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RESIDENT PARTNER
Lee Edwards
Admitted in New York
Writer's Email Address: December 9, 2005
lee.edwards@shearman.com
michael.coleman@shearman.com
Writer's Direct Number:
(86-10) 6505-7206
(650) 838-3711
VIA EDGAR TRANSMISSION
AND BY HAND
Securities and Exchange Commission
Division of Corporation Finance
Office of Mergers and Acquisitions
100 F Street, N.E.
Washington, DC 20549
Attn: Christina Chalk, Esq.
Special Counsel
Office of Mergers and Acquisitions
JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
SCHEDULE 13E-3 FILED NOVEMBER 16, 2005
SCHEDULE TO-T FILED NOVEMBER 16, 2005
SEC FILE NO. 5-50686
Dear Ms. Chalk:
On behalf of our client PetroChina Company Limited ("PetroChina"), set
forth below are the responses to the comments of the staff of the Division of
Corporation Finance (the "Staff") of the Securities and Exchange Commission (the
"Commission") contained in the letter (the "Comment Letter") dated December 5,
2005, concerning PetroChina's Tender Offer Statement on Schedule TO and Rule
13E-3 Transaction Statement on Schedule 13E-3, each filed on November 16, 2005
in connection with PetroChina's tender offer for the outstanding overseas-
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DECEMBER 9, 2005
Page 2
listed foreign-invested ordinary shares of Jilin Chemical Industrial Company
Limited ("Jilin"). An amended Tender Offer Statement on Schedule TO (the
"Amended Schedule TO") and an amended Rule 13E-3 Transaction Statement on
Schedule 13E-3 (the "Amended Schedule 13E-3") are being filed with the
Commission today. For your convenience, we have set out the text of the comments
from the Comment Letter, followed in each case by the response.
We represent PetroChina. Unless otherwise indicated, to the extent any
response relates to information concerning Jilin, such response is included in
this letter based on information provided to us by Jilin or its representatives.
COMPOSITE OFFER AND RESPONSE DOCUMENT - EXHIBIT (a)(1)
GENERAL
1. DISCLOSE IN THE OFFER MATERIALS THAT PETROCHINA IS RELYING ON THE TIER II
EXEMPTION SET FORTH IN RULE 14D-1(d) IN CONDUCTING THIS OFFER, AND BRIEFLY
OUTLINE THE IMPLICATIONS FOR JILIN SECURITY HOLDERS.
Response: The disclosure has been revised on the inside cover of the
Composite Document in response to the Staff's comment.
2. YOU REFERENCE THE A SHARE OFFER THROUGHOUT THE OFFER MATERIALS. WE ALSO
NOTE THAT YOU HAVE FILED A FORM CB IN CONNECTION WITH THE A SHARE OFFER,
INDICATING THAT YOU ARE RELYING ON THE TIER I EXEMPTION FOR THAT OFFER.
AGAIN, BRIEFLY NOTE IN THE OFFER MATERIALS.
Response: The disclosure has been revised on the inside cover of the
Composite Document in response to the Staff's comment.
3. IN THE SUMMARY OF TERMS SECTION AND ELSEWHERE IN THE COMPOSITE DOCUMENT,
YOU NOTE THAT PETROCHINA HAS NO RIGHT UNDER THE LAWS OF THE PRC TO
COMPULSORILY ACQUIRE ANY JILIN SHARES NOT TENDERED INTO THE H SHARE OR A
SHARE OFFERS. YOU ALSO STATE IN THE OFFER MATERIALS THAT PETROCHINA WILL
NOT BE ABLE TO REALIZE ALL OF THE INTENDED BENEFITS OF THE OFFERS IF ALL OR
A VERY SUBSTANTIAL PERCENTAGE OF JILIN A AND H SHARES ARE NOT PURCHASED IN
THE OFFERS. WHERE APPROPRIATE IN THE OFFER MATERIALS, DISCUSS THE RISKS
PRESENTED BY THE LACK OF AN ABILITY TO COMPULSORILY ACQUIRE REMAINING JILIN
SECURITIES. DISCUSS THE PERCENTAGE OF EACH CLASS OF TARGET SECURITIES
PETROCHINA BELIEVES NECESSARY TO ACQUIRE IN ORDER TO REALIZE THE INTENDED
BENEFITS OF
DECEMBER 9, 2005
Page 3
THE TENDER OFFERS. FOR EXAMPLE, IF THE H SHARE MINIMUM OFFER CONDITION IS
SATISFIED, IS THIS SUFFICIENT TO RENDER THE H SHARE OFFER A SUCCESS?
Response: We respectfully advise the Staff that PetroChina believes there
is no inherent risk arising from the inability of PetroChina to
compulsorily acquire the Jilin H Shares and Jilin A Shares under PRC law
other than the risk that if any Jilin H Shareholders, Jilin ADS Holders and
Jilin A Shareholders do not accept their respective offers, and these
offers subsequently become unconditional and the respective Jilin H Shares,
Jilin ADSs and Jilin A Shares are delisted, then such Jilin H Shareholders,
Jilin ADS Holders and Jilin A Shareholders, as the case may be, will hold
securities that are not listed or quoted on any stock exchange and the
liquidity of such securities may be severely reduced. This risk is
disclosed and highlighted on page 32 of the Composite Document. The
disclosure has been revised on page 23 of the Composite Document in
response to the Staff's other comment.
4. DISCUSS IN THE OFFER MATERIALS THE REASONS FOR THE STRUCTURE OF THE OFFERS
AND IN PARTICULAR, WHY THE H SHARE AND A SHARE OFFERS WILL NOT COMMENCE AND
CLOSE CONTEMPORANEOUSLY. SEE ITEM 1013(c) OF REGULATION M-A. EXPLAIN ANY
ATTENDANT RISKS. FOR EXAMPLE, IT APPEARS THAT THE H SHARE OFFER WILL CLOSE
BEFORE THE A SHARE OFFER. THEREFORE, HOLDERS OF H SHARES WILL NOT KNOW WHEN
THE H SHARE OFFER CLOSES WHETHER PETROCHINA'S A SHARE OFFER WILL BE
SUCCESSFUL. BY CONTRAST, A SHARE HOLDERS WILL HAVE INFORMATION ABOUT THE
LEVEL OF ACCEPTANCE OF THE H SHARE OFFER WHEN THE A SHARE OFFER CLOSES.
SINCE THE ABILITY TO ACQUIRE A VERY SIGNIFICANT PORTION OF OUTSTANDING
JILIN SECURITIES IS CRITICAL TO THE SUCCESS OF THESE OFFERS ACCORDING TO
YOUR DISCLOSURE, DISCUSS THE ATTENDANT RISKS FOR H SHARE HOLDERS OF THE
STRUCTURE OF THESE OFFERS.
Response: We respectfully advise the Staff that in light of the fact that
(i) the A Share Offer will only be open to acceptance upon the H Share
Offer becoming unconditional, (ii) the only condition to the A Share Offer
is the H Share Offer becoming unconditional and (iii) Jilin A Shares will
be delisted from the Shenzhen Stock Exchange as a matter of law when the H
Share Offer closes, PetroChina believes there is no risk to the holders of
H Shares or Jilin ADSs arising from the structure of the H Share Offer and
A Share Offer. The disclosure has been revised on pages 31 and 48 of the
Composite Document in response to the Staff's other comment.
DECEMBER 9, 2005
Page 4
QUESTIONS AND ANSWERS ABOUT THE H SHARE OFFER, PAGE 3
5. SUMMARIZE THE PAYMENT PROCESS FOR THE H SHARE OFFER, AND IN PARTICULAR,
DISCLOSE WHEN TENDERING SHAREHOLDERS CAN EXPECT PAYMENT FOR PURCHASED H
SHARES AND ADSS. YOUR EXPANDED DISCLOSURE SHOULD DESCRIBE ANY DIFFERENCES
IN THE PAYMENT PROCESS FOR SECURITIES TENDERED DURING THE "INITIAL" VERSUS
"SUBSEQUENT" OFFER PERIODS. WE NOTE THAT SOME INFORMATION ABOUT PAYMENT
APPEARS ON PAGE 10 BUT BELIEVE IT SHOULD BE HIGHLIGHTED IN THE Q&A AND
EXPLAINED MORE CLEARLY, SINCE THE PAYMENT PROCESS WILL BE DIFFERENT THAN
USUAL IN A US OFFER.
Response: The disclosure has been revised on page 3 of the Composite
Document in response to the Staff's comment.
6. THE POSITION OF THE FILING PERSONS ON THE SCHEDULE 13E-3 WITH RESPECT TO
THE FAIRNESS OF THE OFFERS IS CRITICAL DISCLOSURE IN A TRANSACTION SUBJECT
TO RULE 13E-3 AND SHOULD BE DISCLOSED IN THIS SECTION OR IN THE SUMMARY OF
TERMS SECTION.
Response: The disclosure has been revised on page 5 of the Composite
Document in response to the Staff's comment. We note that disclosure
regarding Jilin's fairness determination is already included on page 4 of
the Composite Document.
WHO IS OFFERING TO BUY MY SECURITIES?, PAGE 3
7. GIVEN THAT SOME H SHAREHOLDERS WILL REMAIN AFTER THE H SHARE OFFER, STATE
THAT PETROCHINA FILES PERIODIC REPORTS (INCLUDING FINANCIAL STATEMENTS)
WITH THE COMMISSION AND INDICATE HOW SHAREHOLDERS MAY ACCESS THEM. PROVIDE
THE SAME DISCLOSURE IN APPENDIX V IN SECTION 8 ON PAGE V-13.
Response: The disclosure has been revised on pages 7, V-13 and VI-11 of the
Composite Document in response to the Staff's comment.
HOW MUCH IS PETROCHINA OFFERING TO PAY?, PAGE 3
8. SINCE THE H SHARE ADSS TRADE ON THE NYSE IN A PRICE DENOMINATED IN US
DOLLARS, PLEASE INCLUDE THE OFFER PRICE PER ADSS IN US DOLLARS, BASED ON A
RECENT (IDENTIFIED) EXCHANGE RATE.
Response: The disclosure has been revised on page 3 of the Composite
Document in response to the Staff's comment. We note that an exchange rate
of US$1.00 to HK$7.80 is provided on page 19 of the Composite Document.
DECEMBER 9, 2005
Page 5
IF I ACCEPT THE H SHARE OFFER, MAY I WITHDRAW MY ACCEPTANCE?, PAGE 6
9. CONSISTENT WITH OUR DISCUSSIONS WITH YOUR COLLEAGUES, EXPAND THIS SECTION
TO NOTE THAT PETROCHINA WILL ISSUE A PRESS RELEASE AND PUBLISH AN
ADVERTISEMENT IN A US NEWSPAPER OF NATIONAL CIRCULATION IN CONNECTION WITH
THE EARLY TERMINATION OF THE INITIAL OFFER PERIOD, AND DESCRIBE THE TIMING
OF EACH.
Response: The disclosure has been revised on pages 6 and I-11 of the
Composite Document in response to the Staff's comment.
LETTER FROM PETROCHINA - SECTION 5. INFORMATION ON OTHER OFFERS OF PETROCHINA
IN THE PRC, PAGE 24
10. EXPLAIN THE SIGNIFICANCE OF THE TWO OTHER OFFERS PETROCHINA HAS ANNOUNCED
TO ITS OFFERS FOR JILIN. THAT IS, HOW WILL THE ACQUISITION OF JINZHOU
PETROCHEMICAL COMPANY LIMITED AND LIAOHE JINMA OILFIELD COMPANY LIMITED
AFFECT PETROCHINA (AND THUS, JILIN) GOING FORWARD? WILL PETROCHINA FUND
THESE OTHER OFFERS THROUGH CASH ON HAND OR OTHERWISE?
Response: The offers for Jinzhou PetroChemical Company Limited and Liaohe
Jinma Oilffield Company Limited have no significance to the H Share Offer.
Disclosure regarding these offers was included in the Composite Document to
provide more complete disclosure regarding the general background of these
transactions and the H Share Offer and in order to provide disclosure
consistent with the initial announcement of the H Share Offer, which
included an announcement of the offers for Jinzhou PetroChemical Company
Limited and Liaohe Jinma Oilffield Company Limited. The disclosure has been
revised on page 24 of the Composite Document in response to the Staff's
other comments.
LETTER FROM CITIGROUP - CONDITIONS OF THE H SHARE OFFER, PAGE 33
11. SEE COMMENT 4 ABOVE CONCERNING THE NEED TO DISCUSS THE REASONS FOR THE
STRUCTURE OF THE OFFERS. IN THIS REGARD, IN AN APPROPRIATE SECTION OF THE
OFFER MATERIALS, EXPLAIN WHY YOU HAVE CONDITIONED THE A SHARE OFFER ON THE
H SHARE OFFER, BUT NOT VICE VERSA. AS REQUESTED IN COMMENT 4, DISCUSS ANY
RISKS (FOR H SHARE HOLDERS) ASSOCIATED WITH THIS STRUCTURE.
DECEMBER 9, 2005
Page 6
Response: The disclosure has been revised on pages 31 and 48 of the
Composite Document in response to the Staff's comment. Please also refer to
PetroChina's response to comment 4 above.
SPECIAL FACTORS REGARDING THE H SHARE OFFER - BACKGROUND OF THE H SHARE OFFER,
PAGE 37
12. IT APPEARS FROM THE DISCLOSURE IN THIS SECTION THAT BOTH PETROCHINA AND
JILIN EACH ENGAGED SEVERAL FINANCIAL ADVISORS TO HELP ANALYZE A POTENTIAL
TRANSACTION AND MAKE A RECOMMENDATION WITH RESPECT TO IT. NOTE THAT ITEM
1015 OF REGULATION M-A ENCOMPASSES ESSENTIALLY ALL SUBSTANTIVE CONTACTS
BETWEEN EITHER COMPANY AND ITS FINANCIAL ADVISORS THAT ARE "MATERIALLY
RELATED" TO THIS TRANSACTION. THIS INCLUDES BOTH ORAL AND WRITTEN CONTACTS.
PLEASE EXPAND THIS SECTION TO DESCRIBE THE SUBSTANCE OF SUCH CONTACTS, AND
TO IDENTIFY THE PARTIES AND RELEVANT DATES.
Response: The disclosure has been revised on pages 38 and 39 of the
Composite Document in response to the Staff's comments to provide more
disclosure regarding the meetings between PetroChina and its financial
advisors.
Citigroup was engaged to act as financial advisor to PetroChina in order to
assist PetroChina in evaluating a possible acquisition of the outstanding
Jilin Shares. However, in PetroChina's view Citigroup did not provide
PetroChina with any report, opinion or appraisal that is materially related
to the H Share Offer.
Citigroup prepared certain draft materials from time to time during the
transaction. Draft materials were prepared on May 17, 2005, May 23, 2005,
June 23, 2005, August 3, 2005, October 14, 2005, October 25, 2005 and
October 26, 2005. Copies of these draft materials are being supplementally
provided to the Staff. The draft materials prepared for the May 23, 2005
meeting contained a slide on transaction structuring considerations but did
not contain any financial information. The other draft materials contained,
among other matters, a description of possible strategic rationale for the
acquisition of the outstanding Jilin Shares, information relating to
Jilin's key markets, key process and timetable considerations, and
compilations of publicly available data such as financial and trading
information of comparable companies, information extracted from publicly
available third-party research analyst reports on Jilin and publicly
available trading price and volume data for Jilin. The financial basis of
all these draft materials was solely public information relating to Jilin.
In the June 23, 2005 draft materials, Citigroup also provided PetroChina
with a template showing what a DCF valuation model would look like. The
purpose of Citigroup providing such information was to illustrate the need
for comprehensive nonpublic information relating to Jilin to enable
Citigroup to prepare a report reflecting a meaningful valuation. To
demonstrate how a DCF model would work,
DECEMBER 9, 2005
Page 7
Citigroup included data from publicly available third party research
analyst reports and, for the remaining inputs needed to show how the model
would work, used some simple assumptions. The overall result was that these
numbers did not in anyway constitute a view or opinion as to the worth of
Jilin nor were they intended to be used for that purpose. Citigroup
informed PetroChina that to provide any meaningful valuation, it would need
Jilin's price projections for each product, information relating to the
relationship of product prices to forecast crude prices, information of
cost-breakdown for Jilin's operations and other non-publicly available
information (see pages 11, 13, 14, 16, 17, 19, 20 and 22 of the June 23,
2005 presentation).
Citigroup clearly informed PetroChina on a number of occasions that it
would not be able to provide a meaningful valuation on Jilin without access
to non-public information relating to Jilin. However, the nonpublic
information relating to Jilin which Citigroup had sought was never in the
possession of PetroChina, and was never provided to Citigroup, which
explains why the materials never got beyond the draft stage. Accordingly,
there was no meeting between Citigroup and PetroChina in which any
presentation relating to valuation of Jilin was given or even discussed.
Accordingly, PetroChina respectfully submits that no report, opinion or
appraisal that is materially related to the H Share Offer was provided to
PetroChina by Citigroup.
The disclosure has been revised on page 40 in response to the Staff's
comment to provide additional information regarding contacts between Jilin
and its financial advisors.
13. SEE OUR LAST COMMENT. ALL WRITTEN REPORTS ENCOMPASSED WITHIN ITEM 1015 OF
REGULATION M-A MUST BE FILED AS EXHIBITS TO THE SCHEDULE 13E-3. THIS
INCLUDES ANY "BOARD BOOKS" OR WRITTEN ANALYSES OF THESE TRANSACTIONS BY THE
FINANCIAL ADVISORS ENGAGED BY THE PARTICIPANTS. WE SEE THAT THE "LETTER
FROM PLATINUM" HAS BEEN PROVIDED AS PART OF THE COMPOSITE DOCUMENT AND
DETAILS THE ANALYSES PERFORMED BY THAT ENTITY. HOWEVER, NO SIMILAR
MATERIALS HAVE BEEN PROVIDED FOR THE OTHER FINANCIAL ADVISORS. PLEASE FILE
ANY SUCH WRITTEN REPORTS IMMEDIATELY, OR EXPLAIN WHY YOU HAVE NOT DONE SO
IN ACCORDANCE WITH ITEM 1015 OF REGULATION M-A.
Response: Please refer to our response to comment 12. PetroChina
respectfully submits that no report, opinion or appraisal that is
materially related to the H Share Offer was provided to PetroChina.
Jilin has also advised that no report, opinion or appraisal that is
materially related to the H Share Offer was provided to Jilin by Cazenove
or Platinum, the financial advisors
DECEMBER 9, 2005
Page 8
engaged by Jilin, other than the report of Platinum which is included in
the Composite Document as the "Letter from Platinum".
14. PLEASE ADVISE WHETHER NON-PUBLIC FINANCIAL FORECASTS OR PROJECTIONS WERE
EXCHANGED BY THE PARTIES OR THEIR REPRESENTATIVES DURING THE PLANNING PHASE
OF THE OFFERS. FOR EXAMPLE, LATER IN THE OFFER MATERIALS IN THE LETTER FROM
PLATINUM ON PAGE 91, YOU REFER TO THE EXPRESSED VIEWS OF MANAGEMENT OF
JILIN REGARDING FUTURE PROJECTED LOSSES OF JILIN. IF SO, PLEASE DISCLOSE
THOSE PROJECTIONS, AND DISCUSS THE UNDERLYING ASSUMPTIONS. (WE NOTE THE
DISCLOSURE OF PROJECTIONS IN "LETTER FROM THE JILIN BOARD" AND THE
DISCUSSION OF THE ASSUMPTIONS UNDERLYING THEM IN APPENDIX IV).
ALTERNATIVELY, EXPLAIN YOUR BASIS FOR EXCLUDING THEM.
Response: We respectfully advise the Staff that no non-public financial
forecasts or projections were exchanged between Jilin and PetroChina or
their respective representatives during the planning phase of the H Share
Offer. As disclosed on page 39 of the Composite Document, Jilin was not
approached to discuss the proposed H Share Offer prior to October 27, 2005,
which was the day before the H Share Offer was made by PetroChina. In
addition, we note that the forecast referred to on page 91 was a forecast
which was publicly filed by Jilin with the Hong Kong Stock Exchange and
furnished to the SEC on Form 6-K on November 6, 2005. The forecast is also
disclosed in the section headed "Letter from the Jilin Board" on page 70 of
the Composite Document and assumptions relating thereto are discussed in
Appendix IV of the Composite Document.
15. SEE OUR LAST COMMENT ABOVE. PROVIDE THE SAME INFORMATION WITH RESPECT TO
WHETHER EITHER SIDE PROVIDED NON-PUBLIC FINANCIAL FORECASTS OR PROJECTIONS
TO ITS FINANCIAL ADVISORS IN CONNECTION WITH THEIR ANALYSIS OF THE
TRANSACTION. IF SO, PLEASE DISCLOSE THOSE PROJECTIONS, AND DISCUSS THE
UNDERLYING ASSUMPTIONS. ALTERNATIVELY, EXPLAIN YOUR BASIS FOR EXCLUDING
THEM.
Response: We respectfully advise the Staff that PetroChina did not provide
any non-public financial forecasts or projections to its financial advisors
in connection with the transaction. Jilin has also advised that it did not
provide any non-public financial forecasts or projections to Platinum in
connection with Platinum's analysis of the transaction. As noted in the
revised disclosure in response to comment 12 above, Cazenove was not
engaged to evaluate the fairness of the H Share Offer or the A Share Offer.
16. EXPAND YOUR EXPLANATION OF THE REASONS FOR THE TIMING OF THE OFFERS. SEE
ITEM 1013(c) OF REGULATION M-A.
DECEMBER 9, 2005
Page 9
Response: We respectfully refer the Staff to the disclosure on page 47 of
the Composite Document relating to the timing of the H Share Offer and A
Share Offer. Additional disclosure has been provided on page 47 in response
to the Staff's comment.
17. IN THE SECOND TO LAST PARAGRAPH ON PAGE 38, YOU MENTION A PLACEMENT OF
PETROCHINA'S SHARES TO INTERNATIONAL INVESTORS. INDICATE SUPPLEMENTALLY,
WITH A VIEW TO FURTHER DISCLOSURE, WHETHER THIS OFFERING OCCURRED. IF YES,
TELL US WHAT EXEMPTION(s) PETROCHINA RELIED UPON TO EFFECT THE OFFER.
Response: The placement of shares closed on September 15, 2005. The
placement was structured as a Regulation S offering with respect to the
offshore portion of the offering and as a Section 4(1 1/2) placement with
respect to the onshore portion of the offering. The onshore portion of the
offering was made only to entities that qualified both as Qualified
Institutional Buyers and as accredited investors. The disclosure has been
revised on page 38 of the Composite Document in response to the Staff's
comment.
18. REFER TO THE DISCLOSURE ON PAGE 39 OF THIS SECTION. SINCE IT ISN'T
CUSTOMARY FOR THE BIDDER IN A TENDER OFFER TO FORM A SPECIAL COMMITTEE,
EXPAND THE DISCUSSION OF WHY PETROCHINA DID SO AND THE FUNCTION OF THE
SPECIAL COMMITTEE.
Response: The disclosure has been revised on page 39 of the Composite
Document in response to the Staff's comment.
19. HERE OR ELSEWHERE IN THE OFFER MATERIALS, EXPLAIN IN FURTHER DETAIL HOW THE
OFFER PRICE WAS SET.
Response: The disclosure has been revised on page 39 of the Composite
Document in response to the Staff's comment.
20. EXPLAIN THE DIFFERENCES (PARTICULARLY IN FUNCTION) BETWEEN THE INDEPENDENT
BOARD COMMITTEE AND THE SPECIAL COMMITTEE FORMED BY THE JILIN BOARD. IN
ADDITION, EXPLAIN WHY IT WAS NECESSARY TO ESTABLISH TWO SEPARATE
COMMITTEES.
Response: Jilin has advised that, as disclosed on page 41 of the Composite
Document, the Independent Board Committee was established under Rule 2.1 of
the Takeovers Code of Hong Kong, which requires a company that is listed on
the Hong Kong Stock Exchange and is the target of a tender offer to
establish a committee consisting of directors who are independent under
Rule 2.8 of the Takeovers Code, for the purpose of evaluating the tender
offer. Under Hong Kong law, the Independent Board Committee is
DECEMBER 9, 2005
Page 10
not authorized to handle other tasks of a more administrative nature, such
as finalizing and executing transaction-related documents. The Special
Committee was established by Jilin and authorized by the Jilin Board to
address such administrative matters. The disclosure on page 42 of the
Composite Document has been revised in response to the Staff's comment.
21. SEE ITEM 1015 OF REGULATION M-A. WE NOTE THAT BOTH BIDDER AND TARGET
COMPANIES HERE ENGAGED MORE THAN ONE FINANCIAL ADVISOR. EXPAND TO EXPLAIN
THE DIFFERENT FUNCTIONS OF EACH, AND WHY EACH CONSIDERED IT NECESSARY TO
HIRE SEPARATE FIRMS TO PERFORM THESE FUNCTIONS. FOR EXAMPLE, THE DISCLOSURE
AT THE BOTTOM OF PAGE 41 STATES VAGUELY THAT CAZENOVE WAS HIRED TO "PROVIDE
PROFESSIONAL ADVICE REGARDING THE H SHARE OFFER," BUT DOES NOT FULLY
DESCRIBE THE NATURE OF THOSE SERVICES.
Response: We respectfully advise the Staff that PetroChina engaged
Citigroup as the financial advisor in connection with the H Share Offer and
China Galaxy as the financial advisor in connection with the A Share Offer.
Jilin has advised that, as disclosed on page 41 of the Composite Document,
Platinum was retained as the independent financial advisor to provide an
opinion to the Independent Board Committee as to whether the terms of the H
Share Offer and the delisting proposal were fair and reasonable, from a
financial point of view, to the Jilin Independent H Shareholders. Cazenove
was retained as the financial advisor, pursuant to the requirements of the
Securities and Futures Commission of Hong Kong and under the Takeovers
Code, to review the prospective financial information regarding Jilin
referred to in the section headed "Letter from the Jilin Board." The
disclosure has been revised on page 41 of the Composite Document in
response to the Staff's comment.
RECOMMENDATION OF THE JILIN BOARD OF DIRECTORS, PAGE 42
22. RATHER THAN SIMPLY LISTING FACTORS CONSIDERED BY THE JILIN BOARD, EXPAND TO
EXPLAIN HOW EACH SUCH FACTOR WAS ANALYZED TO ARRIVE AT A FAIRNESS
DETERMINATION. FOR SOME OF THE LISTED FACTORS, THIS IS OBVIOUS. FOR OTHERS
HOWEVER, IT IS NOT CLEAR HOW THE IDENTIFIED FACTOR CONTRIBUTED TO THE
ANALYSIS. THESE INCLUDE THE THREE IN BULLET POINTS AT THE TOP OF PAGE 45.
PLEASE REVISE.
Response: The disclosure has been revised on pages 43 to 45 of the
Composite Document in response to the Staff's comment.
23. ALL OF THE FACTORS LISTED IN INSTRUCTION 2 TO ITEM 1014 OF REGULATION M-A
ARE GENERALLY CONSIDERED RELEVANT TO THE FAIRNESS ASSESSMENT. TO THE EXTENT
THAT A FACTOR WAS NOT CONSIDERED, OR WAS CONSIDERED BUT GIVEN LITTLE
WEIGHT, THIS MAY BE AN
DECEMBER 9, 2005
Page 11
IMPORTANT PART OF THE BOARD'S DECISION-MAKING PROCESS THAT SHOULD BE
EXPLAINED FOR SHAREHOLDERS. PLEASE REVISE TO PROVIDE THIS DISCLOSURE AS TO
EACH INSTRUCTION 2 FACTOR, BASED ON THESE GUIDELINES. SEE EXCHANGE ACT
RELEASE 17719 (APRIL 13,1981). PROVIDE THE SAME DISCLOSURE IN THE
COMPARABLE SECTION OF THE OFFER MATERIALS DISCUSSING PETROCHINA'S FAIRNESS
DETERMINATION.
Response: The disclosure has been revised on page 45 of the Composite
Document in response to the Staff's comment. With respect to liquidation
value and going concern value, please refer to the responses to comments 24
and 25, respectively, below. We also respectfully advise the Staff that, as
disclosed on pages 45 and 51 of the Composite Document, PetroChina and the
Jilin board of directors did not find it practicable to, and did not,
quantify or otherwise assign specific or relative weights to the specific
factors considered in reaching their respective determinations as to
fairness.
24. WHERE A FACTOR LISTED IN INSTRUCTION 2 TO ITEM 1014 OF REGULATION M-A
YIELDS A HIGHER PER SHARE VALUE THAN THAT BEING OFFERED, THIS FACT SHOULD
BE DISCLOSED. IF APPLICABLE, PLEASE PROVIDE SUCH INFORMATION AS TO
LIQUIDATION VALUE AND GOING CONCERN VALUE. PROVIDE THE SAME DISCLOSURE IN
THE COMPARABLE SECTION OF THE OFFER MATERIALS DISCUSSING PETROCHINA'S
FAIRNESS DETERMINATION, WITH RESPECT TO NET ASSET VALUE.
Response: The disclosure has been revised on page 45 of the Composite
Document setting forth the reasons why liquidation value was not considered
an appropriate valuation metric in response to the Staff's comment. We also
respectfully advise the Staff that PetroChina's financial advisors have
advised that the net asset value of Jilin would not yield a higher per
share value than the existing offer price.
25. SEE THE LAST COMMENT ABOVE. EXPLAIN WHY THE JILIN BOARD DID NOT CONSIDER
THE GOING CONCERN VALUE OF THE H SHARES. PROVIDE THE SAME DISCLOSURE IN THE
COMPARABLE SECTION OF THE OFFER MATERIALS DISCUSSING PETROCHINA'S FAIRNESS
DETERMINATION.
Response: The disclosure has been revised on pages 45, 51 and 75 of the
Composite Document in response to the Staff's comment.
26. ITEM 1014 REQUIRES EACH FILING PERSON TO TAKE A POSITION ON THE PROCEDURAL
FAIRNESS OF THE OFFER STRUCTURE, BASED ON THE FACTORS LISTED IN ITEM
1014(c), (d) AND (e). PLEASE PROVIDE THIS DISCLOSURE FOR BOTH JILIN AND
PETROCHINA. TO THE EXTENT THAT A FILING PERSON FINDS THE STRUCTURE OF THE
TRANSACTION TO BE FAIR IN THE ABSENCE OF THE PROCEDURAL SAFEGUARDS IN THAT
ITEM, PLEASE EXPLAIN WHY.
DECEMBER 9, 2005
Page 12
Response: The disclosure on pages 4, 43, 45, 49 and 51 of the Composite
Document has been revised in response to the Staff's comment. We also refer
the Staff to the disclosure related to Regulation M-A Item 1014(c) on pages
1 and 2 stating that the H Share Offer is conditional on the acceptance of
the offer by at least 66 2/3% in nominal value of the H Shares and the
passing of a resolution approving the withdrawal of listing from the Hong
Kong Stock Exchange and the NYSE by at least 75% of the Disinterested
Shares cast at the shareholders meeting (with not more than 10% of all
Disinterested Shares voting against such resolution). With respect to Items
1014(d) and (e), we refer the Staff to the disclosure on pages 4 and 46
regarding the recommendation of the Independent Committee of the Jilin
Board, which is composed of the four independent non-executive directors of
the Jilin Board and which unanimously recommended the Jilin H Shareholders
approve the H Share Offer.
CERTAIN EFFECTS OF THE H SHARE OFFER, PAGE 51
27. REFER TO THE DISCLOSURE ABOUT THE EFFECT OF THE H SHARE OFFER ON
PETROCHINA'S INTEREST IN THE NET BOOK VALUE AND NET EARNINGS OF JILIN.
INSTRUCTION 3 TO ITEM 1013 OF REGULATION M-A CONTAINS A DISCLOSURE MANDATE
THAT DOES NOT APPEAR TO BE BASED ON THE MATERIALITY OF THE CHANGE TO THE
BIDDER. MOREOVER, IT IS NOT CLEAR WHAT LEVEL OF PARTICIPATION IN THE H
SHARE OFFER YOU ARE ASSUMING. PLEASE REVISE TO PROVIDE THE INFORMATION
REQUIRED BY INSTRUCTION 3.
Response: The disclosure has been revised on page 51 of the Composite
Document in response to the Staff's comment.
28. ITEM 1013(d) REQUIRES YOU TO DISCUSS THE TAX IMPACT OF THE TRANSACTION ON
THE SUBJECT COMPANY. PLEASE PROVIDE THIS INFORMATION AS TO JILIN. IN
ADDITION, IN FURTHER DISCUSSING THE EFFECTS OF THIS TRANSACTION, EXPLAIN
THE CORPORATE STRUCTURE OF THE "COMBINED" ENTITY GOING FORWARD, GIVEN
PETROCHINA'S INABILITY TO "SQUEEZE OUT" ANY JILIN SECURITY HOLDERS
REMAINING AFTER THE OFFERS. IF JILIN WILL SIMPLY CONTINUE AS A SUBSIDIARY
OF PETROCHINA, PLEASE SO STATE.
Response: The disclosure has been revised on pages 52 and 53 of the
Composite Document in response to the Staff's comment.
PERSONS EMPLOYED, RETAINED OR USED, PAGE 62
29. FOR EACH FINANCIAL ADVISOR ENGAGED BY PETROCHINA AND JILIN, EXPAND TO BREAK
OUT THE AMOUNT OF THE "CUSTOMARY FEES" PAID TO EACH FOR SERVICES RENDERED.
WE NOTE THE AGGREGATE FIGURES PROVIDED ON PAGE 63.
DECEMBER 9, 2005
Page 13
Response: The disclosure has been revised on page 62 of the Composite
Document in response to the Staff's comment.
APPENDIX I - FURTHER TERMS OF THE H SHARE OFFER
30. REFER TO SECTION 7.7 ON PAGE I-13. EXPAND TO STATE THAT THE H SHARE OFFER
IS ALSO GOVERNED BY AND SUBJECT TO THE REQUIREMENTS OF THE EXCHANGE ACT. WE
KNOW THAT THIS IMPLIED OR INDIRECTLY STATED ELSEWHERE IN THE COMPOSITE
DOCUMENT, BUT THE DISCLOSURE HERE SEEMS INCOMPLETE WITH SUCH A REFERENCE
Response: The disclosure has been revised on page I-13 of the Composite
Document in response to the Staff's comment.
APPENDIX IV - PROSPECTIVE FINANCIAL INFORMATION OF THE JILIN GROUP
31. WE ARE UNABLE TO LOCATE ALL OF THE DISCLOSURE REQUIRED BY ITEM 1010(b) OF
REGULATION M-A, WHICH YOU STATE UNDER ITEM 13(b) OF THE SCHEDULE 13E-3 IS
LOCATED IN THIS SECTION. PLEASE REVISE OR ADVISE.
Response: Item 13(b) of the Amended Schedule 13E-3 has been revised in
response to the Staff's comment to clarify that Item 13(b) is not
applicable to this transaction. PetroChina believes that this transaction
would not have a material effect on Jilin or PetroChina and therefore the
Item 1010(b) disclosure is not applicable. PetroChina respectfully advises
the Staff that as the H Share Offer is a cash tender offer, it is unrelated
to and will not affect Jilin's (i) historical financial statements
contained in Appendices II and III of the Composite Document, (ii)
prospective financial information contained on page 70 and in Appendix IV
of the Composite Document, or (iii) historical net book value and ratio of
earnings to fixed charge data disclosed at Appendix VI-5 of the Composite
Document.
* * * *
The undersigned, on behalf of PetroChina, hereby acknowledges with respect
to the disclosure regarding PetroChina that (i) PetroChina is responsible for
the adequacy and accuracy of the disclosure in the filings; (ii) Staff comments
or changes to disclosure in response to Staff comments do not foreclose the
Commission from taking any action with respect to the filings; and (iii)
PetroChina may not assert Staff comments as a defense in any proceeding
initiated by
DECEMBER 9, 2005
Page 14
the Commission or any person under the federal securities laws of the United
States. A separate acknowledgement by Jilin is attached to this letter.
Please direct any questions concerning this letter to the undersigned at
(86-10) 6505-3399 or to Michael Coleman at (650) 838-3711.
Very truly yours,
/s/ Lee Edwards
Lee Edwards
cc: Ms. Wang Zheng
PetroChina Company Limited
Mr. Leiming Chen
Mr. Michael Coleman
Shearman & Sterling LLP
Ms. Chun Wei
Mr. Robert Chu
Sullivan & Cromwell LLP
Attachment
DECEMBER 9, 2005
Page 15
ACKNOWLEDGEMENT BY JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
In connection with responding to the Staff's comments, on behalf of Jilin
Chemical Industrial Company Limited, I acknowledge that, with respect to
disclosure regarding Jilin:
o Jilin is responsible for the adequacy and accuracy of the disclosure
in the filing;
o the Staff comments or changes to disclosure in response to Staff
comments do not foreclose the Commission from taking any action with
respect to the filing; and
o Jilin may not assert Staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
JILIN CHEMICAL INDUSTRIAL
COMPANY LIMITED
By: /s/ Zhang XingFu
----------------------------
Name: Zhang XingFu
Title: Executive Director and
General Manager