all differences and claims arising from the Articles of Association or any rights
or obligations conferred or imposed by the Company Law or other relevant laws and
administrative regulations concerning the affairs of our Company to arbitration in
accordance with the Articles of Association, and any reference to arbitration shall be
deemed to authorize the arbitration tribunal to conduct hearings in open session and
to publish its award. Such arbitration shall be final and conclusive;
agrees with our Company and each Shareholder of our Company that the H Shares
are freely transferable by the holder thereof; and
authorizes our Company to enter into a contract on his behalf with each Director and
officer of our Company whereby each such Director and officer undertakes to
observe and comply with his obligation to Shareholders as stipulated in the Articles
of Association.
(xv) Compliance with the Company Law, the Special Regulations and the Articles of
Association
Our Company is required to observe and comply with the Company Law, the Special
Regulations and the Articles of Association.
– IV-37 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
(xvi) Contract between our Company and its Directors, officers and Supervisors
Our Company is required to enter into a contract in writing with every Director and
officer containing at least the following provisions:
an undertaking by the Director or officer to our Company to observe and comply
with the Company Law, the Special Regulations, the Articles of Association, the
Codes on Takeovers and Mergers and Share Repurchases and an agreement that our
Company shall have the remedies provided in the Articles of Association and that
neither the contract nor his office is capable of assignment;
an undertaking by the Director or officer to our Company acting as agent for each
Shareholder to observe and comply with his obligations to Shareholders as
stipulated in the Articles of Association;
an arbitration clause which provides that whenever any differences or claims arise
from that contract, the Articles of Association or any rights or obligations conferred
or imposed by the Company Law or other relevant law and administrative
regulations concerning the affairs of our Company between our Company and the
Directors or officers and between a holder of H Shares and a Director or officer of
our Company, such differences or claims will be referred to arbitration at either the
CIETAC in accordance with its rules or the HKIAC in accordance with its securities
arbitration rules, at the election of the claimant and that once a claimant refers a
dispute or claim to arbitration, the other party must submit to the arbitral body
elected by the claimant. Such arbitration will be final and conclusive;
if the party seeking arbitration elects to arbitrate the dispute or claim at HKIAC,
then either party may apply to have such arbitration conducted in Shenzhen
according to the securities arbitration rules of HKIAC;
PRC laws shall govern the arbitration of disputes or claims referred to above, unless
otherwise provided by law or administrative regulations;
the award of the arbitral body is final and shall be binding on the parties thereto;
the agreement to arbitrate is made by the Director or officer with our Company on
our own behalf and on behalf of each Shareholder; and
any reference to arbitration shall be deemed to authorize the arbitral tribunal to
conduct hearings in open session and to publish its award.
Our Company is also required to enter into a contract in writing with every Supervisor
containing statements in substantially the same terms.
– IV-38 –
APPENDIX IV SUMMARY OF PRINCIPAL PRC AND HONG KONG
LEGAL AND REGULATORY PROVISIONS
(xvii) Subsequent listing
Our Company must not apply for the listing of any of the H shares on a PRC stock
exchange unless the Hong Kong Stock Exchange is satisfied that the relative rights of the
holders of foreign Shares are adequately protected.
(xviii) English translation
All notices or other documents required under the Listing Rules to be sent by our
Company to the Hong Kong Stock Exchange or to holders of the H Shares are required to be
in the English language, or accompanied by a certified English translation.
(xix) General
If any change in the PRC law or market practices materially alters the validity or accuracy
of any of the basis upon which the additional requirements have been prepared, then the Hong
Kong Stock Exchange may impose additional requirements or make listing of the equity
securities of a PRC issuer, including our Company, subject to special conditions as the Hong
Kong Stock Exchange considers appropriate. Whether or not any such changes in the PRC law
or market practices occur, the Hong Kong Stock Exchange retains its general power under the
Listing Rules to impose additional requirements and make special conditions in respect of the
Listing.
(c) Other Legal and Regulatory Provisions
Upon the Listing, the provisions of the SFO, the Codes on Takeovers and Mergers and
Share Repurchases and such other relevant ordinances and regulations as may be applicable to
companies listed on the Hong Kong Stock Exchange will apply to our Company.
(d) Securities Arbitration Rules
The Articles of Association provide that certain claims arising from the Articles of
Association or the Company Law shall be arbitrated at either the CIETAC or the HKIAC in
accordance with their respective rules. The securities arbitration rules of the HKIAC contain
provisions allowing an arbitral tribunal to conduct a hearing in Shenzhen for cases involving
the affairs of companies incorporated in the PRC and listed on the Hong Kong Stock Exchange
so that PRC parties and witnesses may attend. Where any party applies for a hearing to take
place in Shenzhen, the tribunal shall, where satisfied that such application is based on bona fide
grounds, order the hearing to take place in Shenzhen conditional upon all parties including
witnesses and the arbitrators being permitted to enter Shenzhen for the purpose of the hearing.
Where a party (other than a PRC party) or any of its witnesses or any arbitrator is not permitted
to enter Shenzhen, then the tribunal shall order that the hearing be conducted in any practicable
manner, including the use of electronic media. For the purpose of the securities arbitration
rules, a PRC party means a party domiciled in the PRC.
– IV-39 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
Set out below is a summary of the principal provisions of the Articles of Association of
the Company, the principal objective of which is to provide an overview of the Articles of
Association of the Company. As the information contained below is only a summary, it does
not contain all the information that may be important.
1. EFFECTIVE DAY OF THE ARTICLES OF ASSOCIATION OF THE COMPANY
This Articles were adopted by a special resolution on the general meeting, and will be
effective on the day of the Company’s Overseas listed Foreign Shares (H Shares) being listed
on The Stock Exchange of Hong Kong Limited (hereinafter referred as “Hong Kong Stock
Exchange”). Upon the effective day of the Articles, the existing Articles of the Company and
amendments thereto will lapse automatically.
2. ISSUANCE OF SHARES
The Company shall create ordinary shares at all times; and if needed, upon approval being
granted by the authorities authorized by the State Council, the Company may create shares of
other classes.
Shareholders of different classes of the Company rank pari passu over dividends or any
forms of distribution.
The Company shall issue Shares under the principles of openness, fairness and equity, and
Shares of the same class shall carry same rights.
The issue conditions and price per Shares of the same class in the same issue shall be the
same; and every Shares purchased by any entity or individual shall be at the same price.
All shares issue by the Company have a par value of RMB1 per Share.
The Company may, upon obtaining approval from the securities regulatory authority
under the State Council or other relevant regulatory authorities, issue Shares to domestic
investors and overseas investors.
The Company or its subsidiaries (including its affiliates) shall not give any financial
assistance, in the form of gift, advance, guarantee, compensation, loan, etc., to person who
acquires or proposes to acquire shares of the Company.
– V-1 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
3. INCREMENT AND REDUCTION OF CAPITAL AND REPURCHASE OF
SHARES
(a) Increment of Capital
The Company may, based on its requirements for operation and development and in
accordance with the relevant provisions of the laws and regulations, having obtained the
approval of the shareholder’s general meeting, increase its capital by way of:
(i) offer of new shares to investors not particularly designated;
(ii) non-open offer of Shares;
(iii) place new shares to its existing shareholders;
(iv) bonus issue of new shares to existing shareholders;
(v) transfer of capital reserve fund into capital;
(vi) any other way permitted by laws, administrative regulations and relevant regulatory
authorities.
After obtaining the approval required by this Articles, the Company can issue Shares to
increase its capital pursuant to the laws and administrative regulations of the PRC.
(b) Reduction of Capital
The Company may reduce its registered capital. The reduction of registered capital should
be made in accordance with the Company Law and any other relevant requirements as well as
procedures stipulated in this Articles.
When the Company proposes of reducing its registered capital, it must draw up a balance
sheet and an inventory of assets.
The Company shall notify its creditors within 10 days of the date of the resolution
authorizing the reduction of capital, and publish a public notice in newspapers within 30 days
of that date. Creditors shall, within 30 days of receiving the notice or 45 days of the first
publication of the public notice (for those who have not received a notification), have a right
to require the Company to settle its debts or to offer corresponding guarantees for their
settlement.
The registered capital of the Company following the reduction of capital shall not fall
below the minimum statutory requirement.
– V-2 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
(c) Repurchase of Shares
The Company may, according to the provisions of the relevant laws, administrative
regulations, departmental rules and the Articles, repurchase its shares under the following
circumstances:
(i) to reduce registered capital of the Company;
(ii) to merge with another company that holds shares in the Company;
(iii) to grant shares to employees of the Company as incentives;
(iv) to acquire shares held by shareholders (upon their request) who vote against any
resolution proposed in any shareholders’ general meeting on the merger or division
of the Company;
(v) other circumstances as permitted by laws and administrative regulations.
The Company shall not engage in the trading of its shares save for the circumstances
specified above.
The Company may conduct the repurchase in one of the following manners:
(i) an offer to repurchase made to all shareholders in equal proportions;
(ii) to repurchase through open transactions in stock exchanges;
(iii) to repurchase through off-market agreements outside a stock exchange;
(iv) other means as permitted by laws of PRC, administrative regulations and other
relevant competent authorities.
Where the Company repurchases its shares through off-market agreements outside a stock
exchange, it shall seek prior approval of the shareholders at the shareholders’ general meeting
in accordance with the Articles. The Company may release or vary a contract so entered into
by the Company or waive its rights thereunder with prior approval by shareholders at
shareholders’ general meeting obtained in the same manner.
The contract to repurchase shares as referred to in the preceding paragraph includes, but
not limited to, an agreement to become obliged to repurchase or to acquire the right to
repurchase shares.
The Company shall not assign a contract for repurchasing its shares or any of its right
thereunder.
In respect of the redeemable shares that the Company has the rights to repurchase, if the
repurchases are not made on the market or by an offer, the prices shall be limited to a maximum
price; if repurchases are made by an offer, such offer should be made available to all
shareholders equally.
– V-3 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
Shares repurchased in accordance with the laws by the Company shall be canceled within
the period prescribed by laws and administrative regulations, and the Company shall apply to
the original company registration authority for registration of the change of its registered share
capital.
The amount of the Company’s registered share capital shall be reduced by the aggregate
par value of those canceled shares.
Except where the Company is in the course of liquidation, it must comply with the
following provisions in repurchasing its own issued shares:
(i) Where the Company repurchases its shares at their par value, the amount of the total
par value shall be deducted from the Company’s distributable profits or out of the
proceeds of a fresh issue of shares made for that purpose;
(ii) Where the Company repurchases its shares at a premium, an amount equivalent to
their total par value shall be deducted from the distributable profits of the Company
or out of the proceeds of a fresh issue of shares made for that purpose. Payment of
the portion in excess of their par value shall be effected as follows:
(a) if the shares being repurchased were issued at their par value, payment shall be
made out of distributable profits of the Company;
(b) if the shares being repurchased were issued at a premium, payment shall be
made out of distributable profits of the Company or the proceeds of a fresh
issue of shares made for that purpose, provided that the amount paid out of the
proceeds of the fresh issue may not exceed the aggregate of premiums received
by the Company on the issue of the shares repurchased or the current balance
of the Company’s capital common reserve account (inclusive of the premiums
from the fresh issue);
(iii) Payment by the Company in consideration for:
(a) the acquisition of rights to repurchase shares;
(b) the variation of any contract to repurchase shares;
(c) the release of any obligation under any contract to repurchase shares;
shall be made out of the Company’s distributable profits;
(iv) To the extent that shares are repurchased out of an amount deducted from the
distributable profits of the Company, the amount of the Company’s registered capital
reduced under the relevant requirements shall be transferred to the Company’s
capital reserve account.
– V-4 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
Where the laws, regulations, rules, regulatory documents and relevant requirements of the
securities regulatory authorities in the place where the Company’s shares are listed have any
other provisions in respect of the finance arrangement related to the aforesaid shares
repurchase, such provisions shall prevail.
4. TRANSFER OF SHARES
Unless otherwise provided by PRC laws, administrative regulations and relevant
requirements of the securities regulatory authorities in the place where the Company’s shares
are listed, the shares of the Company may be transferred freely without any lien being attached.
Transfer of overseas listed foreign shares listed in Hong Kong requires to be registered by the
share registrar in Honk Kong entrusted by the Company.
The Company will not accept any pledge with its own shares as the subject.
Shares of the Company held by promoters are not allowed to transfer within a year from
the date of the establishment of the Company.
The transfer of Shares issued before the initial public offering of the Company shall be
made compliance with the laws, administrative regulations and relevant requirements of the
Listing Rules. The transfer of more than 5% of the Company’s shares shall be made in
accordance with the laws, administrative regulations, regulatory documents and relevant
requirements of the Listing Rules. Directors, Supervisors and other senior management
members of the Company shall report to the Company their shareholdings in the Company and
changes therein and shall not transfer in a given year during their terms of office more than
25% of the total number of shares of the Company which they hold, save and except changes
in shareholdings caused by judicial enforcement, inheritance, bequest and legal division of
assets; the shares of the Company held by them shall not be transferred within one year from
the first day on which the shares of the Company are listed and traded. The aforesaid persons
shall not transfer the shares of the Company held by them within six months from the date of
their leaving the Company.
Where any Director, Supervisor, senior management members or shareholder holding 5%
or above of the Company’s shares in issue sell his shares in the Company within a period 6
months after their purchase, or purchase shares in the Company again within a period of 6
months after their disposal, the gains so earned shall belong to the Company, and the Board of
Directors of the Company may forfeit such gains for the benefit of the Company. However, if
a securities company holds 5% or more of the Company’s shares as a result of its underwriting
of the untaken shares in an offer, the sales of those shares shall not be under the said 6- month
restriction.
If the Board does not act in accordance with the provisions of the above paragraph,
shareholders shall have the right to request the Board to take action within 30 days from the
date of request. If the Board does not take such action within the said period, then the
shareholders shall be entitled to commence proceedings with the People’s Court directly in
their own names for the benefit of the Company.
– V-5 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
Where the Board does not act in accordance with the provisions of the first paragraph of
this Article, the responsible directors shall assume joint and several liability.
All fully paid overseas listed foreign shares listed on the Hong Kong Stock Exchange may
be transferred freely in accordance with this Articles. However, the Board may refuse to
recognize any instrument of transfer without stating any reasons unless the following
conditions are satisfied:
(i) instrument of transfer and any other documents related to the title of any Shares or
may affect the title of any Shares shall be registered, and made payment to the
Company for such registration according to the expenses stipulated by the Rules
Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited
(hereinafter referred to as the “Hong Kong Listing Rules”);
(ii) the instrument of transfer only involves the overseas listed foreign shares listed on
the Hong Kong Stock Exchange;
(iii) the stamp duty required by the law of Hong Kong for the instrument of transfer
being paid;
(iv) the relevant share certificates and evidence reasonably required by the Board
showing that the transferor has the right to transfer such shares have been provided;
(v) if the shares are to be transferred to joint holders, the number of joint registered
shareholders shall not exceed four;
(vi) the relevant Shares of the Company are free from all liens.
If the Board refuses to register the transfer of shares, the Company shall deliver a
notification related to the refusal of shares transfer to the transferor and transferee within 2
months from the date of the application for transferring the Shares.
All transfers of overseas listed foreign shares listed in Hong Kong shall be effected by
instruments of transfer in writing in an ordinary or usual form or in any other form acceptable
to the Board (including the standard transfer format or form of transfer specified by Hong Kong
Stock Exchange from time to time); The instruments of transfer may be signed by hand only
or (where the transferor or transferee is a corporation) by the company’s seal. Where the
transferor or transferee is a recognized clearing house (“Recognized Clearing House”) (as
defined by relevant regulations in Hong Kong laws from time to time) or its nominee, the form
of transfer may be signed by hand or in a machine-imprinted format.
All instruments of transfer shall be maintained at the legal address of the Company or
such places as the Board may specify from time to time.
– V-6 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
5. SHARE CERTIFICATES AND REGISTER OF SHAREHOLDERS
The Company’s share certificates shall be in registered form. The following shall be
specified in the Company’s share certificates:
(i) the name of the Company;
(ii) the date on which the Company was established;
(iii) the class and par value of the shares and the number of shares represented;
(iv) the number of the share certificate;
(v) any other matters needed to be specified as required by the Company Law and the
securities regulatory authorities in the place where the Company’s Shares are listed.
The Company may issue overseas listed foreign shares in form of foreign depository
receipts or other derivative means of shares in accordance with the laws and the practice of
registration and depository of securities in the listing place.
During the period of H shares listing in Hong Kong, the Company shall ensure that all its
listing documents include the statements stipulated below and shall instruct and cause each of
its share registrars not to register the subscription, purchase or transfer of any of its shares in
the name of any particular holder unless and until such holder delivers to such share registrar
a signed form in respect of such shares bearing statements to the following effect:
(i) The acquirer of Shares agrees with the Company and each Shareholder of the
Company, and the Company agrees with each Shareholder, to observe and comply
with the Company Law, the Special Regulations and other requirements related to
the laws, administrative regulations and the Articles of Association.
(ii) The acquirer of shares agrees with the Company, each shareholder, Director,
Supervisor, President and other senior management members of the Company and
the Company acting for itself and for each Director, Supervisor, President and other
senior management members agrees with each shareholder to refer all differences
and claims arising from the Articles of Association or any right or obligation
conferred or imposed by the Company Law or other relevant laws and administrative
regulations concerning the affairs of the Company to arbitration in accordance with
the articles of association, and any reference to arbitration shall be deemed to
authorize the arbitration tribunal to conduct hearing in open session and to publish
its award. Such arbitration shall be final and conclusive.
(iii) The acquirer of shares agrees with the Company and each shareholder of the
Company that shares in the Company are freely transferable by the holder thereof.
– V-7 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
(iv) The acquirer authorizes the Company to enter into a contract on his behalf with each
Director, President and other officer whereby such Directors, President and other
senior management members undertake to observe and comply with their
obligations to shareholders stipulated in the Articles of Association.
Share certificates shall be signed by the chairman of the Board. Where the signatures of
the general manager or other senior management members of the Company are required by the
securities regulatory authorities or securities exchange(s) in the place where the Company’s
shares listed, the share certificates shall also be signed by such general manager or other
relevant senior management members. The shares certificates of the Company shall take effect
immediately upon the Company’s seal being affixed or printed thereon. The affixture of the
Company’s seal on the share certificate shall be authorized by the Board. The signatures of the
chairman of the Board, the general manager or other relevant senior management members
appearing on the share certificate may also be printed.
Stipulations applicable to the securities regulatory authorities or securities exchange(s) in
the jurisdiction where the shares of the Company are listed shall be separately defined in case
the shares of the Company are issued and transacted in a paperless manner.
6. SHAREHOLDERS AND GENERAL MEETING
(a) Shareholders
The name of the Company’ shareholders shall be recorded in the register of shareholders,
with the following particulars being recorded:
(i) the name or title, address or residence, and occupation or nature of each shareholder;
(ii) the category and quantity of shares held by each shareholder;
(iii) the amount paid or payable on the shares held by each shareholder;
(iv) share certificate numbers of the shares held by each shareholder;
(v) the date on which each shareholder was registered as a shareholder;
(vi) the date on which each shareholder ceased to be a shareholder.
The register of shareholders shall be full evidence of the shareholders’ shareholding in the
Company, unless there is evidence to the contrary.
All acts or transfer of overseas listed foreign shares will be record in the register of
shareholders of overseas listed foreign shares which is kept in the place where such shares are
listed.
– V-8 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
When two or more persons are registered as joint shareholders of any share, they shall be
deemed to be joint owners of such shares and subject to constraints of the following terms:
(i) joint shareholders shall not form by more than four individuals, which means the
Company shall not register more than four persons as joint shareholders for any
share;
(ii) all the joint holders of any share shall jointly or severally assume the liability to pay
for all amounts payable for the relevant shares;
(iii) in case one of the joint holders has deceased, only the surviving joint holders shall
be deemed by the Company to be such persons as having the ownership of the
relevant shares. But the Board shall have the right, for the purpose of making
amendments to the register of shareholders, to demand a death certificate of such
shareholder where it deems it appropriate to do so; and
(iv) for joint holding of any shares, only the joint holder whose name appears first in the
register of shareholders is entitled to receive the certificate for the relevant shares,
receive the Company’s notices, and to attend and exercise all voting rights of the
relevant shares in the shareholders’ general meetings of the Company. Any notice
served on the above persons shall be deemed to have been served on all joint holders
of the relevant shares.
The Company may, pursuant to any understanding or agreement reached between the
securities regulatory authorities under the State Council and overseas securities regulatory
authorities, keep the register of the shareholders of overseas listed foreign shares in any place
outside the PRC, and entrust its administration to an overseas agency. The original register of
shareholders of overseas listed foreign shares listed on Hong Kong Stock Exchange shall be
kept in Hong Kong.
The Company shall maintain an office copy of this register at the address of the Company;
the entrusted overseas agent shall ensure that the original and duplicate copies of the register
of shareholders of overseas listed foreign shares are consistent at all times.
Where the original and office copies of the register of shareholders of overseas listed
foreign shares are not consistent, the original version shall prevail.
The Company shall have a complete register of shareholders.
The register of shareholders shall include the followings:
(i) the register of shareholders maintained at the Company’s residence (other than those
parts as described in items (2) and (3) of this Article);
(ii) the register of shareholders of overseas listed foreign shares of the Company
maintained at the place where the overseas securities exchange on which the shares
are listed is located;
– V-9 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
(iii) the register of shareholders maintained at such other place as the Board may
consider necessary for the purpose of listing of the Company’s shares.
Different parts of the register of shareholders shall not overlap one another. No transfer
of the shares registered in any part of the register shall, during the existence of that registration,
be registered in any other part of the register of shareholders.
Alteration or rectification of each part of the register of shareholders shall be made in
accordance with the laws of the place where that part of the register of shareholders is
maintained.
Transfers may not be entered in the register of shareholders within 30 days prior to the
date of a shareholders’ general meeting or within 5 days before the record date set by the
Company for the purpose of distribution of dividends.
Other regulations of the securities regulatory authorities in the jurisdiction where the
shares of the Company are listed shall prevail.
When the Company intends to convene a shareholders’ general meeting, distribute
dividends, liquidate and engage in other activities that involve determination of shareholdings,
the Board or the shareholders’ general meeting shall designate a day to be the record day.
Shareholders whose names appear in the register of shareholders at the end of the record date
are shareholders who are entitled to relevant interests.
Any person who objects to the register of shareholders and requests to have his name
(title) entered in or removed from the register of shareholders may apply to a court of
competent jurisdiction for rectification of the register.
Any shareholder who is registered in, or any person who requests to have his name (title)
entered in, the register of shareholders may, if his share certificates (the “Original
Certificates”) are stolen, lost or misplaced, apply to the Company for a replacement share
certificate in respect of such shares (the “Relevant Shares”).
The Company shall not have any obligation to indemnify any person for any damages
suffered thereby arising from the cancelation of the Original Certificates or the issuance of a
replacement share certificate, unless such person concerned can prove that the Company has
committed a fraudulent act.
A shareholder of the Company is a person who lawfully holds shares of the Company and
has his name (title) recorded in the register of members.
A shareholder shall enjoy the relevant rights and assume the relevant obligations in
accordance with the class and number of shares he holds. Shareholders holding the same class
of shares shall enjoy the same rights and assume the same obligations.
– V-10 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
The ordinary shareholders of the Company shall be entitled to the following rights:
(i) the right to dividends and other distributions in proportion to the number of shares
held;
(ii) the right to attend or appoint a proxy to attend shareholders’ general meetings and
to exercise the voting right;
(iii) the right to supervise and manage the business activities of the Company and to put
forward proposals and raise inquiries;
(iv) the right to transfer shares in accordance with the laws, administrative regulations
and provisions of the Articles;
(v) the right to obtain relevant information in accordance with the provisions of the
Articles, including:
(a) the right to obtain a copy of the Articles, subject to payment of the cost of such
copy;
(b) the right to inspect and copy, subject to payment of a reasonable charge:
(1) all parts of the register of shareholders;
(2) personal particulars of each of the Company’s Directors, Supervisors,
general manager and other senior management members;
(3) report on the state of the Company’s share capital;
(4) the latest audited financial statements of the Company, and reports of the
Board, auditor and Supervisory Committee;
(5) special resolutions of shareholders’ general meetings and/or the Board of
the Company;
(6) reports showing the aggregate par value, quantity, maximum and
minimum price paid in respect of each class of shares repurchased by the
Company since the end of the last accounting year and the aggregate
amount of cost incurred by the Company for this purpose, and their
breakdown by domestic and foreign invested shares;
(7) minutes of shareholders’ general meetings;
(8) duplicate of the latest Annual Application Form that has been filed with
Chinese AIC or other competent authority;
– V-11 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
(9) corporate bond counterfoils;
(10) resolutions of Board meetings;
(11) resolutions of supervisory meetings; and
(12) the financial report.
Documents of items (1) to (8) (except item (2)) mentioned above shall be made
available by the Company, according to the requirements of the Listing Rules,
at the Company’s address in Hong Kong, for the public and overseas-listed
foreign invested shareholders to inspect with no charge (the item (vii) is only
for shareholders to inspect);
(vi) with respect to shareholders who vote against any resolution adopted at the
shareholders’ general meeting on the merger or division of the Company, the right
to demand the Company to acquire the shares held by them;
(vii) in the event of the termination or liquidation of the Company, the right to participate
in the distribution of the remaining assets of the Company in accordance with the
number of shares held;
(viii) such other rights conferred by the laws, regulations, rules, normative documents and
the Article.
The Company shall not exercise its rights to freeze or harm in any other forms the rights
attaching to any shares held in the event that any person has not disclosed the rights and
interests they hold directly or indirectly.
Shareholders shall notify the Company in advance if, through subscription or assignment
of the Company’s shares or the shares of the Company’s shareholders or otherwise, the
shareholders will hold not less than 5% of the Company’s registered share capital. Shareholders
shall be able to hold such amount of the Company’s shares upon approval from the relevant
securities supervision and administrative authorities under the PRC State Council.
Shareholders that hold or beneficially own 5% or more of the Company’s shares shall not have
any voting rights with respect to any matters until such approval is properly obtained from the
relevant securities supervision and administrative authorities under the PRC State Council. The
abovementioned shareholders shall dispose the corresponding shares if they are unable to
obtain such approval within one year from the date of acquiring the shares.
Shareholders demanding inspection of the relevant information or copies of the materials
mentioned in the preceding provision shall provide to the Company written documents
evidencing the class and number of shares of the Company they hold. Upon verification of the
shareholder’s identity, the Company shall provide such information at the shareholder’s
request.
If a resolution passed at the Company’s general meeting or Board meeting violates the
laws or administrative regulations, the shareholders shall have the right to submit a petition to
the people’s court to render the same as invalid.
– V-12 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
If the procedures for convening, or the method of voting at, a shareholders’ general
meeting or Board meeting violate the laws, administrative regulations or the Articles, or the
contents of a resolution violates the Articles, shareholders shall be entitled to submit a petition
to the people’s court to rescind such resolutions within 60 days from the date on which such
resolution is adopted.
The ordinary shareholders of the Company shall assume the following obligations:
(i) to abide by laws, administrative regulations and the Articles;
(ii) to pay subscription monies according to the number of shares subscribed and the
method of subscription;
(iii) not to divest the shares unless required by the laws and regulations;
(iv) not to abuse their shareholders’ rights to harm the interests of the Company or other
shareholders; and not to abuse the independent legal person status of the Company
and the limited liability of shareholders to harm the interests of any creditor of the
Company;
Shareholders of the Company who abuse their shareholder’s rights and thereby cause loss
on the Company or other shareholders shall be liable for indemnity according to the law.
Where shareholders of the Company abuse the Company’s position as an independent
legal person and the limited liability of shareholders for the purposes of evading repayment of
debts, thereby materially impairing the interests of the creditors of the Company, such
shareholders shall be jointly and severally liable for the debts owed by the Company.
(i) other obligations imposed by laws, administrative regulations and the Articles.
Shareholders are not liable to make any further contribution to the share capital other than
as agreed by the subscribers of the relevant shares on subscription.
Where a shareholder holding 5% or more voting shares of the Company pledges any
shares in his possession, he shall report the same to the Company in writing on the day on
which he pledges his shares.
(b) General Rules of Shareholders’ General Meeting
The shareholders’ general meeting is the organ of authority of the Company, and shall
exercise the following functions and powers in accordance with law:
(i) to decide on the operating policies and investment plans of the Company;
(ii) to elect and remove Directors and Supervisors (not being staff representatives), and
to fix the remuneration of the relevant Directors and Supervisors;
– V-13 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
(iii) to examine and approve the reports of the Board;
(iv) to examine and approve the reports of the Supervisory Committee;
(v) to examine and approve the proposed annual financial budgets and final accounts of
the Company;
(vi) to examine and approve the profit distribution plans and loss recovery plans of the
Company;
(vii) to adopt resolutions on any increase or reduction of registered capital of the
Company;
(viii) to adopt resolutions on any issuance of bonds of the Company;
(ix) to adopt resolutions on matters such as merger, division, dissolution, liquidation and
conversion of corporate form of the Company;
(x) to amend the Articles of Association;
(xi) to adopt resolutions on the appointments, dismissals or non-reappointments of
accounting firms;
(xii) to examine and approve matters relating to security under Article 64;
(xiii) to examine matters relating to the purchases and disposals of the Company’s
material assets within one year, which exceed 15% the Company’s latest audited
total assets;
(xiv) to examine and approve the external investments of which the value of a single
investment reaches or exceeds 10% of the latest audited net assets of the Company;
(xv) to examine and approve the connected transactions that shall be examined by the
shareholders’ general meeting as required by laws and regulations of the jurisdiction
where the Company’s shares are listed;
(xvi) to examine the implementation plans on mechanism for long-term effective
incentives;
(xvii) to examine and approve the proposals submitted by shareholders separately or
collectively holding not less than 3% (including 3%) of the Company’s voting
shares;
(xviii) to examine other matters required by laws, administrative regulations, departmental
rules or the Articles to be resolved by shareholders’ general meeting.
– V-14 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
For matters to be decided at shareholders’ general meeting as prescribed by laws,
administrative regulations and the Articles, such matters have to be reviewed at shareholders’
general meeting so as to ensure that the shareholders of the Company have a right to decide
over those matters. When it is deemed necessary and reasonable, in relation to resolutions that
have been made but their relevant specific matters cannot be decided upon during the
shareholders’ general meeting, the shareholders’ general meeting may authorize the Board to
decide upon such matters within the scope of authorization of the shareholders’ general
meeting subject to the applicable laws, regulations and Articles of Association.
The following securities provided to third parties by the Company are subject to the
review and approval of the general meeting of shareholders.
(i) any security provided after the total amount of security to third parties provided by
the Company has reached or exceeded 20% of the Company’s latest audited net
assets (except providing a counter-guarantee for its own liabilities).
(ii) a security to be provided in favor of an object which has an asset-liability ratio in
excess of 70%.
(iii) a single security in excess of 10% of the Company’s latest audited net assets.
Shareholders’ general meetings shall be annual general meetings of shareholders and
extraordinary general meetings of shareholders. The annual general meeting of shareholders
shall be held once every year within six months after the end of the previous accounting year.
The Company shall hold an extraordinary general meeting of shareholders within two
months upon the occurrence of one of the following circumstances:
(i) the number of Directors is less than the number required by the Company Law or
less than two-thirds of the number required by the Articles;
(ii) the uncovered losses are in excess of one third of the Company’s total number of
paid-up shares;
(iii) shareholders separately or collectively holding not less than 10% of the Company’s
shares request in writing;
(iv) the Board considers it necessary;
(v) the Supervisory Committee proposes to convene;
(vi) such other circumstances as provided for by laws, administrative regulations,
departmental rules or the Articles.
The number of shares aforementioned in item (3) shall be calculated as of the date when
such shareholders request in writing.
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APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
(c) Proposals and Notices of Shareholders’ General Meetings
The contents of a proposal shall be within the scope of the duties and responsibilities of
the shareholders’ general meeting, have definite topics and specific matters for resolution, as
well as be compliance with the laws, administrative regulations and the Articles.
The board of Directors, the Supervisory Committee, and shareholders individually or
jointly holding 3% or more of the Company’s shares shall have the right to submit proposed
resolutions to the Company for a shareholders’ general meeting of the Company.
Shareholders individually or jointly holding 3% or more of the Company’s shares may
submit extra proposed resolutions to the convener of a shareholders’ general meeting in writing
10 days prior to the meeting. The convener shall issue a supplementary notice of the general
meeting and announce the contents of such extra proposed resolutions within 2 days after
receipt thereof.
Except as provided by the preceding paragraph, the convener of a shareholders’ general
meeting shall not amend the proposed resolutions set out in the notice of the meeting or add
any new proposed resolutions subsequent to the issue of the notice of the general meeting.
A written notice of a shareholders’ general meeting to be held by the Company shall be
given to all shareholders whose names appear in the register of members, 45 days before the
meeting is held, specifying the matters to be considered at and the date and place of the
meeting. A shareholder who intends to attend the shareholders’ general meeting shall deliver
a written reply slip confirming his intention to attend the meeting to the Company 20 days
before the meeting is held.
The Company shall calculate the number of voting shares represented by shareholders
who intend to attend a shareholders’ general meeting on the basis of the written replies it has
received 20 days before the date of the shareholders’ general meeting. In the event that the
number of voting shares represented by shareholders who intend to attend the meeting is more
than half of the total number of the voting shares of the Company, the Company may hold the
general meeting; if not, the Company shall, within 5 days, notify shareholders again of the
matters to be considered at, and the date and place for, the meeting by public announcement.
The Company may hold the shareholders’ general meeting after such an announcement has
been made.
The interval between the shareholding record date of a shareholders’ general meeting and
the date of the meeting shall not exceed 7 working days. Once the shareholding record date is
confirmed, it shall not be altered
Unless the Articles otherwise requires, the notice of a general meeting shall be sent to
shareholders (regardless of whether they are entitled to vote at the general meeting) by personal
delivery or by prepaid mail. The addresses of the recipients shall be such addresses as shown
in the register of members. For holders of domestic-invested shares, such notice of the
shareholders’ general meeting may also be given by way of announcement.
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APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
The announcement referred to in the preceding paragraph shall be published in one or
more newspapers designated by the securities regulatory authorities of the State Council. Once
such an announcement is made, all holders of the domestic-invested shares shall be deemed to
have received the relevant notice of the shareholders’ general meeting.
The announcement to shareholders of overseas listed foreign shares shall be issued on the
website of Hong Kong Stock Exchange, or published in one or more newspapers designated.
Once such an announcement is made, all holders of the domestic-invested shares shall be
deemed to have received the relevant notice of the shareholders’ general meeting.
(d) Holding of Shareholders’ General Meetings
Any shareholder entitled to attend and vote at a shareholders’ general meeting shall have
the right to appoint one or several persons (who may not be shareholders) to act as his proxy
to attend and vote at the meeting on his behalf. The proxy(ies) so appointed by the shareholder
may, pursuant to the instructions of the shareholder, exercise the following rights:
(i) the right which the shareholder has to speak at the meeting;
(ii) the right to demand a poll alone or jointly with others;
(iii) the right to exercise voting rights on a show of hands or on a poll, provided that
where more than one proxy is appointed, the proxies may only exercise such voting
rights on a poll.
The instrument appointing a proxy shall be in writing under the hand of the appointing
shareholder or his attorney duly authorized in writing; where the appointing shareholder is a
legal person or any other institution, such instrument shall be under its seal or under the hand
of its legal representative duly authorized or attorney duly authorized.
Individual shareholders attending a shareholders’ general meeting in person shall produce
their identity cards or other valid proof or evidence of their identities as well as stock account
cards and, in the case of attendance by proxies, the proxies shall produce valid proof of their
identities and the proxy forms from shareholders.
Where a shareholder is a legal entity, its legal representative or a proxy authorized by
such legal representative, the Board, or other decision making authorities shall attend a
shareholders’ general meeting. In case of attendance by legal representatives, they shall
produce their identity cards and valid proof of their capacities as legal representatives and, in
the case of attendance by proxies of such legal representatives, such proxies shall produce their
identity cards and the letters of authorization duly issued by such legal representatives, the
Board or other decision making authorities.
All Directors, Supervisors and the Secretary to the Board shall attend shareholders’
general meetings. The general manager and other senior management members shall also be
present at the meeting.
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APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
For a shareholders’ general meeting convened by the Board, the meeting shall be presided
over by the chairman of the Board; if the chairman of the Board is unable to perform or fails
to perform his duties, the deputy chairman of the Board shall preside over the meeting; where
the deputy chairman of the Board is unable to perform or fails to perform his duties, a director
jointly selected by more than one half of all directors shall preside over the meeting. In the
event that the Board is unable to perform or fails to perform the duties of convening
shareholders’ general meetings, the Supervisory Committee shall in time convene and preside
over the meetings; in the case of the failure of the Supervisory Committee to convene and
preside over a shareholders’ general meeting, shareholders severally or jointly holding 10% or
more of the Company’s shares for more than ninety consecutive days shall be entitled to
convene and preside over the meeting on an unilateral basis. Where the shareholders fail to
elect a chairman for any reasons, the shareholder (including his proxy) present in person or by
proxy who holds the largest number of shares carrying the right to vote thereat shall be the
chairman to preside over the meeting.
Shareholders’ general meeting convened by the Supervisory Committee shall be presided
over by the chairman of the Supervisory Committee. If the chairman of the Supervisory
Committee is unable or fails to perform his duties, a supervisor elected by more than half of
supervisors shall preside over the meeting.
A shareholders’ general meeting convened by the shareholders themselves shall be
presided over by a representative nominated by the convening shareholders.
When a shareholders’ general meeting is held and the chairman of the meeting violates
the rules of procedures such that the general meeting cannot proceed, a person may be elected
to preside over the meeting, subject to approval of shareholders entitled to more than half of
the voting rights present at the meeting.
The Company shall formulate rules of procedures of the shareholders’ general meeting to
specify in details the convention and voting procedures of the meeting, including notice,
registration, deliberation of proposals, votes, vote counting, announcement of voting results,
form of resolutions, minutes and the signatures thereon, announcements, as well as the
principles of authorization by the shareholders’ general meeting to the Board, the contents of
such authorization shall be expressly specified. The rules of proceedings of the general meeting
shall be an appendix to the Articles of Association upon approved by the shareholders’ general
meeting.
At the annual general meeting, the Board and the Supervisory Committee shall report
their respective work of the previous year to the general meeting, and the Supervisory
Committee shall make specific statements on the financial position and compliance situation
of the Company. Each independent director shall also make his duty report.
Directors, Supervisors and senior management members shall make response to and give
explanation of the inquiries and suggestions made by shareholders, provided that those involve
company trade secrets.
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APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
The chairman of the meeting shall, prior to voting, announce the number of shareholders
and proxies attending the meeting in person as well as the total number of their voting shares,
which shall be the number of shareholders and proxies attending the meeting in person and the
total number of their voting shares as indicated in the meeting’s registration record.
The convener shall ensure that a shareholders’ general meeting is held continuously until
final resolutions have been reached. In the event that the general meeting is suspended or the
shareholders fail to reach any resolution due to force majeure or other special reasons,
necessary measures shall be taken to resume the meeting as soon as possible or the meeting
shall be terminated directly and an announcement of such termination shall be made promptly.
At the same time, the convener shall report to the agency of the CSRC in the locality of the
Company and the stock exchange.
(e) Voting and Resolutions of Shareholders’ General Meeting
Resolutions of a shareholders’ general meeting can be ordinary resolutions or special
resolutions.
An ordinary resolution of a shareholders’ general meeting shall be passed by an
affirmative vote of more than half of the Company’s total voting shares being held by the
shareholders who are present at the meeting (including proxies).
A special resolution of a shareholders’ general meeting shall be passed by an affirmative
vote of more than two-thirds of the Company’s total voting shares being held by the
shareholders who are present at the meeting (including proxies).
The following matters shall be approved by ordinary resolutions of a shareholders’
general meeting:
(i) the work reports of the board of Directors and the Supervisory Committee;
(ii) the plans formulated by the board of Directors for profit distribution and making up
losses;
(iii) the appointment and removal of members of the board of Directors and the
Supervisory Committee and their remuneration and the methods of payment thereof;
(iv) the Company’s annual financial budgets and final accounts, balance sheets, income
statements and other financial statement;
(v) the annual reports of the Company;
(vi) other matters other than those required by laws, administrative regulations or the
Articles to be approved by special resolutions.
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APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
The following matters shall be approved by special resolutions of a shareholders’ general
meeting:
(i) the increase or reduction of the Company registered capital and the issue of any
class of shares, warrants and other similar securities of the Company;
(ii) the issue of corporate bonds;
(iii) any spin-off, merger, dissolution or liquidation;
(iv) the amendments to the Articles of Association;
(v) acquisition or disposal of material assets or provision of guarantees by the Company
within 1 year which involves an amount exceeding 15% of the Company’s latest
audited total assets;
(vi) repurchase of the Company’s shares;
(vii) Implementation Plan for long-term incentives program;
(viii) such other matters as may be required by laws, administrative regulations or the
Articles or which, pursuant to ordinary resolutions passed at shareholders’ general
meeting, are considered to have material effects on the Company and require
approval by special resolutions.
Shareholders (including proxies) shall exercise their voting rights according to the
number of voting shares they represent, with one vote for each share.
Shares in the Company which are held by the Company do not carry any voting rights,
and shall not be counted in the total number of voting shares represented by shareholders
present at a shareholders’ general meeting.
The board of Directors, Independent Directors and shareholders who meet the relevant
requirements may collect votes from shareholders.
Where the Hong Kong Listing Rules requires any shareholder to abandon his or her voting
on specific resolution, or restricts any shareholder to vote for or against specific resolution, any
vote of the shareholder or his or her proxy against the relevant requirement or restriction shall
not be included.
Unless vote is cast on poll particularly as required by the relevant requirements of the
securities regulatory authorities of the jurisdictions where the shares of the Company are listed,
or a poll is (before or after any voting by show of hands) demanded by the following persons,
voting at a shareholders’ general meeting shall be by a show of hands:
(i) the chairman of the meeting;
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APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
(ii) at least two shareholders entitled to vote or their proxies;
(iii) one or more shareholders (including proxies) individually or jointly holding more
than 10% of the voting shares represented by all shareholders present at the meeting.
Unless a poll is so demanded, a declaration by the chairman of the meeting that a
resolution has on a show of hands been carried, and an entry to that effect in the minutes of
the meeting shall be conclusive evidence of the fact without proof of the number or proportion
of the votes recorded in favor or against such resolution at the meeting.
The demand for a poll may be withdrawn by the person who makes such demand.
A poll demanded on such matters as the election of chairman or the adjournment of the
meeting, shall be taken forthwith. A poll demanded on any other matters shall be taken at such
time as the chairman may decide, and the meeting may proceed to discuss other matters, while
the results of the poll shall still be deemed to be a resolution of that meeting.
On a poll taken at a meeting, a shareholder (including proxy) entitled to two or more votes
need not cast all his votes for, against or abstain in the same way.
In the case of an equality of votes, whether it is by show of hands or a poll, the chairman
of the meeting shall be entitled to an additional vote.
The chairman of the meeting shall determine, according to the results of the votes,
whether the resolutions of the shareholders’ general meeting are approved. The chairman’s
decision is the final decision, and the results of the votes shall be announced in the meeting.
The results of the votes shall be recorded in the meeting minutes.
Save where the Company is in a crisis or other special circumstances, without the prior
approval of a special resolution of a shareholders’ general meeting, the Company shall not
enter into a contract with a person other than a Director, Supervisor, general manager or other
senior management member whereby the management of all or a material part of the business
of the Company is delegated to such person.
The shareholders’ general meeting should vote on each motion individually. Should there
be different motions on the same issue, voting should be done according to the order of the
motions raised. Except for special reasons such as force majeure causing the shareholders’
general meeting to suspend or unable to reach a resolution, the shareholders’ general meeting
shall not set aside any motion or have any motion not voted.
When considering a proposed resolution at a shareholders’ general meeting, no
amendments shall be made thereto. Otherwise, any change made thereto shall be considered as
a new proposed resolution, of which the voting shall not proceed in that meeting.
The same vote may only be cast once at the venue of a shareholders’ general meeting, or
by online voting or other means. In the event of multiple casting of the same vote, only the
outcome of the first casting of such vote shall be counted.
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APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
At any shareholders’ meeting, voting shall be with registered voter.
Before the relevant proposed resolution is voted on at the shareholders’ general meeting,
two representatives of the shareholders shall be elected to take part in counting the votes and
scrutinizing the conduct of the poll. Any shareholder who is interested in the matter under
consideration and his proxy shall not take part in counting the votes or scrutinizing the conduct
of the poll.
When the relevant proposed resolution is being voted on at the shareholders’ general
meeting, lawyers, the shareholders’ representatives and representatives of the Supervisors shall
be jointly responsible for counting the votes and scrutinizing the conduct of the poll, and the
voting result shall be announced at the meeting. The voting results relating to such proposed
resolution shall be recorded in the minutes of meeting.
Shareholders of the Company or their proxies, who have cast their votes by online voting
or by other means, shall have the right to check the voting results in the way in which they have
cast their votes.
The ending time of a shareholders’ general meeting shall not be earlier than that of online
or other access to the meeting. The chairman of the meeting shall announce the status and
results of voting in respect of each proposed resolution, and whether or not such proposed
resolution has been passed according to such voting results.
Prior to the formal announcement of voting results, the relevant parties from the
Company, the persons responsible for counting votes and scrutinizing the conduct of the
relevant poll, the major shareholders, the person in charge of the relevant internet service
provider involved in relation to voting at the shareholders’ general meeting, online or by other
means, shall be obliged to keep the status of voting confidential.
In the event that the chairman of the meeting has any doubt as to the result of a resolution
put forward to the vote, he may have the votes counted. In the event that the chairman of the
meeting fails to have the votes counted, any shareholder present in person or by proxy objects
to the result announced by the chairman of the meeting may demand that the votes be counted
immediately after the declaration of the voting result, the chairman of the meeting shall have
the votes counted immediately.
In the event that the votes are counted at the shareholders’ general meeting, the counting
results shall be recorded in the minutes of the meeting.
The minutes of the meeting together with the attendance book for shareholders’ signing
and the proxy forms for proxies attending the meeting shall be kept at the domicile of the
Company.
Copies of the minutes of the meeting shall be available for inspection during business
hours of the Company by any shareholder without charge. If a shareholder demands from the
Company a copy of such minutes, the Company shall send a copy to him within 7 days after
receipt of reasonable charges.
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APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
Where a shareholders’ general meeting has passed the resolutions for electing directors
and Supervisors, the newly elected Directors and Supervisors shall fill their positions
immediately after the announcement of the result of the voting, except otherwise specified in
the resolution of the shareholders’ general meeting.
Where a proposed resolution in relation to the payment of cash dividends, the issue of
bonus shares or the capitalization of capital reserves has been passed at a shareholders’ general
meeting, the Company shall implement the specific plans within two months after the
conclusion of the shareholders’ general meeting.
(f) Special Procedures for Voting by Class Shareholders
Shareholders holding different classes of shares shall be class shareholders.
Class shareholders shall enjoy rights and assume obligations pursuant to the provisions of
laws, administrative regulations and the Articles.
Save for shareholders of shares of other classes, the holders of domestic-invested shares
and holders of overseas-listed foreign-invested shares are deemed to be different classes of
shareholders.
Where the capital of the Company includes shares which do not carry voting rights, the
words “non-voting” must appear in the designation of such shares.
Where the equity capital includes shares with different voting rights, the designation of
each class of shares, other than those with the most favorable voting rights, must include the
words “restricted voting” or “limited voting.”
Any variation or abrogation of the rights of any class of shareholders proposed by the
Company shall be approved by a special resolution of a general meeting and by the
shareholders of the affected class at a separate class meeting convened in accordance with
Article 123 to 128.
The following circumstances shall be deemed to be circumstances where the variation or
abrogation of the rights of shareholders of a certain class is involved:
(i) increasing or decreasing the number of shares of that class, or increasing or
decreasing the number of shares of another class having the same or more rights of
or to voting, distribution or other privileges when compared with shares of such
class;
(ii) converting all or part of the shares of such class into shares of other classes, or
converting all or part of the shares of other classes into shares of such class or
granting rights to effect such conversion;
(iii) removing or reducing rights to accrued dividends or cumulative dividends attached
to shares of such class;
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APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
(iv) reducing or removing the right to receive priority dividends or, in the event of the
liquidation of the Company, to receive priority distribution of property attached to
shares of such class;
(v) increasing, removing or reducing the right of conversion, options, voting rights, the
right to transfer, priority in placement and the right to acquire securities of the
Company attached to shares of such class;
(vi) removing or reducing the right to receive sums payable by the Company in particular
currencies attached to shares of such class;
(vii) creating a new class of shares having the same or more rights of or to voting,
distribution or other privileges when compared with the shares of such class;
(viii) imposing restrictions on the transfer or ownership of the shares of such class or
increasing such restrictions;
(ix) issuing subscription rights or share conversion rights in respect of shares of such
class or another classes;
(x) increasing the rights and privileges of shares of another classes;
(xi) proposing to restructure the Company where the proposed restructuring scheme will
result in different classes of shareholders having to assume disproportionate
liabilities in such restructuring;
(xii) varying or repealing the terms provided in this chapter.
Shareholders of the affected class, whether or not having the right to vote at shareholders’
general meetings, shall have the right to vote at the relevant class meeting in relation to any
of the matters under circumstances (2) to (8) and (11) to (12) mentioned above, but interested
shareholders shall not be entitled to vote at the relevant class meeting.
Interested shareholders mentioned in the preceding paragraph shall have the following
meanings:
(i) in the case of an offer by the Company to repurchase its own shares to all
shareholders on a pro rata basis or a repurchase by the Company of its own shares
on a stock exchange in accordance with Article 28 of the Articles, “interested
shareholder” shall mean the controlling shareholder as defined in Article 287 of the
Articles;
(ii) in the case of a repurchase by the Company of its own shares by an off-market
agreement in accordance with Article 28 of the Articles, “interested shareholders”
shall mean the shareholders connected with such agreement;
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APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
(iii) in the case of a proposed restructuring of the Company, “interested shareholder”
shall mean a shareholder of a class assuming a smaller proportion of liabilities than
the other shareholders of that class or who has interests different from those of the
other shareholders of the same class.
A resolution of a class meeting shall be passed in accordance with Article 124 by at least
a two-thirds majority calculated on the basis of the voting rights held by the shareholders
present and entitled to vote at the class meeting.
Written notice of a meeting of any class of shareholders of the Company shall be issued
45 days prior to the date of the class meeting to all shareholders of such class whose names
appear on the register of members, specifying the matters to be considered at and the place, the
date and the time of the meeting. Shareholders who intend to attend the meeting shall deliver
to the Company written replies of their intention to attend 20 days prior to the date of the
meeting. When calculating the time limit, the date of meeting shall not be included. If the
number of voting shares at such meeting held by shareholders who intend to attend such
meeting reaches not less than one-half of the total number of voting shares at such meeting, the
Company may hold such class meeting; if this cannot be attained, the Company shall further
notify the shareholders by way of announcement within five days thereof specifying the
matters to be considered and the place, the date and the time of the meeting. After such
announcement has been given, the Company may then hold the class meeting.
Where there is any special regulation under the listing rules of the place(s) where the
Company’s Shares are listed, such requirement shall prevail.
The quorum for a separate class meeting (other than an adjourned meeting) to consider
a variation of the rights of any class of shares shall be the holders of at least one-third of the
issued shares of that class.
Notice of a class meeting only needs to be given to shareholders entitled to vote thereat.
Unless otherwise provided for in the Articles, the procedures for holding the class
meeting shall be similar to those for holding the shareholders’ general meeting as far as
possible, and the provisions in the Articles of Association relating to the procedures for a
shareholders’ general meeting shall apply to the class meeting.
The special procedures for voting by class shareholders shall not apply in the following
circumstances:
(i) where the Company issues, upon approval by a special resolution at a shareholders’
general meeting, domestic-invested shares and overseas-listed foreign-invested
shares once every 12 months, either separately or concurrently, and the respective
numbers of domestic-invested shares and overseas-listed foreign-invested shares
proposed to be issued do not exceed 20% of the respective numbers of the issued
domestic-invested shares and overseas-listed foreign-invested shares;
– V-25 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
(ii) where the Company’s plan to issue domestic-invested shares and overseas-listed
foreign-invested shares at the time of incorporation is carried out within 15 months
from the date of approval by the securities regulatory authorities of the State
Council;
(iii) Where upon the approval from the securities authority of the State Council, the
domestic-invested shares of the Company may be converted into foreign-invested
shares, and such shares may be listed and traded in an overseas stock exchange.
7. DIRECTORS AND THE BOARD OF DIRECTORS
(a) Directors
Directors of the Company shall have their qualifications be approved by the China
Securities Regulatory Commission before assuming office. The Company shall not appoint any
personnel who has not obtained the qualification to be Director and shall not violate the
provision by authorizing unqualified personnel to effectively exercise the duties.
The general manager or other senior management members may concurrently serve as a
Director (other than Independent Directors), provided that the aggregate number of the
Directors who concurrently serve as general manager or other senior management members
shall not exceed one half of all the Directors of the Company.
Non-employee representative Directors shall be elected or replaced by the general
meetings, while employee representative Directors shall be elected or replaced by the
Company’s employee representatives assembly. The term of office of a Director shall be three
years and is eligible for re-election. A Director shall not be removed without reason from his
office by the shareholders’ general meeting or the employee representatives assembly before
the end of his/her term. If a Director is removed by the general meetings or the employee
representatives assembly of the Company, relevant explanation shall be provided. The Director
being removed shall be entitled to state his/her opinion at the general meeting or the employee
representatives assembly, CSRC or CSRC Shanghai Bureau. Subject to full compliance with
the relevant laws and administrative regulations, the general meeting may by ordinary
resolution remove any Director before the expiration of his term of office (but without
prejudice to such Director’s right to claim damages based on any contract).
Written notice of intention to nominate a candidate for the post of Director and the
candidate’s agreement to be nominated must be given to the Company seven days prior to the
convening of the annual general meeting (Such seven-day period shall commence no earlier
than the second day after the issue of the notice of the meeting at which the election shall be
conducted and no later than seven days prior to the shareholders’ general meeting). The term
of the nomination and the acceptance of the nomination shall be no less than seven days.
The term of office of Directors shall commence from the date of appointment up to the
maturity of the current term of office of the Board.
Those in the board of directors as employees’ representatives are elected by the
employees of the Company by employees’ representative meeting means to join the board of
directors directly.
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APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
The Directors shall not be required to hold shares of the Company.
The Directors shall comply with the laws, administrative regulations and the Articles and
shall faithfully perform their due diligence obligations to the Company.
Subject to the prior approval at the Shareholders’ general meeting, the Company shall
include the compensation matters in the written contract to be entered between the Company
and the Directors or Supervisors. The stated compensation matters shall include: the
compensation of Directors, Supervisors and senior management of the Company; the
compensation of directors, supervisors and senior management of Company’s subsidiaries; the
compensation for the services provided in managing the Company and its subsidiaries; the
compensation for Directors and Supervisors due to their loss of position or retirement. Unless
based on the aforementioned contract, Directors and Supervisors shall not take legal actions
against the Company for the compensation matters stated above.
The Company shall not provide loans or loan guarantees directly or indirectly to directors,
supervisors, general manager or other senior management of both the Company and its parent
company, nor shall the Company provide loans or loan guarantees to affiliated parties of the
aforementioned personnel.
The rule above does not apply to the following situations: the Company provides loans
or loan guarantees to its subsidiaries; the Company, based on the letter of appointment
approved at the Shareholders’ general meeting, provides loans, loan guarantees or other funds
to the Directors, Supervisors, General Manager or other senior management to reimburse them
on the expenses incurred by them for the interest of the Company or for discharging their
respective responsibilities
(b) the Board of Directors
The Board consists of 17 Directors, including six independent Directors and at least one
with a senior title of accounting profession or qualified as a certified public accountant. The
Board shall comprise one Chairman and one Vice Chairman.
The Board exercises the following powers:
(i) to convene shareholders’ general meetings and report its work to the shareholders’
general meeting;
(ii) to implement the resolutions of shareholders’ general meetings;
(iii) to decide on the Company’s business plans and investment plans;
(iv) to formulate the Company’s plans on annual financial budgets and final accounts;
(v) to formulate the Company’s profit distribution plans and plans on making up losses;
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APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
(vi) to formulate the proposal for increase or decrease of the registered capital of the
Company, issue and listing of bonds or other securities of the Company;
(vii) to formulate plans for substantial acquisition, repurchase of shares of the Company
or merger, division, dissolution and alteration of corporate form of the Company;
(viii) to determine external investments, acquisition and disposal of assets, assets pledge,
external guarantees matters and connected transactions of the Company within the
authorization of the general meeting;
(ix) to formulate the implementation plan of the long-term incentives program for the
management and employees;
(x) to determine the establishment of the Company’s internal management structure;
(xi) to appoint or dismiss general manager, the Secretary to the Board, General
Compliance Officer and, based on the nomination by the general manager, to appoint
or dismiss senior management members including deputy general manager,
assistants of general manager and chief financial controller of the Company and to
determine their remunerations, incentives and punishments;
(xii) to formulate the basic management system of the Company; and based on the
approved business scopes and the Company’s own business managing
characteristics to establish a clear and effective internal control mechanism, so as to
formulate a comprehensive and practicable internal control system;
(xiii) to formulate proposals for amendment to the Articles;
(xiv) to manage information disclosure of the Company;
(xv) to propose at shareholders’ general meetings for the appointment or change of
accountants’ firm conducting auditing for the Company;
(xvi) to hear the work report and inspect the work of the general manager;
(xvii) to consider and approve the fundamental system of compliance management and the
compliance reports; responsible for monitoring the implementation of compliance
policies;
(xviii) to exercise any other powers specified in relevant laws, administrative regulations,
departmental rules and conferred by the Articles.
– V-28 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
The Board resolutions related to the increase or decrease of registered capital, bonds
issue, merger, spin-off, dissolution and amendment to the Articles, shall be passed by not less
than two-thirds of the Directors.
The chairman of the board of directors shall exercise the following authorities:
(i) to preside over shareholders’ general meetings and to convene and preside over
Board meetings;
(ii) to supervise and check on the implementation of resolutions passed at the meeting
of the board of directors;
(iii) to sign share certificates, bonds and other marketable securities of the Company;
(iv) to sign important documents of the board of directors and other documents that shall
be signed by the legal representative of the Company;
(v) to exercise the authorities of legal representatives;
(vi) in case of emergency circumstances of force majeure events such as extraordinary
natural disasters, to exercise special disposal powers which are in compliance with
legal requirements and are in the interests of the Company on matters of the
Company and provide post-event reports to the board of Directors and the
shareholders’ general meeting;
(vii) to exercise other functions and powers conferred by the board of Directors.
The board of Directors shall meet regularly and board of meetings shall be held at least
four times a year at approximately quarterly intervals. A fourteen days’ prior written notice for
convening the meeting shall be given to all Directors and Supervisors.
A meeting of the board of Directors shall be held only when over half of the Directors
attend the meeting. Unless otherwise provided by the Articles, resolutions of the Board shall
be passed by more than half of all Directors.
One person shall have one vote when voting on the resolution of the board of directors.
Where the number of votes cast for and against a resolution is equal, the Chairman shall
have the right to cast an additional vote.
If any Director has connection with the enterprise involved in the resolution made at a
Board meeting, the said Director shall not vote on the said resolution for himself or on behalf
of other Director. The Board meeting may be held when more than half of the non-connected
Directors attend the meeting. The resolution of the Board meeting shall be passed by more than
half of the non-connected Directors. If the number of non-connected Directors attending the
meetings is less than 3, the matter shall be submitted to the shareholders’ general meeting for
examination.
– V-29 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
(c) Borrowing power
Subject to compliance with applicable laws, administrative regulations and Listing Rules,
the Company has the power to raise and borrow money, which includes, without limitation, the
issue of debentures and the charging or mortgaging of the Company’s properties. The Company
also has the right to provide guarantee for any third party. The Articles of Association do not
contain any specific provision in respect of the manner in which issuing bonds may be
exercised by the Directors nor do they contain any specific provision in respect of the manner
in which such powers may be varied, other than: (a) provisions which give the Board the power
to formulate proposals for the issue of bonds by the Company; and (b) provisions which
provide that the issue of bonds must be approved by the shareholders’ general meeting.
8. THE SUPERVISORY COMMITTEE
(a) Supervisors
The Supervisory Committee shall comprise shareholders’ representatives and employees’
representatives of the Company.
Directors, general manager, deputy general manager, assistant of general manager, chief
financial controller and other senior management personnel as well as direct relatives and
major social relationships thereof shall not hold the position of Supervisors.
Prior to their appointment, Supervisors of the Company shall have their qualification be
approved by CSRC.
Each Supervisor shall serve for a term of three years. Non-employees’ representative
Supervisors shall be elected or removed by the Shareholders’ general meeting and employees’
representative Supervisors shall be democratically elected or removed by the meeting of the
Company’s employees’ representatives. The term is renewable upon re-election and re-
appointment.
The Supervisors shall ensure that all information disclosed are true, accurate, complete,
prompt, and fair.
The Supervisors may attend board meetings as non-voting participants, and deliver
enquiry or suggestion regarding resolutions at Board meetings.
Supervisors have the right to know the operation of the Company and to undertake the
confidential duties accordingly. The Company shall have its internal audit reports, compliance
inspection reports, monthly or quarterly financial reports, annual financial reports and other
significant matters be reported to the Supervisory Committee in a timely manner.
Any Supervisor who fails to attend Supervisory Committee meetings in person two times
consecutively, shall be deemed non-performance of duties and shall be removed and replaced
by the shareholders’ general meeting or the general meeting of employees’ representatives.
– V-30 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
Any Supervisor is obligated to perform his/her duty with diligence and in good faith in
accordance with the laws, administrative regulations and the Articles of Association. Any
Supervisor who violates any laws, administrative regulations, departmental rules or the
Articles during the course of performing his duties and causes losses to the Company shall be
liable for compensation to any loss caused to the Company.
(b) Supervisory Committee
The Company shall have a Supervisory Committee. The Supervisory Committee shall
compose of 11 Supervisors, including representatives of shareholders and representatives of
employees, of which the ratio of employees’ representatives shall not be less than one-third.
The Supervisory Committee shall have one chairman and one vice chairman. The election or
removal of the chairman of the Supervisory Committee and vice chairman shall be determined
by the affirmative votes of two-thirds or more of the members of the Supervisory Committee.
Meetings of the Supervisory Committee shall be convened and presided over by the chairman
of the Supervisory Committee. Where the chairman of the Supervisory Committee is incapable
of performing or fails to perform his/her duties, the vice chairman of the Supervisory
Committee shall convene and preside over the meetings; if the vice chairman of the
Supervisory Committee is incapable of performing or fails to perform his/her duties, a
Supervisor elected by not less than half of the Supervisors shall convene and preside over
Supervisory Committee meetings.
Employee representative Supervisor of the Supervisory Committee shall be admitted to
the Supervisory Committee directly after he/she is being elected by the employee
representatives assembly.
The Supervisory Committee shall be accountable to the shareholders’ general meeting and
shall perform the following duties:
(i) to review the Company’s periodical reports prepared by the board of directors and
to express its comments in writing;
(ii) to inspect the Company’s financial position;
(iii) to supervise the behaviors of the directors and senior management personnel in
performing their duties, and to advise on dismissal of any directors and senior
management personnel who are in breach of laws, administrative regulations, the
Articles or resolutions of the shareholders’ general meetings;
(iv) to enquire on the conduct of Directors and senior management personnel;
(v) to demand the directors and senior management personnel to rectify their errors if
they have acted in a harmful manner to the Company’s interest;
– V-31 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
(vi) to propose to convene an extraordinary general meeting, and where the board of
directors fails to perform the duties in relation to convening or presiding over a
shareholders’ general meeting as required by the Company Law, to convene and
preside over the shareholders’ general meeting;
(vii) to engage an accountant firm qualified for engaging securities related business to
conduct the audits on retiring or resigning senior management personnel;
(viii) to propose motions in a shareholders’ general meeting;
(ix) to take legal actions against directors and senior management personnel in
accordance with Article 152 of the Company Law;
(x) to examine the financial information such as the financial report, business report and
plans for distribution of profits to be submitted by the Board to the general meetings
and, to conduct investigations whenever queries or unusual conditions of operation
of the Company arises and if necessary, to engage professional personnel such as
certified public accountants, practising auditors and lawyers to assist in the
investigations;
(xi) to conduct investigations whenever unusual conditions of operation, financial
conditions and compliance of the Company arise and if necessary, to engage
professional institutions such as firms of accountants and lawyers to assist in the
investigations. Any reasonable costs arising therefore shall be borne by the
Company;
(xii) to exercise other authorities as authorized by the Company’s Articles of Association
or the general meetings.
The Supervisory Committee may require the Directors, personnel of manager level and
other related personnel to attend meetings of the Supervisory Committee to answer any
questions raised by the Supervisory Committee.
When the Supervisory Committee investigate the conduct of Directors, personnel of
manager level of the Company in the performance of their duties, it may understand the
situation through the Directors, personnel of manager level and the other involved personnel
of the Company, who should provide assistance.
The Supervisory Committee shall carry out his/her compliance management duties in
accordance with the requirements of the laws, regulations and the Articles, and shall be
responsible for the validity of the compliance management of the Company.
The Supervisory Committee shall meet at least once in every six months. The chairman
of Supervisory Committee shall convene the meeting and notify all Supervisors in writing 10
days before convening the meeting.
– V-32 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
The Supervisory Committee shall convene meeting regularly within 120 days after the
expiration of the last fiscal year for consideration and approval of inspection reports on the
annual financial condition and the condition of compliance.
Each Supervisor is entitled to request that an explanation of his comments made at the
meetings be noted in the minutes. The minutes of Supervisory Committee meetings shall be
maintained as corporate archives by the Secretary to the Board for a period of 20 years.
9. PROFIT DISTRIBUTION
A Company can use profit before tax next year to offset loss for the current year; if the
profit before tax of the next year is insufficient to offset the loss, the excessive part can be
carried forward to next subsequent year; loss carry forward that exceeds statutory pre-tax offset
period can use profit after tax to offset. For the year that the Company realizes the profit after
tax (after offset loss, the same as below), the Company will appropriate the profit after tax in
the following order: statutory surplus reserve, general risk reserve, transaction risk reserve and
distribution to shareholders. 10% of the realized profit after tax of that year will be
appropriated as statutory surplus reserve fund. When the aggregate statutory surplus reserve
fund has reached 50% or more of the Company’s registered capital, the Company may cease
to make any further appropriation. 10% of the realized profit after tax of that year will be
appropriated as general risk reserve. Not less than 10% of the realized profit after tax of that
year will be appropriate as transaction risk reserve.
Subject to the resolution at the general meeting, the Company may also appropriate fund
to statutory surplus reserve from profit after tax. The remaining profit after taxation, after
recovery of losses and appropriation of reserve fund and all reserves shall be distributed to
shareholders in proportion to their shareholdings. If a general meetings violates the provisions
in the preceding paragraph of this Article and profits are distributed to the shareholders before
the Company makes up losses or makes allocations to the statutory reserve fund, the profits
distributed in violation of the provisions must be returned to the Company. No profit shall be
distributed in respect of the shares of the Company which are held by the Company. The gain
in fair value of the Company’s distributable profit shall not be distributed to Shareholders by
cash. If the standard required by the laws and the administrative regulations (such as net
gearing ratio) not being met, no profit may be distributed to the Shareholders. If undistributed
profit is negative, no profit may be distributed to the Shareholders. If capital reserve is
negative, no cash distribution shall be made to the Shareholders.
Reserves of the Company are used for offsetting losses sustained by the Company,
expanding the Company’s production and operation or increasing the capital of the Company.
However, capital reserve shall not be used for offsetting losses sustained by the Company.
When the statutory reserve fund is converted into capital, the balance of the statutory
reserve shall not fall below 25% of the Company’s registered capital before the increase of the
capital.
– V-33 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
The Company adopts a continuous, stable and aggressive profit distribution policy, which
focuses on providing reasonable investment returns to Shareholders. The Company may,
according to the profit made by the Company and taking into account the actual situation as
well as current and long-term benefit of the Company, distribute dividend by way of cash or
shares. In principle, the Company will distribute cash dividend for the year with profit. If no
cash distribution proposal has been submitted for year with earnings, the Company will state
the reasons for not distributing the profit and the usage of the profit retained in the periodic
report. The Company may distribute interim dividend. The accumulated cash distribution of
profit for the last three years of the Company were not less than 30% of the average annual
distributable profit.
Any distributing of dividends by way of shares shall be resolved by general meeting and
report to the relevant competent authorities, such as the CSRC, for approval.
Holders of shares which have been paid up before payment calls by the Company are
entitled to dividends. Holders of prepaid shares are not entitled to dividends declared
thereafter.
In relation to the receipt of dividends by shareholders, the Company is entitled to forfeit
unclaimed dividends, provided that such power shall only be exercised in accordance with the
relevant PRC laws, rules, regulations and regulatory documents and six years or thereafter after
the date of announcement of the distribution.
The Company shall have the right to terminate sending dividend warrants to holders of
overseas-listed foreign-invested shares by mail, but the Company shall exercise the right only
after a dividend warrant fails to be redeemed for two consecutive occasions, however the
Company can exercise the right after the first occasion on which such a dividend warrant is
returned as undelivered.
In relation to the exercise of right to issue warrants to bearer, no warrant thereof shall be
issued to replace one that has been lost unless the Company is satisfied beyond reasonable
doubt that the original warrant thereof has been destroyed.
The Company shall have the power to sell, in such manner as the Board thinks fit, any
shares of a Shareholder of overseas-listed foreign-invested shares who is untraceable, but is
subject to the following conditions:
(i) the Company has distributed dividends for at least 3 times in respect of such shares
within 12 years, but none of such dividends was claimed; and
(ii) the Company, after the expiration of a period of 12 years, made an advertisement on
one or more newspapers of the place which the Company is listed, stating its
intention to sell such shares, and notified the securities regulatory authority of the
place which the Company is listed of such intention.
The Company shall appoint receiving agents on behalf of the holders of overseas-listed
foreign-invested shares to receive on behalf of such shareholders dividends declared and all
other monies owing by the Company in respect of such shares.
– V-34 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
The receiving agents appointed by the Company shall satisfy the relevant requirements of
the laws of the place and relevant regulations of the stock exchange where the Company’s
shares are listed.
The receiving agents appointed on behalf of holders of overseas-listed foreign-invested
shares listed in the Hong Kong shall be a company registered as a trust company under the
Trustee Ordinance of Hong Kong.
10. FINANCIAL REPORTS
The Company shall prepare its annual financial reports and submit to the CSRC and the
stock exchange(s) within four months from the ending date of each fiscal year, the half year
financial reports it prepare and submit to the local office of the CSRC and the stock
exchange(s) within two months from the ending date of the first six months of each fiscal year,
and the quarterly reports it prepare and submit to the local office of the CSRC and the stock
exchange(s) within one month from the ending dates of the first three and first nine months of
each fiscal year respectively.
The aforesaid financial report shall be drafted in accordance with the relevant laws,
administrative rules and regulations, and announced according to the requirement of the
securities regulatory authority of the place which the Company’s shares listed.
The Board shall place before the shareholders at every annual general meeting such
financial reports as are required by any laws, regulations, by-laws or directives to be prepared
by the Company.
The Company’s financial reports shall be made available for shareholders’ inspection at
the Company 20 days before the date of every annual general meetings. Each shareholder shall
be entitled to obtain a copy of the financial reports referred to in this Chapter.
Unless otherwise required by this Articles, the Company shall deliver, by hand or by
prepaid post, the abovementioned report or report of the Directors (together with balance sheet
and income statement) to the address of each overseas listed foreign shares’ holders as
registered in the register of members at least 21 days before such annual general meeting; or
the Company may published its report on the website of the Shanghai Stock Exchange and in
a newspaper specified in this Articles, and on the website of the Hong Kong Stock Exchange
or in one or more newspapers specified by it. Once an announcement is made, all shareholders
are deemed to have received the aforementioned financial report.
The financial statements of the Company shall, in addition to being prepared in
accordance with PRC accounting standards and regulations, be prepared in accordance with
either international accounting standards or that of the overseas place where the Company’s
shares are listed. If there is any material difference between the financial statements prepared
respectively in accordance with the two accounting standards, explanations shall be made in
the financial statements. When the Company is to distribute its after-tax profits, the lower of
the after-tax profits as shown in the two financial statements shall be adopted.
– V-35 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
Any interim results or financial information published or disclosed by the Company must
also be prepared and presented in accordance with PRC accounting standards and regulations,
and also in accordance with either international accounting standards or that of the overseas
place where the Company’s shares are listed.
The Company will not keep accounts other than those stipulated by law. Assets of the
Company shall not be deposited in an account maintained in the name of any individual.
11. LIQUIDATION
The Company shall be dissolved and liquidated according to laws upon the occurrence of
the following events:
(i) resolution on dissolution is passed by shareholders at a general meeting;
(ii) dissolution is necessary due to a merger or division of the Company;
(iii) the Company’s business license is revoked or it is ordered to close down or it is
canceled according to law;
(iv) where the Company gets into serious trouble in operations and management and its
continuation may cause substantial loss to the interests of its shareholders, and no
solution can be found through any other channel, shareholders representing 10% or
more of the total voting rights of the Company may request the people’s court to
dissolve the Company;
(v) the Company is legally declared bankrupt due to its failure to repay debts due;
(vi) other reasons for dissolution as specified in the Articles arises.
Upon the occurrence of the situation mentioned in (6) above, the Company may continue
to exist by amending the Articles.
The amendment of the Articles pursuant to the preceding paragraph shall be subject to the
approval of more than two-thirds of the voting rights held by the shareholders present at the
shareholders’ general meetings.
Where the Company is dissolved under subparagraphs (1), (3), (4) and (6) of the Article
270, a liquidation committee shall be set up in accordance with the laws within 15 days after
the liquidation is approved by the securities regulatory authority of the State Council, and its
members shall be determined by shareholders at a general meeting by way of ordinary
resolution. If a liquidation committee is not set up within the specified period to carry out
liquidation procedures, creditors may apply to the people’s court for appointment of relevant
persons to form a liquidation committee so as to proceed with the liquidation.
Where the Company is dissolved pursuant to subparagraph (3) of the preceding Article,
the Company shall apply to the CSRC with reason of dissolution and the plan of settling
liabilities. The Company will be dissolved after obtaining of the approval in the CSRC.
– V-36 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
Where the Company is dissolved pursuant to subparagraph (4) of the preceding Article,
the people’s court shall, according to the relevant laws, organize to form a liquidation
committee comprising the securities regulatory authority under the State Council, shareholders,
relevant authorities and relevant professionals to enforce bankruptcy liquidation in accordance
with the relevant bankruptcy law.
Where the Board proposes to liquidate the Company due to causes other than where the
Company has declared that it is insolvent, the Board shall include a statement in its notice
convening a shareholders’ general meeting to consider the proposal to the effect that, after
making full inquiry into the affairs of the Company, the Board is of the opinion that the
Company will be able to pay its debts in full within 12 months from the commencement of the
liquidation.
Upon the passing of the resolution by the shareholders in general meeting for the
liquidation of the Company, all functions and powers of the Board shall cease.
The liquidation committee shall act in accordance with the instructions of the
shareholders’ general meeting to make a report at least once every year to the shareholders’
general meeting on the committee’s receipts and payments, the business of the Company and
the progress of the liquidation and to present a final report to the shareholders’ general meeting
on completion of the liquidation.
During the liquidation period, the liquidation committee shall exercise the following
functions and duties:
(i) to ascertain the Company’s assets and separately prepare a balance sheet and an
inventory of assets;
(ii) to notify creditors by sending notice or by making announcement;
(iii) to deal with and settle the Company’s outstanding business deals in relation to the
liquidation;
(iv) to settle outstanding taxes as well as taxes arising in the course of liquidation;
(v) to ascertain all claims and debts;
(vi) to dispose of the remaining assets of the Company after the repayment of debts; and
(vii) to represent the Company in any civil proceedings.
The liquidation committee shall notify creditors within 10 days from the date of its
establishment and make announcement, such as by newspaper, within sixty (60) days of that
date. Creditors should, within 30 days after receipt of the notice, or for those who do not
receive the notice, within 45 days from the date of the announcement, declare their claims to
the liquidation committee.
– V-37 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
When declaring their claims, creditors shall explain relevant particulars of their claims
and provide supporting materials. The liquidation committee shall register the claims.
During the period of declaration of claims, the liquidation committee shall not repay any
debts to the creditors.
After checking the Company’s assets and preparing a balance sheet and an inventory of
assets, the liquidation committee shall formulate a liquidation plan and submit the same to a
general meetings or people’s court for confirmation.
The property of the Company remained after the property is respectively applied to
payment of the liquidation expenses, the wages, social insurance premiums and statutory
compensation of staff and workers and the outstanding taxes, and to full payment of the debts
of the Company shall be distributed in proportion to the shareholdings of the shareholders.
During the liquidation period, the Company shall continue to exist but shall not carry out
any business activities not relating to liquidation. The assets of the Company shall not be
distributed to the shareholders before the repayment of debts in accordance with provisions of
the preceding article.
If the liquidation committee, after ascertaining the Company’s assets and preparing a
balance sheet and an inventory of assets, discovers that the Company’s assets are insufficient
to repay its debts, it shall immediately apply to the people’s court for a declaration of
bankruptcy.
After the Company is declared bankrupt by a ruling of the people’s court, the liquidation
committee shall transfer the liquidation matters to the people’s court.
Following the completion of liquidation, the liquidation committee shall present a report
on liquidation and prepare a statement of the receipts and payments and the financial accounts
for the period of the liquidation which shall be audited by PRC certified public accountants and
then submitted to the shareholders’ general meeting or relevant competent authorities for
confirmation.
The liquidation committee shall submit the aforesaid documents to the company
registration authority, apply for cancelation of company registration, and announce the
termination of the Company within 30 days after confirmation is obtained from the relevant
competent authorities,.
– V-38 –
APPENDIX V SUMMARY OF THE ARTICLES OF ASSOCIATION
12. AMENDMENTS TO THE ARTICLES
The Company may amend the Articles of Association in accordance with the laws,
administrative regulations and the Articles of Association.
The Company shall amend the Articles of Association under any of the following
situations:
(i) there is a discrepancy between the provisions of the Articles of Association and
those of laws and administrative regulations after the amendment to the Company
Law or relevant laws and administrative regulations;
(ii) there are changes in the situation of the Company resulting in inconsistency in
relation to the scenarios mentioned in the Articles of Association;
(iii) the shareholders’ general meeting resolves to amend the Articles of Association.
Where the amendments to the Articles passed by the general meetings need the
examination and approval of the competent authorities, these amendments shall be submitted
hereto for approval.
Any amendment to the Articles of Association involving anything set out in the
Mandatory Provisions for Articles of Association of Companies shall become effective upon
approval by the department in charge of company approval affairs authorized by the State
Council and by the CSRC. If there is any change relating to the registered particulars of the
Company, application shall be made for registration of the changes in accordance with the
laws.
The Board may amend the Articles of Association in accordance with the resolution on
amendments to the Articles of Association passed at the shareholders’ general meeting and the
approval opinions of the relevant competent authorities.
Any amendment to the Articles of Association shall be subject to announcement if so
required by the laws and regulations.
– V-39 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
1. FURTHER INFORMATION ABOUT THE COMPANY
A. Incorporation
Our Company was established in the PRC as an enterprise owned by the whole people (Qh
l b@g R6O im ) in August 1988 under the name of Shanghai Haitong Securities Company* (N
mwmw R8QlS ) with a registered share capital of RMB10 million and the sole shareholder
being Bank of Communications, Shanghai Branch. On September 27, 1994, our Company was
converted into a limited liability company, and was renamed as Haitong Securities Company
Limited* (“mw R8g – QlS ”). On January 28, 2002, upon the approval from CSRC and the
Shanghai government, Haitong Securities Company Limited was converted into a joint stock
limited liability company, and was renamed as Haitong Securities Co., Ltd.* (mw R8Ng
– QlS ).
Our Company has established a place of business in Hong Kong at 21st Floor, Li Po Chun
Chambers, 189 Des Voeux Road Central, Central, Hong Kong and has been registered as a
non-Hong Kong company in Hong Kong under Part XI of the Hong Kong Companies
Ordinance on November 22, 2011. Ms. Mok Mingwai has been appointed as our agent for the
acceptance of service of process in Hong Kong whose correspondence address is 8th Floor,
Gloucester Tower, The Landmark, 15 Queen’s Road Central, Hong Kong. As we are
incorporated in the PRC, our corporate structure and Articles of Association are subject to the
relevant laws and regulations of the PRC. A summary of the relevant provisions of our Articles
of Association is set out in Appendix V. A summary of certain relevant aspects of the laws and
regulations of the PRC is set out in Appendix IV.
B. Changes in Share Capital
At our establishment, our initial registered capital was RMB10,000,000, all of which were
fully paid up.
On November 8, 1991, upon the approval from PBOC, the registered share capital of our
Company was increased from RMB10,000,000 to RMB35,000,000.
On September 27, 1994, the Company conducted a restructuring and the registered capital
of the Company was enlarged from RMB35,000,000 to RMB1,000,000,000.
On December 29, 2000, upon the approval from CSRC, the registered share capital of our
Company was increased from RMB1,000,000,000 to RMB3,746,928,000.
On January 28, 2002, upon the approval from CSRC, the registered share capital of our
Company was increased from RMB3,746,928,000 to RMB4,006,093,000.
On December 6, 2002, upon the approval from CSRC, the registered share capital of our
Company was increased from RMB4,006,093,000 to RMB8,734,438,870.
– VI-1 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
On July 6, 2007, the registered share capital of our Company was changed from
RMB8,734,438,870 to RMB3,389,272,910 as a result of the reverse takeover of SUABC.
On November 21, 2007, the registered share capital of our Company was increased from
RMB3,389,272,910 to RMB4,113,910,590 as a result of issuance of 724,637,680 shares by
non-public offering.
On June 12, 2008, upon the approval by our 2007 shareholders’ meeting, we distributed
a cash dividend of RMB411,391,059 together with a total of 1,234,173,177 bonus shares, and
a total of 2,879,737,413 A Shares by converting a portion of our capital reserve into share
capital. As a result, our total share capital was increased from RMB4,113,910,590 to
RMB8,227,821,180.
Save as aforesaid, up to the Latest Practicable Date, there has been no alterations in our
share capital since our establishment.
C. The Company’s General Meetings held on May 16, 2011
At the general meeting of the Company held on May 16, 2011, the following resolutions,
among other things, were passed by our Shareholders:
(a) the conversion of the Company into an “overseas subscription company” was
approved;
(b) the issue by our Company of the H Shares with a par value of RMB1.00 each and
such H Shares be listed on the Hong Kong Stock Exchange. The number of H Shares
to be issued shall not exceed 13% of the total issued share capital as enlarged by the
issue of H Shares assuming the Over-allotment Option is not exercised. The
Over-allotment Option to issue not more than 15% of the H Shares initially available
under the Global Offering if fully exercised was also granted;
(c) subject to the completion of the Global Offering, the adoption of the Articles of
Association and the authorization to the Board to amend such Articles of Association
in accordance with the requirements of the relevant laws and regulations and the
Hong Kong Listing Rules; and
(d) authorization of the Board to handle all matters relating to, among other things, the
Global Offering and the issue of H Shares and the listing of H Shares on the Hong
Kong Stock Exchange.
– VI-2 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
2. OUR SUBSIDIARIES AND INTERESTS IN OTHER COMPANIES
Our principal subsidiaries and associates (for the purpose of the Listing Rules) as of June
30, 2011 are set out in Note 21 and Note 22 under the financial information in the Accountants’
Report as included in Appendix I to this prospectus.
The following alterations in the registered capital of our principal subsidiaries have taken
place within the two years preceding the date of this prospectus:
On November 28, 2011, the registered capital of Haitong Futures was increased from
RMB500,000,000 to RMB1,000,000,000;
On August 15, 2011, the registered capital of Haitong Capital Investment was increased
from RMB3,000,000,000 to RMB4,000,000,000;
On July 9, 2010, the registered capital of Haitong International Holdings was increased
from HK$2,000,000,000 to HK$3,000,000,000. On December 30, 2010, registered capital of
Haitong International Holdings was increased from HK$3,000,000,000 to HK$4,000,000,000;
On January 30, 2011, the registered capital of Jilin Province Modern Agricultural and
Emerging Markets Investment Fund Limited was increased from RMB600,000,000 to
RMB800,000,000;
On July 20, 2011, the registered capital of Haitong International Futures Limited was
increased from HK$50,000,000 to HK$100,000,000;
On October 6, 2010, the registered capital of Haitong International Securities Company
Limited was increased from HK$600,000,000 to HK$1,100,000,000. On January 10, 2011, the
registered capital of Haitong International Securities Company Limited was increased from
HK$1,100,000,000 to HK$1,500,000,000.
Haitong International Securities is a company listed on the Hong Kong Stock Exchange.
Please refer to the announcements of Haitong International Securities on the HKEx website for
all the changes of its issued share capital. Within the two years preceding the date of this
prospectus, it has allotted and issued ordinary shares from time to time pursuant to the exercise
of share options under the share option scheme adopted on August 23, 2002. It has also allotted
and issued ordinary shares on August 16, 2011 pursuant to a loan capitalization agreement
entered into between Haitong International Holdings and Haitong International Securities on
June 23, 2011 and it has allotted ordinary shares in the form of scrip dividend on November
10, 2010 for 12 months ended on June 30, 2010.
Save as disclosed above, there has been no alterations in the share capital of our principal
subsidiaries within the two years preceding the date of this prospectus.
– VI-3 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
3. SINO-FOREIGN JOINT VENTURE
Information regarding the Sino-foreign equity joint venture in which we are interested is
set out below.
(1) HFT Investment Management
Parties and equity interest: Our Company 51%
BNPP IP BE Holding 49%
Terms of joint venture: N/A
Place of incorporation: PRC
Date of establishment: April 18, 2003
Scope of business: Fund raising, fund sales, asset management
and other services permitted by CSRC
Nature: Sino-foreign joint venture
Paid-up share capital: RMB150,000,000
Registered share capital: RMB150,000,000
Any equity transfer of HFT Investment Management shall be subject to pre-emptive rights
of the joint venture partners as set out in the joint venture contract and articles of association
of HFT Investment Management. Equity of HFT Investment Management shall only be
transferred to non-joint venture partners upon the written approval from the other joint venture
partner and the approval from competent authority. The entitlements of the joint venture
partners in profits, dividends and other distributions are in proportion to their capital
contribution ratios. The board of directors of HFT Investment Management consists of nine
members, of which three directors were appointed by our Company, two directors were
appointed by BNPP IP BE Holding and four directors are independent directors. Chairman will
be nominated by joint venture partners and appointed by the board of directors.
Upon dissolution of the joint venture, the joint venture parties shall be entitled to the
remaining assets after paying off all debts of the company, based on their respective capital
contribution ratios.
– VI-4 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
(2) Haitong-Fortis PE Management
Parties and equity interest: Our Company 67%
BNPP IP BE Holding 33%
Terms of joint venture: 30 years
Place of incorporation: PRC
Date of establishment: October 18, 2004
Scope of business: Management of industry fund, investment
consulting and establishing industry fund
Nature: Sino-foreign joint venture
Paid-up share capital: RMB20,000,000
Registered share capital: RMB20,000,000
Any equity transfer of Haitong-Fortis PE Management shall be subject to pre-emptive
rights of the joint venture partners as set out in the joint venture contract and articles of
association of Haitong-Fortis PE Management. The entitlements of the joint venture partners
in profits, dividends and other distributions are in proportion to their capital contribution
ratios. The board of directors of Haitong-Fortis PE Management consists of five members, of
which two directors (including the chairman) were appointed by our Company, one director
(the vice chairman) was appointed by BNPP IP BE Holding and two directors are independent
directors.
Upon the expiry of the term of the joint venture contract, the joint venture parties shall
be entitled to the remaining assets after paying off all debts of the company, based on their
respective capital contribution ratios.
(3) Fullgoal Fund Management
Parties and equity interest: Our Company 27.775%
Bank of Montreal 27.775%
Shenyin & Wanguo Securities Co., Ltd. 27.775%
Shandong International Trust Corporation 16.675%
Terms of joint venture: N/A
Place of Incorporation: PRC
Date of establishment: April 13, 1999
Scope of business: Fund raising, fund sales, asset management
and other services permitted by CSRC
Nature: Sino-foreign joint venture
Paid-up share capital: RMB180,000,000
Registered share capital: RMB180,000,000
– VI-5 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
Any transfer of equity interest of Fullgoal Fund Management shall be subject to
pre-emptive rights of the joint venture partners as set out in the joint venture contract and
articles of association of Fullgoal Fund Management. If more than one joint venture partner are
interested in acquiring the equity interest to be transferred, the equity interest will be
transferred in proportion to their capital contribution ratios or other percentages agreed in
written. If none of the joint venture partners exercise the pre-emptive rights, the equity interest
can only be transferred to non-joint venture partners upon written approval from the joint
venture partners holding at least three-fourths of the total equity interest of Fullgoal Fund
Management. The entitlements of the joint venture partners in profits, dividends and other
distributions are in proportion to their capital contribution ratios. The board of directors of
Fullgoal Fund Management consists of 11 members, of which seven directors were appointed
by the joint venture partners and four directors are independent directors. Chairman will be
nominated by the joint venture partners and appointed by the board of directors.
Upon dissolution of the joint venture, the joint venture parties shall be entitled to the
remaining assets after paying off all debts of the company, based on their respective capital
contribution ratios.
4. FURTHER INFORMATION ABOUT OUR BUSINESS
A. Summary of Our Material Contracts
We have entered into the following contracts (not being contracts entered into in our
ordinary course of business) within the two years preceding the date of this prospectus, which
are or may be material:
(a) a registered capital increase agreement dated June 21, 2011 entered into between our
Company and Shanghai Shengyuan Real Estate (Group) Co., Ltd., pursuant to which
our Company and Shanghai Shengyuan Real Estate (Group) Co., Ltd. agreed to
invest in Haitong Futures to increase the registered capital of Haitong Futures from
RMB500,000,000 to RMB1,000,000,000;
(b) a facilities agreement dated June 22, 2011 between Bank of China (Hong Kong)
Limited, The Hongkong and Shanghai Banking Corporation Limited, Hang Seng
Bank Limited, Chong Hing Bank Limited, Sumitomo Mitsui Banking Corporation,
Wing Hang Bank Limited, Haitong International Securities Group Limited and
Haitong International Holdings Limited, pursuant to which Bank of China (Hong
Kong) Limited, The Hongkong and Shanghai Banking Corporation Limited, Hang
Seng Bank Limited, Chong Hing Bank Limited, Sumitomo Mitsui Banking
Corporation, Wing Hang Bank Limited have agreed to provide a Hong Kong dollar
term loan facility in an aggregate amount of HK$552,000,000 and a Hong Kong
dollar revolving loan facility in an aggregate amount of HK$828,000,000 to Haitong
International Securities Group Limited;
– VI-6 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
(c) a loan capitalization agreement dated June 23, 2011 between Haitong International
Holdings Limited and Haitong International Securities Group Limited, pursuant to
which Haitong International Holdings Limited agreed to subscribe for 200,000,000
new shares of Haitong International Securities Group Limited by way of
capitalization of a sum of HK$850,000,000 out of the total outstanding amount of
the shareholder’s loans owed by Haitong International Securities Group Limited to
Haitong International Holdings Limited;
(d) a cornerstone placing agreement dated March 30, 2012 entered into between our
Company, The Chuo Mitsui Trust and Banking Co., Ltd., Haitong International
Capital Limited, Haitong International Securities Company Limited and J.P. Morgan
Securities (Asia Pacific) Limited, pursuant to which The Chuo Mitsui Trust and
Banking Co., Ltd. agreed to subscribe for our H Shares in the amount of
USD12,000,000;
(e) a cornerstone placing agreement dated April 13, 2012 entered into between our
Company, Albertson Capital Limited, Haitong International Capital Limited,
Haitong International Securities Company Limited, J.P. Morgan Securities (Asia
Pacific) Limited, Credit Suisse (Hong Kong) Limited, Deutsche Bank AG, Hong
Kong Branch, Citigroup Global Markets Asia Limited and UBS AG, Hong Kong
Branch, pursuant to which Albertson Capital Limited agreed to subscribe for our H
Shares in the amount of USD15,000,000;
(f) a cornerstone placing agreement dated April 13, 2012 entered into between our
Company, Toyo Securities Company Limited, Haitong International Capital
Limited, Haitong International Securities Company Limited, J.P. Morgan Securities
(Asia Pacific) Limited, Credit Suisse (Hong Kong) Limited, Deutsche Bank AG,
Hong Kong Branch, Citigroup Global Markets Asia Limited and UBS AG, Hong
Kong Branch, pursuant to which Toyo Securities Company Limited agreed to
subscribe for our H Shares in the amount of USD10,000,000;
(g) a cornerstone placing agreement dated April 13, 2012 entered into between our
Company, SBI Holdings, Inc., Haitong International Capital Limited, Haitong
International Securities Company Limited, J.P. Morgan Securities (Asia Pacific)
Limited, Credit Suisse (Hong Kong) Limited, Deutsche Bank AG, Hong Kong
Branch, Citigroup Global Markets Asia Limited and UBS AG, Hong Kong Branch,
pursuant to which SBI Holdings, Inc. agreed to subscribe for our H Shares in the
amount of USD30,000,000;
(h) a cornerstone placing agreement dated April 14, 2012 entered into between our
Company, KGI Finance Ltd, Haitong International Capital Limited, Haitong
International Securities Company Limited, J.P. Morgan Securities (Asia Pacific)
Limited, Credit Suisse (Hong Kong) Limited, Deutsche Bank AG, Hong Kong
Branch, Citigroup Global Markets Asia Limited, UBS AG, Hong Kong Branch and
The Hongkong and Shanghai Banking Corporation Limited, pursuant to which KGI
Finance Ltd agreed to subscribe for our H Shares in the amount of USD30,000,000;
– VI-7 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
(i) a cornerstone placing agreement dated April 14, 2012 entered into between our
Company, D. E. Shaw Valence International, INC., Haitong International Capital
Limited, Haitong International Securities Company Limited, J.P. Morgan Securities
(Asia Pacific) Limited, Credit Suisse (Hong Kong) Limited, Deutsche Bank AG,
Hong Kong Branch, Citigroup Global Markets Asia Limited and UBS AG, Hong
Kong Branch, pursuant to which D. E. Shaw Valence International, INC. agreed to
subscribe for our H Shares in the amount of USD100,000,000;
(j) a cornerstone placing agreement dated April 14, 2012 entered into between our
Company, Leading Investment & Securities Co., Ltd, Haitong International Capital
Limited, Haitong International Securities Company Limited, J.P. Morgan Securities
(Asia Pacific) Limited, Credit Suisse (Hong Kong) Limited, Deutsche Bank AG,
Hong Kong Branch, Citigroup Global Markets Asia Limited and UBS AG, Hong
Kong Branch, pursuant to which Leading Investment & Securities Co., Ltd agreed
to subscribe for our H Shares in the amount of USD20,000,000.
(k) a cornerstone placing agreement dated April 14, 2012 entered into between our
Company, World Prosper Limited, Haitong International Capital Limited, Haitong
International Securities Company Limited, J.P. Morgan Securities (Asia Pacific)
Limited, Credit Suisse (Hong Kong) Limited, Deutsche Bank AG, Hong Kong
Branch, Citigroup Global Markets Asia Limited, UBS AG, Hong Kong Branch and
The Hongkong and Shanghai Banking Corporation Limited, pursuant to which
World Prosper Limited agreed to subscribe for our H Shares in the amount of
USD15,000,000;
(l) a cornerstone placing agreement dated April 14, 2012 entered into between our
Company, Oman Investment Fund, Haitong International Capital Limited, Haitong
International Securities Company Limited, J.P. Morgan Securities (Asia Pacific)
Limited, Credit Suisse (Hong Kong) Limited, Deutsche Bank AG, Hong Kong
Branch, Citigroup Global Markets Asia Limited, UBS AG, Hong Kong Branch and
Nomura International (Hong Kong) Limited, pursuant to which Oman Investment
Fund agreed to subscribe for our H Shares in the amount of USD30,000,000;
(m) a cornerstone placing agreement dated April 14, 2012 entered into between our
Company, Progress Investment Management Company (BVI) Limited, Haitong
International Capital Limited, Haitong International Securities Company Limited,
J.P. Morgan Securities (Asia Pacific) Limited, Credit Suisse (Hong Kong) Limited,
Deutsche Bank AG, Hong Kong Branch, Citigroup Global Markets Asia Limited,
UBS AG, Hong Kong Branch and The Hongkong and Shanghai Banking Corporation
Limited, pursuant to which Progress Investment Management Company (BVI)
Limited agreed to subscribe for our H Shares in the amount of USD15,000,000;
– VI-8 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
(n) a cornerstone placing agreement dated April 14, 2012 entered into between our
Company, PAGAC Horseshoe Holding I SARL, Haitong International Capital
Limited, Haitong International Securities Company Limited, J.P. Morgan Securities
(Asia Pacific) Limited, Credit Suisse (Hong Kong) Limited, Deutsche Bank AG,
Hong Kong Branch, Citigroup Global Markets Asia Limited and UBS AG, Hong
Kong Branch, pursuant to which PAGAC Horseshoe Holding I SARL agreed to
subscribe for our H Shares in the amount of USD300,000,000; and
(o) a Hong Kong underwriting agreement dated April 16, 2012 entered into between our
Company, Haitong International Capital Limited, Haitong International Securities
Company Limited, J.P. Morgan Securities (Asia Pacific) Limited, Credit Suisse
(Hong Kong) Limited, Deutsche Bank AG, Hong Kong Branch, Citigroup Global
Markets Asia Limited, UBS AG, Hong Kong Branch, The Hongkong and Shanghai
Banking Corporation Limited, Nomura International (Hong Kong) Limited,
Standard Chartered Securities (Hong Kong) Limited, BOCOM International
Securities Limited and the other Hong Kong Underwriters, further details of which
are set out in the section headed “Underwriting”.
– VI-9 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
B. Our Intellectual Property Rights
(i) Trademarks
(a) Registered trademarks
As of the Latest Practicable Date, we have registered the following trademarks in the PRC
which we consider to be or may be material to our business:
No. Registrant Registration No. Trademark Class Duration
1. Haitong Securities Co., 1385986 36 2010.04.14-
Ltd. 2020.04.13
2. Haitong Securities Co., 4371095 36 2008.09.14-
Ltd. 2018.09.13
3. Haitong Securities Co., 4034053 36 2007.04.21-
Ltd. 2017.04.20
4. Haitong Securities Co., 8252844 36 2011.12.28-
Ltd. 2021.12.27
5. HFT Investment 4004620 36 2010.09.14-
Management Co., Ltd. 2020.09.13
6. HFT Investment 8338792 36 2011.08.28-
Management Co., Ltd. 2021.08.27
7. HFT Investment 6056371 36 2010.03.07-
Management Co., Ltd. 2020.03.06
8. Taifook Securities Group 4846760 36 2010.02.28-
Limited 2020.02.27
9. Taifook Securities Group 4846759 36 2010.02.28-
Limited 2020.02.27
– VI-10 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
As of the Latest Practicable Date, we have registered the following trademarks in Hong
Kong which we consider to be or may be material to our business:
No. Registrant Registration No. Trademark Class Duration
1. Haitong Securities Co., 300689833 36 2006.07.28-
Ltd. 2016.07.27
2. Haitong Securities Co., 300689851 36 2006.07.28-
Ltd. 2016.07.27
3. Haitong Securities Co., 300689824 36 2006.07.28-
Ltd. 2016.07.27
4. Haitong Securities Co., 300689842 36 2006.07.28-
Ltd. 2016.07.27
5. Taifook Securities Group 300433386 36 2005.06.06-
Limited 2015.06.05
6. Taifook Securities Group 300433395 36 2005.06.06-
Limited 2015.06.05
7. Taifook Securities Group 300433377 36 2005.06.06-
Limited 2015.06.05
8. Haitong International 301746496 36 2010.10.27-
Holdings Limited 2020.10.26
– VI-11 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
As of the Latest Practicable Date, we have registered the following trademarks in Macau
which we consider to be or may be material to our business:
No. Registrant Registration No. Trademark Class Duration
1. Haitong International N/052594 36 2011.02.22-
Holdings Limited N/052595 2018.02.22
2. Haitong International N/052596 36 2011.02.22-
Holdings Limited 2018.02.22
(b) Trademarks under application
As of the Latest Practicable Date, we have applied for the registration of the following
trademarks:
Application Place of Application
No. Registrant No. Registration Trademark Class Date
1. Haitong Securities Co., Ltd. 302040146 Hong Kong 36 2011.09.23
2. Haitong Securities Co., Ltd. 302040137 Hong Kong 36 2011.09.23
3. HFT Investment Management 302187649 Hong Kong 36 2012.03.12
Co., Ltd.
4. HFT Investment Management 302187621 Hong Kong 36 2012.03.12
Co., Ltd.
5. HFT Investment Management 302187658 Hong Kong 36 2012.03.12
Co., Ltd.
– VI-12 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
(ii) Software copyright
As of the Latest Practicable Date, we have applied for the registration of the following
copyright:
Registration Registration
No. Copyright Owner No. Date
1. Information Isolation Wall Haitong Securities 2010SR003176 2010.01.20
System Co., Ltd.
2. Common Payment Server iT Technology 2010SR014259 2010.03.30
(Shenzhen) Co.,
Ltd
3. Web Futures RTQ iT Technology 2010SR005019 2010.01.27
(Shenzhen) Co.,
Ltd
4. Wifi Mobile Trading iT Technology 2010SR005003 2010.01.27
(Shenzhen) Co.,
Ltd
5. DTS-I iT Technology 2010SR005000 2010.01.27
(Shenzhen) Co.,
Ltd
6. Futures Competition System iT Technology 2010SR005022 2010.01.27
(Shenzhen) Co.,
Ltd
7. Web Futures iT Technology 2010SR005020 2010.01.27
(Shenzhen) Co.,
Ltd
– VI-13 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
(iii) Domain name
As of the Latest Practicable Date, we have registered the following internet domain
names:
No. Registrant Domain Name Registration Date
1. Haitong Securities Co., Ltd. htsec.com.cn 2000.03.16
2. Haitong Securities Co., Ltd. htsec.com 1998.09.16
3. Haitong International Holdings Limited htsec.com.hk 2007.12.05
4. Haitong International Holdings Limited htseci.com.hk 2010.09.21
5. Haitong International Holdings Limited haitongintl.com.hk 2010.09.21
6. Haitong International Holdings Limited haitongintlsec.com.hk 2010.09.21
7. Haitong International Holdings Limited htseci.com 2010.09.21
8. Haitong International Holdings Limited haitongintlsec.com 2010.09.21
9. Haitong International Holdings Limited haitongintl.com 2010.09.21
10. Taifook On-line Limited htisec.cn 2010.10.25
11. Taifook On-line Limited taifook.com 1997.04.22
12. Taifook On-line Services Limited taifook.com.cn 2000.12.29
13. Taifook On-line Services Limited taifook.net 2001.12.15
14. Taifook On-line Services Limited taifookwealthclub.com 2009.02.03
15. Taifook On-line Services Limited haitonginternational.com 2010.07.30
16. Taifook On-line Services Limited htisec.hk 2010.12.03
17. Taifook On-line Services Limited htisec.com.hk 2010.12.03
18. Taifook On-line Services Limited mw W – .com 2010.07.30
19. Taifook On-line Services Limited mw R8 .com 2010.07.30
20. Taifook On-line Services Limited mw W – R8 .com 2010.07.30
21. Taifook On-line Services Limited mw R8W – .com 2010.07.30
22. Taifook On-line Services Limited mw W – W .com 2010.07.30
23. Taifook On-line Services Limited mw W – .com 2010.07.30
24. Taifook On-line Services Limited mw W – .com 2010.07.30
25. Taifook On-line Services Limited mw R8n/ .com 2010.07.30
26. Taifook On-line Services Limited mw / .com 2010.07.30
27. Taifook On-line Services Limited mw W – .QlS 2010.12.06
28. Taifook On-line Services Limited mw W – 8 .QlS 2010.12.29
29. Taifook On-line Services Limited mw W – R8–W QlS 2010.12.29
30. Haitong International On-line Services Limited htisec.com 2010.07.13
31. Haitong International On-line Services Limited htisec.com.cn 2010.10.22
32. Haitong International On-line Services Limited htisec.net 2010.10.21
33. I.T. Technology (Shenzhen) Company Limited itsz.cn 2003.08.21
34. Hai Tong Asset Management (HK) Limited haitongetf.com.hk 2011.11.17
– VI-14 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
5. DISCLOSURE OF INTERESTS
A. Substantial Shareholders
As of the Latest Practicable Date, the following persons directly or indirectly control, or
are entitled to exercise, or control the exercise of, 5 % or more of our A shares:
No. of
Domestic
Shares Approximate
directly or percentage of
Name of Shareholder indirectly held share capital
(%)
Bright Food (Group) Co., Ltd.
(QIf T (–W )g – QlS ) 482,686,582 5.87%
Shanghai Haiyan Investment Management
Company Limited (N mwmwqYbt g – QlS ) 416,420,568 5.06%
The Directors are not aware of any person who will, immediately following the Global
Offering, have an interest or short position in Shares or underlying Shares which would be
required to be disclosed to our Company and the Stock Exchange under the provisions of
Divisions 2 and 3 of Part XV of the SFO, or, directly or indirectly, be interested in 10% or more
of the nominal value of any class of share capital carrying rights to vote in all circumstances
at general meetings of our Company.
We are not aware of any arrangement which may result in any change of control in our
Company at any subsequent date.
B. Disclosure of the Directors’ and Supervisors’ interests in the issued share capital
of the Company or our associated corporations
Immediately following the completion of the Global Offering and assuming the
Over-allotment Option is not exercised, none of our Directors or Supervisors has any interest
and/or short positions in the Shares, underlying shares and debentures of the Company or our
associated corporation (within the meaning of Part XV of the SFO), which will have to be
notified to us and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV
of the SFO (including interests and short positions which he is taken or deemed to have under
such provisions of the SFO) or which will be required, pursuant to section 352 of the SFO, to
be entered in the register referred to therein, or will be required, pursuant to the Model Code
for Securities Transactions by Directors of Listed Companies, to be notified to us and the Hong
Kong Stock Exchange (for this purpose, the relevant provisions of the SFO will be interpreted
as if they applied to the Supervisors).
– VI-15 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
C. Particulars of Service Contracts
Pursuant to Rules 19A.54 and 19A.55 of the Hong Kong Listing Rules, we have entered
into a contract with each of our Directors and Supervisors in respect of, among other things,
compliance of relevant laws and regulations, observation of the Articles of Association and
provisions on arbitration. Save as disclosed above, we have not entered, and do not propose to
enter, into any service contracts with any of our Directors or Supervisors in their respective
capacities as Directors/Supervisors (other than contracts expiring or determinable by the
employer within one year without the payment of compensation (other than statutory
compensation)).
D. Directors’ and Supervisors’ Remuneration
Save as disclosed in the section headed “Directors, Supervisors and Senior Management”
of this prospectus and under Note 48 to the financial information in the Accountants’ Report
set out in Appendix I to this prospectus, no Director or Supervisor received other remuneration
or benefits in kind from the Company in respect of the three financial years ended December
31, 2009, 2010 and 2011.
Under the current arrangements, it is expected that our Directors would receive
compensation (including remuneration, benefits in kind but excluding the discretionary
bonuses) from our Group for the year ending December 31, 2012 in the aggregate amount of
approximately RMB3,321,456.
Under the current arrangements, it is expected that our Supervisors would receive
compensation (including remuneration, benefits in kind but excluding the discretionary
bonuses) from our Group for the year ending December 31, 2012 in the aggregate amount of
approximately RMB3,436,977.
E. Personal Guarantees
The Directors and Supervisors have not provided personal guarantees in favor of lenders
in connection with banking facilities granted to us.
F. Agency Fees or Commissions Paid or Payable
Save as disclosed in the section headed “Underwriting” in this prospectus, no
commissions, discounts, brokerages or other special terms have been granted in connection
with the issue or sale of any share or loan capital of our Company or any of our subsidiaries
within the two years ended on the date of this prospectus.
G. Related Party Transactions
During the two years preceding the date of this prospectus, we have engaged in the
material related party transactions as described in Note 52 to the financial information in the
Accountants’ Report set out in Appendix I to this prospectus.
– VI-16 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
H. Disclaimers
Save as disclosed in this prospectus:
(a) none of the Directors, Supervisors and any of the parties listed in the paragraph
headed “Qualification of experts” of this Appendix is:
(i) interested in our promotion, or in any assets which, within the two years
immediately preceding the date of this prospectus, have been acquired or
disposed of by or leased to us, or are proposed to be acquired or disposed of
by or leased to the Company;
(ii) materially interested in any contract or arrangement subsisting at the date of
this prospectus which is significant in relation to our business;
(b) neither of the parties listed in the paragraph headed “Qualification of experts”:
(i) is interested legally or beneficially in any of our Shares or any shares in any
of our subsidiaries; or
(ii) has any right (whether legally enforceable or not) to subscribe for or to
nominate persons to subscribe for our Shares or any of our securities;
(c) none of our Directors or Supervisors or their associates or any shareholders of the
Company who to the knowledge of the Directors owns more than 5% of our issued
share capital has any interest in our top five business customers;
(d) none of our Directors or Supervisors is a director or employee of a company which
has an interest in the share capital of the Company which, once the H Shares are
listed on the Hong Kong Stock Exchange, would have to be disclosed pursuant to
Divisions 2 and 3 of Part XV of the SFO.
6. OTHER INFORMATION
A. Estate Duty
We have real properties located in the PRC and Hong Kong.
We have been advised that currently there is no PRC law imposing liability on estate duty,
thus no material liability for estate duty under PRC law is likely to be imposed on us.
We have also been advised that the Revenue (Abolition of Estate Duty) Ordinance 2005
came into effect on February 11, 2006 in Hong Kong. No Hong Kong estate duty is payable
and no estate duty clearance papers are needed for an application for a grant of representation
in respect of holders of H shares whose deaths occur on or after February 11, 2006.
– VI-17 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
B. Litigation
As of the Latest Practicable Date, save as disclosed in this prospectus, the Company is not
involved in any litigation, arbitration or administrative proceedings of material importance
which could have a material adverse effect on our financial condition or results of operations,
and, so far as we are aware, no litigation, arbitration or administrative proceedings of material
importance is pending or threatened against us.
C. Joint Sponsors
The Joint Sponsors have made an application on our behalf to the Listing Committee of
the Hong Kong Stock Exchange for the listing of, and permission to deal in, our H Shares. All
necessary arrangements have been made to enable the securities to be admitted into CCASS.
Apart from Haitong International Capital Limited, the other Joint Sponsor satisfies the
independence criteria applicable to sponsors set out in Rule 3.07 of the Listing Rules.
Haitong International Capital Limited is one of our Company’s subsidiaries. It is not an
independent sponsor according to the independence criteria applicable to sponsors set out in
Rule 3.07 of the Listing Rules.
D. Preliminary Expenses
The estimated preliminary expenses incurred or proposed to be incurred are
approximately HK$1,300,000 and are payable by our Company.
E. Qualification of Experts
The qualifications of the experts who have given opinions in this prospectus are as
follows:
Name Qualification
Deloitte Touche Tohmatsu Certified public accountants
Grandall Law Firm (Shanghai) PRC legal advisors
F. Joint Compliance Advisors
We will appoint Haitong International Capital Limited and BOCOM International (Asia)
Limited as our joint compliance advisors upon the Listing in compliance with Rule 3A.19 of
the Listing Rules.
G. Taxation of Holders of H Shares
The sale, purchase and transfer of H Shares are subject to Hong Kong stamp duty. The
current rate charged on each of the seller and purchaser is HK$1.00 for every HK$1,000 (or
part thereof) of the consideration or, if higher, the fair value of the H Shares being sold or
transferred.
– VI-18 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
H. No Material Adverse Change
The Directors confirm that, up to the date of this prospectus, there has been no material
adverse change in our financial or trading position since December 31, 2011.
I. Binding Effect
This prospectus shall have the effect, if an application is made in pursuance hereof, of
rendering all persons concerned bound by all the provisions (other than the penal provisions)
of sections 44A and 44B of the Companies Ordinance so far as applicable.
J. Miscellaneous
(a) Save as disclosed in this prospectus, within the two years preceding the date of this
prospectus: (i) we have not issued nor agreed to issue any share or loan capital fully
or partly paid either for cash or for a consideration other than cash, and (ii) no
commissions, discounts, brokerage fee or other special terms have been granted in
connection with the issue or sale of any shares of the Company.
(b) No share or loan capital of the Company is under option or is agreed conditionally
or unconditionally to be put under option.
(c) We have not issued nor agreed to issue any founder shares, management shares or
deferred shares.
(d) There are no arrangements under which future dividends are waived or agreed to be
waived.
(e) There are no procedures for the exercise of any right of pre-emption or
transferability of subscription rights.
(f) There are no contracts for hire or hire purchase of plant to or by us for a period of
over one year which are substantial in relation to our business.
(g) There have been no interruptions in our business which may have or have had a
significant effect on our financial position in the last 12 months.
(h) There are no restrictions affecting the remittance of profits or repatriation of capital
by us into Hong Kong from outside Hong Kong.
(i) Save for our A Shares which are listed on the Shanghai Stock Exchange, none of our
equity and debt securities is listed or dealt with in any other stock exchange nor is
any listing or permission to deal being or proposed to be sought.
(j) We have no outstanding debenture or other debt securities.
– VI-19 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
(k) We currently do not intend to apply for the status of a Sino-foreign investment joint
stock limited company and do not expect to be subject to the Sino-foreign Joint
Venture Law of the PRC.
K. Consents
Each of the experts as referred to in the paragraph headed “Qualification of experts” in
this Appendix has given and has not withdrawn their respective written consents to the issue
of this prospectus with the inclusion of their reports and/or letters and/or valuation certificates
and/or the references to their names included herein in the form and context in which they are
respectively included.
Neither of the experts named above has any shareholding interests in our Company or any
of our subsidiaries or the right (whether legally enforceable or not) to subscribe for or to
nominate persons to subscribe for securities in our Company or any of our subsidiaries.
L. Bilingual Prospectus
The English language and Chinese language versions of this prospectus are being
published separately, in reliance upon the exemption provided by section 4 of the Companies
Ordinance (Exemption of Companies and Prospectuses from Compliance with Provisions)
Notice (Chapter 32L of the Laws of Hong Kong).
M. Promoters
The promoters of the Company are as follows:
1. SIIC Shanghai (Holding) Co., Ltd. (N mwN [ (–W )g – QlS )
2. Shanghai Electric (Group) Corporation (N mw–l# (–W )~QlS )
3. Shenergy Group Company Limited (u3 (–W )g – QlS )
4. Jiangsu Sunshine Group (l_ – I–W QlS )
5. Shanghai Lansheng Co., Ltd. (N mw-u g – QlS )
6. Liaoning Energy Investment (Group) Co., Ltd. (nQlS )
7. China Energy Conservation and Environmental Protection Group (CECEP) (N-W {
bQlS )
8. Century Industry Investment Co., Ltd. (N } imbg – QlS )
– VI-20 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
9. Shanghai Hua Lian Corporation Ltd. (N mwoUF^Ng – QlS )
10. Shenergy Company Limited (u3Ng – QlS )
11. Orient International (Holding) Co., Ltd. (gqeW – (–W )g – QlS )
12. Shanghai Mandarin Star Holding Limited* (N mwN-f (–W )g – QlS )
13. Orient International Enterprise Ltd. (gqeW – uimNg – QlS )
14. Datang Huayin Electric Power Co., Ltd (DHEP) (nVSWRNg – QlS )
15. Shanghai Shimao Co., Ltd (N mwN g – QlS )
16. Shandong provincial Wendeng Tannery Farm* (\qgqw ev R6—ià )
17. Shanghai Waigaoqiao Free Trade Zone Development Co., Ltd. (N mw^ Y jKOz
S@vNg – QlS )
18. Shanghai Jiushi Corporation (N mwNENQlS
19. Shanghai Municipal Electric Power Company (N mw^ – RQlS )
20. South Huiton Co., Ltd. (SWeS/ g – QlS )
21. Zhejiang AMP Incorporation (mYl_W g – QlS )
22. Shanghai Jinqiao Export Processing Zone Development Co., Ltd. (N mw‘jKQúSR
] S@vNg – QlS )
23. Sinopec Shanghai Petrochemical Company Limited (N mwwólS ] g – QlS )
24. China First Pencil Co., Ltd. (N-W { N ’ g – QlS )
25. Shanghai Aerospace Industrial Co., Ltd.* (N mw*Y)[img – QlS )
26. Zhejiang Sun & Moon Jewellery (Group) Co Ltd. (mYl_eg – W g – QlS )
27. Ningbo Hualian Group Co., Ltd. ([loW g – QlS )
28. Fudan University (_eY’[x )
29. Yangtze River Economy United Development (Group) Co., Ltd. (wl_ooT v|U
(–W )Ng – QlS )
– VI-21 –
APPENDIX VI STATUTORY AND GENERAL INFORMATION
30. Shanghai Food (Group) Corp. (N mw^ T (–W )QlS )
31. Double Coin Holdings Ltd. (N mw*ja (–W )Ng – QlS )
32. Dazhong Transportation Group Co., Ltd. (Y’w>N (–W )Ng – QlS )
33. Chengdu Measuring & Cutting Tools Co., Ltd. (b ‘ QwR QwNg – QlS )
34. Beiman Special Steel Co., Ltd. (S nryküNg – QlS )
35. Shanghai Chlor-Alkali Chemical Co., Ltd. (N mwl/S ] g – QlS )
36. Taiyuan Tap Water Co. (Y*S Ol4QlS )
37. Xi’an Aerospace Technology and Industry Company* (‰*Y)ybimQlS )
38. Shanghai ErFangJi Co., Ltd. (N mwN!j_Ng – QlS )
39. Shanghai Jinqiao Export Processing Zone Development Co., Ltd. (N mw‘jKQúSR
] S@vUg – QlS )
40. Shanghai Ocean Shipping Company Ltd. (N mwm QlS )
41. Shanghai Housing Industry Co., Ltd. (N mw^ b?Kimg – QlS )
42. Shao Xing Real Estate Development Company* (}9 ^ b?W0u\"vQlS )
43. Sinotrans Eastern Company Limited Jinling Branch (N-W Y ‘ – QlS )
44. Zhejiang Machinery & Equipment Import & Export Co., Ltd. (ZMEC) (mYl_w j_h
P2QúSQlS )
45. Shanghai Yuyuan Tourist Mart Co., Ltd. (N mwkW eJUFWNg – QlS )
Save as disclosed in the prospectus, within the two years immediately preceding the date
of this prospectus, no cash, securities, amount or other benefit has been paid, allotted or given,
or has been proposed to be paid, allotted or given, to any of the Promoters named above in
connection with the Global Offering or the related transactions described in this prospectus.
– VI-22 –
APPENDIX VII DOCUMENTS DELIVERED TO THE REGISTRAR OF
COMPANIES IN HONG KONG AND AVAILABLE FOR INSPECTION
DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES
The documents attached to the copy of this prospectus and delivered to the Registrar of
Companies in Hong Kong for registration were a copy of each of the WHITE, YELLOW and
GREEN Application Forms, the written consents referred to in the section entitled “Other
Information – Consents” in Appendix VI to this prospectus and a copy of each of the material
contracts referred to in the section entitled “Further Information about Our Business –
Summary of Our Material Contracts” in Appendix VI to this prospectus.
DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the offices of
Clifford Chance at 28th Floor, Jardine House, One Connaught Place, Central, Hong Kong
during normal business hours up to and including the date which is 14 days from the date of
this prospectus:
(a) the Articles of Association;
(b) the accountants’ report issued by Deloitte Touche Tohmatsu as set out in Appendix
I to this prospectus;
(c) the audited accounts of our Group for each of the years ended December 31, 2009,
2010 and 2011;
(d) the report on the unaudited pro forma financial information, the text of which is set
out in Appendix II to this prospectus;
(e) a statement of adjustment prepared by Deloitte Touche Tohmatsu;
(f) the material contracts referred to in the section entitled “Further Information about
Our Business – Summary of our material contracts” in Appendix VI to this
prospectus;
(g) the written consents referred to in the section entitled “Other Information –
Consents” in Appendix VI to this prospectus;
(h) the PRC legal opinion issued by Grandall Law Firm (Shanghai), the legal advisor to
the Company on the PRC law, confirming that in its opinion, the summary of
relevant PRC laws and principal regulatory provisions set out in Appendix IV is a
correct summary of the relevant PRC laws and regulatory provisions; and
(i) the Company Law, the Mandatory Provisions and the Special Regulations together
with their unofficial translations.
– VII-1 –
For identification purpose only