If you are in any doubt as to any aspect of this circular or as to the action to be taken, 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 Northeast Electric Development Co., Ltd., you should at
once hand this circular to the purchaser or the transferee or to the bank, stockbroker or other agent through whom
the sale or transfer was effected for transmission to the purchaser or transferee
,
Ltd. Only.
31January, 2008
DISCLOSEABLE TRANSACTION
PROVISION OF GUARANTEE FOR NNE (SWITCHGEARS)
(a joint stock limited company incorporated in the People’s Republic of China with limited liability)
(Stock Code : 0042)<
| CONTENTS | |
| Definitions | ii |
| Letter from the Board | 1 |
| Introduction | 1 |
| The Guarantee Agreement | 2 |
| Information of NNE (Switchgears) | 3 |
| Reasons and effects of the guarantee | 4 |
| Opinion of the Board | 5 |
| Further information | 6 |
| Letter from the Independent Board Committee | 7 |
| Appendix .null General Information | 8 |
DEFINITIONS
In this circular, unless the context otherwise requires, the following expressions have the following meanings:
.nullAssociates.null has the meaning ascribed to it in the Listing Rules
.nullBoard.null the board of Directors of the Company
.nullDirectors.null the directors of the Company
.nullChina Accounting System.null Generally accepted accounting systems and standards of China
.nullCompany.null .nullnonmarkingreturn !"#$%&'() (Northeast Electric Development Co.,
Ltd.), a joint stock limited company established in the PRC whose
shares are listed on the Shenzhen Stock Exchange and the Stock
Exchange respectively
.nullGuarantee.null Guarantee provided by the Company for NNE (Switchgear) under the
Guarantee Agreement
.nullGuarantee Agreement.null Guarantee Agreement dated on 19 December 2007 entered into by the
Company
.nullGroup.null the Company and its subsidiaries
.nullHK$.null Hong Kong dollars
.nullHong Kong.null the Hong Kong Special Administrative Region of the PRC
.nullLatest Practicable Date.null 28 January, 2008, being the latest practicable date for ascertaining
information referred to in this circular prior to the printing of this
circular
.nullListing Rules.null Rules Governing the Listing of Securities on the Stock Exchange
.nullPRC.null the People’s Republic of China
DEFINITIONS
.nullRMB.null Renminbi, the lawful currency of the PRC
.nullSFO.null Securities and Futures Ordinance (Chapter571 of the laws of Hong
Kong)
.nullNNE (Switchgears).null .nullnonmarkingreturn !"(.null.null).nullnonmarkingreturn !"#$%(New Northeast Electric
(Shenyang) High-voltage Switchgears Co. Ltd), a company incorpo-
rated in the PRC with limited liability, NNE (Switchgears) and its
ultimate beneficial owners are an independent third party not con-
nected with any director, chief executive or substantial shareholder of
the Company or any of its subsidiaries or their respective associates.
.nullStock Exchange.null nullSupervisor(s).null the supervisor(s) of the Company
.null%.null per cent.
In this circular, for data purpose only, certain amounts in RMB have been translated into HK$ at a rate of
RMB 0.9314 to HK$1.
N
LETTER FROM THE BOARD
Executive Directors: Registered Office:
Mr. Sun Zhen
Mr. Wang Shouguan No.78,Hunnan High and New Technology
Zone, Shenyang, Liaoning Province, PRC
Mr. Zhang Bin
Mr. Su Weiguo Principal Place of business in Hong Kong:
Mr. Liu Qingmin Room 1017, 10/F, Star House,
Mr. Shi Li 3 Salisbury Road, Tsim Sha Tsui,
Mr. Du Kai Hong Kong
Mr. Bi Jianzhong
Independent non-executive Directors:
Mr. Wu Qicheng
Mr. Lin Wenbin
Mr. Xiang Yongchun
Ms. Liang Jie
Mr. Liu Hongguang
31 January 2008
To the holders of H Shares
Dear Sir or Madam,
DISCLOSEABLE TRANSACTION
PROVISION OF GUARANTEE FOR NNE (SWITCHGEARS)
INTRODUCTION
In the announcement of the Company dated 10 January 2008, the Company announced that on 19 December
2007, the Company entered into the Foreign Guarantee Agreement, which provided a joint responsibility
guarantee against a loan of RMB68, 570,000 in integrated credit line in the Shenyang Branch of Shanghai
Pudong Development Bank for NNE (Switchgears).
The integrated credit line of joint responsibility guarantee against the loan in the Shenyang Branch of Shanghai
Pudong Development Bank for the joint stock company totaled RMB220, 000,000.
(a joint stock limited company incorporated in the People’s Republic of China with limited liability)
O
LETTER FROM THE BOARD
THE GUARANTEE AGREEMENT
Date : 19 December 2007
Creditor : Shenyang Branch of Shanghai Pudong Development Bank, an independent third
party not connected with any director, chief executive or substantial shareholder of
the Company or any of its subsidiaries or their respective associates.
Guaranteed Company : NNE (Switchgears). To the best of the Directors’ knowledge, information and belief
having made all reasonable enquiries, NNE (Switchgears) and its ultimate benefi-
cial owners are an independent third party not connected with any director, chief
executive or substantial shareholder of the Company or any of its subsidiaries or
their respective associates. There is no any common director in the boards of the
Company and NNE(Switchgears), and there is no competing relationship between
the principal business.
Guarantee Company : the Company
Interest or Consideration
Pursuant to the Guarantee Agreement, the Company agreed to provide its own net assets as a joint responsibility
guarantee against a loan of RMB68, 570,000 in integrated credit line in the Shenyang Branch of Shanghai
Pudong Development Bank for NNE (Switchgears). The integrated credit line of joint responsibility guarantee
against the loan in the Shenyang Branch of Shanghai Pudong Development Bank for NNE (Switchgears) totaled
RMB220, 000,000. The guarantee promised that it offered its net assets as counter-guarantee.
Conditions of the Guarantee Agreement
1. Guarantee Method: joint responsibility guarantee
2. Current Guarantee Amount: RMB68,570,000
3. Total Guarantee Amount: RMB220,000,000
4. Guarantee Validity: the guarantee validity of the guarantee above RMB220,000,000 is all from the due
date of debt to two years
5. Counter-guarantee: the guarantee promises that it offers its net assets as counter-guarantee
P
LETTER FROM THE BOARD
Approval and Completion of the Guarantee Agreement
The guarantee above comes within the scope of the board of directors’ power, and there is no need to vote it
at the general meeting of shareholders. After approved by the board of directors of the Company on 19
December 2007, the Agreement entered into force upon signatures of all parties.
INFORMATION ON NNE (SWITCHGEARS) IN BUSINESS AND ASSETS
The name of the Guaranteed Company : New Northeast Electric (Shenyang) High-Voltage Switchgears
Limited
Registered Address : Huahai Road, Shenyang Economic and Technological Devel-
opment Area
Legal Representative : Sheng Dongsheng
Scope of Business : manufacture and sales of high-voltage switchgear like gas isolated
switchgear and high-voltage circuit breaker as well as controlling
facilities.
Its relationship with the Company is a joint stock company with 20.8 % of its whole equity owned by the
Company, neither a direct or indirect holder of the Company, nor a related party, holding subsidiary company
or subsidiary enterprise of the Company’s holders. It is not a connected person of the Company.
To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, NNE
(Switchgears) and its ultimate beneficial owners are the third party independent of the Company, and its
connected persons.
By the end of 31 December 2006, the main audited financial indexes of NNE (Switchgears) were as follows:
RMB 2,277,510,000 in total assets, RMB1, 084,340,000 in total liabilities, RMB1, 193,170,000 in net assets,
and RMB106, 770,000 in net profit.
Q
LETTER FROM THE BOARD
The assets and net profits of the joint stock company in the past three years: (Unit: RMB)
31 December 2007
31 December 2005 31 December 2006 (Unaudited )
Current Assets 7,171,900,000 1,837,390,000 2,360,400,000
Non-current Assets 1,532,610,000 209,620,000 448,980,000
Total Assets 8,704,510,000 2,047,010,000 2,809,380,000
Profit before Taxation 96,210,000 1,147,510,000 35,980,000
Net Profit 96,210,000 106,770,000 33,290,000
REASONS AND EFFECTS OF THE GUARANTEE
The principal business of the guarantee company includes manufacture and sales of system protection and
transmission equipment including high-voltage isolated switch, power capacitor and closed busbar.
The principal business of the guaranteed company, NNE (Switchgears) includes manufacture and sales of high-
voltage switchgear and controlling facilities like gas isolated switchgear and high-voltage circuit breaker. It
applied for loans to supplement its current capital in accordance with its own requirements for normal activities
in production and operation.
The net profit of NNE (Switchgears) in 2007 decreased obviously, the main reason is the price rise of raw
material such as energy sources , copper, iron, aluminium continuously in the year of 2007. This situation results
in costs increase and net profit decrease effectively. However, because of the order forms and sales income rise,
so there is a demand for investing more circulating fund for production.
There is no any common director in the boards of the Company and NNE(Switchgears), and there is no
competing relationship between the principal business.
The board of directors of Company considers that New Northeast Electric (Shenyang) High-Voltage Switchgears
Limited proved its ability to repay the indebtedness on schedule due to its steady financial position and good
facilities credit, thereby the provision of the guarantees will not create any loss to the Company. At the same
time, as the joint stock company of the Company, the guaranteed company managed to make profits from
investment for the Company every year, so the board of directors agrees to provide guarantees for its integrated
credit line.
There is no effect of the transaction on the earnings, assets and liabilities of the Company.
R
LETTER FROM THE BOARD
In accordance with the Articles of Association of the Company, According to the audited total assets of the
Company in 2006 RMB1,293,000,000, the quota of the foreign guarantee approved by the board of the
Company is 387,000,000. Thereby the guarantee above comes within the scope of the board of directors.null power,
and there is no need to vote it at the general meeting of shareholders, but it constitutes a discloseable transaction.
OPINION OF THE BOARD
The Board of the Company considers that NNE (Switchgears) has proved its ability to repay the indebtedness
on schedule due to its steady financial position and good facilities credit, thereby the provision of the guarantees
will not create any loss to the Company. At the same time, as the joint stock company of the Company, the
guaranteed company has been managing to make profits from investment for the listed company every year,
so the board of directors agrees to provide guarantees for its integrated credit line.
The directors of the Company believe the foreign guarantee transaction is fair and reasonable to shareholders
and in the interest of the Company and shareholders as a whole.
The meeting of the Board of the Company was held in the conference room of the Company on 19 December
2007. Among 13 Directors, 10 directors attended the meeting and three appointed their proxies to attend on their
behalf. The members of the Supervisory Committee and senior management attended the meeting.
After the Directors’ diligent and consideration in the meeting, the following resolutions were unanimously
passed on a show of vote with 13 affirmative votes, 0 dissenting vote and 0 abstained vote.
The proposal of the Company on a guarantee for NNE (Switchgears) was approved to provide a joint
responsibility guarantee against a loan of RMB68, 570,000 in integrated credit line in the Shenyang Branch of
Shanghai Pudong Development Bank for NNE (Switchgears). The integrated credit line of joint responsibility
guarantee against the loan in the Shenyang Branch of Shanghai Pudong Development Bank for the joint stock
company totaled RMB220, 000,000.
An independent board committee comprising of Mr. Wu Qicheng, Mr. Lin Wenbin, Mr. Xiang Yongchun, Ms.
Liang Jie and Mr. Liu Hongguang was appointed to provide opinions to independent shareholders with respect
to the foreign guarantee transaction.
The independent board committee believes the foreign guarantee transaction is fair and reasonable to
independent shareholders and in the interest of the Company and independent shareholders as a whole.
S
LETTER FROM THE BOARD
FURTHER INFORMATION
Your attention is drawn to the letter from the Independent Board Committee and the information contained in
the appendix to the Circular.
By order of the Board
Sun Zhen
Chairman
31January, 2008
T
LETTER FROM THE INDEPENDENT BOARD COMMITTEE
31 January, 2008
To the Shareholders
Dear Sir or Madam,
DISCLOSEABLE TRANSACTION
PROVISION OF GUARANTEE FOR NNE (SWITCHGEARS)
The letter from the Independent Board Committee contained in this circular is in accordance with the request
of the Work System of Indendent Directors of the Company.
We refer to the letter from the Board set out on Page 1 to 6 of the circular to the Shareholders dated 31 January
2008 (the .nullCircular.null) of which this letter forms a part. Unless the context otherwise requires, terms used in
this letter shall have the same meanings as those defined in the Circular.
We have been appointed to form the Independent Board Committee to consider and to advise all shareholders
of the Company as to the fairness and reasonableness of the terms of the Agreement in relation to providing
guarantee for NNE (Switchgears).
A. Independent directors agreed to the foreign guarantee decision made by the Board;
B. The Board has resolved to determine the guarantee for NNE (Switchgears), a joint stock company with
28% of its entire equity interest owned by the Company. The guarantee for NNE (Switchgears) is fair and
reasonable so far as the shareholders of the Company are concerned, and is not detrimental to the legal
interests of shareholders;
C. Upon completion of the foreign guarantee transaction, it will help the joint stock company, NNE
(Switchgears), relieve the pressure on working capital, effectively control finance costs, improve the
financial status of the Company and maintain the continuous profitability of the company.
Yours faithfully,
For and on behalf of the
Independent Board Committee
Wu Qicheng Lin Wenbin Xiang Yongchun Liang Jie Liu Hongguang
Independent non-executive Directors
(a joint stock limited company incorporated in the People’s Republic of China with limited liability)
U
APPENDIX GENERAL INFORMATION
1. RESPONSIBILITY STATEMENT
This circular includes particulars given in compliance with the Listing Rules for the purpose of giving
information with regard to the Group. The Directors collectively and individually accept full responsibility
for the accuracy of the information contained in this circular and confirm, having made all reasonably
enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which
would make any statement herein misleading.
2. DISCLOSURE OF INTERESTS
As at the Latest Practicable Date, to the knowledge of the Company , none of the Directors, or Supervisors
or chief executives of the Company had any interests or short positions in the shares, unissued shares,
underlying shares and debentures of the Company and its associated corporations (within the meaning of
Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant
to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the Directors
or Supervisors or chief executive of the Company are taken or deemed to have under such provisions of
the SFO); or which are required to be and are recorded to be notified to the Company and the Stock
Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies
contained in the Listing Rules.
The Company confirmed that, as at the Latest Practicable Date, so far as is known to the Directors or chief
executive of the Company, no other person had or was deemed or taken to have an interest or short position
in the Shares or underlying shares which would fall to be disclosed to the Company and the Stock Exchange
under the provisions of Division 2 and 3 of Part XV of the SFO.
3. SUBSTANTIAL SHAREHOLDERS
As at the Latest Practicable Date, save as disclosed below, as far as is known to the Directors or chief
executive of the Company, no other person was, directly or indirectly, interested in 10% or more of the
nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings
of any other member of the Group or owned any option in respect of such capital.
V
APPENDIX GENERAL INFORMATION
Approximate percentage
Class of Number of of total issued share
Name Shares Shares held capital of the Company
HKSCC Nominees Limited H shares 256,103,998 29.32%
New Northeast Electric Investment
Company Limited A shares 211,991,410 24.27%
The Company hasn’t issued any share option.
4. MATERIAL CHANGES
The Directors are not aware of any material adverse changes in the financial or trading position of the
Company since 31 December 2006 (being the date to which the last published audited financial statements
of the Group were made up.)
5. SIGNIFICANT LITIGATION
(a) Litigation brought by China Development Bank (the .nullBank.null) on RMB150,000,000
Because Shenyang High-voltage Switchgear Co., Ltd. (.nullShenyang High-voltage.null) failed to repay the due
debt, on 31 May 2004, the Bank lodged a litigation with Beijing Higher People’s Court (the .nullBeijing
Higher Court.null) against the principal of the bank loan of RMB150, 000,000 and the interest accrued
thereon, and requested Shenyang High-voltage to repay the loan under the contract and the Company to
bear joint liabilities. On 18 March 2005, Beijing Higher Court rejected the Bank’s litigation. On 23 March
2005, the Bank filed an appeal to the National Supreme People’s Court (the .nullSupreme Court.null). On 6 June
2006, Supreme Court issued the civil written order ((2005) Min er zhong zi No. 106).
According to the civil written order ((2004) Gao Min Chu zi No. 802) dated 19 July 2007 made by Beijing
Higher Court, Beijing Higher Court canceled the contract signed by the Company and Shenyang High-
voltage in relation to swapping the Company’s creditor’s rights of RMB 76,660,000 against the Northeast
Electric Transmission and Transformation Equipment Group Corp. for the equity of Shenyang High-
voltage. Whereas the equity swap transaction has been fulfilled substantially, pursuant to the first
judgment, the Company will suffer from heavy loss of RMB 170,460,000 in net profit for 2007 because
it needs to confirm the loss caused by the compensation of transaction consideration.
Please refer to the announcements dated 27 August 2004, 24 March 2005, 28 September 2006 and
9 January 2008 respectively for the details of the above matter.
NM
APPENDIX GENERAL INFORMATION
(b) Progress of Debt and equity case brought by Liaoning Trust and Investment Company
(.nullLiaoning Trust.null) on US$12 million
Confirmed by relevant departments of the People’s Government of Liaoning Province, the liquida-
tion team of Liaoning Trust commuted the Company a creditor assets of RMB76, 030,000 from the
provincial financial trust loan for Bengang on 30 May 2005. The Company lodged litigation against
Bengang on 1 June and 24 October of 2005 for the amount of RMB15, 900,000 and RMB60, 130,
000 respectively.
With regard to the case of RMB15, 900,000, on 2 November 2005, Shenyang Intermediate People’s
Court (.nullShenyang Intermediate Court.null) made a civil judgment ((2005) Shen Zhong Min Si He Chu
Zi No.13) and required Bengang to repay its debts. Bengang thereby lodged an appeal with the Higher
People’s Court of Liaoning Province (.nullLiaoning Higher Court.null). On 16 December 2005, Liaoning
Higher Court made a final judgment ((2005) Liao Min Er Zhong Zi No.220) and maintained the
original judgment. In March 2006, the Company applied to Shenyang Intermediate Court for
enforcement. According to the civil judgment ((2007) Liao Li Min Jian Zi No.56) dated June 20, 2007
made by Liaoning Higher Court, another collegial panel will be composed to retry the case, and the
execution of the original judgment will be suspended during the retrial.
As for the case of RMB60, 190,000, on 30 March 2006, Shenyang Intermediate Court made a civil
judgment ((2005) Shen Zhong Min Si He Chu Zi No. 21, 22 and 23) and required Bengang to repay
its debts. Bengang soon lodged an appeal with Liaoning Higher Court. Now, the case is in the stage
of the second instance after Liaoning Higher Court accepted the appeal lodged by Bengang. There
has not been any new progress since then.
Please refer to the announcements dated 16 August 2006, 28 February 2007, 12 March 2007 and 13
December 2007 respectively for the details of the above matter.
The Company and its subsidiary companies have no any other pending litigation and claims except
the litigation and claim above.
6. SERVICE CONTRACTS
There was no existing or proposed service agreement between any Director and any member of the
Company or any subsidiary company of the Company (excluding contracts expiring or determinable
within one year without payment of compensation other than statutory compensation). And there was no
service agreement entered into or revised within six months prior to the Latest Practicable Date.
NN
APPENDIX GENERAL INFORMATION
7. MATERIAL CONTRACTS
The Company had not entered into any other material contracts (not being contracts in the ordinary course
of business) within two years preceding the latest practicable date except the following contracts:
a. Approved by the meeting of the board of directors on 8 July 2006, NNE (HK), the wholly-owned
subsidiary company of the Company, contributed US$10,420,000 to acquire the increased capital of
NNE (Switchgears). On 15 August 2006, its commercial and industrial registration was done.
b. Approved by the meeting of the board of directors on 15 October 2006, Fuxin Enclosed Busbars
Limited, the wholly-owned subsidiary company of the Company, contributed US$18,300,000 to
acquire the increased capital of NNE (Switchgears). On 1 November 2006, its commercial and
industrial registration was done.
Please refer to the announcement dated 17 November 2006 and the shareholders’ circular dated 28
February 2007 for the details of the above transactions of A and B.
c. Approved by the meeting of the board of directors on 14 May 2007 and the extraordinary general
meeting of the Company on 16 August 2007, Great Talent Technology Limited, the wholly-owned
subsidiary company of the Company, contributed RMB 180,000,000 to acquire the investment of
interests held by Prosper Power Co., Ltd., being 48% of the shareholding interests of New Northeast
Electric (Jinzhou) Power Capacitors Co., Limited and 25.6% of the shareholding interests of New
Northeast Electric (Shenyang) High-Voltage Isolator Switchgears Co., Limited.
d. Approved by the meeting of the board of directors on 14 May 2007 and the fifth extraordinary general
meeting of the Company on 16 August 2007, Great Talent Technology Limited, the wholly-owned
subsidiary company of the Company, transferred its entire shareholding interests in Kingdom Hotel
to Prosper Power Co., Ltd. at a consideration of RMB 180,000,000.
Please refer to the announcement dated 17 May 2007 and the shareholders’ circular dated 29 June 2007
for the details of the above transactions of C and D.
NO
APPENDIX GENERAL INFORMATION
8. MISCELLANEOUS
a. As at the Latest Practicable Date, each of the directors does not have any direct or indirect interest
in any assets which have been 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, since 31
December 2006, being the date to which the latest announced audited accounts of the Company were
made up.
b. The registered office of the Company is at No. 189 Taiyuan South Street, Heping District, Shenyang,
Liaoning Province, the PRC.
c. The Board secretary of the Company is Mr. Shi Li, who is the executive director of the Company;
the secretary and authorized representative of the HK company is Mr. Mak Yee Chuen who is the
owner of the Mak Yee Chuen Lawyer Firm and an associate member of The Association of Chartered
Certified Accountants.
The Company has not employed a Qualified Accountant as required under Rule 3.24.
d. The branch share registrars of the Company in Hong Kong is Hong Kong Registrars Limited at 17th
Floor, Hopewell Center, 183 Queen’s Road East, Hong Kong.
9. DOCUMENTS AVAILABLE FOR INSPECTION
The following documents are available for inspection during business hour at the Company’s office at No.
189 Taiyujan South Street, Heping District, Shenyang, Liaoning Province, the PRC or Room 1017, 10/
F, Star House,3 Salisbury Road, Tsim Sha Tsui, Hong Kong
a. The articles of association of the Company
b. The Guarantee Agreement
c. Originals of all documents
