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China Southern proposed to acquire Southern Airlines Group assets

China Southern Airlines Co Ltd announced that it has signed a Sales & Purchase Agreement with Southern Airlines Group for the acquisition of certain aircraft and aircraft related assets from the SA Group.

The proposed acquisition is a connected transaction and subject to independent shareholders' approval at the Extraordinary General Meeting of CSA. The assets comprise five Boeing 737-300 aircraft, the associated spare parts and 42 special purpose vehicles in connection with the ground support of the Aircraft.

China Southern Chairman, Yan Zhiqing, said, "We believe the acquisition will be beneficial because the ownership of the assets will allow the company to further integrate the aircraft into its dominant market position in the domestic aviation business. The acquisition with the consolidation strategy that the company has adopted in light of the proposed restructuring of the aviation industry in the PRC."

In addition, the acquisition is in line with the non-competition undertaking granted by the SA Group to the Company when the Company was listed on the Stock Exchange in 1997.

The total value of the assets is over RMB1bn, which is based on the appraised value of the assets and liabilities as at June 30, 2001 prepared by Zhongfeng Asset Valuation LLC, an independent auditor approved by the Ministry of Finance in the PRC.

The consideration will be satisfied with cash payment of RMB132,150,139.47 and the assumption of related debt amounting to RMB964,735,967.24 by the company. Completion of the acquisition is expected to take place in first quarter 2002.

The company also intends to apply to the relevant PRC authorities for the issue of new A Shares to institutional and public investors in the PRC and the listing of and permission to deal with such A Shares on the Shanghai Stock Exchange.

The company will seek approval from shareholders of the company to authorize the application for the proposed A Share Issue at the EGM, which will be held on March 26, 2002.

The company also proposed to change the composition of the Board of Directors, which is required by the CSRC in order to further enhance the corporate governance of the Company during its restructuring process.

J P Morgan Securities (Asia Pacific) Ltd is the financial adviser to CSA. An Extraordinary General Meeting will be held for CSA shareholders to approve the proposed Acquisition, the proposed A Share Issue, and the proposed change in composition of the Board of Directors of CSA.