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Corporate Governance

Director's Report

The directors have pleasure in presenting to shareholders their report for the year ended 31 December 2016.

Principal Activities

The Company is the largest conglomerate in China. The principal activity of the Company is investment holding and its subsidiaries are engaged in financial services, resources and energy, manufacturing, engineering contracting and real estate as well as other businesses both in China and overseas.

Dividends

The directors declared an interim dividend of HK$0.10 per share (2015: HK$0.10 per share) for the year ended 31 December 2016 which was paid on 30 September 2016. The directors recommended, subject to approval of the shareholders at the forthcoming annual general meeting of the Company to be held on 13 June 2017 (the “2017 AGM”), the payment of a final dividend of HK$0.23 per share (2015: HK$0.20 per share) in respect of the year ended 31 December 2016, payable on Friday, 30 June 2017 to shareholders on the Company’s register of members at the close of business on 21 June 2017. This represents a total distribution for the year of HK$9,600 million.

Business Review

The business review of the Group for the year ended 31 December 2016 and the material factors underlying its results and financial position are set out in the sections headed “Chairman’s Letter to Shareholders”, “Our Businesses” and “Financial Review” respectively from pages 4 to 7, pages 8 to 63, and pages 64 to 74 of this annual report.

Description of the principal risks and uncertainties facing the Group can be found in the “Risk Management” section from pages 75 to 79 of this annual report. Particulars of important events affecting the Company that have occurred since the end of the financial year 2016 (if any) and the likely future development in the Company’s business can also be found in this annual report.

In addition, an account of the Company’s performance by reference to environmental and social-related policies is provided in the “Environmental, Social and Governance Report” from pages 135 to 155 of this annual report.

Share Capital and Reserves

Movements in the share capital and reserves of the Company and the Group during the year are set out in Note 44 to the consolidated financial statements.

Donations

Donations made by the Company and its subsidiary companies during the year are set out in the “Environmental, Social and Governance Report” of this annual report.

Fixed Assets

Movements in fixed assets during the year are set out in Note 32 to the consolidated financial statements.

Major Customers and Suppliers

During the year, both the aggregate percentage of purchases from the Company and its subsidiary companies’ five largest suppliers and the aggregate percentage of sales to the Company and its subsidiary companies’ five largest customers were less than 30%.

None of the directors, their associates nor any shareholders (which to the best knowledge and belief of the directors own more than 5% of the Company’s issued shares) had interest during the year in the above suppliers or customers.

Subsidiary Companies

The name of the principal subsidiaries, the place of incorporation and shares issued are set out in Note 57 to the consolidated financial statements.

Borrowings, Debt Instruments Issued and Perpetual Capital Securities

Particulars of borrowings, debt instruments issued and perpetual capital securities of the Company and its subsidiary companies as at 31 December 2016 are set out in Notes 41, 42 and 44 to the consolidated financial statements.

Equity-linked Agreements

Save as disclosed below in the section headed “Share Option Plan Adopted by the Company”, no equity-linked agreements that will or may result in the Company issuing shares or that require the Company to enter into any agreements that will or may result in the Company issuing shares were entered into by the Company during the year or subsisted at the end of the year.

Directors

The directors of the Company as at the date of this report are:

Executive Directors
Mr Chang Zhenming (Chairman)
Mr Wang Jiong (Vice Chairman and President)
Ms Li Qingping
Mr Pu Jian
Non-executive Directors
Mr Yang Jinming
Mr Liu Yeqiao
Mr Song Kangle (appointed on 18 March 2016)
Ms Yan Shuqin (appointed on 12 April 2016)
Mr Liu Zhongyuan
Mr Yang Xiaoping
Independent Non-executive Directors
Mr Francis Siu Wai Keung
Dr Xu Jinwu
Mr Anthony Francis Neoh
Ms Lee Boo Jin
Mr Noriharu Fujita
Mr Paul Chow Man Yiu (appointed on 18 March 2016)

Ms Cao Pu and Mr Yu Zhensheng retired as non-executive directors of the Company with effect from 18 March 2016 and 12 April 2016 respectively. Mr Li Rucheng was appointed as a non-executive director of the Company on 18 March 2016 and subsequently resigned with effect from 20 December 2016. Ms Cao, Mr Yu and Mr Li have confirmed that they have no disagreement with the board and nothing relating to the affairs of the Company needs to be brought to the attention of the shareholders of the Company.

Pursuant to Article 95 of the Company’s articles of association, Mr Song Kangle, Ms Yan Shuqin and Mr Paul Chow Man Yiu who were appointed as directors of the Company during the year shall hold office only until the next following annual general meeting, or if earlier, the next following extraordinary general meeting of the Company and then shall be eligible for re-election at such meeting. All of the above directors were re-elected at the annual general meeting held on 8 June 2016.

Pursuant to Article 104(A) of the Company’s articles of association, Mr Chang Zhenming, Mr Liu Yeqiao, Mr Liu Zhongyuan, Dr Xu Jinwu and Ms Lee Boo Jin shall retire by rotation and, all being eligible, offer themselves for re-election at the 2017 AGM.

The biographical details of directors and senior management as at the date of this report are set out in the “Board of Directors” and “Senior Management” sections on pages 109 to 113 of this annual report.

Directors of Subsidiaries

The list of directors who have served on the boards of the subsidiaries of the Company during the year and up to the date of this report is available on the Company’s website at www.citic.com.

Directors’ Material Interests in Transactions, Arrangements or Contracts

Save as disclosed in the sections headed “Connected Transaction” and “Non-Exempt Continuing Connected Transactions” below and “Material related parties” in Note 48 to the consolidated financial statements, no transactions, arrangements or contracts of significance in relation to the Company’s business to which the Company’s subsidiaries, fellow subsidiaries or its holding company was a party or were parties and in which a director of the Company or his or her connected entity had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.

Directors’ Service Contracts

None of the directors proposed for re-election at the forthcoming annual general meeting has a service contract with the Group which is not determinable by the Group within one year without payment of compensation (other than statutory compensation).

Permitted Indemnity

Pursuant to the Company’s articles of association and subject to the provisions of the Companies Ordinance (Cap 622 of the Laws of Hong Kong), every director or other officer of the Company shall be entitled to be indemnified out of the assets of the Company against all losses or liabilities which he/she may sustain or incur in or about the execution of the duties of his/her office or otherwise in relation thereto. As disclosed in the “Corporate Governance” section of this annual report, the Company has arranged Directors & Officers Liability and Company Reimbursement Insurance for its directors and officers with a combined aggregate limit of liability of HK$2 billion.

Related Party Transactions

The Company and its subsidiaries entered into certain transactions in the ordinary course of business and on normal commercial terms which were “Material Related Party Transactions”, the details of which are set out in Note 48 to the consolidated financial statements of the Company. Some of these transactions also constitute “Connected Transaction” and/or “Continuing Connected Transactions” under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) as summarised below.

Connected Transaction

On 25 April 2014, CITIC Telecom International Holdings Limited (“CITIC Telecom”, a subsidiary of the Company) and CITIC Networks Co., Ltd. (中信網絡有限公司) (“CITIC Networks”, a wholly-owned subsidiary of CITIC Group Corporation (“CITIC Group”)) entered into the funding and loan support agreement (the “Funding and Loan Support Agreement”) in relation to the provision of financial assistance by CITIC Telecom to CITIC Networks in respect of the operation of the nation-wide optical fibre backbone network (the “China Express Network”) of the People’s Republic of China (“PRC”).

On 22 April 2015, CITIC Telecom and CITIC Networks entered into a supplemental agreement to the Funding and Loan Support Agreement (the “Funding Supplemental Agreement”) to extend the term of the Funding and Loan Support Agreement from the original two years to three years from the date of the Funding and Loan Support Agreement.

On 1 September 2016, CITIC Telecom and CITIC Networks entered into a second supplemental agreement (the “Funding Second Supplemental Agreement”) to extend the Funding and Loan Support Agreement (as amended and supplemented by the Funding Supplemental Agreement) for a term of three years to 31 August 2019. The parties agreed that CITIC Telecom (or its subsidiary(ies) as procured by CITIC Telecom) shall provide funds or financial support with a maximum amount of RMB340 million to CITIC Networks if and when a shortage of funds arises in the operation of China Express Network at any time during the term of the Funding Second Supplemental Agreement. CITIC Telecom shall charge the finance costs to CITIC Networks for any funds advanced or financial assistance provided, with reference to the usual finance costs of CITIC Telecom which shall not be higher than the RMB benchmark interest rates for loans of financial institutions as announced by the People’s Bank of China for the same period. CITIC Telecom and CITIC Networks agreed that the finance costs shall be charged by CITIC Telecom as and when CITIC Telecom is permitted to provide the funding and loan support to CITIC Networks directly in the capacity of lender under the relevant PRC laws and regulations.

CITIC Networks is a wholly-owned subsidiary of CITIC Group which is the controlling shareholder of the Company. Therefore, CITIC Group is a connected person of the Company and CITIC Telecom and the aforesaid transaction constitutes a connected transaction of the Company.

Non-Exempt Continuing Connected Transactions

Set out below is information in relation to certain non-exempt continuing connected transactions involving the Company and/or its subsidiaries, particulars of which were previously disclosed in the announcements of the Company and are required under the Listing Rules to be disclosed in this annual report and the consolidated financial statements of the Company. The full text of each announcement can be found on http://www.citic.com/InvestorRelations/Announcements.

  • On 30 September 2014, the Company entered into the following framework agreements (collectively the “Framework Agreements”) with CITIC Group Corporation (“CITIC Group”) setting out the basis upon which members of the Group continue to carry out the transactions contemplated under the Framework Agreements with CITIC Group and/or its associates (the “Connected Persons”) upon completion of the acquisition of 100% of the total issued share capital of CITIC Corporation Limited on 25 August 2014. CITIC Group, being the controlling shareholder of the Company, is a connected person of the Company under the Listing Rules and therefore the entering into of the Framework Agreements by the Company with CITIC Group and the transactions contemplated under the Framework Agreements constitute continuing connected transactions of the Company under the Listing Rules.

    1. Sales Framework Agreement — sale of manganese ore by the Group to the Connected Persons

      The term of the Sales Framework Agreement dated 30 September 2014 (“Original Sales FA”) commenced from 25 August 2014 and ended on 31 December 2016. As the Company and CITIC Group intended to continue to carry out the relevant transactions, both parties entered into a new sales framework agreement (“New Sales FA”) on 30 November 2016, details of which are set out in the Company’s announcement dated 30 November 2016.

      Original Sales FA
      1. Period:
        commencing from 25 August 2014 and ended on 31 December 2016
      2. Annual Caps:
        for year ended 31/12/2016 RMB720,000,000
      New Sales FA
      1. Period:
        commencing from 1 January 2017 and ending on 31 December 2019
      2. Annual Caps:
        for year ending 31/12/2017 RMB840,000,000
        for year ending 31/12/2018 RMB1,050,000,000
        for year ending 31/12/2019 RMB1,050,000,000

      The transaction amount under the Original Sales FA for the year ended 31 December 2016 was approximately RMB308,054,077.21.

    2. Advertising and Promotion Framework Agreement — provision of advertising and promotion services by the Group to the Connected Persons

      The term of the Advertising and Promotion Framework Agreement dated 30 September 2014 commenced from 25 August 2014 and ended on 31 December 2014. As the Company and CITIC Group intended to continue to carry out the relevant transactions, both parties entered into a new advertising and promotion framework agreement (“New Advertising and Promotion FA”) on 30 March 2015, details of which are set out in the Company’s announcement dated 30 March 2015.

      New Advertising and Promotion FA
      1. Period:
        commencing from 30 March 2015 and ending on 31 December 2017
      2. Annual Caps:
        for year ended 31/12/2016 RMB450,000,000
        for year ending 31/12/2017 RMB550,000,000

      There were no transactions under the New Advertising and Promotion FA for the year ended 31 December 2016.

    3. Financial Assistance Framework Agreement — financial assistance provided by the Group to the Connected Persons in the form of entrusted loans or commercial loans

      The term of the Financial Assistance Framework Agreement dated 30 September 2014 (“Original Financial Assistance FA”) commenced from 25 August 2014 and ended on 31 December 2016. The Company entered into the supplemental agreement (“Supplemental Agreement to the Original Financial Assistance FA”) on 30 March 2015 with CITIC Group to adjust the maximum daily balance of the financial assistance, details of which are set out in the Company’s announcement dated 30 March 2015. As the Original Financial Assistance FA expired on 31 December 2016, a new financial assistance framework agreement (“New Financial Assistance FA”) was entered into on 30 November 2016 by the Company and CITIC Group, details of which are set out in the Company’s announcement dated 30 November 2016.

      Supplemental Agreement to the Original Financial Assistance FA
      1. Period:
        commencing from 25 August 2014 and ended on 31 December 2016
      2. Revised Maximum Daily Balance:
        for year ended 31/12/2016 RMB8,830,000,000
      New Financial Assistance FA
      1. Period:
        commencing from 1 January 2017 and ending on 31 December 2019
      2. Maximum Daily Balance:
        for year ending 31/12/2017 RMB9,500,000,000
        for year ending 31/12/2018 RMB10,200,000,000
        for year ending 31/12/2019 RMB11,000,000,000

      The maximum daily balance of the financial assistance under the Supplemental Agreement to the Original Financial Assistance FA for the year ended 31 December 2016 was approximately RMB2,488,000,000.00.

  • Reference is made to the announcement dated 8 December 2014 and the circular dated 2 January 2015 issued by China CITIC Bank Corporation Limited (“CITIC Bank”, a non wholly-owned subsidiary of the Company), with respect to, among other things, the asset transfer framework agreement (the “Asset Transfer FA”) entered into on 8 December 2014 between CITIC Bank and CITIC Group in relation to the transfer of loan and other related assets between CITIC Bank and the Connected Persons.

    Under the Asset Transfer FA, the asset transfer transactions with the Connected Persons, including but not limited to CITIC Factoring Corporation Ltd. and CITIC Futong Financial Leasing Co., Ltd., constitute continuing connected transactions of the Company. Details of the above are set out in the Company’s announcement dated 30 March 2015.

    1. Annual Caps:
      for year ended 31/12/2016 RMB11,000,000,000
      for year ending 31/12/2017 RMB12,600,000,000

    There were no transactions under the Asset Transfer FA for the year ended 31 December 2016.

  • Reference is made to the announcement dated 8 December 2014 and the circular dated 2 January 2015 issued by CITIC Bank, with respect to, among other things, the wealth management and investment service agreement (the “Wealth Management and Investment Service Agreement”) entered into on 8 December 2014 between CITIC Bank and CITIC Group in relation to transactions of (i) non-principal-guaranteed wealth management and agency services; (ii) principal-guaranteed wealth management; and (iii) investment with CITIC Bank’s own funds contemplated under the Wealth Management and Investment Service Agreement (collectively the “Wealth Management and Investment Transactions”).

    Under the Wealth Management and Investment Service Agreement, the Wealth Management and Investment Transactions with the Connected Persons, including but not limited to Ningbo Xinning Industrial Investment Corporation Limited and CITIC Ningbo Group Corporation, constitute continuing connected transactions of the Company. Details of the above are set out in the Company’s announcement dated 29 March 2016.

    Non-principal-guaranteed wealth management and agency services
    1. Annual Caps: (Service Fees)
      for year ended 31/12/2016 RMB300,000,000
      for year ending 31/12/2017 RMB300,000,000

    The service fees in respect of non-principal-guaranteed wealth management and agency services under the Wealth Management and Investment Service Agreement for the year ended 31 December 2016 was approximately RMB7,400.00.

    Principal-guaranteed wealth management and investment services
    1. Annual Caps:
      (Proceeds & Cost – Bank Investment)
      for year ended 31/12/2016 RMB800,000,000
      for year ending 31/12/2017 RMB960,000,000
    2. Maximum Daily
      Balance: (Investment)
      for year ended 31/12/2016 RMB9,000,000,000
      for year ending 31/12/2017 RMB10,800,000,000

    There were no transactions in respect of principal-guaranteed wealth management and investment services under the Wealth Management and Investment Service Agreement for the year ended 31 December 2016.

The independent non-executive directors of the Company have reviewed the aforesaid continuing connected transactions for the year ended 31 December 2016 (the “Transactions”) and confirm that:

  • the Transactions have been entered into in the ordinary and usual course of business of the Group;
  • the Transactions have been entered into on normal commercial terms or better; and
  • the Transactions were entered into according to the relevant agreements governing them on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole.

The Company’s auditor was engaged to report on the Group’s continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised) “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” and with reference to Practice Note 740 “Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules” issued by the Hong Kong Institute of Certified Public Accountants. The auditor issued an unqualified letter containing findings and conclusions in respect of the continuing connected transactions disclosed by the Group on pages 118 to 120 of this annual report in accordance with Rule 14A.56 of the Listing Rules. A copy of the auditor’s letter has been provided by the Company to The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”).

Share Option Plan Adopted by the Company

CITIC Pacific Share Incentive Plan 2011

The CITIC Pacific Share Incentive Plan 2000 adopted by the Company on 31 May 2000 for a term of ten years expired on 30 May 2010. The Company adopted a new plan, the CITIC Pacific Share Incentive Plan 2011 (the “Plan 2011”) on 12 May 2011. The major terms of the Plan 2011 are as follows:

  • The purpose of the Plan 2011 is to promote the interests of the Company and its shareholders by (i) providing the eligible participants with additional incentives to continue and increase their efforts in achieving success in the business of the Group, and (ii) attracting and retaining the best available personnel to participate in the on-going business operation of Group.
  • The eligible participants of the Plan 2011 are any employee, executive director, non-executive director, independent non-executive director or officer, consultant or representative of any member of the Company as the board may in its discretion select.
  • The total number of shares which may be issued upon exercise of all options to be granted under the Plan 2011 must not in aggregate exceed 10% of the shares in issue as at the date of adopting the Plan 2011. As at 23 March 2017, the total number of shares available for issue under the Plan 2011 is 364,944,416 shares.
  • The total number of shares issued and to be issued upon exercise of options (whether exercised or outstanding) in any 12-month period granted to each participant must not exceed 1% of the shares of the Company in issue. Where any further grant of options to a participant would result in the shares issued and to be issued upon exercise of all options granted and to be granted to such person (including exercised, cancelled and outstanding options) in the 12-month period up to and including the date of such further grant representing in aggregate over 1% of the Company’s shares in issue, such further grant shall be subject to separate approval by the shareholders of the Company in general meeting.
  • The exercise period of any option granted under the Plan 2011 must not be more than ten years commencing on the date of offer of the grant.
  • The acceptance of an offer of the grant of the option must be made within 28 days from the date of grant with a non-refundable payment of HK$1.00 from the grantee.
  • The subscription price determined by the board will be at least the higher of (i) the nominal value of the Company’s shares; (ii) the closing price of the Company’s shares as stated in the Hong Kong Stock Exchange’s daily quotations sheet on the date of offer of the grant; and (iii) the average of the closing prices of the Company’s shares as stated in the Hong Kong Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of offer of the grant.
  • The Plan 2011 shall be valid and effective until 11 May 2021.

No share options were granted under the Plan 2011 during the year ended 31 December 2016.

Share Option Plan Adopted by Subsidiaries of the Company

CITIC Telecom International Holdings Limited (“CITIC Telecom”)

CITIC Telecom adopted a share option plan (the “CITIC Telecom Share Option Plan”) on 17 May 2007. The major terms of the CITIC Telecom Share Option Plan are as follows:

  • The purpose of the CITIC Telecom Share Option Plan is to attract and retain the best quality personnel for the development of CITIC Telecom’s businesses; to provide additional incentives to CITIC Telecom Directors, Officers and Employees (as defined here below); and to promote the long term financial success of CITIC Telecom by aligning the interests of grantees to shareholders of CITIC Telecom.
  • The grantees of the CITIC Telecom Share Option Plan are any person employed by CITIC Telecom or any of its subsidiaries and any person who is an officer or director (whether executive or non-executive) of CITIC Telecom or any of its subsidiaries (collectively the “CITIC Telecom Directors, Officers and Employees”) as the board of CITIC Telecom may, in its absolute discretion, select.
  • The total number of shares of CITIC Telecom (the “CITIC Telecom Shares”) issued and to be issued upon exercise of options (whether exercised or outstanding) in any 12-month period granted to each grantee must not exceed 1% of the CITIC Telecom Shares in issue. Where any further grant of options to a grantee would result in the CITIC Telecom Shares issued and to be issued upon exercise of all options granted and to be granted to such person (including exercised, cancelled and outstanding options) in the 12-month period up to and including the date of such further grant representing in aggregate over 1% of the CITIC Telecom Shares in issue, such further grant shall be subject to separate approval by the shareholders of CITIC Telecom in general meeting.
  • The exercise period of any option granted under the CITIC Telecom Share Option Plan must not be more than ten years commencing on the date of grant.
  • The acceptance of an offer of the grant of the options must be made within 28 days from the date of grant with a non-refundable payment of HK$1.00 from the grantee.
  • The subscription price determined by the board of CITIC Telecom will not be less than the higher of (i) the closing price of CITIC Telecom’s shares as stated in the daily quotations sheet of the Hong Kong Stock Exchange on the date of grant; and (ii) the average closing price of CITIC Telecom’s shares as stated in the Hong Kong Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of grant.
  • The CITIC Telecom Share Option Plan shall be valid and effective till 16 May 2017.

As approved at the annual general meeting of CITIC Telecom held on 25 April 2014, the mandate limit is refreshed so that taking into account the overriding limit of the CITIC Telecom Share Option Plan, the total number of the CITIC Telecom Shares which may be issued upon the exercise of all options to be granted under the CITIC Telecom Share Option Plan, together with all outstanding options granted and yet to be exercised under the CITIC Telecom Share Option Plan, shall not exceed 333,505,276 CITIC Telecom Shares, being 10% of the number of the CITIC Telecom Shares in issue as at the date of approval of the refreshment of the mandate limit. As at 23 March 2017, the maximum number of CITIC Telecom Shares available for issue under the CITIC Telecom Share Option Plan is 133,982,519, representing approximately 3.79% of the CITIC Telecom Shares in issue.

Since the adoption of the CITIC Telecom Share Option Plan, CITIC Telecom has granted the following share options:

Upon completion of the rights issue of CITIC Telecom on 7 June 2013, the exercise price and the number of shares to be allotted and issued upon full exercise of the subscription rights attaching to the outstanding share options of CITIC Telecom as at 6 June 2013 have been adjusted (the “Adjustments”) in the following manner:

The grantees were CITIC Telecom Directors, Officers and Employees. None of these options were granted to the directors, chief executives or substantial shareholders of the Company.

The share options granted on 23 May 2007 and 17 September 2009 have expired. The remaining options granted and accepted under the CITIC Telecom Share Option Plan can be exercised in whole or in part within 5 years from the date of commencement of the exercise period.

As at 1 January 2016, options for 153,118,257 CITIC Telecom Shares were outstanding under the CITIC Telecom Share Option Plan. During the year ended 31 December 2016, options for 10,572,284 CITIC Telecom Shares were exercised and options for 2,012,314 CITIC Telecom Shares have lapsed. No share options were granted nor cancelled in 2016. As at 31 December 2016, options for 99,033,409 CITIC Telecom Shares under the CITIC Telecom Share Option Plan were exercisable.

A summary of the movements of the share options during the year ended 31 December 2016 is as follows:

A. Employees of the Company/CITIC Telecom under continuous contracts (as defined in the Employment Ordinance)
B. Others (Note 3)

Notes:
1. The weighted average closing price of CITIC Telecom Shares immediately before the dates on which the options were exercised was HK$3.06.
2. These are in respect of options i) granted to some employees under continuous contracts who have subsequently resigned; or ii) lapsed upon the expiry of the relevant share options during the year.
3. These are in respect of options granted to independent non-executive directors of CITIC Telecom who are not employees under continuous contracts. None of these options were cancelled or lapsed during the year ended 31 December 2016.
4. The weighted average closing price of CITIC Telecom Shares immediately before the dates on which the options were exercised was HK$3.16.

Dah Chong Hong Holdings Limited (“DCH Holdings”)

DCH Holdings adopted a share option scheme (the “DCHH Scheme”) on 28 September 2007. The major terms of the DCHH Scheme are as follows:

  • The purpose of the DCHH Scheme is to attract and retain the best quality personnel for the development of DCH Holdings’ businesses; to provide additional incentives to the employees of the DCH Holdings group and to promote the long term financial success of DCH Holdings by aligning the interests of grantees to DCH Holdings’ shareholders.
  • The participants of the DCHH Scheme are any employee of the DCH Holdings group as the board of DCH Holdings may in its absolute discretion select.
  • The maximum number of shares over which share options may be granted under the DCHH Scheme and any other schemes of DCH Holdings shall not in aggregate exceed 10% of (i) the shares of DCH Holdings in issue immediately following the commencement of dealings in DCH Holdings’ shares on the Hong Kong Stock Exchange or (ii) the shares of DCH Holdings in issue from time to time, whichever is the lower. As at 23 March 2017, the maximum number of shares available for issue under the DCHH Scheme is 118,200,000, representing approximately 6.45% of the issued shares of DCH Holdings. Share options lapsed in accordance with the terms of the DCHH Scheme or any other schemes of DCH Holdings will not be counted for the purpose of calculating the 10% limit.
  • The total number of shares issued and to be issued upon exercise of share options (whether exercised or outstanding) in any 12-month period granted to each grantee must not exceed 1% of the shares of DCH Holdings in issue.
  • The exercise period of any share option granted under the DCHH Scheme must not be more than 10 years commencing on the date of grant.
  • The acceptance of an offer of the grant of the share option must be made within 28 days from the date of grant with a non-refundable payment of HK$1 from the grantee.
  • The subscription price determined by the board of DCH Holdings will not be less than whichever is the higher of (i) the closing price of DCH Holdings’ shares as stated in the Hong Kong Stock Exchange’s daily quotations sheets on the date of grant; and (ii) the average closing price of DCH Holdings’ shares as stated in the Hong Kong Stock Exchange’s daily quotations sheets for the 5 business days immediately preceding the date of grant.
  • The DCHH Scheme shall be valid and effective till 27 September 2017, after which no further share options will be granted.

Since the adoption of the DCHH Scheme, DCH Holdings has granted the following share options:

* Subject to a vesting scale

The share options granted on 7 July 2010 had expired by the close of business on 6 July 2015.

Of the share options granted on 8 June 2012, 24,250,000 were accepted and 200,000 were not as at the latest date of acceptance pursuant to the scheme rules (i.e. 5 July 2012). The share options granted are subject to a vesting scale. 25% of the options granted will vest on the first anniversary of the date of grant. A further 25% will vest on the second anniversary of the date of grant and the remaining 50% of the share options granted will vest on the third anniversary of the date of grant. The vested options are exercisable in whole or in part within 5 years from the date of grant. The closing price of the shares of DCH Holdings immediately before the grant on 8 June 2012 was HK$7.49 per share. The remaining contractual life of the share options is 0.4 years.

Of the share options granted on 30 April 2014, 27,850,000 were accepted and 350,000 were not as at the latest date of acceptance pursuant to the scheme rules (i.e. 28 May 2014). The share options granted are subject to a vesting scale. 25% of the options granted will vest on the first anniversary of the date of grant. A further 25% will vest on the second anniversary of the date of grant and the remaining 50% of the share options granted will vest on the third anniversary of the date of grant. The vested options are exercisable in whole or in part within 5 years from the date of grant. The closing price of the shares of DCH Holdings immediately before the grant on 30 April 2014 was HK$4.91 per share. The remaining contractual life of the share options is 2.3 years.

The grantees were certain directors or employees of DCH Holdings group working under continuous contracts (as defined in the Employment Ordinance). None were granted to the directors, chief executives or substantial shareholders of the Company.

(a) Employees of the DCH Holdings group working under continuous contracts (as defined in the Employment Ordinance)
(b) Others (Note 1)

Notes:
1. These are in respect of share options granted to former employees whose employment was terminated other than for cause or misconduct.
2. 500,000 share options (granted on 8 June 2012) and 1,100,000 share options (granted on 30 April 2014) were added to the opening balance in “Others” subsequent to certain employees having retired on 1 January 2016.
3. 1,850,000 share options (granted on 8 June 2012) and 1,850,000 share options (granted on 30 April 2014) were added to the ending balance in “Others” subsequent to certain employees retired during the year ended 31 December 2016.

As at 1 January 2016, options for 48,100,000 DCH Holdings’ shares were outstanding under the DCHH Scheme. During the year ended 31 December 2016, options for 2,500,000 DCH Holdings’ shares were lapsed and none of the options were exercised and cancelled. As at 31 December 2016, options for 45,600,000 DCH Holdings’ shares under the DCHH Scheme were exercisable.

CITIC Resources Holdings Limited (“CITIC Resources”)

CITIC Resources adopted a share option scheme on 30 June 2004 (the “Old Scheme”) for a term of 10 years, which expired on 29 June 2014. The share options that have been granted under the Old Scheme and remained outstanding as at the date of expiry of the Old Scheme remain valid and exercisable subject to and in accordance with the terms of the Old Scheme.

A summary of the movements of the share options of CITIC Resources under the Old Scheme during the year ended 31 December 2016 is as follows:

* The exercise price of the share options is subject to adjustment in case of a rights issue or bonus issue, or other similar changes in the share capital of CITIC Resources.

Notes: The share options are subject to the following vesting conditions:
(i) 50% of the share options vest and are exercisable with effect from the first anniversary of the date of grant; and
(ii) the remaining 50% of the share options vest and are exercisable with effect from the second anniversary of the date of grant.

The grantee was a director of CITIC Resources.

As at 31 December 2016, CITIC Resources had 400,000,000 share options outstanding under the Old Scheme.

To enable CITIC Resources to continue to grant share options as an incentive or reward to eligible persons, a new share option scheme was adopted by CITIC Resources on 27 June 2014 (the “New Scheme”).

Pursuant to the New Scheme, CITIC Resources may grant options to eligible persons to subscribe for shares of CITIC Resources subject to the terms and conditions stipulated therein. A summary of some of the principal terms of the New Scheme is as follows:

  • To allow CITIC Resources (i) to be competitive and to be able to attract, retain and motivate appropriate personnel to assist the CITIC Resources group attain its strategic objectives by offering share options to enhance general remuneration packages; (ii) to align the interests of the directors and employees of the CITIC Resources group with the performance of CITIC Resources and the value of the shares; and (iii) to align the commercial interests of business associates, customers and suppliers of the CITIC Resources group with the interests and success of the CITIC Resources group.
  • The eligible persons include employees and directors of CITIC Resources and any of its subsidiaries (including their respective executive and non-executive directors), business associates and advisers who will provide or have provided services to the CITIC Resources group.
  • The total number of shares which may be issued upon the exercise of all outstanding options granted under the New Scheme and any other schemes of CITIC Resources shall not exceed 10% of the total number of shares of CITIC Resources in issue as at the date of adoption of the New Scheme.
  • The total number of shares issued and to be issued upon the exercise of the options granted to an eligible person (including any exercised, cancelled and outstanding options) in any 12-month period up to and including the date of grant shall not exceed 1% of the total number of shares of CITIC Resources in issue at the date of grant.
  • The period during which an option may be exercised is determined by the board of directors of CITIC Resources at its absolute discretion, except that no option may be exercised after 10 years from the date of grant.
  • The minimum period for which an option must be held before it can be exercised is one year.
  • The exercise price payable in respect of each share of CITIC Resources shall be not less than the greater of (i) the closing price of the shares of CITIC Resources on the Hong Kong Stock Exchange as stated in the Hong Kong Stock Exchange’s daily quotations sheet on the date of grant (which must be a business day); (ii) the average closing price of the shares of CITIC Resources on the Hong Kong Stock Exchange as stated in the Hong Kong Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of grant; and (iii) the nominal value of the shares of CITIC Resources.
  • The New Scheme remains in force until 26 June 2024 unless otherwise terminated in accordance with the terms stipulated therein.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

No share options were granted under the New Scheme during the year ended 31 December 2016.

CITIC Envirotech Ltd. (“CITIC Envirotech”)

CITIC Envirotech is a company incorporated in Singapore and whose shares are listed on the main board of the Singapore Exchange. It adopted the Employee Share Option Scheme (the “Scheme”) on 2 February 2010. A summary of some of the principal terms of the Scheme is as follows:

  • The Scheme is primarily a share incentive scheme. It provides CITIC Envirotech with the means to use share options as part of a compensation scheme for attracting as well as promoting long-term staff retention. The objectives of the Scheme are (a) to motivate each participant to optimise his performance standards and efficiency and to maintain a high level of contribution to the CITIC Envirotech group; (b) to make employee remuneration sufficiently competitive to recruit and retain participants whose contributions are important to the long-term growth and profitability of the CITIC Envirotech group; (c) to instil loyalty to, and a stronger identification by the participants with the long-term development and growth of, CITIC Envirotech; (d) to attract potential employees with relevant skills to contribute to the CITIC Envirotech group and to create value for the shareholders; (e) to align the interests of the participants with the interests of the shareholders; and (f) to give recognition to the contributions made or to be made by the CITIC Envirotech group non-executive directors (including independent directors) to the success of the CITIC Envirotech group.
  • The participants of the Scheme are group employees (including group executive directors) and group non- executive directors (including independent directors) of CITIC Envirotech.
  • The aggregate number of shares in respect of which options may be granted on any date under the Scheme, when added to the amount of shares issued and issuable and/or transferred and transferable in respect of:
    1. all shares available under the Scheme; and
    2. all shares, options or awards granted under any other share option or share scheme of CITIC Envirotech then in force,

    shall not exceed 15% of the number of issued shares (excluding treasury shares) of CITIC Envirotech on the day immediately preceding the relevant date of grant (or such other limit as the Singapore Exchange may determine from time to time). The options which have already been granted shall not be invalidated in the event that a reduction of CITIC Envirotech’s capital or a buy back of its shares (if applicable) results in the shares issuable and/or transferable under outstanding options exceeding 15% of CITIC Envirotech’s issued share capital (excluding treasury shares).

    The aggregate number of shares issued and issuable and/or transferred and transferable in respect of all options granted pursuant to the Scheme available to all controlling shareholders and their associates of CITIC Envirotech shall not exceed 25% of the shares available under the Scheme.

    The number of shares issued and issuable and/or transferred and transferable in respect of all options granted pursuant to the Scheme available to each controlling shareholder or each of his associates of CITIC Envirotech shall not exceed 10% of the shares available under the Scheme.
  • The aggregate number of shares in respect of which options may be offered to a grantee for subscription in accordance with the Scheme shall be determined at the discretion of the remuneration committee of CITIC Envirotech who shall take into account criteria such as rank, past performance, years of service and potential for future development of the participant.
  • If the options remain unexercised after a period of 10 years (executive directors and employees) and 5 years (non-executive directors) from the date of grant, the options expire. Options are forfeited if the employee leaves the group before the options vest.
  • The vesting period is 1 year for non-discount options and 2 years for discounted options.
  • The consideration for the grant of an option is S$1.00.

  • The exercise price is based on the price that is equivalent to the Market Price*; or a price that is set at a discount to the Market Price, provided always that the maximum discount shall not exceed 20% of the Market Price; and the prior approval of shareholders shall have been obtained in a separate resolution.

    * Market Price: a price equal to the average of the last dealt prices for the shares on the Singapore Exchange over the five consecutive trading days, immediately preceding the date of grant of that option, as determined by the remuneration committee of CITIC Envirotech by reference to the daily official list or any other publication published by the Singapore Exchange.
  • The Scheme shall continue to be in force at the discretion of the remuneration committee of CITIC Envirotech, subject to a maximum period of 10 years, commencing on February 2010. Subject to compliance with any applicable laws and regulations in Singapore, the Scheme may be continued beyond the above stipulated period with the approval of the shareholders by ordinary resolution at a general meeting and of any relevant authorities which may then be required. The Scheme may be terminated at any time by the remuneration committee or by resolution of the shareholders at a general meeting subject to all other relevant approvals which may be required and if the Scheme is so terminated, no further options shall be offered by CITIC Envirotech hereunder.

Since the adoption of the Scheme, CITIC Envirotech has granted the following share options:

Under the Scheme, the ordinary shares of CITIC Envirotech under option may be exercised in full or a multiple thereof, on the payment of the exercise price.

The grantees were certain directors and employees of CITIC Envirotech. None were granted to the directors, chief executives or substantial shareholders of CITIC Limited. As at 1 January 2016, 53,875,500 ordinary shares of CITIC Envirotech under option were outstanding. During the year ended 31 December 2016, 162,500 ordinary shares of CITIC Envirotech under option were exercised, and 120,500 ordinary shares of CITIC Envirotech under option were cancelled. As at 31 December 2016, 53,592,500 ordinary shares of CITIC Envirotech under option were exercisable.

A summary of the movements of the share options under the Scheme during the year ended 31 December 2016 is as follows:

(a) Directors of CITIC Envirotech
(b) Employees of CITIC Envirotech

No options were granted during the financial year.

Directors’ Interests in Securities


As at 31 December 2016, none of the directors of the Company had nor were they taken or deemed to have, under Part XV of the Securities and Futures Ordinance (“SFO”), any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) as recorded in the register required to be kept by the Company pursuant to section 352 of the SFO or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as set out in the Listing Rules.

Arrangement to Acquire Shares or Debentures

Save for the share option plans as disclosed above, at no time during the year was the Company, its subsidiaries, its fellow subsidiaries or its holding company a party to any arrangements to enable the directors of the Company (including their spouse and children under 18 years of age) to acquire benefits by means of the acquisition of shares or underlying shares in, or debentures of, the Company or any other body corporate.

Interests of Substantial Shareholders

As at 31 December 2016, substantial shareholders of the Company (other than directors of the Company) who had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company under section 336 of the SFO, or which were notified to the Company, were as follows:

Notes:
1. CITIC Group is deemed to be interested in 26,055,943,755 shares: (i) by attribution of the interests of its two wholly-owned subsidiaries, CITIC Polaris (9,463,262,637 shares) and CITIC Glory (7,446,906,755 shares); and (ii) because CITIC Group is a party to the Share Purchase Agreement and the Preferred Shares Subscription Agreement which, reading together, constitute an agreement to which section 317(1) of the SFO applies, and accordingly CITIC Group has aggregated its interests in the shares with the interests of the other parties to the Share Purchase Agreement and the Preferred Shares Subscription Agreement.
2. CITIC Glory is beneficially interested in 7,446,906,755 shares of the Company.
3. CITIC Polaris is deemed to be interested in 18,609,037,000 shares: (i) by including 9,463,262,637 shares it holds as beneficial owner; and (ii) because CITIC Polaris is a party to the Share Purchase Agreement which, reading together with the Preferred Shares Subscription Agreement, constitute an agreement to which section 317(1) of the SFO applies, and accordingly CITIC Polaris has aggregated its interests in the shares with the interests of the other parties to the Share Purchase Agreement and the Preferred Shares Subscription Agreement.
4. CT Bright is deemed to be interested in 22,728,222,755 shares: (i) by including 5,818,053,363 shares it holds as beneficial owner; and (ii) because CT Bright is a party to the Share Purchase Agreement and the Preferred Shares Subscription Agreement which, reading together, constitute an agreement to which section 317(1) of the SFO applies, and accordingly CT Bright has aggregated its interests in the shares with the interests of the other parties to the Share Purchase Agreement and the Preferred Shares Subscription Agreement. CT Bright has a short position of 5,818,053,363 shares because it is under an obligation to deliver a maximum of 5,818,053,363 shares to CITIC Polaris if CITIC Polaris’ right of first refusal under the Share Purchase Agreement is exercised in full.
5. CT Brilliant is deemed to be interested in 22,728,222,755 shares and to have a short position of 5,818,053,363 shares as a shareholder of CT Bright directly holding 50% equity interest in CT Bright.
6. CPG is deemed to be interested in 22,728,222,755 shares and to have a short position of 5,818,053,363 shares as a shareholder of CT Bright indirectly holding 50% equity interest in CT Bright through CT Brilliant, its wholly-owned subsidiary.
7. ITOCHU is deemed to be interested in 22,728,222,755 shares and to have a short position of 5,818,053,363 shares as a shareholder of CT Bright directly holding 50% equity interest in CT Bright.

Shareholding Statistics

Based on the share register records of the Company, set out below is a shareholding statistics chart of the registered shareholders of the Company as at 31 December 2016:

As at 31 December 2016, the total number of ordinary shares in issue of the Company was 29,090,262,630 and based on the share register records of the Company, HKSCC Nominees Limited held 9,749,998,209 ordinary shares in entities ranging from 1,000 to 1,000,000,000 ordinary shares and representing 33.52% of the total number of ordinary shares in issue of the Company.

Purchase, Sale or Redemption of Listed Securities

On 15 April 2016, the Company redeemed all the U.S.$750,000,000 7.875% perpetual subordinated capital securities issued on 15 April 2011. The securities were delisted from the Hong Kong Stock Exchange effective on 27 April 2016.

Save as disclosed above, neither the Company nor any of its subsidiary companies has purchased, sold or redeemed any of the Company’s listed securities during the year ended 31 December 2016.

Sufficiency of Public Float

The Hong Kong Stock Exchange has granted a waiver (the “Waiver”) to the Company from strict compliance with the minimum public float of 25% upon completion of the acquisition of CITIC Corporation Limited (the “Acquisition”) on 25 August 2014. Pursuant to the Waiver, the Company has complied with the public float requirement which is at the higher of such a percentage (being 21.87%) of shares held by the public immediately after completion of the Acquisition. Based on the information that is publicly available to the Company and within the knowledge of the directors as at the date of this annual report, the Company has maintained the prescribed public float under the Waiver.

Auditor

The Group’s consolidated financial statements for the year have been audited by Messrs PricewaterhouseCoopers, Certified Public Accountants, who will retire and, being eligible, offer themselves for re-appointment. A resolution for the re-appointment of PricewaterhouseCoopers as auditor of the Company is to be proposed at the 2017 AGM.

By Order of the Board,
Chang Zhenming
Chairman
Hong Kong, 23 March 2017

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