2012 Annual Report - ZTE

ANNUAL REPORT 2012• Pricing and other terms:At the Thirtieth Meeting of the Fifth Session of the Board of Directors held on 26 June 2012, the following financialservices were approved by the Directors:That the execution of the “2012 Financial Service Agreement” between ZTE Group Finance and Ruide, a connectedperson, with an estimated maximum balance of RMB369.27 million for loans and notes discounting services, dailyoutstanding loans and discounted notes (including accrued interests and any applicable fees) provided by ZTEGroup Finance to Ruide in 2012 under the agreement and an estimated maximum service fee of RMB2 million forthe provision of settlement and other financial services from ZTE Group Finance to Ruide in 2012 be approved.That the execution of the “2012 Financial Service Agreement” between ZTE Group Finance and Lead, a connectedperson, with an estimated maximum balance of RMB612.138 million for loans and notes discounting services, dailyoutstanding loans and discounted notes (including accrued interests and any applicable fees) provided by ZTEGroup Finance to Lead in 2012 under the agreement and an estimated maximum service fee of RMB2 million forthe provision of settlement and other financial services from ZTE Group Finance to Lead in 2012 be approved.ZTE Group Finance accepted deposits from Ruide and Lead with interest at rates to be determined with referenceto the relevant rates quoted by the PBOC. In the event the relevant rates quoted by the PBOC were not applicable,ZTE Group Finance was required to pay interest to the connected party at a rate not higher than that quoted byother independent financial institutions.ZTE Group Finance provided loans, discounted notes and other financing services to Ruide and Lead. Interestrates for loans and discounted notes payable by Ruide or Lead depended on the terms of the loan agreements ordiscounted notes agreements (as the case may be) between the parties and were subject to the relevant guidelinesand regulations of the PBOC. To comply with such guidelines and regulations, ZTE Group Finance set its interestrates at the prevailing market rate with reference to the standard rates quoted by the PBOC from time to time.The service fees for settlement services provided by ZTE Group Finance to Ruide and Lead were charged withreference to the applicable rates set by the PRC government and the service fees for other financial serviceswere charged upon provision of such services at rates which were not lower than that those charged by otherindependent financial institutions in the PRC.• Purpose of the transaction:The provision of such services by ZTE Group Finance to Ruide and Lead is aimed at supporting the tradingbusiness between Ruide or Lead and the Group and the associated risks can be reduced by pledge over receivablesprovided by Ruide and/or Lead.By providing financial services to connected persons like Ruide and Lead, ZTE Group Finance will benefit fromeconomies of scale and flexibility. Through ZTE Group Finance, the capital surplus of certain members of ZTEGroup can be transferred to other members with capital deficiency problem, so that can maximize the efficientuse of funding of ZTE Group. Also, through ZTE Group Finance, ZTE Group can participate in interbank leadingand access to low cost funds which can reduce the overall financing cost of ZTE Group and thus benefit ZTEGroup and the shareholders as a whole.Note: The ZTE Group means the Company and certain of its domestic subsidiaries, associates and joint ventures which are business entitiesin fulfillment of basic operating conditions in accordance with the standard form of articles of association and established by law andwhich have applied to and been approved by the Board of Directors of the Company to become a member of the ZTE Group, details ofthe members of the ZTE Group can be referred to the “Announcement of Resolutions of the Eleventh Meeting of the Fifth Session of theBoard of Directors” published on 12 October 2010 and “Announcement of Resolutions of the Twenty-ninth Meeting of the Fifth Session ofthe Board of Directors” published on 25 April 201287