UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of December, 2018

Commission File Number: 001-31994

Semiconductor Manufacturing International Corporation

(Translation of registrant’s name into English)

18 Zhangjiang Road

Pudong New Area, Shanghai 201203

People’s Republic of China

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

☒  Form 20-F    ☐  Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

☐  Yes    ☒  No

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): n/a

 

 

---

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

---

 

If you are in any doubt as to any aspect of this circular, you should consult a stockbroker or other registered dealer in securities, bank manager, solicitor,   professional accountant or other professional adviser.

If you have sold or transferred all your shares in Semiconductor Manufacturing International Corporation (the ‘‘Company’’), you should at once hand this circular and the accompanying form of proxy to the purchaser(s) or the transferee(s) or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or the transferee(s).

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, 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 circular.

 

 

 

Semiconductor Manufacturing International Corporation

中 芯 國 際 集 成 電 路 製 造 有 限 公 司 *

(Incorporated in the Cayman Islands with limited liability)

(Stock  Code: 981)

 

 

Independent Financial Adviser to

the Independent Board Committee and the Independent Shareholders

 

 

A letter from the Independent Board Committee to the Independent Shareholders is set out on pages 36 to  37  of  this circular. A  letter from  Messis Capital Limited, the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders, is set out on pages 38 to 65 of this circular.

The notice convening the EGM to be held at 5 Floor SO1 Building,18 Zhangjiang Road, Pu Dong New Area, Shanghai, People’s Republic of China on 11 January 2019 at 9 : 00 a.m. (the ‘‘EGM’’) is contained in  this circular. Shareholders are advised to read the notice and to  complete and return the enclosed form of proxy for use at the EGM in accordance with the instructions printed thereon.

Whether you are able to attend the EGM or not, please complete and return the enclosed form of proxy to the branch share registrar of the Company, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183  Queen’s  Road  East, Wanchai, Hong  Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment  thereof. The completion and delivery of a form of proxy will not preclude you from attending and voting at the EGM in person should you wish. All persons who are registered holders of the Shares on 11 January 2019 will be entitled to attend and vote at the EGM.

 

* For identification purpose only

 

21 December 2018

 

 

---

 

CONTENTS

 

 

 

 

 

 

– i –

---

 

 

DEFINITIONS

 

 

In this circular, the following expressions have the following meanings unless the context requires otherwise:

 

 

 

– 1 –

---

 

DEFINITIONS

 

 

– 2 –

---

 

DEFINITIONS

 

 

– 3 –

---

 

DEFINITIONS

 

 

– 4 –

---

 

DEFINITIONS

 

 

– 5 –

---

 

DEFINITIONS

 

 

 

* For identification purpose only

 

 

 

– 6 –

---

 

 

 

LETTER FROM THE BOARD

 

 

Semiconductor Manufacturing International Corporation

中 芯 國 際 集 成 電 路 製 造 有 限 公 司 *

(Incorporated in the Cayman Islands with limited liability)

(Stock  Code: 981)

 

 

To the Shareholders Dear Sir or Madam, INTRODUCTION

The purpose of this circular is to provide you with, among other things:

 

 

* For identification purpose only

 

 

– 7 –

---

 

LETTER FROM THE BOARD

 

 

 

 

 

 

 

 

 

Reference is made to the Company’s announcement dated 29 November 2018 relating  to the Company, SMIC Beijing and SMNC’s entering into of the SMNC Centralised Fund Management Agreement in relation to: (i) the Company authorising its wholly-owned subsidiary SMIC Beijing to carry out centralised management of  the Group’s RMB fund  and foreign exchange in accordance with the relevant PRC laws and regulations; and (ii) SMNC participating in the Group’s centralised fund management system. The principal terms of the SMNC Centralised Fund Management Agreement are set out below.

 

 

 

 

– 8 –

---

 

LETTER FROM THE BOARD

 

 

Principal Terms of the SMNC Centralised Fund Management Agreement

 

The SMNC CCT will include the following:

 

 

SMIC Beijing will provide deposit services and pay interest to SMNC.

 

 

SMIC Beijing will serve as the platform for centralised collection and payment activities and foreign exchange activities within the Group. SMNC may carry out such activities by itself or through SMIC Beijing. By providing foreign exchange services, SMIC Beijing will convert funds deposited with it by SMNC into different currency with a third-party bank or financial institution. As SMIC Beijing will be able to convert the centralised fund deposited with it by the Group, it will be able to benefit from a more favourable exchange rate offered by the third-party bank or financial institution based on the larger amount of funds to be converted and the stronger bargaining power.

 

 

SMIC Beijing will provide internal loan services to SMNC in accordance  with PRC laws, regulations and policies.

 

 

Letter of Credit Services will be utilised as a settlement instrument through which the Company will utilise its overseas credit lines to provide letter(s) of credit for SMNC to facilitate the purchase of equipment in accordance with PRC laws, regulations and policies.

 

 

SMIC Beijing will provide other financial services to SMNC in accordance with PRC laws, regulations and policies.

 

Pricing

 

The price of the services provided by SMIC Beijing to SMNC contemplated under the Centralised Fund Management Agreement will be fair and reasonable under the Listing Rules, determined according to the market principle on arm’s length basis, subject to compliance with requirements for connected transactions of the Stock Exchange and relevant requirements for connected transactions that are applicable to  the parties. The Company will ensure that the prices charged to  SMNC will not be  more favourable than prices charged to its other subsidiaries which are not connected persons under the Listing Rules.

 

– 9 –

---

 

LETTER FROM THE BOARD

 

 

 

Under the Group’s existing centralised fund management system, SMIC Beijing collectively procures certain fund management services from third-party banks or financial institutions (banks or financial institutions qualified to provide financial services to the Group that do not hold any shares of the entities within the Group and whose shares are not owned by any entities within the Group, such as Industrial and Commercial Bank of China Limited and Bank of China Limited in the PRC). SMIC Beijing will charge its subsidiaries with reference to terms offered by third-party banks or financial institutions for such fund management services.

 

 

The terms (including interest rates) in respect of the Internal Deposit Services provided by SMIC Beijing to SMNC will be on normal commercial terms or better, in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole, subject to the relevant provisions of PRC laws and regulations, including but not limited to the Notice regarding the Administrative Regulations on the Centralised Foreign Exchange Fund Management  for Multinational Corporations issued by the State Administration  of  Foreign Exchange (Huifa [2015] No. 36); the Notice regarding the Implementing Regulations  on the Centralised Foreign Exchange Fund Management for  Multinational  Corporations in Beijing issued by the Beijing office of the State Administration of Foreign Exchange (Jinghui [2015] No. 231); and the Notice on Further Facilitating Multinational Enterprise Groups in Operation of the Cross-Border  Bilateral  RMB  Cash Pooling Business issued by the PBOC (Yinfa [2015] No. 279) (the ‘‘Relevant PRC Laws and Regulations’’). The interest rate applicable to SMNC’s deposits with SMIC Beijing will be determined based on arm’s length negotiations by the parties. SMNC  will obtain two or more written quotes from third-party commercial banks in the PRC for providing deposit services of the same type during the same period to SMNC. The interest rate for SMNC’s deposits with SMIC Beijing will be the same as or lower than lowest of the quoted interest rates. The PBOC publishes benchmark interest rates on the PBOC’s website for RMB deposits from time to time which serve as a guidance price for reference only for the commercial banks in the PRC. The Company understands that when determining the interest rates quoted to SMNC, the third-party commercial banks will refer to such PBOC benchmark interest rate for RMB deposits  of a similar type and make necessary adjustment.

 

 

The terms (including fees charged by SMIC Beijing and exchange rates) in respect of the Collection and Payment Services and Foreign Exchange Services provided by SMIC Beijing to SMNC will be on normal commercial terms or better, in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole, subject to the Relevant PRC Laws and Regulations. The fees charged by SMIC Beijing to SMNC for providing such services will be determined based on arm’s length negotiations by the parties which will not be less favourable to SMIC Beijing than (1) fees charged by SMIC Beijing to other subsidiaries which are  not connected persons under the Listing Rules; and (2) fees charged to SMIC Beijing by other third-party commercial banks or financial institutions providing fund management services to SMIC Beijing for services of the same type during the same period. SMIC Beijing will obtain services of the same type from  third-party  commercial banks or financial institutions first and then use the fees charged to it to determine fees to be charged to SMNC as described above. In particular, SMIC Beijing will make reference to the quotes offered by independent third-party commercial banks or financial institutions which take into account the specific market conditions and  other specific considerations such as the credit of the customers and the size of the transaction.

 

– 10 –

---

 

LETTER FROM THE BOARD

 

 

 

The terms (including interest rates) in respect of the Internal Loan Services provided by SMIC Beijing to SMNC will be on normal commercial terms or better, in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole, subject to the Relevant PRC Laws and Regulations. The interest rate applicable to loans granted to SMNC by SMIC Beijing will be based on arm’s length negotiation by  the parties. SMNC will obtain two or  more written quotes from third-party commercial banks in the PRC for providing loan services of the same type during the same period to SMNC. The interest rate for SMNC’s loans with SMIC Beijing will be the same as or higher than the highest of the quoted interest rates. The PBOC publishes benchmark interest rates on the PBOC’s website for RMB loans from time to time which serve as a guidance price for reference only for the commercial banks in the PRC. The Company understands that when determining the interest rates quoted to SMNC, the third-party commercial banks will refer to such PBOC benchmark interest rate for RMB loan of a similar type and make adjustment based on the bank’s credit assessment of SMNC.

 

 

The terms (including fees charged by the Company) in respect of the letters of credit provided by the Company to SMNC will be on normal commercial terms or better, in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole, subject to the Relevant PRC Laws and Regulations. The fees charged by the Company to SMNC for providing such services will be determined based on arm’s length negotiations by the parties which will not be less favourable to SMIC Beijing than (1) fees charged by SMIC Beijing to other subsidiaries which are not connected persons under the Listing Rules; and (2) fees charged to SMIC Beijing by other third-party commercial banks or financial  institutions providing fund management services to SMIC Beijing for services of the same type during the same period. SMIC Beijing will obtain services of the same type from third-party commercial banks or financial institutions first and then use the fees charged to it to determine fees to be charged to SMNC as described above. In  particular, third-party commercial banks or financial institutions will charge SMIC Beijing an issuance fee according to the key terms of the credit facility, which is subject to the issuer’s credit and financial profile. The final fee charged to SMNC will be determined by the face amount of letter of credit multiplied with the issuance fee rate and the time length of the letter.

 

 

The terms (including fees charged by SMIC Beijing) in respect of Other Financial Services provided by SMIC Beijing to SMNC will be on normal commercial terms or better, in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole, subject to the Relevant PRC Laws and Regulations. The fees charged by SMIC Beijing to SMNC for providing such services will be determined based on arm’s length negotiations by the parties which will not be less favourable to SMIC Beijing than (1) fees charged by SMIC Beijing to other subsidiaries which are not connected persons under the Listing Rules; and (2) fees charged to SMIC Beijing by other third-party commercial banks or financial  institutions providing fund management services to SMIC Beijing for services of the same type during the same period. SMIC Beijing will obtain services of the same type from third-party commercial banks or financial institutions first and then use the fees charged to it to determine fees to be charged to SMNC as described above.

 

– 11 –

---

 

LETTER FROM THE BOARD

 

 

Internal Control Measures

 

The Company has in place a series of internal control measures to ensure that the terms of the SMNC Centralised Fund Management Agreement and the SJ Cayman Centralised Fund Management Agreement are fair and reasonable and that the SMNC CCT and SJ Cayman CCT will be conducted on normal commercial terms. As the SMNC CCT and SJ Cayman CCT also constitute related party transactions for the Company, they  will  be subject to the related party transaction policy of the Group, which is further explained  below.

 

 

 

 

 

 

In accordance with the Listing Rules, the independent non-executive Directors and the auditors of the Company will also perform an annual review of  the terms of  the SMNC  CCT and the SJ Cayman CCT to ensure that the pricing policy and the annual caps remain fair and reasonable and that appropriate internal control procedures are in place, and will confirm so each year in the annual report published by the Company.

 

 

 

– 12 –

---

 

LETTER FROM THE BOARD

 

 

Considering the general principles and the detailed pricing policies, the Directors (including the independent non-executive Directors) are of the view that the methods and procedures are sufficient to ensure that the SMNC CCT and the SJ Cayman CCT will be conducted on normal commercial terms or better and not prejudicial to the interests of the Company and its minority Shareholders.

 

Payment

 

The consideration for the transactions contemplated under the  SMNC  Centralised  Fund Management Agreement will be paid in accordance with the specific and separate agreements entered into between SMIC Beijing and SMNC, the terms of which will be on normal commercial terms or better, and funded by the relevant party’s internal resources.

 

Other Terms

 

The terms of the SMNC Centralised Fund Management Agreement are subject to applicable laws and regulations including the requirements of any regulatory authorities (including but not limited to the Stock Exchange and the New York Stock Exchange, Inc.).

 

SMNC’s participation in the centralised fund management system of the Group will not alter its existing rights to its own funds. The rights to own, use, approve of use and benefit from SMNC’s funds will remain with SMNC.

 

 

– 13 –

---

 

LETTER FROM THE BOARD

 

 

THE SMNC ANNUAL CAPS AND BASIS OF DETERMINATION

 

Historical Transaction Amounts

 

The historical transaction amounts between the Company, SMIC Beijing and SMNC  for the transactions contemplated under the 2016 SMNC Centralised Fund Management Agreement for the two years ended 31 December 2016 and 2017 and the ten months ended  31 October 2018 are as follows:

 

 

Notes:

 

 

 

 

– 14 –

---

 

LETTER FROM THE BOARD

 

 

SMNC Annual Caps

 

 

The SMNC Annual Caps are determined based on the assumptions and factors as explained below:

 

 

 

 

 

 

 

 

 

 

– 15 –

---

 

LETTER FROM THE BOARD

 

 

 

 

 

 

 

 

The SMNC Annual Caps for each type of SMNC CCT are determined based on SMNC’s planned capital expenditures to reach the designed manufacturing capacity of 70,000 wafers per month in the following years. SMNC currently owns one manufacturing fabrication facility (fab), which has  reached  the  manufacturing capacity of 33,000 wafers per month with  an  accumulated  capital  expenditure  of  over US$3.5 billion. The second fab of SMNC is also expected to be invested and constructed to reach full production. The total investment of SMNC is estimated to be around US$7.2 billion for the two fabs. The investment schedule in respect of SMNC is determined based on the expected investment needed for the two fabs to each reach a capacity of 35,000 wafers per month and for completing the construction of a second manufacturing line to satisfy the overall designed manufacturing capacity. The overall follow-on investment is expected to be between US$3 to US$4 billion, subject to changing market conditions and market demand.

 

As the investment schedule towards SMNC will be adjusted according to the changing market conditions and financial conditions of the Group, the SMNC Annual Caps are set based on the aggregate year capital expenditure plans to maintain  flexibility for the Group to expedite or slow down performance of its planned capital expenditures. As cash investment will be made towards SMNC to meet its planned capital expenditure and SMNC will be able to utilise the Internal Deposit Services and the Collection and Payment Services and Foreign Exchange Services for such investment, the SMNC Annual Caps in respect of Internal Deposit Services and the Collection and Payment Services and Foreign Exchange Services are set based on the aggregate capital expenditure plans of SMNC. As at the Latest Practicable  Date,  SMNC has received capital injection of approximately US$3 billion, being over 60% of SMNC’s registered capital of US$4.8 billion, from its shareholders, namely the Company, SMIC Beijing, China IC Fund, IDIMC, ZDG, CGP Techfund and E-Town Capital. By 2019, SMNC is expected to receive capital contribution from its shareholders amounting to approximately US$1.8 billion, and most  of  such  sum  would be deposited by SMNC with SMIC Beijing. As such, capital contribution being the SMNC Annual Caps for Internal Deposit Services are set at US$2  billion. Since over 80% of SMNC’s capital expenditure for the three years from 2019 to 2021 will be for the purchase of  equipment for the construction of  its second manufacturing line  and such purchases will be denominated in foreign currencies, settlement and foreign exchange services will be needed. It is expected that the daily cap of US$200 million will sufficiently cover the expenditure of individual pieces of equipment, as such, the SMNC Annual Caps for Collection and Payment Services and Foreign Exchange Services are set at US$200 million to reflect the highest possible daily transaction amount for the purchase of equipment. As at the Latest Practicable Date, the accumulated investment of SMNC has reached approximately

– 16 –

---

 

LETTER FROM THE BOARD

 

 

US$3.5 billion, and in order to reach the designed capacity of its second 300mm manufacturing line, an additional US$3 to 4 billion is required to be invested, being around  50%  of  its planned total expenditure of US$7.2 billion. Given the expected capital contribution of approximately US$1.8 billion and the existing internal deposit of  approximately US$1.3 billion, SMNC may still need to finance the planned expenditure through internal loans. As a supplemental financing approach, the SMNC Annual Caps for Internal Loan Services are set at US$500 million, which aims to cover the majority of the difference between the total outstanding capital expenditure of about  US$3.7  billion and the approximate US$3.1 billion of cash SMNC will expect to have. In addition, it is expected that SMNC’s planned capital expenditure for the purchase of equipment will be obtained through letters of credit. The Group will utilise its credit facilities to provide letter(s) of credit for SMNC to facilitate the purchase  of  equipment, whether or not SMNC finances the required capital expenditures internally or externally. This will enable SMNC to take advantage of the high credibility of the Group. The SMNC Annual Caps in respect of Provision of  Letter of  Credit Services  are set at US$500 million with reference to the aggregate capital expenditure plans of SMNC for a single fiscal year. The SMNC Annual Caps in respect of Other Financial Services are set at US$50 million to reflect the expected financial expenses in SMNC’s future capital expenditure.

 

REASONS FOR AND BENEFITS OF THE SMNC CENTRALISED FUND MANAGEMENT AGREEMENT

 

The Company considers that the entry into of the Centralised Fund Management Agreement and the transactions contemplated thereunder will open up the domestic and foreign funding channels of the Group, increase efficient fund usage and reduce the Group’s overall debt levels and interest expense. The centralised management of foreign exchange risk exposure will also reduce the risks of exchange loss of the Group.

 

The Directors (excluding independent non-executive Directors whose view will  be given after taking into account the advice from the Independent Financial Adviser) consider that it is in the best interests of the Company and the Shareholders as a whole to enter into  the SMNC Centralised Fund Management Agreement and the transactions contemplated thereunder; the terms of  the SMNC Centralised Fund  Management Agreement including  the SMNC Annual Caps are fair and reasonable; and the entering into of the SMNC Centralised Fund Management Agreement and the  transactions  contemplated  thereunder are on normal commercial terms or better, in the ordinary and usual course of  business of  the Group and in the interests of the Company and the Shareholders as a whole.

 

– 17 –

---

 

LETTER FROM THE BOARD

 

 

IMPLICATIONS UNDER THE LISTING RULES

 

As at the Latest Practicable Date, China IC Fund held approximately 15.82% equity interest in the Company through its wholly-owned subsidiary, Xinxin (Hongkong) Capital Co., Limited, it is a connected person of the Company at the issuer level under the Listing Rules. As at the Latest Practicable Date, the registered capital of SMNC is held as to approximately 51% and 32% by the Group and China IC Fund, respectively. SMNC is therefore a connected subsidiary of the Company as defined under Rule 14A.16 of the  Listing Rules and thus a connected person of the Company under the Listing Rules.

 

In relation to the transactions contemplated under the SMNC Centralised Fund Management Agreement, the Internal Deposit Services to be provided by SMIC Beijing to SMNC will constitute continuing connected transactions by way of financial assistance received by SMIC Beijing from a connected person. Pursuant to Rule 14A.90 of the Listing Rules, as the Internal Deposit Services are conducted on normal commercial terms and not secured by the assets of the Group, the provision of the Internal Deposit Services is fully exempt from the reporting, announcement and/or the Independent Shareholders’ approval requirements under the Listing Rules. As one or more of the applicable percentage ratios (other than the profits ratio) in respect of each of the SMNC Annual Caps  for  the  Collection and Payment Services and Foreign Exchange Services, Internal Loan Services  and Provision of Letter of Credit Services exceed 5%, the transactions contemplated under the SMNC Centralised Fund Management Agreement will constitute continuing connected transactions subject to the reporting, announcement and the Independent Shareholders’ approval requirements of Chapter 14A of the Listing Rules. As one or more of  the  applicable percentage ratios (other than the profits ratio) in respect of the SMNC Annual Caps for Other Financial Services are more than 0.1% but less than 5%, the transaction is subject to  the reporting, announcement and annual review requirements but exempt from  the Independent Shareholders’ approval requirement under Chapter 14A of the  Listing Rules.

 

In accordance with the Listing Rules, the Independent Board Committee comprising  Mr. William Tudor Brown, Dr. Chiang Shang-yi, Mr. Cong Jingsheng Jason, Professor Lau Lawrence Juen-Yee and Mr. Fan Ren Da Anthony, all being the independent non-executive Directors has been established to advise and provide recommendation to the Independent Shareholders on the SMNC Centralised Fund Management Agreement (including  the  SMNC CCT and the SMNC Annual Caps) and to advise the Independent Shareholders on how to vote.

 

Messis Capital Limited has been appointed by the Company as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders on the SMNC Centralised Fund Management Agreement (including  the  SMNC CCT and the SMNC Annual Caps).

 

– 18 –

---

 

LETTER FROM THE BOARD

 

 

INFORMATION ABOUT THE PARTIES

 

Information on the Company and SMIC Beijing

 

The Company is one of the leading foundries in the world, is Mainland China’s largest foundry in scale, broadest in technology coverage, and most comprehensive in semiconductor manufacturing services. SMIC provides  integrated  circuit  (IC)  foundry  and technology services on process nodes from 0.35 micron to 28  nanometer.  Headquartered in  Shanghai,  China,  SMIC  has  an  international  manufacturing  and service base. In China, SMIC has a 300mm wafer fabrication facility  (fab)  and  a  200mmfab in Shanghai; a 300mm fab and a majority-owned 300mm fab for advanced nodes in Beijing; 200mm fabs in Tianjin and Shenzhen; and a majority-owned joint-venture  300mm bumping facility in Jiangyin; additionally, in Italy SMIC has a majority-owned 200mm fab. SMIC also has marketing and customer service offices in the U.S., Europe, Japan, and Taiwan, and a representative office in Hong Kong. SMIC Beijing is a wholly foreign-owned enterprise established in the PRC and a wholly-owned subsidiary of the Company.

 

Information on SMNC

 

SMNC is a joint venture company established in the PRC pursuant to the joint venture agreement dated 3 June 2013, the equity capital of which is owned as to 12.5% by SMIC Beijing, 13% by SMIC Investment, 25.5% by SMIC Holdings and 32% by China IC Fund. The remaining equity capital of SMNC is owned by ZDG, IDIMC, CGP Techfund and E- Town Capital and none of them owns 10% or more equity capital of SMNC. SMNC is primarily engaged in manufacturing and trading of semiconductor products.

 

– 19 –

---

 

LETTER FROM THE BOARD

 

 

 

Reference is made to the Company’s announcement dated 6 December 2018 relating to the Company, SMIC Beijing and SJ Cayman’s entering into of the SJ Cayman Centralised Fund Management Agreement in relation to: (i) the Company authorising its wholly-owned subsidiary SMIC Beijing to carry out centralised management of  the Group’s RMB fund  and foreign exchange in accordance with the relevant PRC laws and regulations; and (ii) SJ Cayman participating in the Group’s centralised fund management system. The principal terms of the SJ Cayman Centralised Fund Management Agreement are set out below.

 

 

 

 

 

– 20 –

---

 

LETTER FROM THE BOARD

 

 

Principal Terms of the SJ Cayman Centralised Fund Management Agreement

 

The SJ Cayman CCT will include the following:

 

 

SMIC Beijing will provide deposit services and pay interest to SJ Cayman.

 

 

SMIC Beijing will serve as the platform for centralised collection and payment activities and foreign exchange activities within the Group. SJ Cayman may carry out such activities by itself or through SMIC Beijing. By providing foreign exchange services, SMIC Beijing will convert funds deposited with it by SJ Cayman into different currency with a  third-party bank or  financial institution.  As SMIC Beijing will be able to convert the centralised fund deposited with it by the Group, it will be able to benefit from a more favourable exchange rate offered by the third-party bank or financial institution based on  the  larger amount of  funds to be converted and the stronger bargaining power.

 

 

SMIC Beijing will provide internal loan services to SJ Cayman in accordance with PRC laws, regulations and policies.

 

 

Letter of Credit Services will be utilised as a settlement instrument through which the Company will utilise its overseas credit lines to provide letter(s) of credit for SJ Cayman to facilitate the purchase of equipment in accordance with PRC laws, regulations and policies.

 

 

SMIC Beijing will provide other financial services to SJ Cayman in accordance with PRC laws, regulations and policies.

 

Pricing

 

The price of the services provided by SMIC Beijing to SJ Cayman contemplated under the SJ Cayman Centralised Fund Management Agreement will be fair and reasonable under the Listing Rules, determined according to the market principle on arm’s length basis, subject to compliance with requirements for connected transactions of the Stock Exchange and relevant requirements for connected transactions that are applicable to the parties. The Company will ensure that the prices charged to  SJ Cayman will not be more favourable than prices charged to its other subsidiaries which are not connected persons under the Listing Rules.

 

 

 

 

 

– 21 –

---

 

LETTER FROM THE BOARD

 

 

Under the Group’s existing centralised fund management system, SMIC Beijing collectively procures certain fund management services from third-party banks or financial institutions (banks or financial institutions qualified to provide financial services to the Group that do not hold any shares of the entities within the Group and whose shares are not owned by any entities within the Group, such as Industrial and Commercial Bank of China Limited and Bank of China Limited in the PRC). SMIC Beijing will charge its subsidiaries with reference to terms offered by third-party banks or financial institutions for such fund management services.

 

 

The terms (including interest rates) in respect of the Internal Deposit Services provided by SMIC Beijing to SJ Cayman will be on normal commercial terms or better, in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole, subject to the Relevant PRC Laws and Regulations. The interest rate applicable to SJ Cayman’s deposits with SMIC Beijing will be determined based on arm’s length negotiations by the parties. SJ Cayman will obtain two or more written quotes from third-party commercial banks in the PRC for providing deposit services of the same type during the same period to SJ Cayman. The interest rate for SJ Cayman’s deposits with SMIC Beijing will be lower than lowest of the quoted interest rates. The PBOC publishes benchmark interest rates on the PBOC’s website for RMB deposits from time to time which serve as a guidance price for reference only for the commercial banks in the PRC. The Company understands that when determining the interest rates quoted to SJ Cayman, the third-party commercial banks will refer to such PBOC benchmark interest rate for RMB deposits of a similar type and make necessary adjustment.

 

 

The terms (including fees charged by SMIC Beijing and exchange rates) in respect of the Collection and Payment Services and Foreign Exchange Services provided by SMIC Beijing to SJ Cayman will be on normal commercial terms or better, in the ordinary and usual course of business of the Group and in the interests  of  the  Company and the Shareholders as a whole, subject to the Relevant PRC Laws and Regulations. The fees charged by SMIC Beijing to SJ Cayman for providing such services will be determined based on arm’s length negotiations by the parties which will not be less favourable to SMIC Beijing than (1) fees charged by SMIC Beijing to other subsidiaries which are not connected persons under the Listing Rules; and (2) fees charged to SMIC Beijing by other third-party commercial banks or financial  institutions providing fund management services to SMIC Beijing for services of the same type during the same period. SMIC Beijing will obtain services of the same type from third-party commercial banks or financial institutions first and then use the fees charged to it to determine fees to be charged to SJ Cayman as described above. In particular, SMIC Beijing will make reference to the quotes offered by independent third-party commercial banks or financial institutions which take into account the specific market conditions and other specific considerations such as the credit of the customers and the size of the transaction.

 

 

 

 

 

– 22 –

---

 

LETTER FROM THE BOARD

 

 

 

The terms (including interest rates) in respect of the Internal Loan Services provided by SMIC Beijing to SJ Cayman will be on normal commercial terms or better, in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole, subject to the Relevant PRC Laws and Regulations. The interest rate applicable to loans granted to SJ Cayman by SMIC Beijing will be based on arm’s length negotiation by the parties. SJ Cayman will obtain two or more written quotes from third-party commercial banks in the  PRC  for providing loan services of the same type during the same period to SJ Cayman. The interest rate for SJ Cayman’s loans with SMIC Beijing will be higher than the highest  of the quoted interest rates. The PBOC publishes benchmark interest rates on the PBOC’s website for RMB loans from time to time which serve as a guidance price for reference only for the commercial banks in the PRC. The Company understands that when determining the interest rates quoted to SJ Cayman, the third-party commercial banks will refer to such PBOC benchmark interest rate for RMB loan of a similar type and make adjustment based on the bank’s credit assessment of SJ Cayman.

 

 

The terms (including fees charged by the Company) in respect of the letters of credit provided by the Company to SJ Cayman will be on normal commercial terms or better, in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole, subject to the Relevant PRC Laws and Regulations. The fees charged by the Company to SJ Cayman for providing such services will be determined based on arm’s length negotiations by the parties which will not be less favourable to SMIC Beijing than (1) fees charged by SMIC Beijing to other subsidiaries which are not connected persons under the Listing Rules; and (2) fees charged to SMIC Beijing by other third-party commercial banks or financial  institutions providing fund management services to SMIC Beijing for services of the same type during the same period. SMIC Beijing will obtain services of the same type from third-party commercial banks or financial institutions first and then use the fees charged to it to determine fees to be charged to SJ Cayman as described above. In particular, third-party commercial banks or financial institutions will charge SMIC Beijing an issuance fee according to the key terms of the credit facility, which is subject to the issuer’s credit and financial profile. The final fee charged to SJ Cayman will be determined by the face amount of letter of credit multiplied with the issuance fee rate and the time length of the letter.

 

 

The terms (including fees charged by SMIC Beijing) in respect of Other Financial Services provided by SMIC Beijing to SJ Cayman will be on normal commercial terms or better, in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole, subject to the Relevant PRC Laws  and Regulations. The fees charged by SMIC Beijing to SJ Cayman for providing such services will be determined based on arm’s length negotiations by the parties which will not be less favourable to SMIC Beijing than (1) fees charged by SMIC Beijing to other subsidiaries which are not connected persons under the Listing Rules; and (2) fees charged to SMIC Beijing by other third-party commercial banks or financial  institutions providing fund management services to SMIC Beijing for services of the same type during the same period. SMIC Beijing will obtain services of the same type from third-party commercial banks or financial institutions first and then use the fees charged to it to determine fees to be charged to SJ Cayman as described above.

– 23 –

---

 

LETTER FROM THE BOARD

 

 

Internal Control Measures

 

For internal control measures for the SJ Cayman CCT, please refer to the sub-section headed ‘‘Internal Control Measures’’ on page 12 of this circular.

 

Payment

 

The consideration for the transactions contemplated under the SJ Cayman Centralised Fund Management Agreement will be paid in accordance with the specific and separate agreements entered into between SMIC Beijing and SJ Cayman, the terms of which will be on normal commercial terms or better, and funded by the relevant  party’s  internal  resources.

 

Other Terms

 

The terms of the SJ Cayman Centralised Fund Management Agreement are subject to applicable laws and regulations including the requirements of any regulatory authorities (including but not limited to the Stock Exchange and the New York Stock Exchange, Inc.).

 

SJ Cayman’s participation in the centralised fund management system of the Group will not alter its existing rights to its own funds. The rights to own, use, approve of use and benefit from SJ Cayman’s funds will remain with SJ Cayman.

 

 

THE SJ CAYMAN ANNUAL CAPS AND BASIS OF DETERMINATION

 

Historical Transaction Amounts

 

– 24 –

---

 

LETTER FROM THE BOARD

 

 

The historical transaction amounts among the Company, SMIC Beijing and  SJ  Jiangyin for the transactions contemplated under the 2016 SJ Jiangyin Centralised Fund Management Agreement for the two years ended 31 December 2016 and 2017 and the ten months ended 31 October 2018 are as follows:

 

 

Notes:

 

 

 

 

 

– 25 –

---

 

LETTER FROM THE BOARD

 

 

SJ Cayman Annual Caps

 

 

The SJ Cayman Annual Caps are determined based on the assumptions and factors as explained below:

 

 

 

 

 

 

 

 

 

 

 

 

– 26 –

---

 

LETTER FROM THE BOARD

 

 

 

 

 

 

The planned total capital expenditures of SJ Cayman is around US$1.2 billion, of which an accumulated sum of about US$230 million has been invested as at the Latest Practicable Date. The SJ Cayman Annual Caps for each type of SJ Cayman CCT are determined based on SJ Cayman’s remaining planned capital expenditures totalling around US$1 billion according to the investment schedule in respect of SJ Cayman. SJ Cayman will continue to invest and increase its capacity for bumping and wafer probing. The capital expenditure of SJ Cayman for the following year is  estimated to  be over US$100 million. It is expected that  the annual capital expenditures for the  three years from 2019 to 2021 will remain on similar levels, being over US$100 million.

 

As the investment schedule towards SJ Cayman will be adjusted according to the changing market conditions and financial conditions of the Group, the SJ Cayman Annual Caps are set based on the aggregate capital expenditure plans to maintain flexibility for the Group to expedite or slow down performance of its planned capital expenditures. As at the Latest Practicable Date, SJ Cayman has received capital contribution of over US$330 million from its shareholders, namely the  Company, China IC Fund, Jiangsu Changjiang Electronics Technology Co., Ltd. and Qualcomm Global Trading Pte. Ltd.. There is currently no future plan of capital contribution to   be made towards SJ Cayman by its shareholders, SJ Cayman will utilise the Internal Deposit Services for the current US$69 million of internal deposit in the Group and for its future operating cash flow. The SJ Cayman Annual Caps in respect of Internal Deposit Services are set based on the historical transactions amounts under the 2016 SJ Jiangyin Centralised Fund Management Agreement for the two years ended 31 December 2016 and 2017 and the ten months ended 31 October 2018, and with  reference to the planned capital expenditure of SJ Cayman next year. As the investment continues, it is expected that the highest daily outstanding  balance  throughout  the three years from 2019 to 2021 will not exceed the transaction amount in the year of 2018. As such, the SJ Cayman Annual Caps in respect of Internal Deposit Services are set at US$130 million to reflect the highest daily balance and include a buffer to cater for SJ Cayman’s expansion. Furthermore, as the current total investment  of  SJ  Cayman is approximately US$230 million and the planned capital expenditure of SJ Cayman in the year of 2019 is around US$100 million, the SJ Cayman Annual Caps in respect of the Collection and Payment Services and Foreign Exchange Services are set at US$130 million to reflect the transaction amount and the amount of internal loans obtained for the purchase of equipment of which procurement will be denominated in foreign currencies. Since the current outstanding balance of internal deposit in the Group is US$69 million, SJ Cayman will need to finance its planned capital  expenditure of  around US$100 million for the  year of  2019 through internal loans.   As it is expected that SJ Cayman’s capital expenditures for the three years from 2019 to 2021 will remain on similar levels, the SJ Cayman Annual Caps in respect of Internal Loan Services are thus set at US$130 million for the three years which include a buffer for the related financing costs that may be incurred due to unforeseen circumstances such as insufficient capital contribution from its shareholders and additional capital expenditure originally planned to be incurred in the year of 2020 being  

– 27 –

---

 

LETTER FROM THE BOARD

 

 

brought  forward to 2019. In addition, it is expected that SJ Cayman’s planned capital expenditure for the purchase of equipment will be obtained through letters of credit.  The Group will utilise its credit facilities to provide letter(s) of credit for SJ Cayman to facilitate the purchase of equipment, whether or not SJ Cayman finances the required capital expenditures internally or externally. This will enable SJ Cayman to take advantage of the high credibility of the Group. The SJ Cayman Annual Caps in respect of Provision of Letter of Credit Services are set at US$130 million with reference to the aggregate capital expenditure plans of SJ Cayman and the possible highest daily transaction amount for the purchase of equipment. The SJ Cayman Annual Caps in respect of Other Financial Services are set at US$50 million to reflect the expected financial expenses in SJ Cayman’s future capital expenditure.

 

REASONS FOR AND BENEFITS OF THE SJ CAYMAN CENTRALISED FUND MANAGEMENT AGREEMENT

 

The Company considers that the entry into of the SJ Cayman Centralised Fund Management Agreement and the transactions contemplated thereunder will open up the domestic and foreign funding channels of the Group, increase efficient fund usage and reduce the Group’s overall debt levels and interest expense. The centralised management of foreign exchange risk exposure will also reduce the risks of exchange loss of the Group.

 

The Directors (excluding independent non-executive Directors whose view will  be given after taking into account the advice from the Independent Financial Adviser) consider that it is in the best interests of the Company and the Shareholders as a whole to enter into  the SJ Cayman Centralised Fund Management Agreement and  the  transactions contemplated thereunder; the terms of the SJ Cayman Centralised Fund Management Agreement including the SJ Cayman Annual Caps are fair and reasonable; and the entering into of the SJ Cayman Centralised Fund Management Agreement and the transactions contemplated thereunder are on normal commercial terms or better, in the ordinary and  usual course of business of the Group and in the interests of the Company and the Shareholders as a whole.

 

IMPLICATIONS UNDER THE LISTING RULES

 

As at the Latest Practicable Date, China IC Fund holds approximately 15.82% equity interest in the Company through its wholly-owned subsidiary, Xinxin (Hongkong) Capital Co., Limited, it is a connected person of the Company at the issuer level under the Listing Rules. China IC Fund holds approximately 29.38% equity interest in SJ  Cayman,  a  majority owned subsidiary of the Company, through its wholly-owned subsidiary, Xun Xin. SJ Cayman is therefore a connected subsidiary of the Company as defined under Rule  14A.16 of the Listing Rules and thus a connected person of the Company under the Listing Rules.

 

Pursuant to Rule 14A.81 of the Listing Rules, as the nature of the transactions under   the SMNC Centralised Fund Agreement and the SJ  Cayman Centralised Fund Agreement  are similar, the transactions contemplated under the SJ Cayman Centralised Fund  Agreement shall be aggregated. Save as disclosed above, there are no other transactions which should be aggregated.

 

In relation to the transactions contemplated under the SJ Cayman Centralised Fund Management Agreement, the Internal Deposit Services to be provided by SMIC Beijing to  SJ

– 28 –

---

 

LETTER FROM THE BOARD

 

 

Cayman will constitute continuing connected transactions by way of financial assistance received by SMIC Beijing from a connected person. Pursuant to Rule 14A.90 of the Listing Rules, as the Internal Deposit Services are conducted on normal commercial terms and not secured by the assets of the Group, the provision of the Internal Deposit Services is fully exempt from the reporting, announcement and/or the Independent Shareholders’ approval requirements under the Listing Rules. As one or more of the applicable percentage ratios (other than the profits ratio) in respect of each of the SJ Cayman Annual Caps for the Collection and Payment Services and Foreign Exchange Services, Internal Loan Services  and Provision of Letter of Credit Services, in aggregate, exceed 5%, the transactions contemplated under the SJ Cayman Centralised Fund Management Agreement will  constitute continuing connected transactions subject to  the reporting, announcement and   the Independent Shareholders’ approval requirements of Chapter 14A of the Listing Rules. As one or  more of the applicable percentage ratios (other than the profits ratio) in  respect  of the SJ Cayman Annual Caps for Other Financial Services are, in aggregate, more than 0.1% but less than 5%, the transaction is subject to the  reporting,  announcement  and  annual review requirements but exempt from the Independent Shareholders’ approval requirement under Chapter 14A of the Listing Rules.

 

In accordance with the Listing Rules, the Independent Board Committee comprising  Mr. William Tudor Brown, Dr. Chiang Shang-yi, Mr. Cong Jingsheng Jason, Professor Lau Lawrence Juen-Yee and Mr. Fan Ren Da Anthony, all being the independent non-executive Directors has been established to advise and provide recommendation to the Independent Shareholders on the SJ Cayman Centralised Fund Management Agreement (including the    SJ Cayman CCT and the SJ Cayman Annual Caps) and to advise the Independent Shareholders on how to vote.

 

Messis Capital Limited has been appointed by the Company as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders on the SJ Cayman Centralised Fund Management Agreement (including the    SJ Cayman CCT and the SJ Cayman Annual Caps).

 

INFORMATION ABOUT THE PARTIES

 

Information on the Company and SMIC Beijing

 

Please refer to sub-section headed ‘‘Information on the Company and SMIC Beijing’’  on page 19 of this circular.

 

Information on SJ Cayman, SJ Hong Kong and SJ Jiangyin

 

SJ Cayman wholly owns SJ Hong Kong, which in turn wholly owns SJ Jiangyin. SJ Jiangyin was founded in November 2014 in Jiangyin, Jiangsu Province of the PRC. SJ Cayman, SJ Hong Kong, SJ USA and SJ Jiangyin will serve as the leading play Middle- End-Of-Line (MEOL) entity that focuses on advanced  bumping  production. Complementing nearby advanced back-end assembly infrastructure, SJ  Jiangyin aims to   be an important key to forming a local integrated circuit ecosystem, providing a convenient one-stop service to supply high quality and efficient chips for local and international customers, as well as help strengthen their global competitiveness.

 

– 29 –

---

 

LETTER FROM THE BOARD

 

 

(C)PROPOSED GRANT OF RESTRICTED SHARE UNITS TO INDEPENDENT NON-EXECUTIVE DIRECTORS

 

Reference is made to the Company’s announcement dated 13 September 2018 pursuant to which it was resolved at a Board meeting held on 22 June 2018 to grant 375,000  Restricted Share Units under the 2014 Equity Incentive Plan, subject to the Independent Shareholders’ approval at the EGM.

 

Accordingly, subject to the Independent Shareholders’ approval at the EGM, 375,000 Restricted Share Units are to be granted, among which, 187,500 Restricted Share Units and 187,500 Restricted Share Units will be granted to Professor Lau and Mr. Fan, respectively, and it is intended that such Restricted Share Units will vest over a  period of three years at  the rate of 33%, 33% and 34% for each 12 month period commencing on the date on which the relevant Director commenced his term of office as an independent non-executive Director.

 

Each of the Restricted Share Units to be granted to Professor Lau and Mr. Fan represents the right to receive an Share on the date it vests.

 

In accordance with the terms of the 2014 Equity Incentive Plan, the Proposed RSU Grants will be made for no consideration, other than the minimum payment required by the applicable law in the Cayman Islands (which is the par value of the Shares to be issued pursuant thereto).

 

As at the Latest Practicable Date, each of Professor Lau and Mr. Fan is interested in 187,500 share options and 187,500 share options granted to him by  the Company pursuant  to the 2014 Stock Option Plan, respectively, representing approximately 0.0037% and 0.0037% of the total issued share capital of the Company. Subject to the Independent Shareholders’ approval of the Proposed RSU Grants at the EGM and assuming that no further Shares will be issued or repurchased by the Company prior to the date of the EGM, the maximum number of Shares that may be issued to Professor Lau and Mr. Fan in accordance with and subject to the terms of the 2014 Stock Option Plan and the 2014 Equity Incentive Plan would be 375,000 and 375,000 respectively, representing approximately 0.0074% and 0.0074% respectively of the total issued share capital of the  Company as  at the Latest Practicable Date and 0.0074% and 0.0074% of the enlarged total issued share capital of the Company.

 

Based on the closing price of HK$7.450 per Share as quoted on the Stock Exchange on the Latest Practicable Date, the market value of the Restricted Share Units under the Proposed RSU Grants amounts to approximately HK$2,793,750.

 

REASONS FOR AND BENEFITS OF THE PROPOSED RSU GRANTS

 

The Proposed RSU Grants are part of the Company’s remuneration system,  the  purpose of which is to closely align the interests and benefits of and risk sharing among the Shareholders, the Company and the employees in order to maximise the motivation of the Directors.

 

The Proposed RSU Grants to Professor Lau and Mr. Fan aim to provide sufficient incentives to attract and motivate them to remain with, and to strive for the future development and expansion of the Group and to enhance  Shareholder  value  through  further aligning these Directors’ interests with the Company.

– 30 –

---

 

LETTER FROM THE BOARD

 

 

 

Furthermore, there will not be substantial cash outflow by the Company under the Proposed RSU Grants. In this regard, the Directors (excluding Professor Lau and Mr. Fan, who have reserved their view on the Proposed RSU Grants to themselves) consider that the terms of the Proposed RSU Grants are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

 

Reference is made to the circulars of the Company dated 7 June 2016 and 18 November 2016 respectively, relating to its revised Board policy (the ‘‘Revised Board Policy’’) which was resolved at a Board meeting on 12 May 2016, pursuant to which the  details of  the annual additional grant of share options and Restricted Share Units  (the  ‘‘Annual  Additional Grant’’) to existing Directors at the time  of  the  Annual Additional Grant  and the method of calculation of the grant of Restricted Share Units to eligible Directors are set out. The Annual Additional Grant to the existing non-executive Directors (including the independent non-executive Directors) is fixed in accordance with a percentage of 25% of a fixed sum, being the most recent on-board grant prior to the Revised Board Policy which  was made to an independent non-executive Director. In addition, the Revised Board Policy also provides for an on-board grant to be made  to  new  Directors. The  on-board grant to new non-executive Directors (including the independent non-executive Directors) (the ‘‘On- board Grant’’) is fixed in accordance with a percentage of 75% of the fixed sum of the most recent on-board grant prior to the Revised Board Policy which was made to an independent non-executive Director. The amounts of the Proposed RSU Grants have been calculated using the relevant methods of calculation set out above and then divided by 10 to reflect the Company’s 10-to-1 share consolidation, which became effective on 7 December 2016, after the implementation of the Revised Board Policy.

 

 

 

As the On-board Grant comprises a combination of 50% share options and 50% Restricted Share Units, the Proposed RSU Grant applicable to Professor Lau is 50% of 375,000 shares under the On-board Grant, that is, 187,500 Restricted Share Units.

 

 

 

 

As the On-board Grant comprises a combination of 50% share options and 50% Restricted Share Units, the Proposed RSU Grant applicable to Mr. Fan is 50% of 375,000 shares under the On-board Grant, that is, 187,500 Restricted Share Units.

 

– 31 –

---

 

LETTER FROM THE BOARD

 

 

As the On-board Grant comprises a combination of 50% share options and 50% Restricted Share Units, the Proposed RSU Grant applicable to Mr. Fan is 50% of 375,000 shares under the On-board Grant, that is, 187,500 Restricted Share Units.

 

Notes:

 

 

 

 

IMPACT ON THE SHAREHOLDING STRUCTURE OF THE COMPANY

 

 

Notes:

 

 

 

 

 

 

 

– 32 –

---

 

LETTER FROM THE BOARD

 

 

SPECIFIC MANDATE TO ISSUE NEW SHARES

 

The new Shares to be issued under the Proposed RSU Grants will be issued under the specific mandate granted to the Directors by the Shareholders at the annual general meeting of the Company held on 13 June 2013 for the issue of Shares under the 2014 Equity  Incentive Plan. The Listing Committee of the Stock Exchange has previously granted its approval for the listing of, and permission to deal in, Shares to be issued under the 2014 Equity Incentive Plan, subject to the fulfilment of all other conditions of the 2014 Equity Incentive Plan. In the context of the grant of Restricted Share Units and issue of Shares pursuant thereto under the 2014 Equity Incentive Plan to a Director as a connected person, the requirements under Chapter 14A of the Listing Rules would be required to be satisfied, including the obtaining of the approval of the Independent Shareholders. The total number of such new Shares which may be issued under the 2014 Equity Incentive Plan will not exceed 80,184,428. As at the Latest Practicable Date, 1,834,880 Shares remain issuable under the 2014 Equity Incentive Plan.

 

IMPLICATIONS UNDER THE LISTING RULES

 

Each of Professor Lau and Mr. Fan is an independent non-executive Director of the Company. As such, each of Professor Lau and Mr. Fan is a connected person of the Company. The Proposed RSU Grants (including the allotment and issue of any new Shares thereunder) constitutes connected transactions of the Company under Chapter 14A of the Listing Rules and are thus subject to reporting, announcement and the Independent Shareholders’ approval requirements.

 

The Company has established the Independent Board Committee (excluding Professor Lau and Mr. Fan in respect of the portion of the Proposed RSU Grants relating to themselves) to advise the Independent Shareholders in respect of the Proposed RSU Grants. The Company has appointed Messis Capital Limited as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Proposed RSU Grants.

 

The letter from the Independent Board Committee to the Independent Shareholders is set out on pages 36 to 37 of this circular. The letter from Messis Capital Limited to the Independent Board Committee and the Independent Shareholders is set out on pages 38  to  65 of this circular.

 

INFORMATION ABOUT THE COMPANY

 

Please refer to sub-section headed ‘‘Information on the Company and SMIC Beijing’’  on page 19 of this circular.

 

 

At the EGM, ordinary resolutions will be proposed to the Independent Shareholders to approve, among others, the SMNC Centralised Fund Management Agreement (including   the SMNC CCT and the SMNC Annual Caps), the SJ Cayman Centralised Fund  Management Agreement (including the SJ Cayman CCT and the SJ Cayman Annual Caps) and the Proposed RSU Grants.

 

– 33 –

---

 

LETTER FROM THE BOARD

 

 

As China IC Fund is a connected person of the Company, its wholly-owned subsidiary Xinxin (Hongkong) Capital Co., Limited and its other associates (as defined in the Listing Rules) will abstain from voting on the ordinary resolutions to approve the SMNC  Centralised Fund Management Agreement (including the SMNC CCT and the SMNC  Annual Caps) and the SJ Cayman Centralised Fund Management Agreement (including the SJ Cayman CCT and the SJ Cayman Annual Caps). Apart from Xinxin (Hongkong) Capital Co., Limited and other associates of China IC Fund, no other Shareholder will be  required  to abstain from voting on the aforementioned resolutions at the EGM. As at the Latest Practicable Date, Xinxin (Hongkong) Capital Co., Limited was holding 797,054,907 Shares and representing approximately 15.82% of the total issued share capital of the Company.

 

Pursuant to Chapter 14A of the Listing Rules, each of Professor Lau and Mr. Fan and their associates are required to abstain from voting on the relevant ordinary resolutions to approve the Proposed RSU Grants to Professor Lau and Mr. Fan (as the case may be).

 

Save as aforementioned, no other Shareholder will be required to abstain from voting  on the resolutions at the EGM.

 

Mr. Lu Jun, who is a Class II non-executive Director and a member of the Nomination Committee of the Company, holds the position of President in China IC Fund’s  sole  manager Sino IC Capital Co., Ltd., Mr. Ren Kai, who is a Class III non-executive Director and a member of the Strategic Advisory Committee of the Company, holds the position of Vice President in China IC Fund’s sole manager Sino IC Capital Co., Ltd. Both Mr. Lu Jun and Mr. Ren Kai have abstained from voting on the relevant board resolution in respect of the SMNC Centralised Fund Management Agreement and the SJ Cayman Centralised Fund Management Agreement.

 

Save as  aforementioned, no other Director was considered to have a  material interest  in the SMNC Centralised Fund Management Agreement or the  SJ  Cayman  Centralised Fund Management Agreement which would have required the Director to abstain from voting at the relevant Board meeting. Each of Professor Lau and  Mr.  Fan,  both  independent non-executive Directors of the Company, has abstained from voting on any relevant Board resolutions in respect of the portion of the Proposed RSU Grants relating to himself.

 

Your attention is drawn to the general information set out in Appendix I to this circular.

 

 

The Board, including the independent non-executive Directors (excluding Professor  Lau and Mr. Fan in respect of the portion of the Proposed RSU Grants relating to themselves), considers that it is in the best interests of the Company and the Shareholders as a whole to enter into the SMNC Centralised Fund Management Agreement, the SJ Cayman Centralised Fund Management Agreement and approve the Proposed RSU  Grants;  the  terms of the SMNC Centralised Fund Management Agreement, the SJ Cayman Centralised Fund Management Agreement and the Proposed RSU Grants are fair and reasonable; and   the entering into of the SMNC Centralised Fund Management Agreement, the SJ Cayman Centralised Fund Management Agreement and  transactions contemplated thereunder and  the implementation of the Proposed RSU Grants are on normal commercial terms or better, in the ordinary and usual course of business of the Group and in the interests of  the Company and the Shareholders as a whole.

 

 

– 34 –

---

 

LETTER FROM THE BOARD

 

 

Accordingly, the Independent Board Committee (excluding Professor Lau and Mr. Fan in respect of the portion of the Proposed RSU Grants relating to themselves) recommends the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the SMNC Centralised Fund Management Agreement (including the SMNC CCT and the SMNC Annual Caps), the SJ Cayman Centralised Fund Management Agreement (including the SJ Cayman CCT and the SJ Cayman Annual Caps) and the Proposed RSU Grants.

 

 

The voting at the EGM will be taken by a poll. The Company will make an announcement of the poll results in accordance with the relevant requirements under the Listing Rules as soon as possible.

 

To the best knowledge, information and belief of the Directors, having made all reasonable enquiries, there is (i) no voting trust or other agreement or arrangement or understanding entered into by or binding upon any Shareholders; and (ii) no obligation or entitlement of any Shareholder as at the Latest Practicable Date, whereby it/he has or may have temporarily or permanently passed control over the exercise of the voting right in respect of its/his Shares to a third party, either generally or on a case-by-case basis.

 

A form of proxy for the EGM is enclosed with this circular. Whether or not you intend to be present at the EGM, you are requested to complete the form of proxy and return it to the branch share registrar of the Company, Computershare Hong Kong Investor Services Limited, at Hopewell Centre, 17M Floor, 183 Queen’s Road East, Wanchai, Hong Kong in accordance with the instructions printed thereon not less than 48 hours before the time fixed for the EGM. The completion of a form of proxy will not preclude you from attending and voting at the EGM in person.

 

For determining the entitlement to attend and vote at the EGM, the  register  of  members of the Company will be closed from 8 January 2019 to 11 January 2019 (both days inclusive), during which period no transfer of shares in the Company will be registered. In order to qualify for attending and voting at the EGM, all  properly  completed  transfer forms, accompanied by the relevant certificates, must be lodged with the branch share registrar of the Company, Computershare Hong Kong Investor Services Limited, at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong by no later than 4 : 30 p.m. on 7 January 2019. All persons who are registered holders of the Shares on 11 January 2019, the record date for the EGM, will be entitled to attend and vote  at the EGM.

 

By Order of the Board

Semiconductor Manufacturing International Corporation
Gao Yonggang

Executive Director, Chief Financial Officer and Joint Company Secretary

 

Shanghai, 21 December 2018

 

– 35 –

---

 

 

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

 

 

Set out below is the text of the  letter of  recommendation, prepared for incorporation in  this circular, from the Independent Board Committee to the Independent Shareholders.

 

 

Semiconductor Manufacturing International Corporation

中 芯 國 際 集 成 電 路 製 造 有 限 公 司 *

(Incorporated in the Cayman Islands with limited liability)

(Stock  Code: 981)

 

21 December 2018

 

To the Independent Shareholders

 

Dear Sir or Madam,

 

CONTINUING CONNECTED TRANSACTIONS IN RELATION TO
CENTRALISED FUND MANAGEMENT AGREEMENT WITH
SEMICONDUCTOR MANUFACTURING NORTH CHINA (BEIJING)
CORPORATION

AND

CONTINUING CONNECTED TRANSACTIONS IN RELATION TO
CENTRALISED FUND MANAGEMENT AGREEMENT WITH SJ
SEMICONDUCTOR CORPORATION

AND

CONNECTED TRANSACTION IN RELATION TO PROPOSED
GRANT OF RESTRICTED SHARE UNITS TO INDEPENDENT NON-
EXECUTIVE DIRECTORS

 

We refer to the circular dated 21 December 2018 (the ‘‘Circular’’) issued by the Company to the Shareholders of which this letter forms part. Unless the context otherwise requires, terms used in this letter shall have the same meanings given to them in  the Circular.

 

We (excluding Professor Lau and Mr. Fan in respect of the portion of the Proposed  RSU Grants relating to themselves) have been appointed by the Board to advise the Independent Shareholders as to whether the terms of the SMNC Centralised Fund Management Agreement, the SJ  Cayman Centralised Fund Management Agreement and   the Proposed RSU Grants are fair and reasonable, and whether the entering into of the  SMNC Centralised Fund Management Agreement, the SJ Cayman Centralised Fund

 

– 36 –

---

 

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

 

 

Management Agreement and the implementation of the Proposed RSU Grants  are  on  normal commercial terms or better, in the ordinary and usual course of business of the Company and in the interests of the Company and the Shareholders as a  whole, and to advise the Independent Shareholders on how to vote, taking into account the recommendations of Messis Capital Limited.

 

Messis Capital Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders as to whether  the terms of the SMNC Centralised Fund Management Agreement, the SJ Cayman Centralised Fund Management Agreement and the Proposed RSU Grants are fair and reasonable, and whether the entering into of the SMNC Centralised Fund Management Agreement, the SJ Cayman Centralised Fund Management Agreement and the implementation of  the Proposed RSU  Grants are on  normal commercial terms or  better,   in the ordinary and usual course of business of the Company and in the interests of the Company and the Shareholders as a whole, and to advise the Independent Shareholders on how to vote on the relevant resolutions. Details of its advice, together with the principal factors and reasons taken into consideration in arriving at such advice, are set out on pages  38 to 65 of the Circular.

 

We (excluding Professor Lau and Mr. Fan in respect of the portion of the Proposed  RSU Grants relating to themselves), having taken into account the advice of Messis Capital Limited, consider that the terms of the SMNC Centralised Fund Management Agreement,  the SJ Cayman Centralised Fund Management Agreement and the Proposed RSU Grants    are fair and reasonable, and the entering into of the SMNC Centralised Fund Management Agreement, the SJ Cayman Centralised Fund Management Agreement and the implementation of  the Proposed RSU  Grants are on  normal commercial terms or  better,   in the ordinary and usual course of business of the Company and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of all the ordinary resolutions to be proposed at the EGM. Your attention is also drawn to the letter from the Board set out on pages 7 to 35 of the Circular and the additional information set out in the Appendix I to the Circular.

 

 

 

 

 

– 37 –

---

 

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

The following is the full text of the letter from the Independent Financial Adviser which sets out its advice to the Independent Board Committee and the Independent Shareholders for inclusion in this circular.

 

 

21 December 2018

 

The Independent Board Committee and the Independent Shareholders of Semiconductor Manufacturing International Corporation

 

Dear Sir/Madam,

 

(1)   CENTRALISED FUND MANAGEMENT AGREEMENT WITH
SEMICONDUCTOR MANUFACTURING NORTH CHINA (BEIJING)

CORPORATION;

(2)   CENTRALISED FUND MANAGEMENT AGREEMENT WITH SJ
SEMICONDUCTOR CORPORATION;

AND

(3)   CONNECTED TRANSACTION IN RELATION TO PROPOSED
GRANT OF RESTRICTED SHARE UNITS TO INDEPENDENT NON-

EXECUTIVE DIRECTORS

 

INTRODUCTION

 

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in relation to (i)  the  SMNC Centralised Fund Management Agreement; (ii) the SJ Cayman Centralised Fund Management Agreement; and (iii) the Proposed RSU Grants, details of which are set out in the letter from the Board (the ‘‘Letter from the Board’’) contained in the circular of the Company dated 21 December 2018 issued to the Shareholders (the ‘‘Circular’’), of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular, unless otherwise specified.

 

Reference is made to the Company’s announcement dated 29 November 2018, that the Company, SMIC Beijing and SMNC entered into the SMNC  Centralised  Fund  Management Agreement in relation to: (i) the Company authorising its wholly-owned subsidiary SMIC Beijing to carry out centralised management of  the Group’s RMB fund  and foreign exchange in accordance with the relevant PRC laws and regulations; and (ii) SMNC participating in  the Group’s centralised fund management system. SMIC Beijing  will provide internal deposit services, collection and payment services, foreign exchange services, internal loan services, provision of letter of credit services and other financial services to SMNC pursuant to the SMNC Centralised Fund Management Agreement.

 

Reference is also made to the Company’s announcement dated 6 December 2018 relating to the Company, SMIC Beijing and SJ Cayman’s entering into of the SJ Cayman Centralised Fund Management Agreement in relation to: (i) the Company authorising its wholly-owned subsidiary SMIC Beijing to carry out centralised management of the Group’s RMB fund and foreign exchange in accordance with the relevant PRC laws and regulations; and (ii) SJ Cayman participating in the Group’s centralised fund management system.

 

 

– 38 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

As at the Latest Practicable Date, China IC Fund held approximately 15.82% equity interest in the Company through its wholly-owned subsidiary, Xinxin (Hongkong) Capital Co., Limited, it is a connected person of the Company at the issuer level under the Listing Rules. As at the Latest Practicable Date, the registered capital of SMNC is held as to approximately 51% and 32% by the Group and China  IC  Fund, respectively.  China  IC Fund holds approximately 29.38% equity interest in SJ Cayman, a majority  owned subsidiary of the Company, through its wholly-owned subsidiary, Xun Xin. Each of SMNC and SJ Cayman is therefore a connected subsidiary of the Company as defined under Rule 14A.16 of the Listing Rules and thus a connected person of the Company under the Listing Rules.

 

In relation to the transactions contemplated under the SMNC Centralised Fund Management Agreement, the Internal Deposit Services to be provided by SMIC Beijing to SMNC will constitute continuing connected transactions by way of financial assistance received by SMIC Beijing from a connected person. Pursuant to Rule 14A.90 of the Listing Rules, as the Internal Deposit Services are conducted on normal commercial terms and not secured by the assets of the Group, the provision of the Internal Deposit Services is fully exempt from the reporting, announcement and/or the Independent Shareholders’ approval requirements under the Listing Rules. As one or more of the applicable percentage ratios (other than the profits ratio) in respect of each of the SMNC Annual Caps  for  the  Collection and Payment Services and Foreign Exchange Services, Internal Loan Services  and Provision of Letter of Credit Services exceed 5%, the transactions contemplated under the SMNC Centralised Fund Management Agreement will constitute continuing connected transactions subject to the reporting, announcement and the Independent Shareholders’ approval requirements of Chapter 14A of the Listing Rules. As one or more of  the  applicable percentage ratios (other than the profits ratio) in respect of the SMNC Annual Caps for Other Financial Services are more than 0.1% but less than 5%, the transaction is subject to  the reporting, announcement and annual review requirements but exempt from  the Independent Shareholders’ approval requirement under Chapter 14A of the  Listing Rules.

 

Pursuant to Rule 14A.81 of the Listing Rules, as the nature of the transactions under   the SMNC Centralised Fund Management Agreement and the SJ Cayman Centralised Fund Management Agreement are similar, the transactions contemplated under the SJ Cayman Centralised Fund Management Agreement shall be aggregated. Save as disclosed above, there are no other transactions which should be aggregated.

 

In relation to the transactions contemplated under the SJ Cayman Centralised Fund Management Agreement, the Internal Deposit Services to be provided by SMIC Beijing to  SJ Cayman will constitute continuing connected transactions by way of financial assistance received by SMIC Beijing from a connected person. Pursuant to Rule 14A.90 of the Listing Rules, as the Internal Deposit Services are conducted on normal commercial terms and not secured by the assets of the Group, the provision of the Internal Deposit Services is fully exempt from the reporting, announcement and/or the Independent Shareholders’ approval requirements under the Listing Rules. As one or more of the applicable percentage ratios (other than the profits ratio) in respect of each of the SJ Cayman Annual Caps for the Collection and Payment Services and Foreign Exchange Services, Internal Loan Services  and Provision of Letter of Credit Services, in aggregate, exceed 5%, the transactions contemplated under the SJ Cayman Centralised Fund Management Agreement will  constitute continuing connected transactions subject to  the reporting, announcement and   the Independent Shareholders’

– 39 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

approval requirements of Chapter 14A of the Listing Rules. As one or  more of the applicable percentage ratios (other than the profits ratio) in  respect  of the SJ Cayman Annual Caps for Other Financial Services are, in aggregate, more than 0.1% but less than 5%, the transaction is subject to the  reporting,  announcement  and  annual review requirements but exempt from the Independent Shareholders’ approval requirement under Chapter 14A of the Listing Rules.

 

In additional, reference is made to Company’s announcement dated 13 September 2018 pursuant to which the Company proposes to grant 375,000 Restricted Share Units under the 2014 Equity Incentive Plan, subject to the Independent Shareholders’ approval at the EGM. Among the 375,000 Restricted Share Units to be granted, 187,500 Restricted Share Units  will be granted to Professor Lau and 187,500 Restricted Share Units will be granted to Mr. Fan.

 

Each of Professor Lau and Mr. Fan is an independent non-executive Director of the Company. As such, each of Professor Lau and Mr. Fan is a connected person of the Company. The proposed grant of 375,000 Restricted Share Units and any transactions contemplated thereunder (including the allotment and issue of any new Shares thereunder) constitutes non-exempt connected transactions of the Company under Chapter 14A of the Listing Rules and are thus subject to reporting, announcement and the Independent Shareholders’ approval requirements.

 

The Independent Board Committee has been established to advise and provide recommendation to the Independent Shareholders on (i) the SMNC Centralised Fund Management Agreement and its annual caps; (ii) the SJ Cayman Centralised Fund Management Agreement and its annual caps; and (iii) the Proposed RSU Grants and any transactions contemplated thereunder (including the allotment and issue of any new Shares thereunder) and to advise the Independent Shareholders on how to vote. We, Messis Capital limited, have been appointed as the Independent Financial Adviser to advise the  Independent Board Committee and  the  Independent  Shareholders  as  to  whether  the  terms of (i) the SMNC Centralised Fund Management Agreement and its annual caps; (ii)  the SJ Cayman Centralised Fund Management Agreement and its annual caps; and (iii) the Proposed RSU Grants and any transactions contemplated thereunder (including the  allotment and issue of any new Shares thereunder) are on normal commercial terms and in the ordinary and usual course of business of the Group; fair and reasonable so far as the Independent Shareholders are concerned and is in the interests of the Company and the shareholders as a whole.

– 40 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

OUR INDEPENDENCE

 

As at the Latest Practicable Date, we did not have any relationship with or interest in the Company or any other parties that could reasonably be regarded as relevant to our independence. In the last two years, we have acted as the independent financial adviser to the independent board committee and the independent shareholders of the Company for the following transactions:

 

 

Apart from normal professional fees paid or payable to us in connection with the previous appointments mentioned above as well as this appointment as the Independent Financial Adviser, no arrangement exist whereby we have received or will receive any fees or benefits from the Company or any other parties that could reasonably be regarded as relevant to our independence. Accordingly, we consider that the aforementioned previous appointment would not affect our independence, and that we are independent pursuant to Rule 13.84 of the Listing Rules.

 

– 41 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

BASIS OF OUR OPINION

 

In formulating our opinion and recommendation, we have considered, among other things, (i) the SMNC Centralised Fund Management Agreement and the SJ Cayman Centralised Fund Management Agreement; (ii) the Company’s annual report for the year ended 31 December 2017 (the ‘‘Annual Report 2017’’), and the interim report for the six months ended 30 June 2018 (the ‘‘Interim Report 2018’’); and (iii) other information as set out in the Circular. We have also relied on all relevant information, opinions and facts supplied and represented by the Company and the management of the Company. We have assumed that all such information, opinions, facts and representations contained or referred to in the Circular, for which the Company is fully responsible, were true and accurate in all material respects as at the date hereof and may be relied upon. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company, and the Company has confirmed that no material facts have been withheld or omitted from the information provided and referred to in the  Circular, which  would  make any statement therein misleading.

 

We consider that we have reviewed sufficient information currently available to reach an informed view and to justify our reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis for our recommendation. We have not, however, carried out independent verification of the information provided by the management and the representatives of  the Company, nor have we  conducted any form      of in-depth investigation into the businesses, affairs, operations, financial position or future prospects of the Company or any of its subsidiaries.

 

PRINCIPAL FACTORS AND REASONS CONCERNED

 

In considering whether the terms of (i) the SMNC Centralised Fund Management Agreement and its annual caps; (ii) the SJ Cayman Centralised Fund Management  Agreement and its annual caps and (iii) the Proposed RSU Grants are fair and reasonable in so far as the Independent Shareholders are concerned, we have taken into account the principal factors and reasons set out below:

 

 

Background of the SMNC Centralised Fund Management Agreement

 

Reference is made to the Company’s announcement dated 29  November 2018,  that the Company, SMIC Beijing and SMNC entered into the SMNC Centralised Fund Management Agreement in relation to: (i) the Company authorising its wholly-owned subsidiary SMIC Beijing to carry out centralised management of the Group’s RMB  fund and foreign exchange in accordance with the relevant PRC laws and regulations; and (ii) SMNC participating in the Group’s centralised fund management  system. SMIC Beijing will provide internal deposit services, collection and payment services, foreign exchange services, internal loan services, provision of letter of credit services and other financial services to SMNC pursuant to the SMNC Centralised Fund Management Agreement.

– 42 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

The SMNC CCT will include the following:

 

 

SMIC Beijing provides deposit services and pays interest to SMNC.

 

 

SMIC Beijing serves as the platform for centralised collection and payment activities and foreign exchange activities of the Group. SMNC may carry out such activities by itself or through SMIC Beijing.

 

 

SMIC Beijing provides internal loan services to SMNC in accordance with PRC laws, regulations and policies.

 

 

Letter of Credit Services will be utilised as a settlement instrument through which the Company will utilise its overseas credit lines to provide letter of credit on behalf of SMNC for importing equipment in accordance with PRC laws, regulations and policies.

 

 

SMIC Beijing provides other financial services to SMNC in accordance with PRC laws, regulations and policies.

 

Reasons for and benefit of the SMNC Centralised Fund Management Agreement

 

As stated in the Letter from the Board, SMNC is a joint venture company established in the PRC pursuant to the joint venture agreement dated 3 June 2013, the equity capital of which is owned as to 12.5% by SMIC Beijing, 13% by SMIC Investment, 25.5% by SMIC Holdings and 32% by China IC Fund. The remaining equity capital of SMNC is owned by ZDG, IDIMC, CGP Techfund and  E-Town  Capital and none of them owns 10% or more equity capital of SMNC. SMNC is primarily engaged in manufacturing and trading of semiconductor products.

 

As set out in the Letter from the Board, the Company considers that the entry into of the SMNC Centralised Fund Management Agreement and the transactions contemplated thereunder will have the benefits of reducing the Group’s overall debt levels and increasing efficient fund usage, reducing the Group’s interest expense and obtaining favourable exchange rate for the Group.

 

Based on our discussions with the management of the Company, SMIC Beijing is one of the operating subsidiaries of the Group and has taken the centralised fund management function for the Group members. We were given to  understand  that  SMIC Beijing, by leveraging in the economics of scale achieved by the centralisation of the Group’s financial resources, is able to obtain better terms from independent banks and financial institutions in respect of different financial services, such as relatively more favourable interest rate, exchange rate and credit term, than individual Group companies negotiating its own terms.

– 43 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

In addition, by centralising the internal treasury function, the management of the Company considers that the Group can reduce unused loan and the overall debt levels. The internal loan and provision of letter of credit services provided by SMIC Beijing will allow more efficient utilisation of available financial resources of the Group, such as combing the borrowing needs of individual Group companies into a single banking facility. Therefore, the Group can better monitor its treasury and working capital and increase efficient fund usage.

 

In light of the abovementioned, we consider that entering into the SMNC Centralised Fund Management Agreement is in the interest of the Company and the Shareholders as a whole.

 

Pricing policies of the SMNC Centralised Fund Management Agreement

 

As stated in the Letter from the Board, the price of the services provided by SMIC Beijing to SMNC contemplated under the SMNC Centralised Fund Management Agreement will be fair and reasonable under the Listing Rules and determined according to the market principle on an arm’s length basis, subject to compliance with requirements for connected transactions of the Stock Exchange. Under the Group’s existing centralised fund management system, SMIC Beijing collectively procures certain fund management services from third-party banks or financial  institutions. SMIC Beijing will charge its subsidiaries with reference to terms offered by third-party banks or financial institutions for such fund management services.

 

Based on our discussion with the management of the Company and the  information provided, in relation to the Internal Deposit Services and Internal Loan Services, we understand that SMIC Beijing will obtain two or  more written quotes  from third-party commercial banks in the PRC for providing deposit and loan services of the same type during the same period to SMNC. For Internal Deposit Services, the interest rate adopted for SMNC’s deposits with SMIC Beijing will be the same as or lower than the lowest of the interest rates quoted. For Internal Loan Services, the adopted interest rate for SMNC’s loans from SMIC Beijing will be the same as or higher than the highest of the interest rates quoted. The Company understands that the third-party commercial banks will make reference to, and generally seek to be in line with the benchmark interest rates specified by the PBOC for RMB deposits or RMB loans of a similar type. For the purpose of clarification, such benchmark interest rates are guidance rates published by the PBOC from time to time for reference only and will not be adopted even if (in the case of the internal deposit services) it is lower than the lowest of the interest rates quoted by third-party commercial banks in the PRC or (in  the case of the internal loan services) it is higher than the highest of the interest rates quoted by third-party commercial banks in the PRC. The PBOC publishes benchmark interest rates for RMB deposits and RMB loans from time to time which serve as a guidance price for reference only for the commercial banks in the PRC.

 

The Company understands that when determining the interest rates quoted to SMNC, the third-party commercial banks will refer to such PBOC benchmark interest rate for RMB deposits or RMB loans of a similar type and make adjustment based on  the bank’s credit assessment of SMNC. For due diligence purpose, we have reviewed two interest rate quotes from third party commercial banks to SMNC for loan services, and noticed that the interest rate charged to SMNC by the Company is not less  favorable to the loan rates quoted from such banks. In respect of Internal Deposit Services, we have reviewed three bank quotations of deposit rates given by independent banks to the Company for each of the two years ended 31 December 2017 and the  period from 1 January 2018 to 31 October 2018. We note that the deposit rates given to SMNC are no less favourable to the Company when comparing to the

– 44 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

interest rates quoted from the independent banks for deposits of the same type and  duration  at similar time. As the quotation rates given by independent banks to the Company represent market price and are no less favourable to the Company than the rates provided to SMNC by the Company, we consider that the pricing policies for Internal Deposit Services and Internal Loan Services are fair and reasonable.

 

For the terms in respect of the Collection and Payment Services and Foreign Exchange Services, and Provision of Letter of Credit Services will be determined based on arm’s length negotiations by the parties which will not be less favourable to SMIC Beijing than (i) fees charged by SMIC Beijing to other subsidiaries which are not connected persons under the Listing Rules; and (ii) fees charged to SMIC Beijing by other third-party commercial banks or financial institutions providing fund management services to SMIC Beijing for services of the same type during the same period. SMIC Beijing will obtain services of the same type from  third-party  commercial banks or financial institutions first and then use the fees charged to it to determine fees to be charged to SMNC as described above. As advised by the management of the Company, in determining such terms offered to SMNC, SMIC Beijing will make reference to the terms offered by the independent banks and financial institutions, and will not be less favourable to SMIC Beijing than that offered to other wholly-owned subsidiaries.

 

Taking into account (i) SMIC Beijing will obtain two or more written quotes from third-party commercial banks in the PRC for providing Internal Deposit Services and Internal Loan Services of the same type during the same period to SMNC which is consistent with the Group’s approach to its subsidiaries which are not connected person of the Company under its existing centralised fund management system; and (ii) SMIC Beijing will make reference to the terms offered by the independent banks and financial institutions in respect of the Collection and Payment Services and Foreign Exchange Services and Provision of Letter of Credit Services, we are of the view that the pricing of the fund management services under the SMNC Centralised Fund Management Agreement based on quotes obtained from third-party commercial banks or financial institutions could reflect the market rate for such services, and are not less favourable to SMIC Beijing than that offered to other wholly-owned subsidiaries  having compared SMIC Beijing’s treatment to the wholly-owned subsidiaries of the Company under the Group’s existing centralised fund management system, and that   the terms of the SMNC Centralised Fund Management Agreement are fair and reasonable and in the interests of the Company and its Shareholders as a whole.

 

– 45 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

Historical transaction amounts

 

The historical transaction amounts between the Company and SMNC for the transactions contemplated under the  SMNC  Centralised  Fund  Management Agreement are as follows:

 

 

 

 

The Annual Cap

 

The annual caps under the SMNC Centralised Fund Management Agreement are set out below:

 

 

As stated in the Letter from the Board, the aforementioned annual caps are determined based on factors such as the expected increase of fixed assets over the effective period of the SMNC Centralised Fund Management  Agreement;  the  operating cash flow and the financial and practical needs in respect of the business expansion and the future development plan of each of SMNC and  the  Group.  Reference is made to the Company’s circular dated 13 September 2017, the total investment for SMNC, is estimated to be US$7.2 billion and aims to reach a total

– 46 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

manufacturing capacity of 70,000 wafers per month. As stated in the Letter from the Board, the overall development plan of SMNC consists of two fabs, where each of the fabs has a target manufacturing capacity of 35,000 wafers per month. The first fab has reached a manufacturing capacity of 33,000 wafers per month, which we note is close  to the full target capacity of 35,000 wafers per month, while the second fab has yet to commence  operation.  As  advised  by  the  Company,  the  accumulated  investment of SMNC has reached over US$3.5 billion and the schedule of the remaining follow-on investment of approximately US$3.7 billion is subject to changing market conditions and market demand. We are given to understand that the SMNC Centralised Fund Management Agreement Annual Caps are mainly based on such investment plan of SMNC, where details of our analysis of the annual caps are set out below.

 

In respect of the Internal Deposit Services, we notice that historical transaction amounts were approximately US$719.7 million, US$1,182.3 million US$1,297.4 million, for each of the two years ended 31 December 2017 and the period from 1 January 2018 to 31 October 2018, respectively. As advised by the Company, as cash investment is made towards SMNC’s registered capital, SMNC had utilised  the  Internal Deposit Services for cash management purpose. Reference is made to the Company’s circular dated 13 September 2017 in relation to  further  capital contributions towards SMNC. The registered capital  of  SMNC  is  increased  to US$4.8 billion and the total investment of the two fabs of SMNC is estimated to be US$7.2 billion. The investments will be used to fund development, expansion and related needs for equipment of SMNC’s second fab. As advised by the Company, SMNC had received an aggregate of approximately US$3 billion cash capital injection and is expected to receive the remaining of the cash capital injection of approximately US$1.8 billion by 2019. As discussed with the Company, since the investment schedule of SMNC will be adjusted according to the changing market conditions and financial conditions of the Group, the annual caps for the Internal Deposit Services are set at US$2 billion for each of the year ending 31 December 2019, 2020 and 2021 to provide greater cash management flexibility.

 

For the Collection and Payment Services and Foreign Exchange Services, no historical transaction is noted. As discussed with the Company, for the three years ending 31 December 2021, it is expected that SMNC would mainly utilise the Collection and Payment Services and Foreign Exchange Services for payments to suppliers of equipment. As advised by the Company, the follow-on investment of SMNC, which mainly consist of investment to the second fab, will be capital expenditure for equipment and such equipment cost will be over 80% of SMNC’s capital expenditure for the three years from 2019 to 2021. Moreover, the equipment suppliers are mainly foreign companies and the settlement of the equipment purchases will mainly be denominated in foreign currencies, which will require the payment and foreign exchange services. As advised by the Company, though the remaining follow- on investment of SMNC approximates to US$3.7 billion and over 80% will be for purchase of equipment, based on past experience, the expected highest amount of a purchase order for equipment would not exceed US$200 million. As discussed with the Company, it is expected that the daily amount for foreign exchange and payment for equipment purchase order will not exceed US$200 million. Therefore, the maximum daily transaction amount for Collection and Payment Services and Foreign Exchange Services is set at US$200 million for each of the three years ending 31 December 2021, which we consider fair and reasonable.

 

– 47 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

We have discussed with the management of the Company and given to understand that the Internal Loan Services and Provision of Letter of Credit Services annual caps are based on the capital expenditure and business development plan for SMNC. As mentioned earlier the total investment of SMNC is estimated to be US$7.2 billion, and as advised by the Company, SMNC has currently invested approximately US$3.5 billion, and hence a further of approximately US$3.7 billion would be needed for such investment. For the funding of the US$3.7 billion required, the Company had considered SMNC’s remaining US$1.8 billion capital contributions expected to be received by 2019, and the amount of approximately US$1.3 billion cash that SMNC currently deposited with the Company under the Internal Deposit Services. The cash expected to be available for SMNC will therefore approximate to US$3.1 billion and a further of roughly US$600 million will be required for the remaining investment of SMNC. As discussed with the Company, to provide a higher level of flexibility to the funding options for SMNC’s investment plan, internal loans from the  Company are  also make available to SMNC. We have discussed with the management of the  Company and are given to understand that it is also a common practice for other subsidiaries of the Group to utilise the Internal Loan Services, depending on the individual subsidiary’s cash generating ability and payment needs to suppliers. Therefore, the Internal Loan Services annual cap  is  set  at  US$500 million for  each  of the three years ending 31 December 2021, which covers the majority of  the difference between the total outstanding capital expenditure of around US$3.7 billion and the approximate US$3.1 billion of cash SMNC will expect to have. Moreover, for due diligence purpose, we have obtained the historical investment of SMNC’s first fab since its establishment in 2014, and note that the current accumulated capital expenditure is approximately US$3.35 billion. As mentioned earlier, the first fab has reached a manufacturing capacity of 33,000 wafers per month, which is close to the full target capacity of 35,000 wafers per month. Therefore, approximately five years’ time  is required for the first fab to roughly reach full target production capacity. Though    the investment schedule of the second fab is subject to changing market conditions, assuming the second fab would take a similar time of around five years to reach the full target capacity of 35,000 wafers per month and around US$3.6 billion or half of the total investment of US$7.2 billion would be required for the second fab, an average of over US$700 million investment would be required for each year. As such, we consider an Internal Loan Services annual cap of US$500 million provides a flexibility towards SMNC’s investment schedule and is fair and reasonable.

 

Moreover, as mentioned above, the investment costs of SMNC mainly consists of equipment costs, which could be settled by letter of credit. For clarification, for the Provision of Letter of Credit Services, the Company provides the letter of credit on behalf of SMNC for importing equipment, and SMNC will be ultimately responsible   for the settlement of the letter of credit. SMNC may use its own funds or utilise the Internal Loan Services to settle such letter of credit. As discussed with the Company, the Letter of Credit Services from the Company provides an additional option for SMNC’s settlement method and will enable SMNC to take advantage of the high creditability of the Group. As mentioned earlier, the total investment of SMNC is approximately US$7.2 billion and as SMNC has currently invested approximately US$3.5 billion, a further of approximately US$3.7 billion would be needed for such investment. As advised by the Company, based on the aggregate capital expenditure plans of SMNC, it is expected that the accumulative letter of credit amount of up to US$500 million per annum would be required from the Company for settling payments to equipment suppliers. Given the substantial further investment amount of approximately US$3.7 billion of SMNC, we considered the Provision of Letter  of Credit Services cap of US$500 million is fair and reasonable.

 

– 48 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

Taking into account (i) the basis of  annual caps under the SMNC Centralised  Fund Management Agreement; and (ii) the large investment of SMNC, we are of the view that the annual caps under the SMNC Centralised Fund Management Agreement are fair and reasonable and in the interest of the Company and  Shareholders as  a  whole.

 

Internal Control Procedures

 

We have also considered and reviewed the internal control procedures in  respect  of the SMNC Centralised Fund Management Agreement and the SJ Cayman  Centralised Fund Management Agreement. Please refer to  the  section  headed ‘‘(2) The SJ Cayman Centralised Fund Management Agreement — Internal Control Procedures’’ for details and our analysis.

 

Recommendation on the SMNC Centralised Fund Management Agreement

 

Having considered the principal factors and reasons described above, in particular

(i) the Group is able to obtain better interest rates and  exchange  rates  from independent banks and financial institutions in respect of different financial services through SMIC Beijing; (ii) the pricing of the SMNC CCT based on quotes obtained from independent banks or financial institutions could reflect the market terms, and    are not less favourable to SMIC Beijing than that offered to the wholly-owned subsidiaries of the Company; and (iii) the basis of annual caps in relation to the SMNC Centralised Fund Management Agreement are fair and reasonable, we are of the  opinion that the terms of the SMNC Centralised Fund Management Agreement including the annual caps are on normal commercial terms and are fair and reasonable as far as the interests of the Independent Shareholders are concerned, and in the  interests of the Company and its Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to  approve  the SMNC Centralised Fund Management Agreement and the  related annual caps at  the EGM.

 

 

Background of the SJ Cayman Centralised Fund Management Agreement

 

Reference is made to the Company’s announcement dated 6 December 2018, that the Company, SMIC Beijing and SJ Cayman entered into the SJ Cayman Centralised Fund Management Agreement in relation to: (i) the Company authorising its wholly- owned subsidiary SMIC Beijing to carry out centralised management of the Group’s RMB fund and foreign exchange in accordance with the relevant PRC laws and regulations; and (ii) SJ Cayman participating in the Group’s centralised fund management system. SMIC Beijing will provide internal deposit services, collection and payment services, foreign exchange services, internal loan services, provision of letter of credit services and other financial services to SJ Cayman pursuant to the SJ Cayman Centralised Fund Management Agreement.

 

The SJ Cayman CCT will include the following:

 

 

SMIC Beijing provides deposit services and pays interest to SJ Cayman.

 

– 49 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

 

SMIC Beijing serves as the platform for centralised collection and payment activities and foreign exchange activities of the Group. SJ Cayman may carry out such activities by itself or through SMIC Beijing.

 

 

SMIC Beijing provides internal loan services to SJ Cayman in accordance with PRC laws, regulations and policies.

 

 

Letter of Credit Services will be utilised as a settlement instrument through which the Company will utilise its overseas credit lines to provide letter of credit on behalf of SJ Cayman for importing equipment in accordance with PRC laws, regulations and policies.

 

 

SMIC Beijing provides other financial services to SJ Cayman in accordance with PRC laws, regulations and policies.

 

Reasons for and benefit of the SJ Cayman Centralised Fund Management Agreement

 

As stated in the Letter from the Board, SJ Cayman wholly owns SJ Hong Kong, which in turn wholly owns SJ Jiangyin. SJ Jiangyin was founded in November 2014 in Jiangyin, Jiangsu Province of the PRC. SJ Cayman, SJ Hong Kong, SJ USA and SJ Jiangyin will serve as the leading play Middle-End-Of-Line (MEOL) entity that focuses on advanced bumping production. Complementing nearby advanced  back-end  assembly infrastructure, SJ Jiangyin aims to be an important key to forming a local integrated circuit ecosystem, providing a convenient one-stop service to supply high quality and efficient chips for local and international customers, as well as help strengthen their global competitiveness.

 

As set out in the Letter from the Board, the Company considers that the entry into of the SJ Cayman Centralised Fund Management Agreement and the transactions contemplated thereunder will have the benefits of reducing the Group’s overall debt levels and increasing efficient fund usage, reducing the Group’s interest expense and obtaining favourable exchange rate for the Group.

 

Based on our discussions with the management of the Company, SMIC Beijing is one of the operating subsidiaries of the Group and has taken the centralised fund management function for the Group members. We were given to  understand  that  SMIC Beijing, by leveraging in the economics of scale achieved by the centralisation of the Group’s financial resources, is able to obtain better terms from independent banks and financial institutions in respect of different financial services, such as relatively more favourable interest rate, exchange rate and credit term, than individual Group companies negotiating its own terms.

 

In addition, by centralising the internal treasury function, the management of the Company considers that the Group can reduce unused loan and the overall debt levels. The internal loan and provision of letter of credit services provided by SMIC Beijing will allow more efficient utilisation of available financial resources of the Group, such as combing the borrowing needs of individual Group companies into a single banking facility. Therefore, the Group can better monitor its treasury and working capital and increase efficient fund usage.

– 50 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

 

In light of the abovementioned, we consider that entering into the SJ Cayman Centralised Fund Management Agreement is in the interest of the Company and the Shareholders as a whole.

 

Pricing policies of the SJ Cayman Centralised Fund Management Agreement

 

As stated in the Letter from the Board, the price of the services provided by SMIC Beijing to SJ Cayman contemplated under the SJ Cayman Centralised Fund Management Agreement will be fair and reasonable under the Listing Rules and determined according to the market principle on an arm’s length basis, subject to compliance with requirements for connected transactions of the Stock  Exchange.  Under the Group’s existing centralised fund management system, SMIC Beijing collectively procures certain fund management services from third-party banks or financial institutions. SMIC Beijing will charge its subsidiaries with reference to terms offered by third-party banks or financial institutions for such fund management  services.

 

Based on our discussion with the management of the Company and the  information provided, in relation to the Internal Deposit Services and Internal Loan Services, we understand that SMIC Beijing will obtain two or  more written quotes  from third-party commercial banks in the PRC for providing deposit and loan services of the same type during the same period to SJ Cayman. For Internal Deposit Services, the interest rate adopted for SJ Cayman’s deposits with SMIC Beijing will be the same as or lower than the lowest of the interest rates quoted. For Internal Loan Services, the adopted interest rate for SJ Cayman’s loans from SMIC Beijing will be the same as or higher than the highest of the interest rates quoted. The Company understands that the third-party commercial banks will make reference to, and generally seek to be in line with the benchmark interest rates specified by the PBOC for RMB deposits or RMB loans of a similar type. For the purpose of clarification, such benchmark interest rates are guidance rates published by the PBOC from time to time for reference only and will not be adopted even if (in the case of the internal deposit services) it is lower than the lowest of the interest rates quoted by third-party commercial banks in the PRC or (in  the case of the internal loan services) it is higher than the highest of the interest rates quoted by third-party commercial banks in the PRC. The PBOC publishes benchmark interest rates for RMB deposits and RMB loans from time to time which serve as a guidance price for reference only for the commercial banks in the PRC.

 

The Company understands that when determining the interest rates quoted to SJ Cayman, the third-party commercial banks will refer to  such  PBOC  benchmark interest rate for RMB deposits or RMB loans of a similar type and make adjustment based on the bank’s credit assessment of SJ Cayman. In respect of Internal Deposit Services, we have reviewed a total of six bank quotations of deposit rates given by independent banks to the Company during the two years ended 31 December 2017 and the period from 1 January 2018 to 31 October 2018. We note that the interest rates  given to SJ Cayman are no less favourable to the Company when comparing to the interest rates quoted from the independent banks for deposits of the same type and duration at similar time. Given that SMIC Beijing will obtain two or more written quotes from third-party commercial banks in the PRC for providing deposit services  and loan services of the same type during the same period to SJ Cayman which is consistent with the Group’s existing centralised fund management system for deposit service, we consider that the pricing policy for internal deposit and internal  loan services is fair and reasonable.

 

– 51 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

For the terms in respect of the Collection and Payment Services and Foreign Exchange Services, and Provision of Letter of Credit Services will be determined based on arm’s length negotiations by the parties which will not be less favourable to SMIC Beijing than (i) fees charged by SMIC Beijing to other subsidiaries which are not connected persons under the Listing Rules; and (ii) fees charged to SMIC Beijing by other third-party commercial banks or financial institutions providing  fund management services to SMIC Beijing for services of the same type during the same period. SMIC Beijing will obtain services of the same type from  third-party  commercial banks or financial institutions first and then use the fees charged to it to determine fees to be charged to SJ Cayman as described above. As advised by the management of the Company, in determining such terms offered to SJ Cayman, SMIC Beijing will make reference to the terms offered by the independent banks and financial institutions, and will not be less favourable to SMIC Beijing than that offered to other wholly-owned subsidiaries. We have reviewed three letter of credit bank advices issued by independent banks to the Company which were issued on behalf of SJ Cayman. We note that the letter of credit issuance fees charged by the Company to SJ Cayman are  the same as the fees charged by the independent banks. As the price offered by independent banks represents market price, the price offered to SJ Cayman is no less favourable to the Company as compared with the market price offered by independent third parties to the Company.

 

Taking into account (i) SMIC Beijing will obtain two or more written quotes from third-party commercial banks in the PRC for providing Internal Deposit Services and Internal Loan Services of the same type during the same period to SJ Cayman which is consistent with the Group’s approach to its subsidiaries which are not  connected  person of the Company under its existing centralised fund management system; and (ii) SMIC Beijing will make reference to the terms offered by the independent banks and financial institutions in respect of the Collection and Payment Services and Foreign Exchange Services and Provision of Letter of Credit Services, we are of the view that the pricing of the fund management services under the SJ Cayman Centralised Fund Management Agreement based on quotes obtained from third-party commercial banks or financial institutions could reflect the market rate for such services, and are not less favourable to SMIC Beijing than that offered to other wholly-owned subsidiaries  having compared SMIC Beijing’s treatment to the wholly-owned subsidiaries of the Company under the Group’s existing centralised fund management system, and that   the terms of the SJ Cayman Centralised Fund Management Agreement are fair and reasonable and in the interests of the Company and its Shareholders as a whole.

 

– 52 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

Historical transaction amounts

 

The historical transaction amounts between the Company and SJ Jiangyin for the transactions contemplated under the 2016 SJ Jiangyin Centralised Fund Management Agreement are as follows:

 

 

Notes:

 

 

 

 

– 53 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

The Annual Cap

 

The annual caps under the SJ Cayman Centralised Fund Management Agreement are set out below:

 

 

As stated in the Letter from the Board, the aforementioned annual caps are determined based on factors such as the expected increase of fixed assets over the effective period of the SJ Cayman Centralised Fund Management Agreement; the operating cash flow and the financial and practical needs in respect of the business expansion and the future development plan of each of SJ Cayman and the Group.

 

In respect of the Internal Deposit Services, we notice that historical transaction amounts were approximately US$93.2 million, US$147.2 million US$137.9 million, for each of the two years ended 31 December 2017 and the period from 1 January 2018 to 31 October 2018, respectively, which shows an increasing trend. We also notice that the annual cap for each of the three years ending 31 December 2021 in respect of Internal Deposit Services is US$130 million. As advised by the Company, the historical amount for 2018 of approximately US$137.9 million represents the highest daily balance, which was in the first quarter of 2018. The current balance of the internal deposit of SJ Cayman with the Company is approximately US$69 million. As discussed with the Company, the decrease in the internal deposit balance was due to investment made in relation to SJ Cayman’s expansion plan. As discussed with the Company, SJ Cayman had approximately US$37 million cash balance currently. Therefore, SJ Cayman’s own cash balance, together with its internal deposits with the Company amount to over US$100 million. As such, the annual cap for Internal Deposit Services is set at US$130 million for each of the three years ending 31 December 2021, which provides a reasonable buffer to cater for SJ Cayman’s business expansion.

 

For the Collection and Payment Services and Foreign Exchange Services, no historical transaction is noted. As discussed with the Company, for the three years ending 31 December 2021, it is expected that SJ Cayman would mainly utilise the Collection and Payment Services and Foreign Exchange Services for its capital expenditure, which mainly includes exchanging funds into foreign currencies for payments to suppliers of equipment. Reference is made to  the Company’s circular  dated 7 June 2016 in relation to the 2016 SJ Jiangyin Centralised Fund

– 54 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

Management Agreement. As advised by the Company, the planned total investment of SJ Cayman together with its subsidiaries, which include its main operating subsidiary SJ Jiangyin,  is approximately US$1.2 billion. As advised by the Company, the current total investment of SJ Cayman is approximately US$230 million and the remaining capital expenditure of approximately US$1 billion would be made subject to  market  conditions and financial conditions of the  Group.  The  planned  capital  expenditure for SJ Cayman is approximately US$100 million for the year ending 31  December 2019, and will remain at a similar level of approximately US$100 million for each of  the years ending 31 December 2020 and 2021. As advised by the Company, as the investment schedule of SJ Cayman will be adjusted according to the changing market conditions and financial conditions of the Group, the maximum daily transaction amount for Collection and Payment Services and Foreign Exchange Services is set at US$130 million for each of the three years ending 31 December 2021. Given the large capital expenditure of SJ Cayman, we consider a cap of US$130 million would provide a flexibility to the investment schedule to SJ Cayman which would expedite or slow down according to market conditions and financial conditions of the Group.

 

We have discussed with the management of the Company and given to understand that the Internal Loan Services and Provision of Letter of Credit Services are based on the capital expenditure and business development plan for SJ Cayman. As mentioned earlier, the planned total investment of SJ Cayman is  approximately US$1.2 billion  and the current total investment of SJ Cayman is approximately US$230 million. As advised by the Company, the planned capital expenditure for each of the three years ending 31 December 2021 is approximately US$100 million. As advised by the Company, SJ Cayman’s internal deposit placed with the Company amounted to approximately US$69 million currently. Since the deposits are in turn placed with  banks as timed deposits, the Internal Loan Services from the Company could provide a greater flexibility for SJ Cayman’s cash management. Further, the  capital  contributions for SJ Cayman had been fully received,  and  currently  there  is  no  future plan of capital contribution to be made. As the capital expenditure is subject to the investment schedule to SJ Cayman which would expedite or  slow down according to market conditions and financial conditions of the Group, where the planned capital expenditure of a year could be brought forward or postponed, and SJ Cayman would require cash for its working capital, it is expected that SJ Cayman would require Internal Loan Services for an amount up to US$130 million for each of the year ending 31 December 2021. As discussed with the Company, such annual cap of  US$130 million had considered the planned capital expenditure of around US$100 million for each of the three years and a buffer for SJ Cayman’s operating needs. Moreover, the Company advised that the investment costs of SJ Cayman mainly  consists  of equipment costs, which could be settled by letter of credit. As discussed with the Company, it is also a common practice for other subsidiaries of the Group to utilise the Letter of Credit Services, depending on the individual subsidiary’s payment needs to suppliers and its own facility lines. For clarification, for the Provision of Letter of Credit Services, the Company provides the letter of credit on behalf of SJ Cayman for importing equipment, and SJ Cayman will be ultimately responsible for the settlement of the letter of credit. SJ Cayman may use its own funds or utilise the Internal Loan Services to settle such letter of credit. As advised by the Company, it is expected that letter of credit of an amount of up to US$130 million per annum would be  required from the Company for settling payments to equipment suppliers for SJ Cayman. Considering the total investment, capital expenditures and working capital needs of SJ Cayman, we consider an annual cap of US$130 million for each of the three years ending 31 December 2021 for each of the Internal Loan Services and Provision of  Letter of Credit Services is fair and reasonable.

 

– 55 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

Taking into account (i) the basis of annual caps under the SJ Cayman Centralised Fund Management Agreement; and (ii) the large investment of SJ Cayman, we are of  the view that the annual caps under the SJ Cayman Centralised Fund Management Agreement are fair and reasonable and in the interest of the Company  and  Shareholders as a whole.

 

Internal Control Procedures

 

The Company has in place a series of internal control measures to ensure that the terms of the SMNC Centralised Fund Management Agreement and the SJ Cayman Centralised Fund Management Agreement are fair and reasonable and that the SMNC CCT and SJ Cayman CCT will be conducted on normal commercial terms. As the SMNC CCT and SJ Cayman CCT also constitute related party transactions for the Company, they will be subject to the related party transaction policy of the Group, which is further explained below.

 

 

 

 

 

– 56 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

We have reviewed the Group’s internal control policy regarding intra-group  related party transactions and noted resolutions of the Review Committee should be effective with the approval by half of the committee members. In addition, the  Company will periodically review the pricing policy at least quarterly to ensure the SMNC CCT and SJ Cayman CCT are in accordance with the respective  pricing  policies. Other than that, as advised by the Company, for both of the SMNC CCT and the SJ Cayman CCT, the Company, SMNC and SJ Cayman maintain separate business units, and therefore separate personnel to ensure segregation of duties, which we consider is effective in ensuring the transactions are conducted on normal commercial terms. We are of the view that the above internal control procedures are sufficient to ensure that the transactions conducted under the SMNC  Centralised  Fund  Management Agreement and the SJ Cayman Centralised  Fund  Management  Agreement will be conducted on normal commercial terms or better, and will not be prejudicial to the interests of the Company and the Shareholders.

 

Recommendation on the SJ Cayman Centralised Fund Management Agreement

 

Having considered the principal factors and reasons described above, in particular

(i) the Group is able to obtain better interest rates and  exchange  rates  from independent banks and financial institutions in respect of different financial services through SMIC Beijing; (ii) the pricing of the SJ Cayman CCT based on  quotes  obtained from independent banks or financial institutions could reflect the  market terms, and are not less favourable to SMIC Beijing than that offered to the wholly- owned subsidiaries of the Company; and (iii) the basis of annual caps in relation to the SJ Cayman Centralised Fund Management Agreement are fair and reasonable, we  are  of the opinion that the terms of the SJ Cayman Centralised Fund Management Agreement including the annual caps are on normal commercial terms and are fair and reasonable as far as  the interests of  the Independent Shareholders are concerned, and  in the interests of the Company and its Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of  the ordinary resolution  to approve the SJ Cayman Centralised Fund Management Agreement and the related annual caps at the EGM.

 

 

Background of and reasons for the Proposed RSU Grants

 

Reference is made to the Company’s announcement dated 13 September 2018 pursuant to which the Company proposes to grant 375,000 Restricted  Share  Units under the 2014 Equity Incentive Plan, subject to the Independent Shareholders’ approval at the EGM. Among the 375,000 Restricted Share Units to be  granted,  187,500 Restricted Share Units will be granted to Professor Lau and 187,500 Restricted Share Units will be granted to Mr. Fan. Each of the Restricted Share Units to  be granted to Professor Lau and Mr. Fan represents the right to receive one Share on the date it vests. It is intended that Restricted Share Units to be granted to Professor Lau  and Mr. Fan will vest over a period of three years at the rate of 33%, 33% and 34% for each 12 month period commencing on the date on which the relevant Director commenced his term of office as independent non-executive Director.

 

Furthermore, the Company conditionally granted an aggregate of 375,000 share options (the ‘‘Share Options’’) under its 2014 Stock Option Plan to subscribe  for Shares, subject to acceptance of the grantees and compliance with applicable laws and regulations. Among the share options granted, 187,500 share options were granted to Professor Lau and 187,500 share options were granted to Mr. Fan.

– 57 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

As stated in the Letter from the Board, the Proposed RSU Grants are part of the Company’s remuneration system, the purpose of which is to closely align the interests and benefits of and risk sharing among the Shareholders, the Company and the employees in order to maximise the motivation of the Directors. The proposed RSU Grants to Professor Lau and Mr. Fan aim to provide sufficient incentives to attract and motivate them to remain with, and to strive for the future development and expansion of the Group. Furthermore, there will not be substantial cash outflow by the Company under the Proposed RSU Grants.

 

Reference is made to the circulars of the Company dated 7 June 2016 and 18 November 2016 respectively, relating to its revised Board policy (the ‘‘Revised Board Policy’’) which provides for an on-board grant to be made to new Directors. The on- board grant to new non-executive Directors (including the independent non-executive Directors) (the ‘‘On-board Grant’’) is fixed in accordance with a percentage of 75% of the fixed sum of the most recent on-board grant prior to the Revised Board Policy  which was made to an independent non-executive Director. The amounts of the Proposed RSU Grants have been calculated using the relevant methods of calculation set out below and then divided by 10 to reflect the Company’s 10-to-1 share consolidation, which became effective on 7 December 2016, after the implementation  of the Revised Board Policy.

 

Below sets out the basis for determining the number of Restricted Share Units to  be granted to Professor Lau and Mr. Fan:

 

 

 

As the On-board Grant comprises a combination of 50% share options and 50% Restricted Share Units, the Proposed RSU Grant applicable to Professor Lau is 50% of 375,000 shares under the On-board Grant, that is, 187,500 Restricted Share Units.

 

 

 

As the On-board Grant comprises a combination of 50% share options and 50% Restricted Share Units, the Proposed RSU Grant applicable to Mr. Fan is 50% of 375,000 shares under the On-board Grant, that is, 187,500 Restricted Share Units.

 

Notes:

 

– 58 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

 

 

 

As understood from the Company, if a Restricted Share Units holder  resigns before the vesting of the Restricted Share Units granted under the 2014 Equity  Incentive Plan, the unvested Restricted Share Units will be subject to forfeiture. Therefore we consider that such vesting mechanism of the grants could serve the purpose to retain the Directors over the vesting period by providing incentive  to  remain in the Group before the full vesting of the Restricted Share Units under the   2014 Equity Incentive Plan.

 

For our due diligence purpose, we have reviewed the background and duties of Professor Lau and Mr. Fan in the Group. Based on the biographies as set out in the Company’s announcement dated 22 June 2018 in relation to the appointment of Professor Lau and Mr. Fan as independent non-executive directors, we notice that Professor Lau has strong academic background in economics and also serves as independent non-executive director of AIA Group Limited (Stock Code: 4457), CNOOC Limited (Stock Code: 0883), and Hysan Development Company Limited (Stock Code: 0014), all listed on the Hong Kong Stock Exchange, and Far EasTone Telecommunications Company Limited (Taiwan: 4904), Taipei, which is listed on the Taiwan Stock Exchange. Similarly, Mr. Fan also serves as independent non-executive director for over five listed companies in Hong Kong. As such, we consider that Professor Lau’s and Mr. Fan’s experience in other listed companies allows them to  have strong understanding in corporate governance system.

 

We notice that Professor Lau is a member of each of the Compensation  Committee, Nomination Committee and the  Strategic Advisory Committee.  Mr.  Fan, is the chairman of the Audit Committee and a member of the Nomination Committee. As advised by the management of the Company, the responsibilities of the Strategic Advisory Committee include (i) to evaluate and consider any strategic alternative; (ii)  to contribute and participate in discussions with potential strategic  partners  with respect to any strategic alternative; and (iii) to make  recommendations to the Board  and the management of the Company with respect to any strategic alternative, with  such strategic alternative essential to the Group’s business development. While the Audit Committee is responsible for but not limited to (i) reviewing reports from the Company’s independent auditor regarding the independent auditor’s internal quality- control procedures; (ii) reviewing the Company’s annual, interim and quarterly financial statements and earnings releases; and (iii) reviewing the Company’s internal controls, risk assessment and management policies. As such, we are of the opinion that it is justifiable to attract and retain Professor Lau and Mr. Fan through the Proposed RSU Grants.

 

 

– 59 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

Principal terms of the Proposed RSU Grants

 

The Restricted Share Units

 

Each of the Restricted Share Units to be granted to Professor Lau and Mr. Fan represents the right to receive a Share on the date it vests. In accordance with the terms of the 2014 Equity Incentive Plan, the Proposed RSU Grants will be made for no consideration, other than the minimum payment required by the applicable law in the Cayman Islands (which is the par value of the Shares to be issued pursuant thereto).

 

Consideration of the Proposed RSU Grants

 

In accordance with the terms of the 2014 Equity Incentive Plan,  the  Proposed RSU Grants will be made for no consideration, other than the minimum payment required by the applicable law in the Cayman Islands. We understand that the  Restricted Share Units are granted as compensation for service or performance to attract, retain and motivate employees and directors of, and other service providers to, the Company, and to allow them to participate in the growth and profits of the Company.

 

We intend to quantify and analyse the remuneration of each of Professor Lau and Mr. Fan for the first full vesting year. We have obtained estimations from  the  Company on the expenses (collectively known as the ‘‘Expenses’’) to be incurred for the grant/issue of the Restricted Share Units under the Proposed RSU  Grants  and  the Share Options, which in our view reflects the value of such incentives to be provided. Based on the closing prices per Share as quoted on the Stock Exchange on the grant date, the estimated Expenses relating to Professor Lau and Mr. Fan  were  approximately US$209,000 and US$209,000 respectively. The Expenses are  estimations only and are unaudited and do not represent  the  expenses  to  be  recognised in the financial statements of the Company. The aggregated remuneration (comprising cash compensation as set out in the Company’s announcement dated 22 June 2018 and the  Expenses,  (the  ‘‘Aggregate  Remuneration’’) of each of Professor Lau and Mr. Fan for the first full vesting year      is set out below:

 

 

– 60 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

Set out below are the analysis on the Aggregated Remuneration of  the Company  as compared with the key financial figures of the Group. The ratio calculations of the Company are as follows:

 

 

= Aggregated Remuneration 7 Revenue for the year ended 31 December 2017

 

= (Cash compensation + Estimated expenses for the Proposed RSU Grants and the Share Options) 7 Revenue for the year ended 31 December 2017

 

 

= Aggregated Remuneration 7 Profit after tax for the year ended 31 December 2017

 

= (Cash compensation + Estimated expenses for the Proposed RSU Grants and the Share Options) 7 Profit after tax for the year ended 31 December 2017

 

 

 

= (Cash compensation + Estimated expenses for the Proposed RSU Grants and the Share Options) 7 Total equity as at 30 June 2018

 

 

Notes:

 

 

As shown from the table above, for illustrative purpose, the Aggregated Remuneration of each of Professor Lau and Mr. Fan represents an insignificant amount of the revenue of the Group (less than 0.01% of the revenue) for the year ended 31 December 2017, and also represents an insignificant amount of the net profit of the Group (only about 0.2% of the net profit) for the year ended 31 December 2017, which we consider a commercially justifiable incentive reward for attract and motivate them to remain with the Group.

 

– 61 –

---

 

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

 

 

We consider that the number of Restricted Share Units granted to each of  Professor Lau and Mr. Fan are fair and reasonable, and  that  the  Proposed  RSU  Grants at no consideration, other than the minimum payment required by  the  applicable law in the Cayman Islands (which is the par value of the Shares to be issued pursuant thereto), is acceptable. Having considered the principal terms of the Proposed RSU Grants as highlighted above, we are of the opinion that the terms of the Proposed RSU Grants are fair and reasonable so far as the Independent Shareholders are concerned.

 

Recommendation on the Proposed RSU Grants

 

Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the Proposed RSU Grants to the relevant connected grantees are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) the Proposed RSU Grants are in the interests of the Company and the Shareholders as a whole. Accordingly,  we  recommend the Independent Board Committee to  advise  the  Independent Shareholders to vote in favour of the resolutions to be proposed at the  EGM  to  approve the Proposed RSU Grants and the  transactions contemplated thereunder and  we recommend the Independent Shareholders to vote in favour of the  resolutions in  this regard.

 

 

Note: Mr. Wallace Cheung is a licensed person registered with the Securities and Future Commission of Hong Kong
and a responsible officer of Messis Capital Limited to carry out type 6 (advising on corporate finance)
regulated activities under the SFO and has over 8 years of experience in the corporate finance industry.

 

 

 

– 62 –

---

 

 

 

 

RESPONSIBILITY STATEMENT

 

This circular, 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 the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular 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 circular misleading.

 

DISCLOSURE OF INTERESTS

 

 

As at the Latest Practicable Date, the interests or short positions of the Directors and  the chief executive officer in the Shares, underlying Shares and debentures of the Company or any of its associated corporation (within the meaning of Part XV  of  the  SFO), which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to  have under such provisions of the SFO), and as recorded in the register required to be kept under section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers were as follows:

 

 

 

– 63 –

---

 

 

 

 

 

 

Notes:

 

 

 

 

 

– 64 –

---

 

 

 

 

 

 

– 65 –

---

 

 

 

 

 

 

 

 

 

 

 

– 66 –

---

 

 

 

 

 

 

 

 

 

– 67 –

---

 

 

 

 

Save as disclosed below, the Directors are not aware that there was  any party who, as  at the Latest Practicable Date, had an interest or short position in  the  Shares  and  underlying Shares of the Company which would fall to be disclosed under Divisions 2 and 3 of Part XV of the SFO, or who was directly or indirectly interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company and its subsidiaries:

 

 

 

Notes:

 

 

 

 

 

– 68 –

---

 

 

 

 

 

 

 

 

 

– 69 –

---

 

 

 

MATERIAL CHANGES

 

As at the Latest Practicable Date, the Directors were not aware of any material adverse changes in the financial and trading position of the Group since 31 December 2017, the date of the latest published audited accounts of the Group.

 

LITIGATION AND CLAIMS

 

As at the Latest Practicable Date, the Directors were not aware of any litigation or claims of material importance pending or threatened against any member of the Group.

 

DIRECTORS’ INTEREST IN SERVICE CONTRACTS

 

None of the Directors has entered into a service contract with any member of  the  Group (excluding contracts expiring or determinable within one year without payment of compensation (other than statutory compensation)).

 

OTHER INTERESTS OF THE DIRECTORS

 

As at the Latest Practicable Date:

 

 

 

 

 

EXPERT AND CONSENT

 

The following is the qualification of the Independent Financial Adviser which has  given opinions or advice contained in this circular:

 

– 70 –

---

 

 

 

 

As at the Latest Practicable Date, Messis Capital Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of  its  statements, letter, report and opinion (as the case may be) as set out in this circular and references to its name in the form and context in which they are included.

 

As at the Latest Practicable Date, Messis Capital Limited was not  beneficially interested in the share capital of any member of the Group and did not have any right, whether legally enforceable or not, to subscribe for or nominate persons to subscribe for securities of any member of the Group.

 

As at the Latest Practicable Date, Messis Capital Limited did not have any direct or indirect interest in any assets which have been, since 31 December 2017, the date of the latest published audited accounts of the Company, acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

 

The letter from Messis Capital Limited dated 21 December 2018 is set out on pages 38 to 65 for incorporation herein.

 

MISCELLANEOUS

 

The Company has two joint company secretaries, Dr. Gao Yonggang and Dr. Liu Wei.

 

Dr. Gao graduated from Nankai University with a PhD in management. He is the chief financial officer of the Company. Dr. Gao is also a Fellow of the Institute of Chartered Accountants in Australia, and a Founding Member and director of The Hong Kong Independent Non-Executive Director Association.

 

Dr. Liu graduated from the Northwest University of China, the Chinese University of Political Science and Law and the University of Cambridge with a bachelor in Chinese literature, a master degree in law and a PhD in law respectively. Dr. Liu has PRC lawyer qualification and is a solicitor qualified to practice law in Hong Kong and England and Wales.

 

The registered office of the Company is Cricket Square, Hutchins Drive, P.O. Box  2681, Grand Cayman, KY1-1111, Cayman Islands and the head office of the Company is 18 Zhangjiang Road, Pu Dong New Area, Shanghai 201203, People’s Republic of China.

 

DOCUMENTS AVAILABLE FOR INSPECTION

 

Copies of the following documents will be available for inspection at Suite 3003, 30th Floor, 9 Queen’s Road Central, Hong Kong during normal business hours on any weekday, excluding public holidays, from 27 December 2018 to 11 January 2019 (both days inclusive):

 

– 71 –

---

 

 

 

 

 

 

 

 

 

 

 

 

 

– 72 –

---

 

 

NOTICE OF EXTRAORDINARY GENERAL MEETING

 

 

 

Semiconductor Manufacturing International Corporation

中 芯 國 際 集 成 電 路 製 造 有 限 公 司 *

(Incorporated in the Cayman Islands with limited liability)

(Stock  Code: 981)

 

NOTICE OF EXTRAORDINARY GENERAL MEETING

 

NOTICE IS HEREBY GIVEN THAT an extraordinary general meeting (‘‘EGM’’) of Semiconductor Manufacturing International Corporation (the ‘‘Company’’) will be held at 5 Floor SO1 Building, 18 Zhangjiang Road, Pu Dong New Area, Shanghai, People’s Republic of China on 11 January 2019 at 9 : 00 a.m. for the purpose of transacting the following businesses:

 

ORDINARY RESOLUTIONS

 

To consider and, if thought fit, to pass with or without modification the following ordinary resolutions:

 

 

 

 

 

– 73 –

---

 

NOTICE OF EXTRAORDINARY GENERAL MEETING

 

 

modification of  the SMNC Centralised Fund Management Agreement and  the transactions contemplated thereunder upon such terms and conditions as the board of directors of the Company may think fit.’’

 

 

 

 

 

 

 

 

– 74 –

---

 

NOTICE OF EXTRAORDINARY GENERAL MEETING

 

 

 

 

 

 

By Order of the Board

Semiconductor Manufacturing International Corporation Gao Yonggang

Executive Director, Chief Financial Officer and Joint Company Secretary

 

Shanghai, 21 December 2018

 

Principal place of business:

18 Zhangjiang Road Pu Dong New Area Shanghai 201203

People’s Republic of China

 

Registered office:

Cricket Square, Hutchins Drive

P.O. Box 2681

Grand Cayman KY1-1111 Cayman Islands

 

As at the date of this notice, the Board comprises four executive Directors, namely Dr. Zhou Zixue (Chairman), Dr. Zhao Haijun (Co-Chief Executive Officer), Dr. Liang Mong Song (Co-Chief Executive Officer) and Dr. Gao Yonggang (Chief Financial Officer and Joint Company Secretary); five non-executive Directors, namely Dr. Chen Shanzhi, Mr. Zhou Jie, Mr. Ren Kai, Mr. Lu Jun and Dr. Tong Guohua; and five independent non-executive Directors, namely Mr. William Tudor Brown, Dr. Chiang Shang-yi, Dr. Cong Jingsheng Jason, Professor Lau Lawrence Juen-Yee and Mr. Fan Ren Da Anthony.

Notes:

 

 

– 75 –

---

 

NOTICE OF EXTRAORDINARY GENERAL MEETING

 

 

 

 

 

– 76 –