OREANDA-NEWS. October 04, 2011. The Board announces that the Company, has entered into a Finance Lease Agreement, pursuant to which the Company agreed to sell the Equipment to the Lessor, and the Lessor agreed to leaseback the Equipment to the Company. The financing amount is approximately RMB1 billion. Parent Company is the guarantor to the Finance Lease Agreement, reported the press-centre of Chongqing Iron & Steel Company.

Subject matter of the lease
The Equipment comprises mainly the Company’s production line of 1780mm Hot-Rolled in Chongqing, the PRC. The aggregate consideration of approximately RMB1 billion was determined after arm’s length negotiation between the Company and the Lessor with reference to the original purchase costs of the Equipment.

Finance amount payments and principal terms
Pursuant to the Finance Lease Agreement, the Company will sell and the Lessor shall purchase the Equipment at the aggregate consideration of approximately RMB1 billion, which shall be paid by the Lessor to the Company. The Equipment will be leased back to the Company for a period of 4 years from the date when the consideration for the purchase of the Equipment has been paid by the Lessor.

The total payment to be made by the Company including the interest payable on the basis of the benchmark loan rate by the People’s Bank of China for 3-5 years’ term (and the present rate of which is 6.9%) under the Finance Lease Agreement amounts to approximately RMB1.15 billion. The Company will pay a security deposit of 1% on the total consideration paid by the Lessor for the Equipment and an annual service charge of 1.5% on the outstanding principal sum to the Lessor, and the rent under the Finance Lease Agreement shall be paid in 16 quarterly installments commencing from the date of payment of the consideration for the Equipment under the agreement. Subject to the terms as required in the Finance Lease Agreement, the Company can make early payment by paying the fixed compensation sum which is calculated on the basis of 5% on top of the outstanding principal sum.

During the lease period, in case of adjustment of benchmark loan rate by the People’s Bank of China, the Lessor will make corresponding adjustment to the interest rate. The lease payment and the interest rate have been agreed after arm’s length negotiation between the parties with reference to the prevailing market practice.

Ownership of the Equipment
During the lease period, the ownership of the Equipment belongs to the Lessor. Upon the expiry of the lease period, the Company can purchase the leased Equipment at the consideration of RMB1.

GUARANTEE
Parent Company is the guarantor to the Lease Finance Agreement.

REASONS AND BENEFITS FOR FINANCE LEASE AGREEMENT
The Directors are of the view that the entering into the Finance Lease Agreement would enhance the Company’s working capital to expand production capacity. The Directors are of the view that the terms in respect of the Finance Lease Agreement are fair and reasonable and are in the interest of the Company and the shareholders of the Company as a whole.

INFORMATION ON THE COMPANY
The Company is principally engaged in the manufacture and sale of steel products such as medium-gauge steel plates, steel sections and wire rods.

INFORMATION ON THE LESSOR
The Lessor, (Kunlun Financial Leasing Co., Ltd.), is principally engaged in the business of finance lease. To the best of the Directors’ knowledge, information and belief, and having made all reasonable enquiry, the Lessor and its ultimate beneficial owners are Independent Third Parties.